Insider Only Inside the NHL: Idea of a “Luxury Tax” will be at the forefront of next CBA Talks

The National Hockey League’s current collective bargaining agreement expires after the 2010-2011 season and while the NHL and its players know that the league can’t survive another lockout, both sides are looking to make changes to the current salary cap system.
When the lockout was resolved in 2005, after the NHLPA agreed to a hard salary cap based on league revenues, the salary cap for the 2005-2006 season was set at $39 million per team, with a maximum of $7.8 million (20% of the team’s cap) for a player.
Nearly five years later, the NHL has seen the salary cap rise close to $18 million.
One reason for that is revenues for all six Canadian teams have increased significantly since the lockout, and due to the fact the US dollar fell to relative parity with its Canadian counterpart.
The Canadian franchises are the ones who carry the salary cap for teams like Atlanta, Florida, and Tampa Bay that are struggling financially.
The salary cap for the 2009-10 season is $56.8 million with a cap of $11.36 million for players.
Another much needed attribute that can’t be overlooked is that the current CBA also contains a “lower limit” of the salary cap, which is the minimum that each team must pay in player salaries.
The lower limit is now $16 million below the cap, therefore the 2009–10 minimum is $40.8 million.
The salary cap has been regarded as saving hockey and for the players, they are still getting paid. Older veterans who want to hang around for an extra couple years are having trouble at times to find work but for the most part, mid-tier and upper-tier players are still cashing in.
However, both sides are looking to make some tweaks.
Sources tell me agents and a number of players are pushing for a luxury tax system to be implemented similar to the NBA.
In the NBA, they have what is regarded as a soft cap, meaning that there are several significant exceptions that allow teams to exceed the salary cap to sign players, whereas the NHL offers few circumstances under which teams can exceed the salary cap.
The NBA’s salary cap was set at $57.7 million for 2009-10 , while the NBA’s luxury tax level is set at $69.92 million. However, the NBA doesn’t have a lower limit.
A luxury tax payment is required of teams whose payroll exceeds the proposed “tax level” implemented by the league.
Teams exceeding the “tax level” are forced to pay one dollar to the league for each dollar by which their payroll exceeds the tax level.
Following the 2008-2009 NBA season, seven franchises had to pay a luxury tax to the rest of the league; New York Knicks ($23.7 million), Dallas Mavericks ($23.6 million), Cleveland Cavaliers ($13.7 million), Boston Celtics ($8.29 million), Los Angeles Lakers ($7.1 million), Portland Trail Blazers ($5.8 million) and Phoenix Suns ($4.9 million)
If the NHL Players Association ends up going this route, I’m told they would propose that the “luxury tax” payments go to the bottom 10-15 lower revenue teams.
Prior to the lockout, NHLPA proposed a luxury tax system and the NHL declined. However, the proposal from the NHLPA was just a luxury tax system similar to Major League Baseball that didn’t include a salary cap.
Would have never worked and the NHL would have been in same situation that they were in pre-lockout.
With a good system already in place, a salary cap system + a luxury tax level equals a win-win for both sides, according to some league executives.
Sources tell me even owners are somewhat open to the idea now but insist that a lower level limit would have to remain intact and the $12 million gap that the NBA currently has between the salary cap and luxury tax would be too high in the NHL. The gap would have to be much lower I’m told.
What to watch for is whether Pittsburgh would join the bigger market teams like New York, Philadelphia and Chicago, who are being speculated as teams that are for a luxury tax system to be implemented into the current cap system.
Six years ago Pittsburgh was one of those struggling franchises that were among the strongest supporters for a hard cap.
Things have changed with the franchise booming financially and the opening of a new arena in 2010 that will give Pittsburgh the opportunity to spend up to the cap and beyond, if they could for years to come.
A luxury tax system would give Pittsburgh the ability to spend above the cap to keep their high priced players long-term.
It’s a good bet this time around Pittsburgh would be in favor of a “soft cap”, although this has yet to be confirmed independently.
While it remains to be seen if enough owners and Commissioner Gary Bettman will come on board if or when this type of system were to be proposed by the NHLPA, general managers and owners are looking for ways to change the restrictions on trades.

The growing consensus is that GM’s are strongly interested in being able to move salary in trades to help their cap situation. Prior to the lockout, this was possible and team’s would even include cash into deals.
Pittsburgh for example, brought in $8.75 million combined from the Washington Capitals and New York Rangers in trades.
Ability to move salary was a hot topic at the GM meetings this past December, while another under the radar issue is performance bonuses.
Right now performance bonuses count against the cap. I hear some of the bigger market teams want performance bonuses excluded from the cap, and that smaller market teams want to keep performance bonuses included. This could become another change in the next CBA.
Most importantly, there’s going to be a much different stance in the next CBA talks compared to five years ago. The league is now in good standing and all of the decisions won’t predicate to the small market teams.
League executives expect a new salary cap system to be implemented that won’t be a “soft cap” necessarily but will give owners and GM’s some more breathing room than they currently have.
Winter Classic ratings down 10.3%
The 2010 Winter Classic ratings came in this week and NBC executives were kind of surprised as ratings for the Bruins – Flyers classic were down 10.3 percent from last seasons’ Red Wings – Blackhawks game at Wrigley Field.
The lure of Fenway Park in itself was expected to bring in high ratings but the lack of a marquee player could have played a factor.
In 2011, the NHL won’t make that mistake as Alex Ovechkin and the Capitals are expected to be selected for the 2011 Classic.

About The Author

William DePaoli

TIOPS Insider

William DePaoli is the President/Founder of Inside Pittsburgh Sports LLC and can be reached at wdepaoli@insidepittsburghsports.com

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