On Thurday night, Renaud Lavoie tweeted out that the NHLPA was planning on approving the salary cap escalator for 2016-17.
NHLPA will agree to exercise the escalator clause (5%) but wants to make sure everybody's on board before making it official.
— Renaud Lavoie (@renlavoietva) June 17, 2016
As he is based in Montreal, the original tweet was in barbaric Hab-speak, and will not be repeated here
(Yeah, I was writing Friday’s morning article at the time, but I was on a roll so I left it ’till this morning.)
So what does that mean?
It means that the NHLPA is allowing the league to raise the salary cap by 5% based on an assumption of revenue increasing year-over-year. The salary cap will thus be higher than it would be using the ‘safe’ conservative estimate based on 2015-16 revenues. This is known as the salary cap escalator.
“I’m a Doctor, not an escalator!”
Last year’s salary cap was $71.4 million (US$). In December, Gary Bettman estimated the cap could rise by $3M for the 2016-17 season. This estimate assumed that the players would approve the escalator for another season.
And according to this TSN reporter, Bill Daly provided a more specific estimate this March:
Bill Daly said next year's salary cap will be at $74 million with the escalator and flat without it.
— Frank Seravalli (@frank_seravalli) March 16, 2016
And most recently, Larry Brooks reports that the cap could actually shrink if the escalator is not invoked to ~$69.3M.
The players usually agree to the extra cap space, but have been known to say no, and this was a controversial topic last spring.
You may be asking yourself, if voting yes means a higher salary cap, then why would the players ever say no?
Well, one sticking point is the amount of money the players have to set aside to account for changes in the cap. The players have to put some of their money into an ‘escrow account’ to handle the case where the salary cap goes down relative to the original estimate. This adds up to ~15% of their pay that is witheld from their checks until the actual cap numbers are figured out. This is money that they cannot invest or spend until it is released. (However, see below…)
A bigger factor is new contracts vs existing contracts. The final salary cap is a fixed number league-wide – essentially 50% of all “Hockey Related Revenue” divided by 30 teams. Players getting new contracts want the cap estimate to go up, so they can negotiate bigger contracts. Players with existing contracts want the cap estimates to be more conservative, so they are not at risk of losing some of that escrow money. If the league allocates more money than they actually have, due to lousy estimates, some of that escrow money is given back to the teams rather than the players. — This is not something they would be happy about, and it apparently happens.
So there are conflicting motivations — if they don’t approve the bump, then salaries across the league grow more slowly. If they are too aggressive in approving it, veterans don’t get all the money they negotiated for.
However, this year it seems like the two factions will come together quickly.
Good morning, hockey fans!
Live long and prosper.