The Los Angeles Kings weren’t exactly flush with cap space when the 2014 NHL trade deadline rolled around in early March, and so they had a relatively modest deadline, as contenders go.
It wasn’t the money they had, however, that kept the Kings from going any bigger at the deadline — it was the money they’d need down the road.
A road that increasingly points toward a salary cap that isn’t going gangbusters the way it did following the 2005 lockout.
As deadlines go, LA Kings GM Dean Lombardi didn’t exactly steal the show. That cloudy cap forecast is part of the reason why.
Lombardi’s low-scoring Kings team acquired Columbus sniper Marian Gaborik (who is acquitting himself quite well, with 9 goals and 15 points in the postseason so far), but the team otherwise remained quiet.
Lombardi illuminated an issue that explained their relatively slow deadline day, one that will gain much more attention as next season draws near.
Asked about his contract negotiations with defenseman Matt Greene, who is eligible for unrestricted free agency this summer, Lombardi said he was told the salary cap, initially projected to rise to about $71 million next season, will be significantly lower because of the recent weakness of the Canadian dollar. Lombardi said he verified that through the league. The drop will affect whether he can keep Greene, Willie Mitchell and Trevor Lewis, and it undoubtedly affected deadline-day decisions around the league.
“We found out, to our chagrin and surprise the other day, we had been told the cap was going to be $71 [million] and now with the Canadian dollar having tanked, that the cap could be as low as $68 [million]. That’s a huge swing,” Lombardi said. “So that’s more of the talks with our three guys, Mitchell, Lewis and Greene, who we’d all like to bring back.
“That’s more of a hindrance than anything we acquired today. “
Indeed, with the Canadian-US exchange rate trending out of favor of the Canadian currencies, in conflict with what had been the pattern through most of the post-2005 seasons, those initial, lofty cap projections are leaving the teams that counted on its continued upward trajectory in a bit of a bind.
Currently, the Canadian dollar is trading at 92 cents of the U.S. dollar. And while the NHL conducts its business in U.S. currency from its New York headquarters, the league also has seven Canada-based member clubs whose finances are conducted in Canadian currencies.
According to Forbes, three of the top-four highest-earning teams in the NHL in terms of revenue, Toronto, Montreal and Vancouver, are based in Canada.
No small percentage of the league’s revenue is earned in the hockey-mad country, making any fluctuations in the exchange rate big news, indeed.
With the currencies trading places, the latest release from NHL Commissioner Gary Bettman projects the cap will land at around $70 million, or less.
“Well we’ve said, and these are rough, rough projections because we don’t have enough data yet, the guesstimate was around $71 million. With the Canadian dollar down, maybe it could be 69 or 70, in that range.
“But those are just rough estimates, nothing more than that at this point.”
The cap still has yet to be officially set for the upcoming season, but any ceiling below $70 million is going to be a bit of a shock to some clubs. Consider the following.
- As of today, four clubs — the Blackhawks, Flyers, Bruins and Canucks — would start next season within $10 million of a $69 million salary cap, and six others would be within $15 million of that ceiling, all without having yet fielded a complete 23-man NHL roster.
- This year’s salary cap is set at $64.3 million, an agreed upon number that was set as a condition of resolving the 2012 NHL Lockout. That number is identical to the 2011 salary cap ceiling. The 2013 salary cap, which was based on projections not yet interrupted by the last lockout, stood at $70.2 million. Anything less than that would represent a relative slowdown in the growth of league revenues and, subsequently, the cap ceiling.
- Given the new 8-year limit on free agent contract extensions (and 7-year limits on players signing with new clubs), there is less term over which teams can spread the AAV (annual average value) of a player’s contract. The difference is made up in higher AAV’s than were seen prior to the 2013 Collective Bargaining Agreement.
Last season, teams were able to spend to an adjusted limit of $70.2 million, with the known condition that the cap ceiling would fall coming into the current year.
That’s not to say that clubs didn’t struggle with the adjustment.
Troubles were most apparent among the league’s top spenders. The Boston Bruins had a number of contracts, notably Jarome Iginla‘s, loaded with performance incentives in lieu of guaranteed payments.
Many of those performance barometers were hit, meaning the Bruins will carry a $3.7 million bonus overage penalty against their cap ceiling for the upcoming year (Detroit is subject to such a penalty as well, though their pending contract obligations total some $11 million less than the Bruins).
[caption id="attachment_2064" align="alignright" width="300"] The NHl salary cap ceiling has increased in every year since its inception, but with new term limits on player contracts, teams will be pressured to continue complying with the cap.[/caption]
For other clubs, even fielding a whole roster at the season’s outset was a struggle. The Pittsburgh Penguins were in serious danger of needing to deal Matt Niskanen before the season began, just in order to become cap compliant.
Niskanen turned out to be the team’s best defenseman throughout an injury-riddled campaign, but was perhaps only still with the team because of unforeseen cap savings that came as Tomas Vokoun, Pascal Dupuis and others were injured, leading to long-term injured reserve cap space recapture.
Teams lived on the fringes in that first post-lockout season with the understanding that the cap would be going back up.
However, the inflated AAV of contracts negotiated under the new CBA is going to exert new pressure on a team’s cap situation. That means that even as the cap goes up, anything less than a considerable annual increase is going to make life difficult on teams already living near the upper limits of the payroll cap.
The NHL salary cap was first instituted in the 2005-06 season, the crowning achievement (saving grace?) of the 2005 lockout.
The cap has increased in every season since then, from an initial upper limit of $39 million in 2005-06 to the $70 million-ish upper limit that figures to be set for the upcoming season.
As the cap is tied to league revenues, it will only remain healthy as long as the league continues to make money. In that sense, both the NHL and its salary structure have been a success.
And don’t discount for a second how important those revenues are to the NHL. It’s the reason the league hosted six outdoor games this year, and why the talk of two expansion teams being added in the coming years is more than so much bluster.
If trends hold steady, there’s a chance that the cap could as much as double in its first decade of existence.
For teams that have become accustomed to working around the limits of the cap, the realities of the new CBA (and the timing of the exchange rate change) are going to make the transition to the new finances of the NHL more painful than anyone might have guessed.
Lots of datas here, most courtesy of CapGeek unless otherwise noted.