Restructuring the NHL

COMMENTARY

With 3 lockouts in 18 years including a completely lost 2004–05 season, clearly something’s not working with the National Hockey League.

League revenues have risen every year since the last lockout. The salary cap—the maximum amount teams are allowed to pay their players—is a percentage of league revenues and has correspondingly risen every year since the last lockout (by 6.9 percent on average).

But 18 of the 30 NHL teams failed to earn an operating profit last year, according to data from Forbes.

Under the prior Collective Bargaining Agreement, 57 percent of hockey revenues last year went to pay the players. The owners want to reduce that revenue share to slightly less than 50 percent.

Last season, the salary floor, the minimum amount teams must pay their players, was $48.3 million. It is set at $16 million less than the cap.

Of the 18 teams that had an operating loss last year, half of them spent less on players than the midway point between the cap and the floor ($56.3 million), according to data from capgeek.com.

Granted, there are a lot more factors that go into calculating operating revenue—concession and merchandise sales, attendance, etc.—but, these nine teams face severe challenges under the current cap/floor structure. They generally tried to pay less for player wages and were still not profitable.

In contrast, certain teams can operate profitably under the prior CBA. Of the 12 profitable teams, 10 managed to do it while paying more than the somewhat arbitrary $56.3 million figure. So these teams generally tried to get “better” players to improve their chances of winning the Stanley Cup and were still able to turn a profit.

Two-Tier League

The first step to a healthier NHL is reducing the number of teams from 30 to 24. Obviously, this is a draconian step, but a healthier NHL would have fewer teams and perhaps there would be no need for equalization payments.

Next, taking a page out of international football (soccer), create a two-division NHL each with 12 teams.

Only Division 1 teams can win the Stanley Cup with 6 of the 12 teams making the playoffs. Playoffs would work as they do in the NFL using some kind of wildcard system. Division 2 teams aim to get promoted into Division 1 so that they can win the Cup next year or in the near future.

The bottom two teams in Division 1 at the end of the regular season get relegated into Division 2. And if we want to spice things up, the top four regular season finishing teams in Division 2 can have a playoff to determine which two get promoted to Division 1.

Aside from the financial difficulties the NHL faces, its playoffs and regular season are too long. So make each game much more meaningful by having fewer of them. And, qualifying for the playoffs should be more exclusive than having 16 of 30 teams make it, as is currently the case.

Of course, there will be a drop in revenue due to fewer games, but to some extent, it could be offset with higher ticket prices (apologies to the fans), and perhaps bigger TV contracts for Division 1 games on prime television-viewing nights.

There could even be a small portion of the schedule where Division 1 teams play Division 2 teams so as to give every hockey city a chance to see every NHL superstar.

With fewer games during the regular season, the games could be played on optimal nights for television revenue. Division 1 games would be given the best time slots (8 p.m. or 9 p.m.) with Division 2 games scheduled either earlier or later.

Two-Cap System

Now, Division 1’s cap/floor structure is higher than Division 2’s. To some extent, these divisions better align the motivation of owners with what rewards are available. It seems like some owners want to win the Stanley Cup, while others are more content to be able to say they own a hockey team.

If a Division 1 team gets relegated, it will lose a lot of revenue and it must adhere to a lower salary cap in Division 2. So it must likely offload some highly paid players.

For Division 2 teams that get promoted, the owner has to decide what to do next. He or she will potentially have to increase the wage bill to meet the Division 1 floor.

Examples of Division 1 teams (profitable and “big-spending”) could be the New York Rangers, Vancouver Canucks, and Philadelphia Flyers, to name a few. Examples of Division 2 teams (currently unprofitable and not “big-spending”) could be the St. Louis Blues, Carolina Hurricanes, and Winnipeg Jets.

The first pick in the entry draft would go to the last-place team in Division 2, with picks allotted in the reverse order of the standings. The Stanley Cup champion would pick last.

In English football, for example, there is no salary cap/floor and the teams that spend the most on players generally win more trophies. There are teams who are not willing or able to invest heavily in players and are thus not realistically thought of as challengers for major trophies. But these clubs exist, some are profitable, and they have very loyal fans.

Hockey GMs, in a cap system, need to optimize the use of their cap space. And this usage of cap space must be aligned with the motivations of the owner.

Certainly, the devil is in the details of this solution. It is an idealistic solution which has merit in that it tries to better align the motivations of owners by having some flexibility in the cap system.

With assistance from Bradley Uberig, a long-time hockey fan based in Ottawa.

Follow Rahul on Twitter @RV_ETSports

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