With word breaking today that the NHL is re-upping it's US TV contract with NBC & Versus for $200 million annually for 10 years, the natural question around Nashville becomes, "what does this mean for the Predators re-signing key players?" The new TV money (roughly $120 million more than the league received previously) is obviously a big shot in the arm, particularly for teams like the Preds who have toed the line of profitability in recent years.
Let's walk through the numbers and see just how large an effect this new deal could have on the game at large, and for the Nashville Predators in particular...
How the NHL Salary Cap Gets Set
The fundamental element of the modern salary cap system is that the players get a specific share of overall hockey revenue, 57% these days. After the financial year for the league closes on June 30, the accountants sum up the Hockey Related Revenue (HRR), multiply it by the 57% figure, and divide that by 30 (the number of teams in the league). That becomes the new Mid-Point of the salary cap range for the next season, with the high end being $8 million above the Mid-Point, and the salary floor $8 million below.
The players, however, through the NHLPA, have the option of bumping that figure up each summer, anticipating that business will grow in the year ahead. So far, they've done so every time, adding an extra 5%.
The trick here is that revenues haven't always kept up with that pace of growth, and combined with teams spending more to the high-end of the salary cap range, the players end up giving back a decent size chunk of their paycheck to the owners in the form of escrow, which is withheld throughout the year. At times, this figure has reached as high as 18%.
The big question, then, will be when the NHLPA looks at the season ahead, and sees $120 million in new TV money, along with $57 million in beer money as well, will they funnel all that into a higher salary cap figure, or stick to the usual 5%, and give themselves some opportunity to reduce the escrow which is withheld from every player in the league? Considering those two major deals alone, they could justify a cap increase of $3.36 million ($177 million times 57%, divided by 30 teams), or 5.6%. That's completely separate from the general growth of the game.
The conflict will be between those players on the free agent market this summer (who want as high a cap as possible to create more of a seller's market), or those under long-term contract, who would rather see their escrow decline.
What It All Means
The extra bump for each team in player salaries will be, of course, an average, so the situation in each NHL city will vary depending upon their individual circumstances. For the Nashville Predators, I think what we'll see here is that they'll still try to stay under the mid-point of the salary cap range in order to take full benefit from the Revenue Sharing program, so the decision which the NHLPA takes this summer on the escalator clause will bear close scrutiny.
It's also important to remember that the clause (49.7a) which enables this so called "soft ceiling" for revenue sharing recipients refers to "Actual Club Salary", in other words, the actual salary paid out that year, rather than the sum of each player's salary cap hit, which is what we normally talk about when discussing team payrolls. In most cases, those are the same for players (salary cap hit is the average annual salary over the life of the contract), but there are a couple cases with Nashville which are important for the 2011-12 season.
Martin Erat will make $6 million next year, the highest point of his 7-year contract, and a fair amount higher than his cap hit of $4.5 million. Pekka Rinne will make $4 million, compared to a cap hit of $3.4 million. So when you check on a site like NHLNumbers.com, or CapGeek this summer, keep in mind that the Preds will want to keep that actual salary figure for next season below the mid-point, not just the sum of each players' salary cap hits.
All in all, the general rise in the salary situation might be enough alone to re-sign Shea Weber to a new contract, but we have to remember that several other players will need new deals, like Sergei Kostitsyn, Nick Spaling, Marcel Goc, Joel Ward, Steve Sullivan, Cal O`Reilly, Shane O`Brien, etc. Obviously not all of those players are likely to return to the Preds in the fall, but if Shea's new deal soaks up the majority of this financial boost, David Poile will have his work cut out for him.
Just running through a theoretical scenario, I could see about $800K being freed up as O`Brien hits the free agent market and is replaced by one of the prospects coming up through the system, and potentially another couple million depending on what Steve Sullivan does, re-signing for a lesser amount or moving on. There has been a lot of speculation on this site about buying out the final year of J.P. Dumont's contract, which could also free up cash in the short term.
On balance, I don't see a major problem fitting Weber's new deal into the future structure of the team, as we look at those upcoming free agents and weigh which ones will need new, pricier deals against those who will probably leave or take less money to return.
Now, down the road you've got Pekka Rinne and Ryan Suter hitting free agency in the summer of 2012, but that's a matter for another day... and in the meantime, the Preds ownership can count on a nice boost to the top line (remember, the players get 57% of the gain, not all of it), making the hockey business in Nashville that much more viable long-term. As the team prepares to open negotiations with Metro regarding the future financial arrangements between the city and team around the operation of Bridgestone Arena, it'll be interesting to see how this growth in business affects that situation as well.