clock menu more-arrow no yes mobile

Filed under:

The Salary Cap Might Not Be Going Up After All, and Oh Boy (Tuesday Slew)

Blame Canada

Bill Streicher-USA TODAY Sports

Remember when everyone was allowed to spend a ton of money last year in free agency because the NHL salary cap would be going up year after year and boy wouldn't those big deals just be bargains by the time they expired?

Ho boy.

Well, the cap might not be going up after all. From Larry Brooks at the New York Post, the NHL salary cap for 2015-16 could stay static at its current $69 million level.

NHL general managers are no longer operating under the assumption that the cap is going to increase next season.

The projected decline in the Canadian dollar - up at least temporarily a tick to 88 cents on the U.S. dollar as of Friday - has had an impact on discussions regarding extensions in at least three cases, front office sources have told The Post.

That's $69 million in Unites States currency, an exchange rate to which the league's seven Canadian franchises are beholden when pitching in their share of year-end hockey-related revenue (HRR), a number which helps to determine how high or low a given cap ceiling will be the following year.

And if the cap stays stagnant, more than a couple teams are going to be in huge roster trouble before the season even begins.

For years between the last two lockouts, the Canadian currency was nearly as strong as, if not stronger than, its U.S. counterpart. While the majority of the league's teams reside in the States, just about the majority of its income comes from its Canadian franchises.

Three of the top-five most valuable franchises are Canadian (Toronto, Montreal & Vancouver), and the revenue they generate could cover more than a dozen of the league's weaker American teams.

When things were good for Canada, they were good for the cap.

Now that the Canadian dollar is back down to 88 cents on the US buck, well...

This is a trend that has been taking shape for some months. The Canadian Dollar hasn't been this low since 2009, a time when, you'll remember, U.S. currency wasn't doing so hot itself. If this trend sustains, there's going to be very little the league can do to combat it.

Sure, jersey ads and expansion teams are coming, but those are par for the revenue course. The NHL always takes steps to improve its bottom line, and for about the last decade, a favorable exchange rate helped them to do that year after year after year.

Sell all the beer, nachos and outdoor games you want. A significant disparity in the exchange rate is going to make this a problem that doesn't go away.

How does that affect the teams and players which are really the only things of concern to the regular old NHL fan?

Well, its not good.

Players Vs Players

As Brooks points out, this has the possibility to create a bit of a showdown this summer amongst the NHLPA membership.

Escrow, quickly explained, is a temporary "even things up later" account into which players pay a certain share over the course of a season. It takes time to tally up everything that goes into hockey-related revenue for a given season, and the salary cap for an upcoming year has to be set before the start of free agency on July 1 -- well before the accounting can be done.

If the salary cap ceiling turns out to be underfunded, the escrow account into which players pay each season is used to make up the difference. If things turn out rosier than expected, they get a bonus check that fall.

Where a stagnant cap ceiling complicates things is in the escrow escalator, a device by which players can vote to increase the total salary cap ceiling at season's end -- money which is tied to bigger escrow deductions from their own paychecks to help cover the difference.

From Brooks,

Given the fixation of escrow under which the players currently are having 14 percent of their pay withheld, it certainly is a realistic possibility the NHLPA will not exercise a 5-percent escalator for 2015-16.

...

When the union votes on the 5-percent bump is held in late June, players with contracts for next season will be on one side of the aisle while pending free agents will be on the other side. The cap divides and the league conquers.

That aisle will be made of players with big, settled contracts on one side (they'll want to keep the escalator unused, thus taking less of a cut out of their already-guaranteed contracts) and free agents looking to maximize their market value on the other (they'll likely want to see the escalator enacted, thus expanding the salary cap ceiling and theoretically increasing their pending earning power).

If that battle between players goes down, the NHL is going to somehow win. Always does.

General Managers Vs Karma

NHL GMs spent nearly $500 million on the first day of free agency in July, another record in contract spending spurred on by a quick recovery from the last lockout, news of the riches-to-come by way of the new Canadian broadcast deal and new cap-circumvention roadblocks that are helping to correct market values for the league's best players (in other words, those dudes are getting paid).

Early reports had next year's cap approaching $75 or $80 million, bullish takes on a market that traditionally had increased. However, that Canadian currency is really forcing down estimates, and according to Brooks' report, several teams have already begun making deals with current players with one eye fixated on a potentially falling cap.

Recall the Dallas Stars' recent trade of 40-year-old, $5 million per season defenseman Sergei Gonchar. Dallas is in the tank early on, but moving more than $4 million off the books in return for a depth guy making depth money smacks of cap-based roster management.

That's small change. Those teams really in trouble are the ones who dealt out massive contract extensions with the belief that those contracts would become "cheaper" as a smaller percentage hit of an ever-growing salary cap.

There's now a very real chance that that relief won't be coming. That's going to mean trades, and lots of them. It may mean that free agency won't be a frenzy of overspending for the first time in years. Good teams will be forced to subtract. Bad teams with lots of cap space will take on lots of salary just for the sake of it.

If parity goes up, the product as a whole might come down. Do we really want to see the Florida Panthers become marginally more competitive because the Kings and Blackhawks had to strip their rosters just to stay cap-compliant?

There are a number of good teams that are going to be thinned out by a shrinking cap. Right or wrong, those deals are going to come back to bite someone.

The Penguins, too, are guilty of this. Ray Shero handed out a number of these contracts late in his tenure, and the Marc-Andre Fleury extension, while modest in the context of his current deal, is still a bit of a risk at $5.75 million per year.

If the season ended today, Pittsburgh would be left with some $15.3 million in cap space. That's good, considering a number of teams would already be within $6 million of that number with five or more players still to be signed.

What's not good? The Pens have just 12 players signed through next season, tied for the fewest of any NHL team coming up on next offseason.

Again, the season isn't ending today, trades will happen, players will be called up and the situation is going to change between now and July. However, it's an unenviable task to fill out half a starting roster with barely more than a million dollars to be allocated to each position.

And if GMs are already taking steps to brace for a stagnant cap in November, what is the trade deadline going to look like? What about free agency? How many young players are going to get their shots sooner than they would have under a richer salary climate?

You know what? This might be fun.

Tuesday Slew is a feature that runs Wednesdays throughout the season. Shower James with your praise and adulation on twitter, @SlewFooters.