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How the NHL could fix the salary cap

We’ve already determined that it’s a broken system, now we’ll look at how to fix it.

Carolina Hurricanes v Philadelphia Flyers Photo by Len Redkoles/NHLI via Getty Images

Although I disparaged the many shortcomings of the current salary cap set-up, I don’t think that the NHL should simply cut the cap idea out of the league entirely. As there are negatives, there are also positives that can come out of such a system. The idea of level competition arising via the revenue sharing scheme is a solid idea and, in theory, creates parity.

Now, whether or not every club has an equal shot of winning the league is a debate within itself. The St. Louis Blues (in favor, due to going from worst to first) and the Ottawa Senators (not in favor, because we knew they were going nowhere) are examples of both sides of the argument. However, the point stands that regardless of one’s opinion on the matter, this notion of parity was created due to the salary cap and the revenue sharing provisions of the current CBA. As I noted in the previous article, the current salary cap system is flawed, and is stopping the growth of hockey. However, this does not mean that the system cannot be improved upon to make it work. I suggested that perhaps the cap could be increased “substantively to a point where it is not being held unnaturally low” to accommodate for increasing player salaries. However, there are other ways to which the salary cap could be altered:

Increasing the fixed percentage used to calculate the cap

Building off of what I had suggested, this could be a possible alteration to the current cap system. As I wrote previously:

“...the cap has been calculated as a fixed percentage of total league revenue from the previous season. This percentage currently stands at 57% of league revenue.”

A simple way to change the system would be to alter the percentage figure which is used to calculate the cap ceiling. If this were done, using the same league revenue and escrow that are currently in place, the cap ceiling would look like this (assuming no manual changes):

Potential Cap Ceilings

Percentage Cap Ceiling
Percentage Cap Ceiling
57.00% $81,500,000.00
60.00% $85,800,000.00
63.00% $90,000,000.00
65.00% $92,900,000.00
70.00% $100,000,000.00

While I’m not in favor of a 70% percentage calculation, a figure in the middle of those listed, say somewhere in between 60-63% percent of league revenue, would be a healthy place to set a cap calculation. Since player salaries, in terms of cap Average Annual Value, are only going to increase, the cap needs to follow suit. Following some of the perceived to be inflated contracts that were handed out (possibly in preparation for a lockout), it became evident to me that the increase in the cap is not following in trend with player valuation. Even a 3.0% increase in the fixed league revenue rate for which the cap is calculated would provide a stipend of sorts for teams to keep young talent in demand of large contracts, while also not pricing out smaller budget/market teams.

One probable ramification of this increased percentage, however, would be an increase in escrow due to these increasing salaries. Owners will almost certainly demand a larger percentage of salary withheld from players if the percentage of league revenue used to calculate the cap increases. While the NHL has stated that it wishes to keep escrow as low as possible, it will almost certainly increase in this scenario as the cap increases and more revenue is needed to achieve a 50-50 team to player balance.

Instituting a soft cap

As is evident from the name, a ‘soft’ salary cap is not a hard cap on spending, but is still nevertheless a revenue sharing program. Such examples include the luxury tax in baseball, which does not limit spending but introduced a threshold of total salary. If a club spends over that amount (which changes each year) they must pay a percent of every dollar (20% for the first season a club is over, 30% for the second, and 50% for the third or more) for which their payroll exceeds the limit. This amount payed is then equally distributed to all other clubs that do not exceed the luxury tax threshold.

While I am not advocating an exact luxury tax system present in the MLB for the NHL, a soft cap system could work for the NHL if a percentage of revenue on the dollar for teams in violation were distributed to teams that are struggling to afford players. This revenue could be distributed to the clubs in the bottom percentages of revenue generation, and in the case of excess revenue it could be more evenly distributed to all other clubs, or even to programs that the NHL sponsors.

Comments on the previous article, pointed out that both soft cap systems found in the MLB and hard cap systems like the NHL both possess unequal contract to talent scales. This is true, and is probably the reason why this is my least favorite of the options to alter the NHL’s salary cap situation. It does not provide a solution to undervaluing talent.

A system based on more arbitration

On the previous article, there was the following comment from user Jeff Paul_16 who wrote:

“Would a system with more arbitration or mediation, setting contract stipulations be effective? For Example: Team A won’t be allowed to pay a $5 million AAV (max) talent player $7 million AAV, just because they have more money or flexibility than his former club. It would be a way to avoid exploiting a team, similar to the Leafs in this Mitch Marner scenario. Also on the opposite end of the spectrum, it could provide guidelines prohibiting a team from paying a player like Kevin Lebanc $1 million, if he is evaluated as a $3 million AAV (minimum) player. Some kind of guidelines need to be set because players cutting teams discount deals also undermines the cap system.”

This is a very interesting idea which would have very interesting effects. While salary arbitration exists in the NHL, it is a concept that is more closely associated with baseball due to the openness of the MLB’s market. The addition of more arbitration and mediation regarding player contracts would result in an interesting dichotomy about the valuation of talent. While there is already a fairly implicit understanding of understanding a player’s value on ice correlating to contract value, a system in which more arbitration exists would codify these implicit understandings more clearly. This is because the rulings of the independent arbitrators would inherently set the standard for what the definition of a “$5 million AAV” player is.

While players would have the opportunity to plead a case for their own valuation at the arbitration hearing, this type of system would take the power balance aspect of contract negotiations out of the NHL. The arbitrator ultimately rules in favor or either the team or the player, though this is exactly what it is: a ruling. This no longer becomes a battle between the player (rather the player’s agent) and the team. The system at play now involves the player and team presenting their cases to a 3rd party, which effectively takes the bargaining power out of the hands of both parties, which would be very interesting.

Jeff also wrote:

“A system where homegrown talent retention has a separate money pool would be ideal so teams aren’t penalized for effectively drafting and developing too many of their players.”

This could work, though the first thought that popped into my head was that this could hurt veteran players if the size of the money pool or cap room allotted to drafted players was significantly different than a team’s normal allowance. While this may help teams hold on to and develop young players, this could also encourage teams to sign an increased level of their own drafted players to inexpensive contracts in order to save cap for more expensive veterans. This could affect veteran NHLers who are on mid to low end contracts. There is an argument though that this is a good thing, since it would hopefully discourage general managers from playing more expensive veterans over young talent, assuming the veteran in this case is “actually bad™” like say...Dale Weise or Jori Lehtera. Since it’s a theoretical, it could work out either way, but it is certainly an idea worth entertaining.


While the salary cap system currently in place is not perfect, the idea that it creates a level starting point for every team in the NHL is one of its greatest strengths. Losing this sense of fairness would hurt hockey, so scrapping the cap entirely is not ideal. It seems entirely attainable to strike a balance between keeping the fairness the cap provides while improving upon its doctrines and tweaking it slightly to prevent the flaws which hurt the growth of hockey.