It's time to institute a luxury tax

[Steamy Ray Vaughn]

I searched the forums and couldn't find anything recent where there was a discussion of this topic but I know it's been raised before. I think the NHL needs to institute a luxury tax on top of it's current salary cap system. I know already some will say that it shouldn't be done because it would "Hurt parity" but let's look at it like this:

Since the implementation of the cap, 12 different teams have won the Stanley Cup. Of those 12, 5 of them have won it multiple times. Markets like Vegas, Tampa Bay, Boston, Chicago, Los Angeles, Pittsburgh and Detroit have been the most successful and apart from LA, these were not the first time those teams touched the Cup. 11 teams have participated in a cup final without winning, so out of 32 teams, 25 of them have made it to the Cup final at least once. 2 teams have won back to back cups that being the Penguins and the Lightning.

There have been 18 seasons since the Cap was installed (this is currently the 19th underway). And in the 18 seasons prior, there are been 10 teams that won the cup. 11 different teams made the finals without winning at least once, so out of 30 teams (which was the number as of the year 2000) there had been 21 teams that have made it to the cup finals at least once. In those 18 years the NHL expanded from 21 to 30 teams. 2 teams won back to back cups in those 18 seasons the Penguins and the Red Wings.

The sport of hockey is not one that lends itself to Super team dominance given the number of team and the fact that chemistry plays a big part of it. If it were all about who spends the most money, we'd expect to see teams like Montreal, Toronto and New York win championship after championship, yet the last time that happened was in 1994, 30 years ago. If the problem was just big markets outspending the smaller ones, we'd be seeing a lot more of the same teams in the finals and winning championships. yet the numbers are very similar.

The idea of the cap (apart from controlling escalating salaries) was that it would allow more parity because teams wouldn't be able to sign their big stars and hence you'd see more superstars emerge in non-traditional markets, helping the game grow. However, what's actually happened is that because teams prioritize retaining their stars above all, it's lower level free agents that are hitting the market. Guys who are good players but not necessarily game changers on the levels of a McDavid, Matthews, Crosby and many others. If you didn't draft a superstar or can't swing a trade for one, you have to overpay to get these guys and so this inflates salaries all around the league. The cap isn't rising fast enough to meet demand and so you end up with some of the greatest players in the NHL not being able to reach the finals, much less touch Lord Stanley himself. This is a problem. Wouldn't it be great for the NHL if Connor McDavid could go on ESPN with the Stanley Cup? Or Auston Matthews?

I think the NHL should add a luxury tax on top of the salary cap. The idea would be that teams can go over the cap but pay a penalty equivalent to how much more they spend:

For the first 10% over the cap ceiling, it'd be a 100% equivalent penalty. Meaning if you are $4M over the cap, you must pay an extra $4M to the other teams in the league who didn't go over the cap. 10-25% would be 150%, 25-50% would be 200% and if you go over 50%, it's 500%+forfeiting your 2 next available 2 first round picks. The money would have to come out of ownership's profits, not Hockey related revenues. This is therefore extra money owners would have to pay.

This would allow big markets to retain their players IMO. It wouldn't hurt smaller markets because there's really only so much you can spend and as I've pointed out, spending more money doesn't mean you will win championships. It'd be a way to give the teams that have more money a bit more flexibility in building their rosters, possibly allow them to make the playoffs more often or stay in them a little longer. As for smaller market teams that can't go over the cap would get a way to be more competitive. It wouldn't hurt parity because there's many factors that go into a player choosing to sign with a team such as location, ice time, teammates, the organization and more.

I look at a team like the Leafs and they have 4 of the best offensive talents in the league but can't get out of the first round because their depth sucks. Leafs games in the playoffs bring in money not just in Toronto but everywhere as Toronto fans will travel to see the team. That means more revenue in the league pie and the cap can rise thus making the Luxury tax a bonus.

I think the current system hasn't really worked in making the overall game better. Given that there's only so much top talent and so much ice time, there will always be parity. How about just giving your biggest markets a little shot in the arm given they already have to finance other teams?

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[LPHabsFan]

It's really not.

 

[BigT2002]

You don't remember Colorado and Detroit in the early 2000s before the cap went into effect, I take it. There is a reason the Red Wings were called the Ice Yankees.

Shanahan	Fedorov	Holmstrom
Robitaille	Datsyuk	Hull
Maltby	Yzerman	Williams
Devereaux	Draper	McCarty

Lidstrom - Chelios
Dandenult - Fischer
Olausson - Duchesne

Hasek
Legace

Colorado was just as sick in 2004:

Kariya, Tanguay, Forsberg, Hejduk, Hinote, Selanne, Black, Foote, John-Michael Liles, Salo and Aebischer, Sakic

Yes, these teams lost in the regular season but were STACKED with talent. The only issue I have in today's game is they should be implementing a luxury tax on teams when they obliterate their cap when it comes time for the playoffs. Tampa and Vegas don't even hide it. Frankly, if players haven't played 20% of the season, they should be ineligible for the playoffs. Or, at the very least, the first 2 rounds.

 

[LPHabsFan]

You don't remember Colorado and Detroit in the early 2000s before the cap went into effect, I take it. There is a reason the Red Wings were called the Ice Yankees.

Shanahan	Fedorov	Holmstrom
Robitaille	Datsyuk	Hull
Maltby	Yzerman	Williams
Devereaux	Draper	McCarty

Lidstrom - Chelios
Dandenult - Fischer
Olausson - Duchesne

Hasek
Legace

Colorado was just as sick in 2004:

Kariya, Tanguay, Forsberg, Hejduk, Hinote, Selanne, Black, Foote, John-Michael Liles, Salo and Aebischer, Sakic

Yes, these teams lost in the regular season but were STACKED with talent. The only issue I have in today's game is they should be implementing a luxury tax on teams when they obliterate their cap when it comes time for the playoffs. Tampa and Vegas don't even hide it. Frankly, if players haven't played 20% of the season, they should be ineligible for the playoffs. Or, at the very least, the first 2 rounds.

Don't forget the Rangers....

 

[Barclay Donaldson]

The current system works fairly well and is far better than the system you are suggesting.

Luxury tax just encourages teams to buy everyone, which is something you can do. See the patently unfair advantage American teams have over Canadian teams due to tax rates. See the patently unfair advantage which American states with no income tax have over other states. Keep things even. If it isn't broken, then don't fix it. The NHL isn't desperate for funds, they're financially doing pretty effing good.

Keep it as even as possible. Any one of the 16 teams which make playoffs can win the cup. Solid teams can be built and maintained for 5-10 years, but the dynasties don't last past 2-3 years. With teams increasingly building through the draft and developing in the AHL while relying far less on marquis free agent acquisitions, that parity will increase as well.

 

[CokenoPepsi]

And hereeee comes the lockout

 

[edog37]

 

[Melrose Munch]

As we know, Pittsburgh needs all the help they can get so people come...

The current system works fairly well and is far better than the system you are suggesting.

Luxury tax just encourages teams to buy everyone, which is something you can do. See the patently unfair advantage American teams have over Canadian teams due to tax rates. See the patently unfair advantage which American states with no income tax have over other states. Keep things even. If it isn't broken, then don't fix it. The NHL isn't desperate for funds, they're financially doing pretty effing good.

Keep it as even as possible. Any one of the 16 teams which make playoffs can win the cup. Solid teams can be built and maintained for 5-10 years, but the dynasties don't last past 2-3 years. With teams increasingly building through the draft and developing in the AHL while relying far less on marquis free agent acquisitions, that parity will increase as well.

This is patently false at this point. The cap is for cost certainty, not parity. As long as the NTCs and NMCs exist, the playing field will never be fair.

 

[Reaser]

Don't forget the Rangers....

The last season without a salary cap the Rangers missed the playoffs despite what they spent. The Lightning, especially then from a so-called non-traditional hockey market, won the Cup and weren't even in the top half of the league in payroll. Flames, not from one of the big 3 Canadian markets, lost in the Cup Final. Also not in the top half in player salaries.

That's literally the most recent non-salary cap season and thus the most apt example to use of "what it would be like."

As opposed to the usual respones in these type of threads of: "Rangers and Leafs would just buy all the players and win the Cup every year" as if that's how it was prior to the salary cap being implemented. It wasn't like that, at all.

The team that literally spent the least on players/their roster made the playoffs in the final year of no salary cap.

The salary cap also wasn't implemented for on-ice competitive balance/parity reasons.

The numbers for those interested:

Final season without a salary cap: 2003/04

4 of the 10 highest spending teams MISSED the playoffs, including the team with the 2nd highest payroll.

The team with the highest payroll won one series then lost in the conference semifinals. Same playoff round the team 17th in payroll lost in.

3 of the bottom half (16th-30th in payroll) in payroll made-up 3 of the 4 conference finalists.

The team in 20th in payroll won the Stanley Cup.
The team in 18th in payroll lost in the SCF.
The team in 19th in payroll lost in the Conference Finals.

The team that spent the least, last in payroll (30th out of 30,) made the playoffs.

We don't have to live in a fantasyland and make-up outcomes of what would happen and act like the 16 teams that spent the most on players would be the 16 playoff teams and the team that spent the most on players would beat the team that spent the 2nd most on players in the Stanley Cup Final year-after-year. That's not what happened then and thus is not what would happen now.

FWIW, I'm not in favor of a luxury tax. Just correcting how people incorrectly view history.

 

[mouser]

One of the most important factors helping many of the lower budget teams to remain competitive in the pre-cap era was players didn't hit UFA until age 31. UFA has since been lowered to age 25-27 depending on accrued seasons.

 

[Headshot77]

Nah I like the salary cap. I like that every franchise is on a relatively level playing field. Now, the cap should probably be significantly higher than it is. But a hard cap, IMO, is good for league parity. I feel like my NHL franchise has more of a chance to win it every year than my MLB franchise, because in the MLB rosters are literally stacked and you have teams like the Dodgers playing against glorified AAA teams.

 

[Steamy Ray Vaughn]

You don't remember Colorado and Detroit in the early 2000s before the cap went into effect, I take it. There is a reason the Red Wings were called the Ice Yankees.

Shanahan	Fedorov	Holmstrom
Robitaille	Datsyuk	Hull
Maltby	Yzerman	Williams
Devereaux	Draper	McCarty

Lidstrom - Chelios
Dandenult - Fischer
Olausson - Duchesne

Hasek
Legace

Colorado was just as sick in 2004:

Kariya, Tanguay, Forsberg, Hejduk, Hinote, Selanne, Black, Foote, John-Michael Liles, Salo and Aebischer, Sakic

Yes, these teams lost in the regular season but were STACKED with talent. The only issue I have in today's game is they should be implementing a luxury tax on teams when they obliterate their cap when it comes time for the playoffs. Tampa and Vegas don't even hide it. Frankly, if players haven't played 20% of the season, they should be ineligible for the playoffs. Or, at the very least, the first 2 rounds.

Of course. This is why I am not advocating for an end to the salary cap. A luxury tax is basically just a compromise between a hard cap and no cap at all. You still have spending limits and the penalties I proposed can be harsher. Let's go to 200% penalty to start instead of 100%, I'd be Ok with that. I also put the 500%+2 1st penalty just so that teams have a point where they have to consider if it's worth it more than 50% above the cap ceiling.

LTIR is already a sort of cap circumvention given players who are de facto retired will not count on the books because they're technically still on the roster even though they'll never play again and of course the situation you're mentioning where players stay on LTIR for the regular season before making a comeback for the playoffs.

And hereeee comes the lockout

If I were the players I would trigger a lockout given how their salaries are being kept down by the NHL's business failures which means the cap is stagnant.

 

[Steamy Ray Vaughn]

Nah I like the salary cap. I like that every franchise is on a relatively level playing field. Now, the cap should probably be significantly higher than it is. But a hard cap, IMO, is good for league parity. I feel like my NHL franchise has more of a chance to win it every year than my MLB franchise, because in the MLB rosters are literally stacked and you have teams like the Dodgers playing against glorified AAA teams.

I get that, but hockey is a different game than baseball. I'd say baseball is an team sport but comprised of individuals. You don't need your centerfielder to have chemistry with your first baseman the way you do in hockey. You also can't apply the same kind of defensive tactics to shut down an opponent. There's one pitcher and one batter at a time. Either the batter will hit the ball or strike out. Once the ball is hit, well then it's physics.

Look at the game that the Red Army played against the Flyers in the 70's. The Red Army were on paper the far superior team, but they got abused and beaten up to such a point they were walking out rather than continuing to play.

That being said, I do think a cap is fine because of cost certainty, it allows franchises to be more stable and avoid things like New York offering Joe Sakic $21M in 1997 (the equivalent of about $41M in today's money) for 3 years as an RFA. But the cap system in it's current form isn't working because as I mentioned in the original post, it's artificially inflating salaries by making it so that the people who hit UFA get massive deals that throw the entire system out of whack because teams won't let their true superstars walk.

 

[tucker3434]

Luxury tax is a step taken on the way to a hard cap. The NHL just skipped it.

Teams are able to wins cups with the cap in place. If McDavid or Matthews want a cup, somebody go tell their management to quit making mistakes (although the Oil appear to finally be in decent shape). That’s not the leagues problem to fix. It isn’t the leagues fault that both of those team wasted the RFA years of their stars when it’s easiest to win.

 

[Steamy Ray Vaughn]

Luxury tax is a step taken on the way to a hard cap. The NHL just skipped it.

Teams are able to wins cups with the cap in place. If McDavid or Matthews want a cup, somebody go tell their management to quit making mistakes (although the Oil appear to finally be in decent shape). That’s not the leagues problem to fix. It isn’t the leagues fault that both of those team wasted the RFA years of their stars when it’s easiest to win.

The problem is that you have only 3 years nowadays before stars can cash in. The bridge contract is getting rarer and rarer as RFAs will just sit if they don't get the bag right away. Once the entry-level contract is finished, even if they are not UFAs, star players still have massive leverage. I wouldn't be in favour or restricting players salaries, that's not fair to them. It's a good thing that they're getting more money younger given how dangerous the sport is.

I don't think the NHL anticipated that salaries would explode so fast and that league revenues wouldn't grow along. The idea for a hard cap made sense coming back from a lockout. If you go straight to luxury tax, then you're setting yourself up for another conflict down the road if you see it's not working and then want to go hard cap. It's a much easier sell to the NHLPA to go back a step than up one.

 

[Tawnos]

All of this assumes that the big markets want to spend more on salaries and eat into their profits. They don't.

 

[Steamy Ray Vaughn]

All of this assumes that the big markets want to spend more on salaries and eat into their profits. They don't.

Well that's their choice. At least they have an option, which they don't have now.

 

[Tawnos]

Well that's their choice. At least they have an option, which they don't have now.

That's a great theory, but that's not how it would work in practice. If it's allowed, there's always going to be an arms race. The truth is that the big market owners are perfectly content to have an imposed limit on their spending. The small and medium market owners are happy to have a system where the big markets can't buy up all the talent.

I really would be surprised if there was a single owner in favor of a luxury tax proposal. That means the idea is DOA.

 

[Steamy Ray Vaughn]

That's a great theory, but that's not how it would work in practice. If it's allowed, there's always going to be an arms race. The truth is that the big market owners are perfectly content to have an imposed limit on their spending. The small and medium market owners are happy to have a system where the big markets can't buy up all the talent.

I really would be surprised if there was a single owner in favor of a luxury tax proposal. That means the idea is DOA.

I think some of the richer owners might be open to the idea. MLSE would love to be able to host a few extra sold out playoff games, that's massive amounts of revenue right there given how rabid that fanbase is and how desperate they are for playoff success. Just making the ECF would be a massive boost to the coffers.

 

[tucker3434]

The problem is that you have only 3 years nowadays before stars can cash in. The bridge contract is getting rarer and rarer as RFAs will just sit if they don't get the bag right away. Once the entry-level contract is finished, even if they are not UFAs, star players still have massive leverage. I wouldn't be in favour or restricting players salaries, that's not fair to them. It's a good thing that they're getting more money younger given how dangerous the sport is.

I don't think the NHL anticipated that salaries would explode so fast and that league revenues wouldn't grow along. The idea for a hard cap made sense coming back from a lockout. If you go straight to luxury tax, then you're setting yourself up for another conflict down the road if you see it's not working and then want to go hard cap. It's a much easier sell to the NHLPA to go back a step than up one.

Plenty of RFA deals are fine. McDavid’s RFA deal was 15.7% of the cap when it was signed. Crosby’s was 15.3%. Makar has a $9m cap hit. Rantanen is similar. Matthews isn’t bad either considering how many Rockets he’s piling up. Other than Marner, where are all these terrible RFA deals?

 

[Tawnos]

I think some of the richer owners might be open to the idea. MLSE would love to be able to host a few extra sold out playoff games, that's massive amounts of revenue right there given how rabid that fanbase is and how desperate they are for playoff success. Just making the ECF would be a massive boost to the coffers.

You're really overestimating how much profit they'd stand to make from playoff revenue in this scenario. First of all, 50% of that playoff revenue is going to the players in the first place. I think it was estimated around Covid that the Leafs were generating $7m per playoff game (in other words, that's how much they were standing to lose from the shutdown). $3.5m of that is going to the players.

If the Leafs max out the first tier of luxury tax spending in your proposal, that means they're spending an extra $17.5 million in salary. That means they're going to have to get an extra 5 home playoff games just to break even.

 

[Steamy Ray Vaughn]

Plenty of RFA deals are fine. McDavid’s RFA deal was 15.7% of the cap when it was signed. Crosby’s was 15.3%. Makar has a $9m cap hit. Rantanen is similar. Matthews isn’t bad either considering how many Rockets he’s piling up. Other than Marner, where are all these terrible RFA deals?

They're not terrible. They're just very expensive and take up a lot of room. 16% of the cap is a lot for one player when you need 20 to dress a full team. And then you need extra players to put in the lineup when another player gets injured.

You either pay the player that money or risk alienating him and then he will eventually walk or demand a trade.

 

[Steamy Ray Vaughn]

You're really overestimating how much profit they'd stand to make from playoff revenue in this scenario. First of all, 50% of that playoff revenue is going to the players in the first place. I think it was estimated around Covid that the Leafs were generating $7m per playoff game (in other words, that's how much they were standing to lose from the shutdown). $3.5m of that is going to the players.

If the Leafs max out the first tier of luxury tax spending in your proposal, that means they're spending an extra $17.5 million in salary. That means they're going to have to get an extra 5 home playoff games just to break even.

5 home games is not a lot. One 7 game series would give you either 3 or 4 home games depending on if you have home ice advantage or not. After that you're guaranteed at least 2 more home playoff games.

I'm confused about the 50% goes to the players. Isn't the deal that the entirety of player salaries can't be more than 50% of HRR? That's why there's Escrow so if revenues fall below that threshold, the owners will take some of the money out of that escrow account to compensate? And if revenues go over, then the cap rises?

 

[Tawnos]

5 home games is not a lot. One 7 game series would give you either 3 or 4 home games depending on if you have home ice advantage or not. After that you're guaranteed at least 2 more home playoff games.

I'm confused about the 50% goes to the players. Isn't the deal that the entirety of player salaries can't be more than 50% of HRR? That's why there's Escrow so if revenues fall below that threshold, the owners will take some of the money out of that escrow account to compensate? And if revenues go over, then the cap rises?

The deal is that 50% of revenue is required to go to the players. If it turns out that the teams spent more than 50% of the final HRR number, then the players owe the owners money (escrow is money set aside for this purpose). If it turns out that the teams spent less than 50% of the final HRR number, then the owners owe the players money. The amount of the cap has nothing to do with whether or not teams spent more or less than 50% of HRR in the previous season.

And it's not 5 home games we're talking about. It's 5 additional home games that they wouldn't have otherwise gotten without spending above the cap. You'd need at least two rounds beyond where the team would go without spending the luxury tax. It's a little harder to prove the difference between the below cap team and above cap team, but either way 5 extra home playoff games is a lot.

 

[Steamy Ray Vaughn]

The deal is that 50% of revenue is required to go to the players. If it turns out that the teams spent more than 50% of the final HRR number, then the players owe the owners money (escrow is money set aside for this purpose). If it turns out that the teams spent less than 50% of the final HRR number, then the owners owe the players money. The amount of the cap has nothing to do with whether or not teams spent more or less than 50% of HRR in the previous season.

And it's not 5 home games we're talking about. It's 5 additional home games that they wouldn't have otherwise gotten without spending above the cap. You'd need at least two rounds beyond where the team would go without spending the luxury tax. It's a little harder to prove the difference between the below cap team and above cap team, but either way 5 extra home playoff games is a lot.

I don't get the 5 extra games thing. The Leafs in their current state make a lot of money despite spending a lot. Heck they even give their star players massive signing bonuses upfront. I found a site that estimated last year's Leafs revenues at $281M. Clearly player salaries are not the only expense and that's gross revenue not net. Would they be making less profit by spending more? OF course, but I think the extra playoff games would more than compensate. It's not just the ticket sales that would go up. Sportsnet ratings would be better (and given that Rogers owns both the network and the team, that means more ad revenue), merchandise sales would go up as well so in the end, I think they would end up ahead in terms of generating extra revenue to offset the money spent on a luxury tax.