Monday, October 27, 2008

Significant Shrinkage?

1) With the opening of a new NHL season there is a new salary cap limit. This year it is $56.7 million, up from a tad over 50 last season, and significantly more than the 39 million it was for the first post-Bettman lock out season. However with the new economic realities just starting to set in for many folks many are saying that there is little chance the league can match last season's revenue level (a record 2.4 billion). This will have significant implications for some of those teetering U.S. franchises.

2) We have heard from several reliable sources that behind the scenes smart NHL clubs are already quietly preparing for the coming 'rainy day' when the salary cap is slashed due to diminished revenue, and some teams will have to scramble to get their payroll in order. This fall many teams were close to the edge. Imagine if the cap were to suddenly go from 56 back to 50? Almost 25 teams would have to slash their rosters!

3) The most ominous sign for NHL revenue is a very subtle one; The value of the Canadian dollar has lost over 20% of its value in the past 2+ months alone. Where it once was actually STRONGER (worth more) than its U.S counter part, as of this post it was worth a mere 0.80 cents/US dollar. In the dark days for Canadian franchises it was as bad as .65 cents/dollar. (That caused the NHL to institute an assistance program for the 4 smaller teams up north. ) Since by even the most conservative estimates the 6 franchises across the border account for 1/4-1/3 of ALL NHL revenue, that decline would be significant. The decline in world oil prices will also negative affect a large segment of the Canadian economy, especially in Alberta.

4) So what will happen? Well for one players could for the first time lose a significant portion of the escrow money that's held by the league (as outlined in the CBA).This was originally a contentious issue for the NHLPA. But until now, with the NHL revenue being so strong players have received most, if not all, of that salary portion held in escrow back at the end of the season, so there has been little to complain about. If the players lose as much as 15-20% of their salary will they be as docile/happy? Some might have even forgot about this and thought the year end cheque was a bonus? Paul Kelley may have a few unhappy campers on his hands.

5) The biggest problem will be for teams who have already committed huge sums of money to players. As we alluded to before many teams had trouble getting under the cap at 56 million. Many had to shed payroll by unloading players that they otherwise may have retained. What would happen if they had to adjust to a significantly lower cap number next summer? We'd see a mass waiving of players that could have otherwise been an All Star team. We'd see a huge influx of players making the league minimum (500K) who would/should be playing in the AHL. Realistically this could reduce the overall quality of the product. Additionally we might see even fewer Europeans coming over here. Preferring instead to stay home if they aren't as likely to make big money. Overall it probably " would be a bad time to quit sniffing glue" if you're a GM! Significant Shrinkage, indeed!

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