The Law of Unintended Consequences states that any purposeful action will likely produce some unexpected or unintended consequences. These consequences are almost always divergent from the intended result and, often, the polar opposite.
Two words uttered by Gary Bettman, in 2004, radically changed the landscape of the National Hockey League forever. This notion plunged the game of hockey into unknown territory and cost hockey fans the 2004-2005 season. Those two words...cost certainty.
Prior to the lockout, the NHL was the only major North American sport that did not have a semblance of a salary cap, revenue sharing, luxury tax or a minimum floor to which teams must spend. What ensued was the economic version of "might makes right," where a small minority of the teams that that had a willing owner and money to spend could do so wantonly, without repercussion, and stockpile enough talent to ensure a dynasty. Good for players' salaries, not so good for the rest of the league.
The league insisted that teams in the NHL paid a much higher portion of their revenues towards player salaries, a number upwards of 75%, than the other major sports in North America. NHL Commissioner, Gary Bettman, wanted to ensure that players' salaries wouldn't continue to skyrocket and thereby jeopardize the viability of individual franchises and the stability of the league, as a whole. With one fell swoop, Bettman sought to upset the fiscal apple cart. The Commissioner presented the NHLPA with several options to achieve the "cost certainty" that was being sought. The union saw this as a thinly veiled attempt to institute a salary cap which it vowed it would not accept. The two sides were at an impasse and neither one was willing to blink. Consequently, the Collective Bargaining Agreement (CBA) expired on September 15, 2004, the owners locked the players out and a full blown labor dispute was well underway.
The end of the lockout occurred when the NHLPA agreed to accept a hard salary cap based on league wide revenues. The NHL conceded the notion of revenue sharing as a means to more evenly spread dollars around and inflate the salary cap figure. In language only a lawyer could love, the salary cap was now referred to as "the upper limit of the payroll range" and the salary cap for the post-lockout, 2005-06 season was set at $39 million.
Here's where the law of unintended consequences comes into play...In order to ensure the financial viability of NHL franchises, Gary Bettman demanded "cost certainty" as a means to try to control players' salaries and protect club revenues. After losing a season of hockey, he got his wish with the NHLPA agreeing to a salary cap. The delicious irony of what the salary cap entails is this...just as there is an "upper limit of the payroll range" to which teams may
spend, there are also provisions in the CBA for a "lower limit of the payroll range" (i.e. salary floor) to which teams must
By instituting a salary cap that permits a maximum number of dollars than can be spent on salaries, the league agreed to a minimum number of dollars that each club is required to spend. That obligation comes by way of a formula that simply states that the salary floor will be set at $16 million below the upper limit of the cap - which for the upcoming season is $56.7 million - on players' salaries. In 2008-09, the salary floor number is in the neighborhood of $40.7 million in order to be CBA compliant.
No big, right?
Not so fast. The strength of the Canadian dollar has vastly improved, the demise of the U.S. dollar as a currency power has hastened and the fiscal health of the six Canadian hockey teams have improved. What this means is that the financial strength of the league has never been better. What it also means is that the upper limit of the salary cap has never been higher. As mentioned, the first post-lockout year’s salary cap was set at $39 million. The following season it went up to $44 million, then $50.3 million and finally 56.7 million for the upcoming season. Since the 2005-06 season, the salary floor has increased a whopping $17 million dollars in just four seasons and now sits just above 40 million - which also happens to be one million MORE than the first salary cap figure post-lockout. Let me repeat that...the $40.7 million dollar floor for the 2008-09 season is $1.7 MORE than the upper limit of the salary cap just four seasons prior. Glad you missed a year of hockey, eh?
So what does all this mean?
It means that the level to which all teams must pay its players (salary floor) is increasing at such a staggering rate that sooner or later a club or two might not be able to meet the floor. As of this writing, the L.A. Kings have spent only $27.7 million and have yet to spend just under $13 million to be CBA compliant. While it is true they have only signed 14 players and will make the floor with ease, it is conceivable that there will come a time when the salary cap limit has increased to such a degree that the floor may become untenable for some clubs. While the financial health of the league has never been better - $2.2 Billion in revenues in 2006-07 - the very clubs Commissioner Bettman strove to protect by demanding "cost certainty" might now be imperiled by very workings of his own creation.
Isn't irony a *%&(#$(*#&#)?
Thanks for reading...
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