The full text of the 2013 version of the NHL Collective Bargaining Agreement is finally available online, and while one can spend days strolling through the various twists and turns in this 540-page thriller, as a Nashville Predators fan I was immediately drawn to Article 49, which details the Player Compensation Cost Redistribution System, better known as the NHL’s Revenue Sharing program.
In short, the revenue sharing system is the financial mechanism which enables the Salary Cap, by taking money in part from teams that could afford to spend much more than the Cap (Toronto, the New York Rangers, Montreal, etc.) and distributing it to those which need help to fill out a roster that at least sits somewhere in the bottom half of the payroll range (Phoenix, Columbus, Carolina, Florida, Nashville, etc.). It’s not simply a temporary assistance scheme for franchises going through a rough patch, it’s a recognition that some markets are much, much bigger than the rest, but the league wishes to restrict the payroll range to some extent.
NHL Revenue Sharing Explained
Funding
Subject to a few conditions, the NHL will take its league-wide Hockey Related Revenue figure (HRR) and multiply it by 0.06055 to determine the Redistribution Commitment for that season. Using the 2011-2012 HRR of $3.3 billion as an example, that would yield $200 million going into the revenue sharing plan.
Under the new setup, there are three funding stages which fill up the revenue sharing pot. First, a maximum of 50% of the Redistribution Commitment is drawn from the Top 10 highest-grossing teams based on pre-season and regular season revenue. Each team’s contribution is based on how much they earn over and above the 11th-ranked team, so the teams in the 8-10 spots don’t pay in nearly as much as the top three, for example.
Next, those teams participating in the Stanley Cup playoffs (regardless of their earning power during the regular season) chip in 35% of gate receipts from home playoff games. So the next time you hear someone spout that playoff home games are pure gravy to teams, slap them upside the head – that wasn’t even the case under the 2005 CBA, but you still hear it from time to time.
If, after those two phases, the Redistribution Commitment hasn’t been raised, the league can chip in with centrally generated revenues, such as sales of Gary Bettman Fatheads and leftover player escrow funds.
Revenue Sharing Recipients
In broad strokes, the basic idea is that the Redistribution Commitment is divided up among recipient teams to help bring them up to a Targeted Team Player Compensation level, which is a calculated value somewhere between the salary floor and the mid-point based on a number of factors. The distribution amounts for specific teams can be adjusted by a special Revenue Sharing Oversight Committee, which includes representatives from both the NHL and NHLPA, but the overall level of distribution must remain the same (in other words, if they bump one team’s distribution up, those funds have to come out of someone else’s distribution).
What makes this latest version of revenue sharing interesting is that some of the barriers which prevented teams from receiving funds have been removed. For example, under the old deal, teams in large media markets (such as the New York Islanders and Anaheim Ducks) were banned outright from receiving funds. Now, teams in media markets of more than 3 million households can receive 50% of what the calculations would otherwise dictate. In addition, various performance parameters (paid attendance averaging at least 14,000, growing business at an above-average rate, etc.) have been removed. In the past, failing to meet those criteria could cause a team to lose 25-50% of their distribution. In place of those punitive measures, this CBA sets up an Industry Growth Fund, in which lagging teams submit business plans for how to improve and can receive loans or grants to help in that regard.
Goodbye to the Mid-Point “Soft Cap”?
Of great interest to a team like Nashville, however, we have the removal of something we used to refer to as the “soft cap” at the mid-point of the salary range. In the now-expired 2005 CBA, Article 49.7 (a) read:
“…any remaining Escrow Account funds shall be distributed to any Club that had an Actual Club Salary that was less than the Midpoint of the Payroll Range (measured as of the final day of the NHL Regular Season), with the amount of funds each such Club receives being sufficient to bring it up to the Midpoint of the Payroll Range…”
In other words, there was an additional cost to teams like the Preds exceeding the mid-point, in that it could cause them to miss out on that distribution of escrow funds. While exact figures aren’t available, the basic idea is that by adding $500,000 in payroll, you could cost your team millions in lost escrow disbursement.
In the new 2013 CBA, there is no language equivalent that quoted above in the revenue sharing portion of the document. The removal of this “soft cap” doesn’t mean that teams can go wild with their spending, however. The intent of the Revenue Sharing program is to help teams afford a payroll that is no higher than the mid-point, so if recipient teams decide to go over that level, they do so at their own peril. At least now, however, such a move doesn’t lead to a double-whammy.
So if you remember that article I wrote back in April about how much the Preds might have available to spend in free agency, that analysis has been rendered somewhat obsolete. The rules have indeed changed…