Shedding Light on NHL Revenue Sharing

[handtrick]

Found this on another board....and it appears to clear up some things about who gets revenue sharing, what markers they have to stay below, escrows, the fabled "midpoint," etc:

There's an informative article in the 8/1/2005 issue of Sports Business Journal [http://www.sportsbusinessjournal.com/ ]that tackles the whole "midpoint" issue with regards to NHL revenue sharing, escrow, and payrolls. Obviously the confusion about this goes beyond this message board; the article states, "even some of the people who negotiated the deal confess they don't fully understand it all." To summarize the article:

Each year the league sets a payroll midpoint, equaling 54% of the avg. club's revenue
Teams can spend up to $8 mill. above or below the midpoint (the range is slightly higher for the 2005-06 season)
Since teams can spend anywhere in this $16 mill. range, there's a high probability that total compensation of players will be greater than 54%
To protect against such overpayment, the league requires a portion of each player's salary to be set in escrow; that money will be used as one of several sources to fund revenue sharing, which is designed to allow representative and competitive payrolls
Clubs start with 54% of their own revenues for payroll, and revenue sharing makes up the difference.

There are two batches of revenue sharing:
First batch - equal to 4.5% of league revenues (estimated to be $78 mill. this season); this batch aims to allow clubs to afford payrolls of $4 mill. below the midpoint; it is funded by league media revenue, playoff gate receipts, escrow funds, and top-grossing clubs

Second batch - designed to help clubs get to the midpoint but not over it; funded by excess escrow funds, if available

Any leftover escrow funds are to be distributed evenly between all 30 NHL clubs.

An example: a club has revenue of $50 mill. in a season when the midpoint is set at $32 mill. They would be able to afford a payroll of only $27 mill. (54% of their revenue) "in the league's eyes." They would receive, as the first batch of revenue sharing, $1 mill. from the league to get to within $4 mill. of the $32 mill. midpoint. The second batch (if they are eligible--see below), would provide up to an additional $4 mill., bringing them to the $32 mill. midpoint.

Rules:

Any club in the bottom half of revenues is eligible for the first batch (regardless of payroll amount)
Any club spending over the midpoint on player salaries is not eligible for the second batch
Clubs in markets with more than 2.5 mill. TV households are ineligible for revenue sharing
By the third year of the deal, clubs will have to grow revenues faster than the league avg. and have attendance of 75% of capacity to be eligible for their full revenue-sharing allotment
By the fourth year, the required attendace capacity increases to 80%
That's essentially the article. It doesn't answer every question but hopefully is a start at understanding this complex agreement.

To view the 8/1` archived article referenced above, unfortunately, you have to become a paid subscriber, and not just a "free trial" member.

[Ghost Dog]

So For This Season 28.6 million is the " But Not Over point" ?

[kdb209]

Originally Posted by handtrick

Found this on another board....and it appears to clear up some things about cap space, etc:

There's an informative article in the 8/1/2005 issue of that tackles the Sports Business Journal [http://www.sportsbusinessjournal.com/ ]whole "midpoint" issue with regards to NHL revenue sharing, escrow, and payrolls. Obviously the confusion about this goes beyond this message board; the article states, "even some of the people who negotiated the deal confess they don't fully understand it all." To summarize the article:

Each year the league sets a payroll midpoint, equaling 54% of the avg. club's revenue
Teams can spend up to $8 mill. above or below the midpoint (the range is slightly higher for the 2005-06 season)
Since teams can spend anywhere in this $16 mill. range, there's a high probability that total compensation of players will be greater than 54%
To protect against such overpayment, the league requires a portion of each player's salary to be set in escrow; that money will be used as one of several sources to fund revenue sharing, which is designed to allow representative and competitive payrolls
Clubs start with 54% of their own revenues for payroll, and revenue sharing makes up the difference.

There are two batches of revenue sharing:
First batch - equal to 4.5% of league revenues (estimated to be $78 mill. this season); this batch aims to allow clubs to afford payrolls of $4 mill. below the midpoint; it is funded by league media revenue, playoff gate receipts, escrow funds, and top-grossing clubs

Second batch - designed to help clubs get to the midpoint but not over it; funded by excess escrow funds, if available

Any leftover escrow funds are to be distributed evenly between all 30 NHL clubs.

An example: a club has revenue of $50 mill. in a season when the midpoint is set at $32 mill. They would be able to afford a payroll of only $27 mill. (54% of their revenue) "in the league's eyes." They would receive, as the first batch of revenue sharing, $1 mill. from the league to get to within $4 mill. of the $32 mill. midpoint. The second batch (if they are eligible--see below), would provide up to an additional $4 mill., bringing them to the $32 mill. midpoint.

Rules:

Any club in the bottom half of revenues is eligible for the first batch (regardless of payroll amount)
Any club spending over the midpoint on player salaries is not eligible for the second batch
Clubs in markets with more than 2.5 mill. TV households are ineligible for revenue sharing
By the third year of the deal, clubs will have to grow revenues faster than the league avg. and have attendance of 75% of capacity to be eligible for their full revenue-sharing allotment
By the fourth year, the required attendace capacity increases to 80%
That's essentially the article. It doesn't answer every question but hopefully is a start at understanding this complex agreement.

To view the 8/1` archived article referenced above, unfortunately, you have to become a paid subscriber, and not just a "free trial" member.

Thanks for posting this - Great, finally some real information.

I wonder if Andy Bernstein (SBJscribe) could find a way to make the whole article available to us.

What's the NHL afraid of? Why won't they release the damn thing.

[Captain Ron]

Originally Posted by kdb209

What's the NHL afraid of? Why won't they release the damn thing.

Somebody on a different thread said that the CBA would not be released to the public until the IIHL transfer agreement was signed.

I don't know if this is true. But it would explain why no CBA document has been released yet.

[Super Joe Sakic]

lol. funny how a large chunk of the revenues being shared with the bottom tiered clubs comes from the players themselves. this form of revenue sharing is a joke (which, as an avs fan, I'm grateful for because I want as little of my money funding other teams). they should instead rename it as a "financial assistance plan" as it closely mimics how much money canadian clubs were receiving from the "canadian assistance plan".

thx for the post btw. there was another important point that i found very interesting...the NHL intends to have a payroll gap of 16 M in the following seasons (as I understand from your post). this means if revenues reach 2.2 B in a few years (i.e. pre-lockout revenues), the cap becomes a lofty 48.3 M.

[Captain Ron]

Originally Posted by jericholic19

lol. funny how a large chunk of the revenues being shared with the bottom tiered clubs comes from the players themselves. this form of revenue sharing is a joke (which, as an avs fan, I'm grateful for because I want as little of my money funding other teams). they should instead rename it as a "financial assistance plan" as it closely mimics how much money canadian clubs were receiving from the "canadian assistance plan".

thx for the post btw. there was another important point that i found very interesting...the NHL intends to have a payroll gap of 16 M in the following seasons (as I understand from your post). this means if revenues reach 2.2 B in a few years (i.e. pre-lockout revenues), the cap becomes a lofty 48.3 M.

But the difference is this. In the new NHL the small market teams would be given money via revenue sharing in order to pay up to $40.3 million in salaries. Some teams (Minnesota, Washington, Nashville,etc) would be thrilled to have that kind of spending ability.

[handtrick]

Originally Posted by invader Zim

So For This Season 28.6 million is the " But Not Over point" ?

yes...$28.6mill is apparently the "but not over Point" to receive both batches of of revenue sharing.....as long as you don't have 2.5 mill TVs households in your area.

This is the number that the Predators owner quoted to the media as the number that they won't exceed and expect to carry a payroll of around $26 mill to allow them some flexibility at the trade deadline prior to the playoffs.

[Captain Ron]

If this is correct it goes against the theory that teams that overspend will get a refund from escrow money.

I think this is a very fair way to do it. If big market teams that are sending to the cap cause the league to go over the 54% cost certainty it only seems fair that the teams that keep their team salary below the $28.6 average should receive the escrow refunds.

[Resolute]

Minnesota already has that spending ability. They just havent used it.

[Captain Ron]

Originally Posted by invader Zim

So For This Season 28.6 million is the " But Not Over point" ?

The average team payroll is suppose to $30.6 million. I think the $28.6 figure is suppose to be without player costs.

$30.6 M - $2 million player expenses = $28.6 M average alloted for player salaries.

[Captain Ron]

Originally Posted by Resolute

Minnesota already has that spending ability. They just havent used it.

Well if the revenue increased to $2.2 billion they would have to spend more. Since the minimum team payroll would be $32.33 million.

[Captain Ron]

Originally Posted by Resolute

True, but the point was: Minnesota can spend if it chooses to. They were top ten in NHL revenues in 03-04 according to Forbes, and are making money hand over fist. The Wild do not belong on a list of paupers.

However, that is not to say that they *should* be spending more. If they think they can win with a lower payroll, cool. Though I'm sure those 41 sellouts a year would like to see a legit playoff team one day.

I assume you are a Minnesota fan. For your sake and the sake of other Wild fans I hope the tight spending trend reverses.

I am sure you guys would like to have some highly talented UFA's potentially come your way in future seasons.

[Resolute]

Originally Posted by Spongebob

Well if the revenue increased to $2.2 billion they would have to spend more. Since the minimum team payroll would be $32.33 million.

True, but the point was: Minnesota can spend if it chooses to. They were top ten in NHL revenues in 03-04 according to Forbes, and are making money hand over fist. The Wild do not belong on a list of paupers.

However, that is not to say that they *should* be spending more. If they think they can win with a lower payroll, cool. Though I'm sure those 41 sellouts a year would like to see a legit playoff team one day.

[Super Joe Sakic]

Originally Posted by Spongebob

But the difference is this. In the new NHL the small market teams would be given money via revenue sharing in order to pay up to $40.3 million in salaries. Some teams (Minnesota, Washington, Nashville,etc) would be thrilled to have that kind of spending ability.

then, isn't the revenue sharing model supposed to allow washington to spend up to 32 M? yet, even with their payroll/budget at 25 M, they still anticipate losing more money? i believe the same goes for st. louis. however, certain small markets will benefit from the revenue sharing and pay up to 40.3 M as long as they don't expect to make a profit.

it's also interesting to note that the 2nd form of revenue sharing kinda acts like a luxury tax that penalizes teams that go over the midpoint threshold.

[Captain Ron]

Originally Posted by jericholic19

then, isn't the revenue sharing model supposed to allow washington to spend up to 32 M? yet, even with their payroll/budget at 25 M, they still anticipate losing more money? i believe the same goes for st. louis. however, certain small markets will benefit from the revenue sharing and pay up to 40.3 M as long as they don't expect to make a profit.

it's also interesting to note that the 2nd form of revenue sharing kinda acts like a luxury tax that penalizes teams that go over the midpoint threshold.

Actually the midpoint this year is $28.6 million. So to answer your question. Yes, according to the way the revenue sharing is presented the Capitals should be able to have a payroll of at least $28.6 million. The first form of sharing should get the Capitals to a payroll of $24.6 million. Then the second form would kick in the last $4 million. So a team could budget for a $22 million payroll and the league would basically pay the rest. If teams can't make a profit with a $22 million payroll then they have bigger problems.

[Super Joe Sakic]

Originally Posted by Spongebob

Actually the midpoint this year is $28.6 million. So to answer your question. Yes, according to the way the revenue sharing is presented the Capitals should be able to have a payroll of at least $28.6 million. The first form of sharing should get the Capitals to a payroll of $24.6 million. Then the second form would kick in the last $4 million. So a team could budget for a $22 million payroll and the league would basically pay the rest. If teams can't make a profit with a $22 million payroll then they have bigger problems.

http://washingtoncaps.com/news/index.cfm?cont_id=287222

Third, with a $25 million payroll, our team will still lose money, but in the vernacular those losses will be considered a “gentleman’s loss.” As a league, we will have less TV revenue, and locally I don’t think we can expect to increase our ticket revenue. However, our ticket prices are going down even more. That price reduction may help attendance, but we don’t anticipate it helping overall revenues.

[ThePhoenixx]

Originally Posted by jericholic19

it's also interesting to note that the 2nd form of revenue sharing kinda acts like a luxury tax that penalizes teams that go over the midpoint threshold.

Not only that...

Second batch - designed to help clubs get to the midpoint but not over it; funded by excess escrow funds, if available

If available are the key words here..

Sounds like the big market boys just got their advantage back...albeit a much smaller one, only 8-12 mil now, not 50-60 mil like before..

That is unless a big fat TV contract pops up in a couple years. Then all bets are off. I sure hope the league is serious about obstruction. More offense means more excitement which leads to more fans. Which leads to more adverstisers.

Should be a very interesting time indeed.

[Chainshot]

Originally Posted by Sonic Reducer

So For This Season 28.6 million is the " But Not Over point" ?

Which is why the Sabres are holding to $28 million for their own personal cap. It puts them for this season in the first and second category for revenue sharing.

(OT: Nice new nick' too.)

[Irish Blues]

This thread is being cut loose - hopefully with a new (corrected) sticky coming soon that covers all of this.