2012 NHL Lockout: The NHL's Proposed Payroll Range Calculation

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In its latest offer to the NHLPA, the NHL has elected to retain the formula used to calculate the payroll range. But is this a good idea?

By now I'm sure you've heard that the NHL has tabled a new CBA offer to the NHLPA, followed by a public release of the offer as well as a threat to pull it away if the NHLPA does not accept it. While the threatened walk-away is doubtful and an obvious negotiating ploy, the fact remains that the two sides are (slowly) coming together to craft a deal.

While the offer is obviously multifaceted, there are a number of glaring issues that many have picked up on, including the "make-whole" provision, which honors existing contracts by making payments to players further down the line. While, on a personal level, owning up to agreements that were freely and fairly entered into without duress or extreme changed circumstances is important to me, this provision is unfair. Although players now would be entitled to their entire salary as agreed-upon, it comes at the expense of players who may not have even entered the league because those later payments come out of the players' share in future years. Therefore, it really isn't the owners that are paying for the make-whole provision, it is future players.

Aside from the smoke-and-mirrors of the "make-whole" provision, the calculation of the payroll range presents what could be a ticking time bomb, ready to explode at the most inopportune moment: the expiration of the next CBA. Under the NHL's offer, the payroll range is calculated the same way as it was under the 2005 CBA. Simplicity likely dictates that this is a good thing, but common sense tells another story. And forgive the math in the following paragraphs, but here it goes:

In the 2005 CBA, the "payroll range," i.e., the difference between the lower limit (salary floor) and upper limit (salary cap) was set at a static $16 million. In reality, each figure is calculated by adding or subtracting $8 million from the "adjusted midpoint," but the math is all the same. For the 2005-06 season, the salary cap was set at $39 million, meaning the lower limit was $23 million ($39 million - $16 million). If we take the percentage of the salary cap that is $16 million (the payroll range), we come out with just over 41%. Relatively speaking, the "target" that teams needed to reach in terms of player spending was fairly large.

As time moved on, however, that target kept getting smaller and smaller. Under the last CBA, the salary cap was tied directly to the amount of hockey-related revenues that were generated in the previous year. Through heavy and creative marketing campaigns (the effort of a joint committee between the NHL and NHLPA), the league experienced explosive growth. The salary cap grew from the mere $39 million in 2005-06 to 2011-12's $64.3 million, and a projected cap of $70.2 million was set for 2012-13.

Because the $16 million payroll range remained the same while the salary cap skyrocketed, the lower limit also shot up on a dollar-for dollar basis. The following represents the percentage of the cap that the payroll range constituted every year since the 2005 CBA was signed:

  • 2006-07 -36.4%
  • 2007-08 - 31.8%
  • 2008-09 - 28.2%
  • 2009-10 - 28.2%
  • 2010-11 - 26.9%
  • 2011-12 - 24.9%
  • 2012-13 (projected) - 22.7%

The 2012-13 figure is just 55% of the 2005-06 figure, leaving teams with a target almost half as small as the original. In an era where teams have trouble meeting their salary commitments and thus require revenue sharing, the fact that the payroll range remains a fixed number rather than a fixed percentage of the cap under the NHL's proposal is troubling.

In its proposal, the League projects 5% growth in HRR into perpetuity. While this certainly would be slower than the growth experienced by the league after the previous lockout, and would thus lessen the pains caused by a static payroll range, the fact remains that if the league outpaces its projected growth (which may be likely if fans leave, only to come back in droves like after the last lockout), the payroll target for teams to hit may become even smaller. The result? Lower-earning teams are left struggling to meet their salary commitments, much like they are now. And this fact is currently fueling the fight over the most critical component of the next CBA: the players' share. Using the same method of calculation hardly helps to nip the problem in the bud.

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