Rising salary cap not good for small market NHL teams

Ken Campbell
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Amid all the giddiness about the financial health of the NHL at the board of governors meeting, New Jersey Devils GM Lou Lamoriello was the one to throw a little water on the inferno.

League revenues are expected to hit $3.6 billion this season, a remarkable achievement for a league that shut its doors for half the season in 2012-13. It’s truly amazing that the NHL’s model of success has been based on locking its players out, taking its product away from its fans, then watching its business grow exponentially. NHL commissioner Gary Bettman and others were absolutely right in giving as much credit to the league’s loyal fans as to themselves.

But with new multi-billion dollar television deals, lucrative outdoor games, higher revenues and a robust business comes a rising salary cap, one that is expected to hit an upper limit of $71 million and a floor between $52 million and $53 million. And what is great news for the league’s rich teams can be less-than-spectacular news for those that aren’t flush in money. And that explains Lamoriello’s rather cryptic words.

“I don’t think anyone is against paying for success,” Lamoriello said, “but you have to be able to afford it first.”

And that’s the conundrum the NHL faces here. Just because the business is doing well as a whole doesn’t mean it’s good for everyone. The NHL economy is just like the real-world economy. The fact of the matter is there is poverty even in the best of times. When the economy is booming, the rich get much richer and the middle class grows to include more people, but there are still people lining up for relief and food banks remain busy. That’s because there always remains a group of people for whom affluence is beyond their grasp.

And the NHL is much the same. The rise in the salary cap floor will be offset somewhat by more television money and more in revenue sharing, but if things are so good in hockey, why have the Los Angeles Kings never turned a profit? Here is a team that won a Stanley Cup two years ago and has consistently filled the Staples Center with 18,118 for every home game, but still can’t seem to find a way to make money. A rising salary cap floor doesn’t do much for teams like the Florida Panthers and Nashville Predators, who are forced to spend far beyond their means just to stay at the floor.

And that’s where the salary cap maybe isn’t all it’s cracked up to be. On the plus side, salary caps provide cost certainty, and that’s something that is good for both the rich and poor teams in the NHL. Much of the business model for NHL teams revolves around franchise value, something that is hugely enhanced by a team’s ability to be able to tell prospective buyers how much they’re going to have to spend on player salaries. They do provide some competitive balance, but as the gap gets more pronounced between the ceiling and the floor, the ability to ice a competitive team and still be financially prudent is much more difficult.

Which brings us to a team such as the Phoenix Coyotes. If you can believe it, the Coyotes are actually bumping up near the upper limit of the salary cap, largely because they signed Mike Smith and Oliver Ekman-Larsson to long term deals rather than risk losing them.

So if the Coyotes are so close to the cap, then what’s the problem? They could be down around $48 million if they chose to allow players such as Smith and Ekman-Larsson to walk. But how do you tell your fan base, particularly one as vulnerable as the Coyotes’, that after years of watching your team suffer, you’re going to have to watch it be dismantled and go through the whole rebuilding process again?

There is no amount of rising revenues or overall health of the business that is going to get the Coyotes and other teams like them out of that cycle. And that’s why when Bettman tells the board of governors, “there should be no issue of consternation,” I’m not exactly sure I believe him.