An impasse between the NHL and the players' union before the current collective bargaining agreement expires could jeopardize the 2012-13 season, raising the spectre of a third NHL lockout in 18 years.

The deadline to hammer out a new contract structure is midnight on Sept. 15, but the major sticking point in the negotiations is salaries.

Understanding the collective bargaining agreement (CBA) requires a basic knowledge of the "salary cap" structure introduced after the 2004-05 season was lost due to a lockout.

Matthew Wuest, the founder of CapGeek.com — a website entirely devoted to calculating and compiling salary cap data — concedes it can be a complicated business.

"The current CBA can make your head spin," the Halifax-based freelance hockey writer said.

Here's a primer to explain what's at stake.

The salary cap

Last season, each of the NHL's 30 franchised clubs was given a limit of $63.4 million US to spend on player salaries.

Teams with payrolls over $58M

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(Mike Blake/Reuters)

  • Boston Bruins ($68.9M)
  • Minnesota Wild ($68.8M)
  • Vancouver Canucks ($67.8M)
  • Calgary Flames ($66.7M)
  • Philadelphia Flyers ($66.6M)
  • San Jose Sharks ($65.2M)
  • Montreal Canadiens ($63.9M)
  • Tampa Bay Lightning ($63.2M)
  • Edmonton Oilers ($62.9M)
  • Toronto Maple Leafs ($62.9M)
  • Chicago Blackhawks ($62.4M)
  • Los Angeles Kings ($62.3M)
  • Buffalo Sabres ($61.5M)
  • Pittsburgh Penguins ($60.3M)
  • Washington Capitals ($59.6M)
  • New York Rangers ($58.5M)

—Source: CapGeek.com (Calculated for 2012-13 season)

 

The league now says teams are spending too much on players. The union has proposed a salary cap of $69 million per team — about a million dollars less than current earning limits under the existing contract terms.

The NHL decides how much money the teams can spend on player salaries, based on a slice of the total revenues generated by the league in the previous season. The cap puts restrictions on that amount — namely, a "ceiling" (the maximum players can be paid) and a "floor" (the minimum).

Salary caps are generally regarded as a way to keep a grip on escalating salaries. They can change annually according to the economic ups or downs of the pro hockey industry.

Proponents of salary caps argue that they promote fairness, by ensuring revenues are spread equally amongst all clubs. In theory, this would allow smaller-market franchises to compete with richer teams, Wuest explained.

"So you can't go out and spend $110 million to buy a team of all-stars," he said. "But there's more to it than that."

Critics say salary caps lead to roster instability and increase turnover as teams jockey to recruit new, cheaper players in order to stay under the spending limit. Players have said a free-agency model is a better barometer for determining player worth.

The 'luxury tax'

Unlike in 2004, the players are no longer resisting the concept of having a salary cap this time around.

"They know it's here to stay," said Lyle Richardson, a freelance writer who reports for The Hockey News and runs the Spector's Hockey blog.

But the NHLPA also wants a program for sharing revenue that would help struggling clubs. One alternative the union is open to is a "luxury tax" system, such as the one already used by Major League Baseball.

"It would establish a percentage level, a certain set amount," Richardson said. "Teams could spend over that, but if they did, they would be taxed a certain percentage, depending on how far over the limit they went."

That money would then be pooled to help struggling teams.

"The issue now has more to do with a combination of distribution of hockey-related revenue, and how a revenue-sharing system will be employed," Richardson said.

'Hockey-related revenue'

Right now, the salary cap is dependent on the NHL's financial success in the season. The industry's earnings — known as "hockey-related revenues" — help to dictate the payroll formula. A more profitable year for the NHL is reflected in higher salary cap ceilings for players.

A fixed percentage (57 per cent in the 2011-12 season) of the league's pooled revenues is split amongst the teams each year.

That means that under the current system, players' wages would be linked to the record $3.3 billion the NHL took in last season through ticket sales, broadcasting money and merchandise sales.

Back in 2004, the revenue figure was $2 billion. Owing to the game's tremendous growth, the NHL has continued to post strong revenues that have lifted salary ceilings and floors.

The current NHL agreement

The problem for the owners is that the cap has been consistently rising by an average of about seven per cent each year since the 2005-06 season, according to Richardson.

If the collective bargaining agreement remains as is, the salary cap as well as the base (generally $16 million less than the cap) for the 2012-13 season would climb and appear as follows:

  • Salary cap: $70.2 million
  • Salary floor: $54.2 million

The league's offer

In a bid to clamp down on salary expectations, which are projected to creep further upwards, the NHL proposed last month to trim the players' share of league revenues from 57 per cent to 46 per cent over six years. The owners hoped this would be a more agreeable number than the 43 per cent put on the table in July.

For the beginning half of the proposed six-year deal, a salary cap would be fixed in advance, rather than linked to hockey-related revenues. In the last three years, it would shift to a 50/50 split of revenues.

Next season's cap ceiling would therefore plummet from $70.2 million to $58 million — which doesn't sit right with the players. Year two would put the cap at $60 million, then $62 million the season after.

According to the league's proposed six-year timeline, the salary cap would finally exceed current values of up to $71 million by the end of that period, in the 2017-18 season.

Should the league get its way with a $58-million cap next year, it could spell trouble for the 16 clubs that are already spending over that threshold, according to the number-crunchers at CapGeek.com.

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NHL Players' Association head Donald Fehr has said the union wants the league to establish a revenue-sharing program to help clubs in smaller markets. (Brendan McDermid/Reuters)

The NHLPA's four-year proposal

The players had initially presented an option whereby players would accept a smaller take of revenue over three years, before reverting to the current 57 per cent share in the fourth year.

Don Fehr, executive director of the union, said the NHLPA's latest proposal suggested some wiggle room for year four that could be less than 57 per cent, but that the proposal did not "bear fruit."

In pitching the plan, the players have noted that those first three years of smaller revenue share could save the NHL between $400 million and $900 million, based on current projections.

On Sept. 12, both sides returned to the negotiating table after a 12-day hiatus. The NHLPA made another presentation, which Fehr described as "consistent" with the union's previous pitch.

That was also shot down by NHL Commissioner Gary Bettman.

The owners then countered with another offer, which Bettman stressed would be time-sensitive and "off the table" unless a deal is achieved by the weekend.

So when can we watch hockey again?

If there is a lockout, it won't last as long as the previous one, and almost certainly won't kill the season, Richardson said.

"There's some talk about contract lengths and changing the rules of free agency, but those issues are not as contentious as the whole HRR redistribution and revenue-sharing situation," he reasoned. "Everything else will fall into place very quickly once you get past that."

Hockey pundits have noted with guarded optimism that the atmosphere surrounding this round of labour talks isn't quite as poisonous as it was eight years ago. For that reason, Richardson is hoping that negotiations might be settled by as early as mid-October.

"As long as the two sides continue to negotiate and do it regularly, we're OK," he said. "If we start getting into mid-January and there's still no progress? Maybe then you can start writing off this season."