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Luxury Tax System


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#21 eva unit zero

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Posted 17 May 2010 - 06:03 PM

A luxury tax system might be better than the current hard cap. It might not. But let's take a look at one possibility:

Luxury tax:
Use existing method for determining cap ceiling. Teams pay equal into revenue sharing pool what they exceed cap by. This revenue sharing is divided equally among existing revenue-sharing eligible teams who pay less than the "tax line" (halfway between cap max and floor, or $8m below cap max) while any revenue sharing teams who spend above that line do not receive from this pool.

Teams can choose to spend as much or as little as they wish on salaries. A team could have a total payroll of $11.025m by having 21 players making the league minimum (as of next season I believe) of $525k if it chose to do so.

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#22 WorkingOvertime

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Posted 17 May 2010 - 06:27 PM

I don't know much about luxury tax systems, so forgive my ignorance. Wouldn't this effectively be the same as increasing the cap by x amount and also increasing the minimum salary by some y amount, while increasing revenue sharing amongst the teams? We would essentially by increasing the cap to x, and the wealthy teams would be able ot reach this level. However, the less-wealthy teams-which currently receive revenue via revenue sharing- would receive more money. Therefore, the minimum and maximum would essentially by raised, with the low-end being supported by the top end growth. On the other hand, this would increase the amount of NHL money going towards struggling teams, but I'm not sure if it improves their overall financial situation.

The NHL is in a bit of a bind when it comes to the cap. It needs to be kept low enough for low revenue teams to compete, but high enough to attract players and allow good teams. Hopefully, the league can stabilize themselves in some iffy markets and the cap can start to see large increases.

#23 ami

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Posted 17 May 2010 - 07:07 PM

The luxury tax is more capitalistic than the system they have now.

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#24 p_diddy_datsyuk_13

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Posted 17 May 2010 - 07:29 PM

I am all for it. The hard cap is a pain in the ass. It would be nice if there were a 5-10% luxury tax range. To make it more enticing for the league, it I wouldn't mind seeing there being a range of two or three years you can do it for at a time. So it is more of a cushion than just a pure luxury tax, because then it will just escalate salaries even more. It would be nice to see teams just have a cushion to make a late season trade for a playoff push rather than just have big market teams load up even more, and the Wings' are no exception.

#25 Buppy

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Posted 17 May 2010 - 11:18 PM

Figured this would come up the next time the Wings lost a playoff series.

A luxury tax system is nice, but it still encourages more spending. Teams had proven when there was no system in place to curb their spending that they would spend themselves into bankruptcy to try and be competitive as far as having superstars and getting (at very least) into the playoffs is concerned. A luxury tax would, despite the "sharing" of tax revenues of those over a designated cap, still encourage reckless spending and thus pit the NHL into the same problem it had pre-cap era.

This is without foresight at all, and imo it's just a way to get the Wings out of a cap system so they can spend a lot more money and buy a lot more superstars again so we can see another roster like that of 2002.


I think it would need some real analysis, and I think it could be something to look at in the future, but after a cursory look at some numbers can't see how it could be viable right now.

Most teams in the league are already spending close to or over the cap for salaries. All but 3 teams over $45M. 19 spent ~$51M or more. Then looking at revenue reports from 09, I guesstimate non-salary expenses to be around $30M. That puts the break-even revenue already at $80-90M. Many teams are likely still well below that, and only a handful significantly above.

This probably wouldn't hurt (and might even help) the franchises struggling the most, but the middle of the pack teams would suffer. Those making a little now would likely slip into the red, while those losing a little would get even worse. It could even push some pretty successful teams into a loss.

Perhaps in the future, if we move some teams into better markets, get a better TV deal, better sponshorship, or whatever; get to a point where the majority of teams in the league are actually turning a profit, then it would be worth discussing. But right now, if anything, it looks like the cap is a little too high.

#26 jeff48109

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Posted 17 May 2010 - 11:28 PM

The NBA has a luxury tax system, and its always the same few teams that contend for the title. This year's NBA playoffs have been awful, with teams getting blown out left and right. The NHL playoffs on the other hand have been exciting.

#27 titanium2

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Posted 18 May 2010 - 12:58 AM

The NBA has a luxury tax system, and its always the same few teams that contend for the title. This year's NBA playoffs have been awful, with teams getting blown out left and right. The NHL playoffs on the other hand have been exciting.


Well, seeing LeBron and C-Word get eliminated in the same week made me pretty damn happy. It was very exciting to me.

#28 jeff48109

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Posted 18 May 2010 - 01:29 AM

Well, seeing LeBron and C-Word get eliminated in the same week made me pretty damn happy. It was very exciting to me.


yea, lebron got eliminated the evening after C-word. best 2 evenings of the month for sure. but other than that, a lot of the series in the NBA have been sweeps

#29 Wing Across The Pond

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Posted 18 May 2010 - 06:07 AM

Couldn't agree more with this. One thing it will help combat is players leaving for other leagues, as we saw Huds do last year. I know for a fact Rugby here in England has to compete with the open markets in Europe, with a lot of players leaving due to the cap (they have a maximum wage as well which I don't really agree with), and then soccer... well that's just soccer. I think give the teams some flexibility, so that they can keep the players they have drafted and helped nurture, so they don't chase the gravy train.

What I don't like is that often it is not primarily good scouting but crappy performance that allows a team to get a top 5 picks three or four years in a row. They continue to suck so they continue to get players that have a very high likelihood of being great.


With this in mind, you think it should just be a lottery? Teams chose a pick number at random? Would encourage GMs to actually build a decent team to compete instead of waiting a few years for well drafted players. Off topic I know but just caught my attention.

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#30 stevkrause

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Posted 18 May 2010 - 06:54 AM

I'm always impressed with how well thought out and presented your ideas are. The problem that I have always had with a luxury tax is that it makes it easy for big well financed teams, the Lakers for an NBA example, to constantly put out one of the best products because they can charge more for tickets, make more from merchandise, etc. so they can always afford to pay a lot more than say the Timber Wolves. If tickets in LA cost the same as tickets in Minnesota it might work but LA, NY (although they are proof that tons of cash doesn't necessarily mean a good team), Boston, etc. always have more money to play with. Add to that the fact that some teams have owners that have so much cash that they don't care about the luxury tax, a la Dallas, and it just makes a threshold that some teams can't compete with. There is a reason that the same NBA teams are always paying luxury tax (with a few others in one year and out the next). Compound that with the fact that when your team is winning you generally get more ticket and merchandise sales and it makes it even harder to crack into that group of good teams if you start out with a lot less cash. However, as far as luxury taxes go I think yours is better than the NBA model.





What I don't like is that often it is not primarily good scouting but crappy performance that allows a team to get a top 5 picks three or four years in a row. They continue to suck so they continue to get players that have a very high likelihood of being great.

The point is, it would still be a step up from the current system... at bare minimum, if they're going to do a hard cap, they need to DRASTICALLY lower max contracts, one player should not be able to take up 15+% of your cap in a hard cap world...

Couldn't agree more with this. One thing it will help combat is players leaving for other leagues, as we saw Huds do last year. I know for a fact Rugby here in England has to compete with the open markets in Europe, with a lot of players leaving due to the cap (they have a maximum wage as well which I don't really agree with), and then soccer... well that's just soccer. I think give the teams some flexibility, so that they can keep the players they have drafted and helped nurture, so they don't chase the gravy train.

EXACTLY.

The NBA has a luxury tax system, and its always the same few teams that contend for the title. This year's NBA playoffs have been awful, with teams getting blown out left and right. The NHL playoffs on the other hand have been exciting.

The NBA's luxury tax system is basically a free for all though and doesn't funnel back into other teams improving their ON-COURT product, thus creating this... the system I proposed does the opposite...

I agree, the examples as described just shows total salaries increasing across the board. So, more money to players, but no more revenues to the league. Not sure how the owners would feel about that.

But the money is not coming out of the owners pockets who do want it to, so essentially it gives them a better on-ice product, at the same cost

same cost + better on ice product = better attendance and merchandise sales/more profit at same cost

look at it from the broad scope...

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#31 NC WINGS FAN

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Posted 18 May 2010 - 08:09 AM

The NBA has a luxury tax system, and its always the same few teams that contend for the title. This year's NBA playoffs have been awful, with teams getting blown out left and right. The NHL playoffs on the other hand have been exciting.


Hockey and basketball are two very different sports. Hockey is much more of a team sport for sure. Look at the difference a Shaq or Lebron makes in a team's on court performance. You do not see that in hockey, so there is bound to be more parity in hockey, or baseball and football for that matter.

One can argue that since the cap, there have been dominant teams in the NHL. The same has become the case for the NFL over the last decade.

I like the ideas presented in this post for the reason that they would allow teams to keep their talented players that they drafted. It would reward good organizations rather than punish them. Despite the cap, you still have teams like Nashville and Phoenix barely staying afloat.

#32 ltgator333

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Posted 18 May 2010 - 11:49 AM

I don't think there's anything wrong with the OP's idea other than this- integration into the current cap system (unless you scrap the whole thing and start over), and it's more changes after a mere 5 years of the league running under the current cap situation (or close to, it's probably been slightly modified idk).

Other than that I like it, it's a nice comprimise between the old 'spend it if ya got it' system and the current hard cap. I would like to see a luxury tax system adopted in the next 5 years if all continues to go well enough, provided it doesn't have wide-open loopholes for circumventing it.

The other thing to consider is this- there's economic factors far out of the control of the league. Such as the fact that there's a minority of franchises that operate with a different currency which brings a number of fortunate/unfortunate turns on either side of the border, and the broad economic impact on each franchises' total revenue. Tinkering with things in poor or unfavorable conditions when applied to either of the above can have a much more drastic effect for better or worse.

And I'm not really confident in the league's ability to get it right the first time.
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#33 egroen

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Posted 18 May 2010 - 12:35 PM

I'm always impressed with how well thought out and presented your ideas are. The problem that I have always had with a luxury tax is that it makes it easy for big well financed teams, the Lakers for an NBA example, to constantly put out one of the best products because they can charge more for tickets, make more from merchandise, etc. so they can always afford to pay a lot more than say the Timber Wolves. If tickets in LA cost the same as tickets in Minnesota it might work but LA, NY (although they are proof that tons of cash doesn't necessarily mean a good team), Boston, etc. always have more money to play with. Add to that the fact that some teams have owners that have so much cash that they don't care about the luxury tax, a la Dallas, and it just makes a threshold that some teams can't compete with. There is a reason that the same NBA teams are always paying luxury tax (with a few others in one year and out the next). Compound that with the fact that when your team is winning you generally get more ticket and merchandise sales and it makes it even harder to crack into that group of good teams if you start out with a lot less cash. However, as far as luxury taxes go I think yours is better than the NBA model.

I believe there are simply too many teams in the NHL. Successful, historied franchises in hockey states will always have numerous advantages and I really dislike the league doing so much to hobble them in order for some crap franchise in the south, that should not even be there in the first place, to have a chance. I swear, it is like the unsuccessful franchises are now running the NHL.

If a team has succeeded in generating a large, supportive fan base that will pay good money for their product, those fans deserve to get their money's worth. While I am not against the New York Yankees being reigned in a bit - the fact is, baseball benefits as a whole from rabid Yankee fans having a competitive team to spend their money on each and every year.

A hard cap simply ensures the owners of these large franchises rake in more and more, while the fans continue to see an inferior product on the ice.

I think it sucks. Fans in Detroit this year got to watch essentially a $35m team iced for most of the season, because the cap prevented management from bringing in any free agents to alleviate the injuries.

I do not want the cap thrown out, but some of these minor tweaks better be explored in order to ensure revenue-producing teams can ice a great product for their fans.
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#34 mmamolo

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Posted 28 September 2010 - 01:52 PM

I see 2 major problems with this:

1. Teams within the luxury tax pool who will receive the pool have to spend the money but how can anyone dictate just how that money is spent? Say they have contract negotiations with Player X (RFA) and initially were to sign him for $3M/yr but now that they've gotten their luxury tax money they agree to sign him for $4M/yr to avoid a potential hold out situation. They haven't improved their team because 99% that RFA was going to be back anyways but they've just spent more money. This luxury tax money could potentially just escalate RFA salaries.

2. The biggest potential problem is say the Lightning (for example) are due luxury tax money this season (just barely) and they receive $4M from the pool. They then go out stupidly and sign Player Y for $4M/y for 3 years but next season because of this new contract they no longer fall into range to be owed luxury tax pool money. Now in year two they have to come up with the funds to pay that contract. Throw in the distinct possibility that they lost a bunch of money in operating revenue in year one and suddenly they're in trouble. It just creates a cycle
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#35 stevkrause

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Posted 28 September 2010 - 02:22 PM

I see 2 major problems with this:

1. Teams within the luxury tax pool who will receive the pool have to spend the money but how can anyone dictate just how that money is spent? Say they have contract negotiations with Player X (RFA) and initially were to sign him for $3M/yr but now that they've gotten their luxury tax money they agree to sign him for $4M/yr to avoid a potential hold out situation. They haven't improved their team because 99% that RFA was going to be back anyways but they've just spent more money. This luxury tax money could potentially just escalate RFA salaries.

2. The biggest potential problem is say the Lightning (for example) are due luxury tax money this season (just barely) and they receive $4M from the pool. They then go out stupidly and sign Player Y for $4M/y for 3 years but next season because of this new contract they no longer fall into range to be owed luxury tax pool money. Now in year two they have to come up with the funds to pay that contract. Throw in the distinct possibility that they lost a bunch of money in operating revenue in year one and suddenly they're in trouble. It just creates a cycle

1. No team is going to spend more on its own RFA's than they have to and there are no "hold outs" in the NHL today under the new CBA - Worst case scenario, it goes to arbitration and they choose to keep the player, or he is now an UFA.... Any team which would purposely jack up the salary of an RFA to "use their luxury tax money" should fire their GM, because obviously, he doesn't know how to manage a team and is wasting money which could go to better use...

2. Same as I stated in part 1 - If a team doesn't know how to manage its cap and finances, that is a team issue, not a league issue and the owner of said team should then put the proper people in place who DO know how to manage the team given the guidelines... that's like saying that drinking should be illegal, because some people don't know how to handle their booze and may kill someone because they didn't plan ahead and get behind a wheel after putting down a case...

Also note in my rules, I very clearly state that a team can opt out of the pool money, or choose only a percentage of it, so they don't HAVE to use it - Please re-read my proposal...

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#36 FedorovGurl

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Posted 28 September 2010 - 03:35 PM

The whole idea of a cap is ridiculous in the first place. A luxury tax would be better than what we currently have, but it's not a solution. Basically, teams should be able to spend what ever they want. Big market teams should not be penalized because hockey is a big deal in their cities. If a team has a rabid fan base, and can dish out tens of millions more than their competition then they should be able to do so.


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#37 F.Michael

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Posted 28 September 2010 - 04:31 PM

I've always been in favour of a luxury tax with a "hefty" fine for those whom go over it.

I'm certain a fair number of teams, and of course the Donald Fehr led NHLPA would prefer it over the hard cap as well.

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#38 Barrie

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Posted 28 September 2010 - 05:16 PM

I think when it's all said and done, after the next CBA, there will be a Luxury Tax. I don't think the current system can go on much longer without bankrupting 1/3 of the league within the next 5 years or less.

If the NHL wants to continue with 30 teams they have to get rid of the Floor.
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#39 blgillett

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Posted 28 September 2010 - 05:55 PM

I have been saying the same thing for years I love it!
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#40 Shady Ultima

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Posted 28 September 2010 - 06:05 PM

The whole idea of a cap is ridiculous in the first place. A luxury tax would be better than what we currently have, but it's not a solution. Basically, teams should be able to spend what ever they want. Big market teams should not be penalized because hockey is a big deal in their cities. If a team has a rabid fan base, and can dish out tens of millions more than their competition then they should be able to do so.


The problem with that is that the NHL wants to GROW the sport. By only focusing on teams that are big markets NOW, you lose out on teams that COULD be big markets. As much as I hate it, the success of the Pens, Hawks and to a lesser extant LA and Washington have created growing markets. In 2003, Pittsburgh would have folded, now they're in the top of the league in terms of income. With a revenue sharing luxury tax system, teams like Detroit help to build competitive teams in markets that otherwise may fold. There will always be teams that won't do well financially, but Winnipeg or Quebec would be able to grow a team with this, while not damaging the teams who are already strong. By fostering the weaker teams, the NHL becomes stronger by having more competitive teams, instead of the same 5 or so.





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