Tuesday, May 17, 2011

The NHL CBA has not helped small market teams

The NHL lockout and new collective bargaining agreement (CBA) were intended to stabilize the long-term viability of small market teams. The CBA introduces a salary cap that is tied to league revenues. It also introduces a minimum salary floor that has created a situation that is worse for small market teams. Columbus has reported huge losses and we know Phoenix is a basket case.

Just look around at how many teams are for sale - Phoenix, St. Louis, Dallas, Columbus, the Islanders and Atlanta, maybe more. Some have quietly been on the market for years. Several have been bankrupt and this is all post-lockout and under the new CBA. The guys in True North must be the most popular guys in the room when the NHL owners get together. Meanwhile the big market teams are even more profitable. Payrolls are stable but in some cases they can raise ticket prices faster than salaries because of demand for tickets in their market.

So what went wrong? How come the CBA hasn't provided financial parity?

Well look at how much the salary cap has increased (see below) under the CBA. On average about 10% per year. So why is this a problem if league revenues have increased by 10% per year as well? All league revenue is reported in American dollars but the Canadian teams collect revenue in Canadian dollars. Since the Canadian dollar has been rising, revenue from Canadian teams have been skewed by the strength of the Canadian currency. To make matters worse the highest ticket prices in the league are in Toronto, Montreal and Vancouver. So when these team raise their ticket prices the salary cap goes up for Phoenix and Florida.


Cap ($ million)

% change






















* 2011-12 salary cap is an estimate

When the salary cap goes up, so does the salary minimum. So over the past 6 seasons the teams who are trying to keep their salaries down must still spend on average 10% more each season although their revenue might not be going up at all. At least before the lockout, these teams could choose to keep salaries flat or even lower them in order to reduce losses. That might not be an option in some cases. The CBA forces them to lose money.

And if you think the salary cap has brought parity to the league - think again. When you divide the 30 NHL teams in 10 big market team, 10 mid market teams and 10 small market teams you will find that their success on the ice is partly determined by the size of the market. In the post-lockout era big market teams made the playoffs 70% of the time. If not for the incompetent Maple Leafs, the rate would be even higher. Mid market teams have a playoff success rate of 60%. The small market teams only make the playoffs 30% of the time.

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