(Editor’s note: Special thanks to ilb2001 for a guest blog on a topic I couldn’t even begin to tackle. Frankly, the CBA gives me a migraine and I hope to never understand it. Meanwhile, if anybody wants to volunteer to do a guest blog between now and the opening of camp Sept. 11, please drop me an email at email@example.com).
THE NEW NHL REVENUE SHARING PROGRAM
Good morning, boneheads!
Since the 2004-05 lockout, the NHL has done a great job in increasing its revenue in general, and started to show respectable numbers, closing the gap with No. 3 money maker, the NBA. Considering that close to $1B of total basketball revenue comes from TV contract, compared to just $200M for NHL, the numbers are very comparable ($5B vs $3.3B in 2011-12).
What the NHL has been lacking, however, is any reasonable revenue sharing system which would allow the sport to stay healthy and grow further without having teams struggle to stay afloat. With the recent changes in the NBA system, the NHL remained the only major sport that had a laughable revenue sharing approach. That has changed under new CBA. It remains to be seen whether the system works, but it’s a positive step. Let’s look at some highlights of the new system. The full description is available in the new CBA, article 49 called Players Compensation Cost Redistribution system.
This is how it works.
The first step is to determine the amount of total redistribution commitment—the money that will help low income teams to stay competitive, and have sufficient funds to stay above the salary floor, and closer to salary mid-point. The formula is total HRR from the preceding year multiplied by 6.055 percent. For the 2011-12 season the HRR number was $3.303B, so the amount of total redistribution commitment would be $200M.
The second step is funding of that amount. It consists of 3 steps:
- 50 percent (in above case-$100M) comes from the Top 10 highest income teams based on preseason and regular season income. This is when it may become interesting. If you look here (http://www.forbes.com/nhl-valuations/) you will notice that only three teams (Maple Leafs, Rangers, and Canadiens) are truly making money. So those three teams contribute together the largest amount, and teams at the 8-9-10 spots contribute the minimum. Luckily for Mr. Dolan, however (not that we should worry about his financial well-being), the number is capped at 25 percent of total amount per each team.
- Next step is interesting. The 16 teams participating in playoffs, regardless of their income during the regular season, will have to surrender 35 percent of their playoff gate receipts. That’s right, ‘heads, playoffs aren’t pure income to teams as some people still think.
- If those two steps produce insufficient funds, the rest of it will be funded by the league using its centrally generated revenues, and partially by the players escrow funds.
Now, what has changed drastically, and for the better, is teams’ eligibility to receive those funds. In prior years, teams in markets with more than three million television households could not qualify for revenue sharing. Which means that the Islanders, Devils, Ducks, to name a few, were ineligible. Not anymore. Those teams are now eligible to receive 50 percent of what the calculations would otherwise dictate. The new CBA also removed some performance parameters. In previous CBA, if the team couldn’t show at least 14,000 average paid attendance, couldn’t prove business growth at certain rate, it would lose a good chunk of its distribution. The other positive step is the removal of what used to be called a mid-point cap. Every low income team tries to spend just above salary floor, some teams higher, some lower. In the past, however, if any low income team tried to add a contract and went above midpoint ($56.3M in 2011-12), they would lose a big chunk of revenue sharing funds. In other words, some teams would be afraid to improve their roster and go by a few thousand dollars above the mid-cap because they would lose millions of dollars in distribution money. Sounds odd, but it’s true. Now, that wording has been removed from CBA.
What it also means, sadly, is that next time you pay for Rangers tickets, you also pay for Rick DiPietro’s contract. And Alexei Yashin’s. Dammit! Oh, well.
Photo by Getty Images.