As NBA baseketball gets underway this month, some of my American friends may not be aware of one sport that is not getting played this winter: NHL hockey.
Earlier this week, players got together and reaffirmed their position that they are not interested in anything resembling a salary cap. Their proposal calls for a luxury tax. First of all, what does that all mean?
In my view, a salary cap would put a hard limit on the amount of money a team can spend on players. Let's say it's $70 million per year. A team cannot legally spend more than that. Sometimes, there may be things a team can do to try and get around the cap (deferred or upfront salaries), but in general, teams will not be able to spend more than $70 million per year.
A luxury tax penalizes teams that go above a certain salary figure, but does not stop them from doing so. So if the limit was $70 million per year and a team spent $85 million, they would have to pay a “tax“ on the excess $15 million, and that tax money would be paid to smaller teams. So if the tax is also $15 million, Team A pays $100 million for an $85 million team, and Team B gets $15 million in free money.
The ultimate goal for player-owner negotiations this year is to lower salaries and save the teams money. Under the salary cap scenario, total team salaries would never exceed $70 million per team. Most small-market teams would never be able to afford the cap limit, so the net effect of a cap is an immediate freeze on salaries -- even a bit of a rollback in big markets like Toronto or New York. This is what the owners mean by cost certainty.
Under the luxury tax scenario, total team salaries would probably continue to increase. For instance, a team can exceed it's cap by $15 million, and this would allow another team to also spend $15 million more. Smaller teams can afford to increase their salaries from the “tax” monies they receive. Larger teams would have to pay a bit more to put the same team together, but that might not stop larger teams. It's hard to see where the “savings” are in the player's offer.
Of course, this only makes sense. The players are only interested in one thing: that their salaries continue to go up. So they can come up with a proposal where the owners pay more, that also conveniently results in the players getting more (the tax monies are spent by smaller teams, resulting in increased salaries across the league).
What I'd like to see is the players at least talking about the details of the cap. The owners obviously want to drive costs way down, so their idea for a cap will be low. Why don't the players negotiate for a high cap? Or a cap with a few loopholes -- 1 or 2 players per team are exempt from the cap. I mean, the notion that they can just “make a wish” and a cap would disappear?
This is why the fans are largely behind the owners more than the players.
The players have a standard refrain when asked about a cap, “A cap just protects owners from themselves. If salaries are so outrageous, why don't they just stop offering large contracts to their players?“
That statement oversimplifies the situation. Each year, every owner is trying to make a competitive team -- one that will make it deep into the playoffs. They want fans to come out and see the games, and they want the extra revenues from the playoffs. Individual players also build up a fan-base in their cities. Toronto loves Mats Sundin and Tie Domi, as it loved Wendel Clark and Doug Gilmour. There are certain players who can ask for, and get, a little bit more than their stats say they are worth because the owners don't want to upset the fans.
The problem is, every other player in the league will now look at what Mats Sundin is getting, and compare his stats to theirs. “Hey, I scored as many goals as Mats. I want the same salary.“ You also get players who sign deals based not on their performance but their potential, and then don't live up to their potential. So again, players compare themselves to a 5-goal-per-year scorer and say, “I want more than him“ even though the other player's contract was not based on stats either.
Maybe we should go to a pay-for-performance model? For each team win, each player gets $X. They get $X/2 for each team loss. Players that are popular with advertisers and fans get a big bonus. So if you are a no-name player on a losing team, you might have to get a summer job.