NBA salary cap memo raises red flag for NHL's future
It's been broadly hinted for months: After four straight years of growth since its implementation in 2005, the NHL's salary cap is expected to lose ground for the 2010-11 season as a direct, albeit delayed, result of the worldwide economic meltdown.
We won't know the actual damage until late next June, after the league and the NHLPA get together to hash out the numbers based on a complex algorithm of hockey-related revenues. But judging by the rumbles, things could get very ugly.
The NBA announced this week that its 2009-10 cap would drop approximately $1 million per team, from $58.68 million in 2008-09 to $57.7 million. That total is still slightly higher than the NHL's recently announced $100,000 boost to $56.8 million.
At the same time, the NBA issued a memo to its teams, suggesting that the ship had only begun to make contact with the iceberg. Based on projections of declining income, the league speculated that next year's cap could drop as low as $50.4 million.
We'll pause here a moment to allow the post-apocalyptic dust to settle.
The NBA memo did include a disclaimer pointing out that the projections could "change based on economic conditions and as more information on league-wide business performance becomes available." Still, even the NBA's optimistic high-end estimate of $53.6 million represents a 10 percent slice carved out of this year's pie. That's a significant change of fortune. And it begs the question: Is the NHL in for a similar hit?
Comparing caps between the two leagues is bit like comparing apples to oxcarts. NHL spending is constricted by a hard cap that flat-out prohibits teams from exceeding it. The NBA's cap is more like a loose guideline, littered with dozens of loopholes and exemptions designed primarily to allow teams the means to keep their own players and, in theory, ensure the roster stability that seems to enthrall hoops fans. As caps go, the two are similar in name only.
Still, both are based on the players receiving a percentage of league revenues. Even ignoring the specifics, what the memo reveals is that the NBA is anticipating a significant downturn in the basketball-related income that will be generated next season, and that shortfall directly impacts the total funds available to be paid out to players next year.
The NBA's national TV money, about $30 million per team, is safe. But ticket sales, advertising and marketing deals, arena signage, parking, luxury suite sales and the like are expected to take a significant hit. And these concerns have to be shared by the NHL, a league with a national TV deal (about $3 million per team, in addition to local arrangements) that foreces it to rely much more heavily on the very revenue streams that are so susceptible to cutbacks.
And then there's the loonie. With 35 percent of league revenue generated north of the border, earnings are affected by the value of the Canadian dollar, a non-factor in the NBA's cap projections. Overall, the Canadian economy has more successfully weathered the financial crisis. As a result, its dollar, which was trading around 82 cents U.S. back on Jan. 1 is closer to 86 today. That bodes well for next season, but tides can change. If the Canadian dollar swings even a few pennies, it can have a dramatic impact on the league's overall fortunes.
So maybe the dots don't connect directly, but they're close enough that a similar pattern emerges. And if there's one thing that this financial crisis has taught us, it's that no one is immune. If the house down the street is on fire, well, you better go grab the hose because the flames will hit your property soon enough.
It's worth noting again that the NBA's numbers are preliminary. In fact, they've already been disputed by the NBA Players' Association, which argues that the projections were released to dampen the market for this summer's free agents. Coming as it did just as the window for signings was about to open, the timing of the memo
Don't expect a similar prognosticatory pronouncement to come from NHL headquarters . . . not that anyone would place much faith in the words of a commissioner who spent much of the last year misleading the public about the financial crisis in Phoenix. But even without one, you have to believe that the league's eyes are wide open to what lies ahead.
Not that NHL teams will be sailing uncharted waters. The salary cap debuted at $39 million in 2005-06, climbed to $44 million for 2006-07 and then to $50.3 million in 2007-08. So even if the 2010-11 cap dropped somewhere along the high end of the NBA's projections -- approximately $8 million -- then GM's just have to work with the same constraints they did three years earlier.
Of course, it's one thing to spend up to $50 million. It'll be another thing entirely for some teams to cut back to that level. After all, there's no wiggle room in hockey. No allowance for an NBA-style luxury tax if spending can't be reined in. No re-negotiating contracts to create friendlier hits. If the cap drops and necessitates a personnel fire sale, then get to it quickly because your neighbor's going to be running a clearance sale of his own.
And that makes me wonder if I was wrong about
Truth is, Tallon could have a pretty tough time crossing that bridge. Consider that the Blackhawks have more than $43 million committed for 2010-11 to just 13 players . . . and that's without one cent set aside for franchise cornerstones
The Hawks aren't alone in having painted themselves into a corner. The Red Wings have contracted $41.5 million to 14 players in 2010-11 and may find themselves hoping that
Next year's math problems are still hypothetical for NHL GMs, but the NBA's doom-saying memo brings them more sharply into focus.