The NHL will be feeling the ramifications of the COVID-19 pandemic for years to come.
The league saw a massive revenue shortfall for 2019-20 as the league was forced to cancel a month’s worth of regular-season games in the wake of the pandemic back in March. Having a playoff tournament this summer will help the league offset some of those losses, but there’s still a considerable amount of damage to compensate for.
The NHL is a very gate-driven league in terms of generating revenue. Having a TV-only playoff will bring in cash, but nowhere near the amount that a regular playoff would for the league. Also, it doesn’t seem likely that fans will be filling up stadiums anytime soon, so the league is going to be looking at many TV-only games in 2020-21 as well.
There’s a handful of dominos to fall as a result of this economic catastrophe, but the big one that fans will care about is the salary cap.
The salary cap has grown at a massive rate since being implemented after the 2004-05 lockout. Back then, the ceiling was at $39 million. It’s grown all the way to $81.5 million in a decade-and-a-half. We more than likely won’t be seeing that figure go up for quite some time.
In a normal year, the league will take the revenue they made from that season and make a prediction for what the total revenue will be the following season. Based on that figure, a salary cap ceiling will be put out, in which the NHLPA can opt to use a five percent escalator to make it go higher. Obviously, they tend to push it higher because it’ll result in more spending in the off-season on players.
Then, throughout the year, players have a percentage of their salaries taken away and placed in an escrow account. At the end of the season, all of the teams submit their hockey-related revenue, and if there’s a shortfall, the owners will take back some of that escrow money in order to ensure an even 50/50 split on hockey-related revenue between the players and the owners.
So, now, in the COVID-19 world, we have a tricky situation. Revenue for 2020-21 will obviously be much, much lower than in previous seasons because there won’t be fans filling up stadiums. But despite deflated revenue, the most expensive part of the operation, player salaries, won’t be going down.
The challenge here is that a good chunk of teams already have payrolls set at least $70 million for 2020-21 and beyond, so you can’t just slash the salary cap by a massive amount in order to immediately compensate for the projected revenue shortfall. The players will ultimately have to pay back the owners over time in order to meet that 50/50 equilibrium.
Part of that will likely happen through inflated escrow payments, but another part will likely come by keeping the salary cap stagnant for the foreseeable future.
According to Elliotte Friedman, the NHL and the NHLPA and negotiating an extension to the Collective Bargaining Agreement (which is set to expire after 2021-22). Part of the agreement would reportedly keep the salary cap at around the current $81.5 million figure for three seasons with the possibility of a $1 million raise for 2022-23.
Navigating a stagnant cap will present a major challenge for the front office.
When signing key players like Auston Matthews, John Tavares, and Mitch Marner to massive contracts, the logic was always that the deals would grow with the league. Right off the hop, they’ll be expensive, but, as time goes along, the cap will rise, and they’ll be easier to manage.
But without the cap going up for a few years, there won’t be as much room to work with as previously anticipated.
The Leafs have about $76 million locked in for next season. That leaves under $6 million to come up with new deals for restricted free agents Travis Dermott, Ilya Mikheyev, Denis Malgin, and Freddy Gauthier and unrestricted free agent veterans Jason Spezza and Kyle Clifford. Beyond that, Zach Hyman is set to become a free agent following the 2020-21 season, so a flat salary cap makes finding room to keep him around even more challenging.
Kyle Dubas and Co. have shown to be adept at walking the salary cap tightrope, but a flat salary cap for three more seasons is certainly a curveball nobody was expecting at this time last year.