NHL Math: When 51.6% Is Actually Less Than 50%

Jonathan Willis
August 29 2012 11:35AM

Details about the NHL’s new CBA proposal have come out – TSN has the details here - and at first glance it looks like a significant step in the right direction. There’s no roll-back, and the players will earn more than 50 percent of hockey-related revenue in the first two years of the deal, a little less in year three, and then 50 percent for the next three seasons. Given that most feel the deal will eventually be a 50/50 split between owners and players, that sounds fair, right?

It’s a step in the right direction, but the proposal is nowhere near as good as it looks at first blush.

Rollback

First, the lack of a rollback. The fact that the owners aren’t demanding a rollback doesn’t mean that they aren’t clawing money back from the players – as virtually everyone has pointed out, they’ll be doing it through escrow.

It is better than a rollback, because by the fourth year of the new deal the possibility is that the salary cap will be more or less where it is now. So, for players with more than three years on their current contracts, escrow will only hurt them bad for the first three years; a rollback would hurt them until the contract ran out. Still, until such time as the salary cap returns to where it is today, players will be giving the same money back that they would be under a rollback system.

The good news here: the league doesn’t plan to make the rollback a sticking point. The NHLPA has been dead-set against it, so a willingness to consider other mechanisms is good news.

50 Percent

We have two different pieces of information from Darren Dreger above. In Year One, players will collect 51.6% of the newly defined hockey-related revenue, and they’ll also have a salary cap of $58 million. What we’re interested in is what percentage they get of hockey-related revenue as currently defined.

Right now, the salary cap is set at $70.2 million. The player’s percentage – 57 percent – is calculated based on the salary midpoint, $8 million less than the cap. So, 57 percent of current hockey-related revenue is the same as 30 teams spending $62.2 million, the mid-point between the salary cap and salary floor.

What we don’t know is whether the NHL is calculating the midpoint as they do currently ($8 million below the cap) or as they suggested it be calculated in their original proposal ($4 million below the cap). Let’s look at both cases.

If the cap/midpoint are calculated under the current rules:

  • Then a salary cap of $58 million means a salary mid-point of $50 million.
  • That $50 million is to X percentage as $62.2 million is to 57 percent
  • Therefore, we divide $50 million by $62.2 million, and multiply the result by 57 percent…
  • And we get the player’s share in Year One as 45.8 percent of hockey-related revenue
  • As per Eric T.'s comment below, the calculation above doesn't include the 5% escalator
  • When we recalculate for the 5% escalator (by reducing 62.2/1.05), we end up at 48.1 percent HRR

If the cap/midpoint are calculated under the rules proposed by the NHL in their initial offer:

  • Then a salary cap of $58 million means a salary mid-point of $54 million.
  • That $54 million is to X percentage as $62.2 million is to 57 percent
  • Therefore, we divide $54 million by $62.2 million, and multiply the result by 57 percent…
  • And we get the player’s share in Year One as 49.5 percent of hockey-related revenue
  • As per Eric T.'s comment below, the calculation above doesn't include the 5% escalator
  • When we recalculate for the 5% escalator, we end up at 52.0 percent HRR

Either way, it’s less than 50 percent. I suspect we’re looking at the former situation, which would be a small give on the league’s part. If we’re looking at the latter situation, than the NHL’s really moving forward from their initial offer.

Edit to add: I still suspect that we're looking at the former situation, but re-running the numbers to allow for the 5% escalator gives us an NHL offer that does represent a significant step forward from their original proposal. We're still looking at a steep decline for players - from 57 percent to 48 percent in year one - but that's a lot better than the 43 percent the league started out offering, and might be enough of a move to spark negotiations.

Regardless, one of the things that redefining hockey-related revenue does is give the league the ability to say “let’s do X percentage” when really they mean a lower number. Given that perception is that the NFL and NBA settled around the 50 percent mark, that’s a perception that plays in the league’s favour as they push for those numbers.

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Jonathan Willis is Managing Editor of the Nation Network. He also currently writes for the Edmonton Journal's Cult of Hockey, Grantland, and Hockey Prospectus. His work has appeared at theScore, ESPN and Puck Daddy. He was previously founder and managing editor of Copper & Blue. Contact him at jonathan (dot) willis (at) live (dot) ca.
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#1 daoust
August 29 2012, 12:03PM
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"Right now, the salary cap is set at $70.2 million. The player’s percentage – 57 percent – is calculated based on the salary midpoint, $8 million less than the cap. So, 57 percent of current hockey-related revenue is the same as 30 teams spending $62.2 million, the mid-point between the salary cap and salary floor."

I'm confused - does this mean the players were actually getting less than 57 percent of HRR under the old CBA?

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#2 PopsTwitTar
August 29 2012, 12:11PM
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Interesting question for someone to ask the NHLPA - would players rather have a broader definition of HRR, and a lower %, or a narrower definition of HRR, and a higher.

On the one hand, I think the current definition of HRR is too narrowly-defined, if only for the fact that it does not include relocation/expansion fees. On the other hand, if they agree to a narrower definition of HRR in return for a higher %, that allows them greater potential for growth over a long-term CBA, and protects (somewhat) against the NHL trying to lower the % in the next round of talks.

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#3 Eric T.
August 29 2012, 12:16PM
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@daoust

No, it means that if the average team spent $8M less than the cap, the players would have gotten 57% of HRR.

If the average team was more than $8M under the cap, the players would have gotten less than 57%. However, if the average team was less than $8M under the cap, the players still only get 57% -- that's the purpose of escrow, to deduct a little from each player as needed to keep the total player payout from going higher than 57%.

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#4 Eric T.
August 29 2012, 12:23PM
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@PopsTwitTar

If you're suggesting two options that lead to the same total payout to the players this year, then I think they'd prefer a lower percentage of a broad definition for two reasons:

1) The two are the same if all types of revenue grow at the same rate. If you sign up to receive only certain types of revenue, you'll be afraid that the owners will then be incentivized to concentrate on growing the other types, where they reap 100% of the return instead of 50ish%, and you won't get your full share.

2) Since we can see that comparison to the split in other leagues is common, having the lower number works in your favor next time around. I suspect this matters more with the fans and media than at the bargaining table, but it could still matter (for example, many players likely have a narrow focus on the number similar to what most fans and media have, so a lower number may increase their resolve).

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#5 Eric T.
August 29 2012, 12:28PM
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I think the 5% escalator makes this math not quite work. $62.3M isn't 57% of this year's HRR under the old calculation; it's a 5% escalation over 57% of last year's HRR under the old calculation.

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#7 Eric T.
August 29 2012, 03:20PM
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Hm. This still doesn't seem right to me.

$62.2M / 1.05 isn't 57% of the HRR used for calculating this year's cap; it's 57% of the HRR used for calculating last year's cap. There's presumably some year-over-year growth that's not factored in.

If $62.2M is 5% growth over last year's 57% number, then last year's 57% number was $62.2M / 1.05 = $59.2M, which means last year's HRR was $59.2M / 0.57 = $103.9M.

If year-over-year growth was 3%, then this year's HRR would be $107M (under the old HRR definition) and a midpoint of $50M would represent 46.7% of HRR. If year-over-year growth was 10%, then this year's HRR would be $114.3M (under the old HRR definition) and a midpoint of $50M would represent 43.7% of HRR.

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#9 Tach
August 29 2012, 04:48PM
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The players get 57% under the current CBA regardless of whether all the contracts added together adds up to 57%. There is a clause in the CBA that provides for a gross up to all players if theo share of HRR came in under 57%.

I can't imagine they would agree to less in the next iteration.

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#10 Tach
August 29 2012, 04:51PM
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Go read 50.11(c) of the current CBA. The salary cap has nothing to do with whether the players get 57% of HRR.

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#12 Eric T.
August 29 2012, 10:50PM
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@Jonathan Willis

Ah, OK. I think I did have it wrong.

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#13 Tach
August 30 2012, 10:12AM
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@Jonathan Willis

The salary cap/floor is structured so that no one team pays too much more or too little than their share of the player's share of HRR, and in doing so helps the "salary" numbers be somewhat in line with what each players' share of HRR is at the end of the season - but that's it.

If every team spent at the floor, it would just mean a big cheque to each player at the end of the season (assuming HRR came in somewhere close to or above the preseason estimate the floor was based on).

That's why I find the various forms of the narrative "look at the contracts the owners are giving out! They don't need a new CBA!" so confounding. All the giant contracts do is a) screw over other players, and b) force that owners team to kick in a bigger share of the players' overall take. There is no inherent hypocrisy between "I am willing to pay 1/28 or 1/25 of player costs" and "I want player costs overall to decline/increase at a slower rate."

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