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Thread: Expansion, the cap, and h.r.r.

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    Default Expansion, the cap, and h.r.r.

    Expansion, the cap, and H.R.R.

    By Pseudonym McDergalstein


    The NHL’s expansion plans are hardly a secret to the hockey world. Expansion applications were sent out just recently, and the NHL has received two submissions: one from Quebec City, and one from Las Vegas. They’ve done this before, so most people are semi-familiar with expansion drafts and the implications of expansion on scoring. More teams means talent gets more spread out, and the expansion teams get bullied into oblivion by other, better teams. At least for the first few seasons post-expansion. Scoring goes up a tick, everyone’s happy. Well, almost everyone.

    However, this is the first time in 15 years that the NHL’s done this, and the first time in the salary cap era. The implications of expansion on the cap have yet to be observed, but that doesn’t mean we can’t predict them.

    To begin, we’ll need to look at how the cap is currently calculated.


    The Formula

    The league throws a bunch of really good guesses together of how much hockey-related revenue (HRR) they’re expecting to expect to generate in the coming season and then takes the “midpoint” of these projections for cap calculation. The owners receive 50% of HRR and the players receive the other 50%, as per the CBA. So right away, let’s cut that number in half. The players’ share then gets split between all the teams. The NHLPA can raise this number by five percent, and the cap is set 15% above that number after all these calculations.

    Whew. What a mouthful. I’ve put together a formula to make it easier to visualize.


    For example, given these 3 projections of HRR:
    $3.8B
    $3.2B
    $3.6B
    The average is $3.53B, which we can put through our formula and…


    The important part here is for every team to contribute to HRR equally. If a team doesn’t, the cap will fall. To find out how much a team needs to contribute, we have to remove the escalator and the 15% increase, because they “artificially” inflate the cap. Sneaky moves by the NHLPA for sure.


    This is the number that each team is responsible for generating for the players share in order to maintain the projected $3.53B revenue. Because the players and owners split HRR 50-50 (thanks, lockout), that means teams need to generate twice that to ensure that salary cap number. In layman’s terms, each team is responsible for generating 1/30th of the current HRR in order to maintain the cap. Any more, and the cap goes up. Any less, and the cap goes down.
    This formula has only 2 variables, the salary cap and HRR. If we have one, we can calculate the other. Using the salary cap data from the past, I’ve done that already, and here are the results:




    What does this mean for the cap?

    Well, for one, the earliest time the NHL will be ready for expansion, according to NHL Assistant Commissioner Bill Daly, is the 2017-18 season. Using the average rate of increase for the past three years, I’ve predicted a total HRR of approximately $3.86 billion for that season. Because each team must contribute 1/30th of the $3.86B HRR, this means each team should be generating about $128,740,000 in 2017-18.

    If the NHLPA uses their five percent escalator, this would mean the cap in 2018 will be about $77,726,775. NHL General Managers love to sign players to pretty expensive deals with the hopes that this exact situation happens. This would mean that big cap hits take up a smaller percentage of the cap as time goes on.

    For example, Toews and Kane’s $10.5M cap hit represents 14.7% of the 2016 cap, but will only represent 13.5% of my projected 2017-18 cap, and 13% of the 2018-19 cap. These deals become much less painful as time goes on. For example, in 2015-16, 13% would be a cap hit of just $8,958,120, over $1.5M in savings.

    This is how the cap projects, over the same time period. The big drop is when the players’ share of HRR dropped from 57% to 50% as part of the new CBA:



    The Problem

    Once expansion rolls around (we’ll use 2017-18 for our example), the NHL will need an additional $257,480,000 in revenue to maintain that cap. After all, HRR will now be split 32 ways, instead of just 30. Can the expansion teams provide that? The only two locations that submitted applications are Quebec City and Las Vegas. The best comparable franchises, in my opinion, are Winnipeg (a returning Canadian franchise) and Arizona (a desert-based non-traditional market without a large ticket-holding fanbase).

    Finding the NHL’s real HRR statistics is next to impossible (otherwise I wouldn’t have to calculate it for previous years), but Tyler Dellow of mc79hockey.com released numbers for the Blue Jackets’ 2006 HRR ($57.4M), which represented 82% of their total revenue ($66M, as listed by Forbes). Together, Arizona and Winnipeg made $182M last year, so 82% (the ratio of revenue that is hockey related, for the Blue Jackets at least) of that is $150,839,393.

    This means that the Quebec Nordiques and the Las Vegas Mumps are likely to raise about that much if they hit the ground running. Very bad news. They’re almost $100M short of their target, and that’s without considering growing pains! If they generate of the revenue of the Jets/Coyotes, it’ll be just $113,129,544. Even worse news! But let’s assume best-case scenario, because optimism!

    Here’s what the cap will look like in the coming expansion years, given the numbers we’ve used so far:



    The Bottom Line

    Expansion is going to drag the cap down like crazy. In 2017-18, it could be lowered as much as $2,000,000! Well, maybe not lowered, but it’ll certainly prevent it from growing by very much at all. And the bad news doesn’t end there. The longer the NHL delays expansion, the more that HRR grows, which means each team is responsible for generating more and more money. This in turn means that Quebec and Las Vegas will need to generate even more, just to keep the “salary cap drop” at $2,000,000. General Managers who are expecting a certain cap number and signing players with that in mind will be taken by surprise, just like in 2014-15 season, where the cap was expected to be north of $71M, but only grew to $69M.

    Which GMs? That’ll depend on the capologist they’ve got on payroll. You better hope your team’s got a good one.
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    Default Re: Expansion, the cap, and h.r.r.

    Interesting wrinkle in the salary capped expansion world. Thanks for the work.
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    Default Re: Expansion, the cap, and h.r.r.

    Pimpin' this beauty from last year from Feadur! Great write-up here from the Black Aces folk!

    Such great talent out there and this is just one example! We should see more of this!

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    Default Re: Expansion, the cap, and h.r.r.

    Man, I don't know how I missed this one from last year, but thanks for bumping. That was a good read.


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    Default Re: Expansion, the cap, and h.r.r.

    Quote Originally Posted by Axeman33 View Post
    Man, I don't know how I missed this one from last year, but thanks for bumping. That was a good read.
    that was an awesome read, far better than any salary cap article I've read here in the last month. Maybe this guy should get his own column or let him take over the cap salary column here.

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    Default Re: Expansion, the cap, and h.r.r.

    Why are you quoting me in your reply? You should be quoting the column you enjoyed.

    If you think you are insulting me in any way, you are sadly mistaken. At least you are reading my column to know if they have been any good or not. Thanks!


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    Default Re: Expansion, the cap, and h.r.r.

    Quote Originally Posted by Axeman33 View Post
    Why are you quoting me in your reply? You should be quoting the column you enjoyed.

    If you think you are insulting me in any way, you are sadly mistaken. At least you are reading my column to know if they have been any good or not. Thanks!
    Sorry man, it feels like things are awkward between us now. I had no idea you wrote a column here.

    strange coincidence

    I just read a few of your articles again, they were good. I think the OP here has great writing though, very strong and engaging and his salary cap knowledge is off the charts.

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    Feadur's Avatar
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    Default Re: Expansion, the cap, and h.r.r.

    Quote Originally Posted by Canadiens2099 View Post
    Sorry man, it feels like things are awkward between us now. I had no idea you wrote a column here.

    strange coincidence

    I just read a few of your articles again, they were good. I think the OP here has great writing though, very strong and engaging and his salary cap knowledge is off the charts.
    Lol thanks man! It means a lot to hear feedback like this. I actually do write the Injury Report column on Wednesdays, and I wrote a bit about the Pens powerplay in the Black Aces a while after this cap article. Thanks for reading, man!
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    D: Letang Green Klingberg Rielly Faulk Bowey Phaneuf Campbell Schultz

    G: Holtby

    Farm: RNH E.Lindholm Vrbata Fabbri Morrissey Pouliot Murray Vasilevskiy Fleury


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    Default Re: Expansion, the cap, and h.r.r.

    This is great. Can you update it (probably not much has changed) and email it to me? I'd love to fit it in on the main site. Too good to be buried.
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    Default Re: Expansion, the cap, and h.r.r.

    Excellent read Feadur!

    Certainly gives me something to think about for my salary cap keeper leagues. Thanks for bringing this forward!
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