Why a Flat Salary Cap Will Benefit Seattle

Photo Credit: Seattle Kraken

As the NHL finalizes its plans for an attempted return to play, each piece of news reminds us that these are not normal circumstances for the league. The economic devastation caused by the COVID-19 pandemic has extended to nearly every industry, and professional sports are no exception. The NHL stands to lose millions of dollars in revenue, even if the return to play goes as planned and a 2020 Stanley Cup is awarded. This will have far-reaching effects in the hockey world, most notably pertaining to the salary cap.

As Elliotte Friedman reports, we now know what the salary cap will be through Seattle’s first two seasons. The cap will remain at its current level of $81.5 million each of the next two seasons and increase by only $1 million to $82.5 million for the 2022-23 season. This is a dramatic change from pre-COVID salary cap estimates, which were in the $84 to $88 million range for next season just four months ago.

With the Seattle expansion franchise expected to significantly boost the league’s revenue, it wouldn’t have been unrealistic to expect the salary cap to approach $100 million by 2022-23 in a world without COVID-19. Instead, teams will be left to deal with the consequences of a cap far lower than expected.

How does this affect a team’s planning on the individual contract level? When a team’s front office decides how much salary they’re willing to offer a player, they don’t think in terms of nominal salary, but rather in terms of percentage of the salary cap. When the salary cap rises each year, a contract’s percentage of the salary cap falls despite the cap hit being the same each year. This leads teams to sign players to contracts that look like overpayments at the time of signing. The cap hit might be too high initially, but it will become more reasonable over the course of the contract as the unchanging nominal cap hit takes up a lower percentage of a team’s cap space. To illustrate this concept, let’s look at the contract for star winger Mitch Marner of the cap-strapped Toronto Maple Leafs:

Salary Cap (proj.)$81.5m$88m$95m$100m
Cap Hit$10.983m$10.983m$10.983m$10.983m
Cap Hit %13.37%12.48%11.56%10.98%
2019-20 Cap equivalent$10.893m$10.171m$9.422m$8.951m
All contract information from capfriendly.com

This chart shows the first four year’s of the six year contract Marner signed 10 months ago in September 2019. I’ve used salary cap projections on the high end of a hypothetical world where COVID-19 never happened. As you can see, while the nominal cap hit stays the same, the cap hit percentage falls each year. In this world, by 2022-23, Marner’s contracts only takes up 10.98% of the Leafs’ cap space, an equivalent of just $8.95 million in current dollars. While around $11 million annually is probably too much to pay any winger, under $9 million for an elite playmaker like Marner looks like a bargain. While contracts signed several years ago have already entered the phase where they align with the market, contracts signed recently could create big problems as the planned relative cost reduction will no longer happen. The Maple Leafs have eight players under contract through 2022-23 totaling over $54 million worth of cap hit. The effect of the flat cap adds up quickly.

Toronto isn’t the only team that will struggle with this new reality. The entire league is now full of player contracts above the new market value. Every NHL team built a sizable portion of its roster while relying on highly inaccurate information. Every team except one: NHL Seattle. While the business side of the team has been hurt by the timing of the COVID-19 outbreak (can we have a team name please?), the Hockey Operations department led by GM Ron Francis has been given a unique opportunity. Seattle will be the lone NHL team with the ability to build its roster from scratch with full knowledge of the true salary cap situation. Every single player contract Seattle signs or acquires will be be made with accurate cap information.

This benefits Seattle in three ways. First, they do not already have any burdensome contracts whose effects will be made worse by the flat cap. Second, the flat cap will depress the market for free agents. With less money for teams to spend, both restricted and unrestricted free agents will only be able to command a fraction of the salary they otherwise would have. More cap-strapped teams will mean fewer potential bidders for unrestricted free agents. With less player bargaining power, fewer teams in the UFA market, and no state income tax, Ron Francis may be able to get good value on UFA additions to bolster his expansion draft roster.

The third way Seattle benefits from the flat cap is the increase in value of cap space. In a salary cap league, cap space can be just as much of an asset as a player or draft pick. A flat cap has created a sudden supply shortage of cap space. As with any good in a market, when supply decreases and demand stays constant, the price goes up. No team has more available cap space than Seattle and now they can sell this already valuable asset at an even higher price.

How does a team sell cap space? By trading for a player who is no longer worth his contract’s cap hit, thus freeing up cap space for the team trading the player away. An asset, usually a draft pick, is added to the undesirable contract to even the value. The Vegas Golden Knights used their position as an expansion team to sell cap space in this way. Vegas acquired the rights to Nikita Gusev and two draft picks in exchange for taking on the last year of Jason Garrison’s contract which paid $4.6 million. Garrison would play only 8 games for the Golden Knights.

A more recent example of a team selling cap space is last June’s trade between the Toronto Maple Leafs and Carolina Hurricanes. After signing key players to new contracts, the Maple Leafs were desperate for cap space. Patrick Marleau, who would be 40 before the next season started, had one year remaining on his contract which carried a $6.25 million cap hit. That cap hit no longer represented Marleau’s market value at the time (he would sign a 1 year contract for the league minimum $700,000 four months later). To free themselves of Marleau’s cap hit, the Leafs traded Marleau and their 1st round pick to the Hurricanes, along with a swap of late picks.

From the Marleau trade, we know that one year of $6.25 million of cap space is worth approximately a 1st round pick. What is a similar amount worth in a flat cap world? I think Ron Francis will be eager to find out.

Of course, in order to sell something, you need a buyer. Come summer 2021, will there be teams desperate to buy cap space from Seattle and players who fit the description of a Garrison or a Marleau? Almost certainly. Although it’s still a bit early, let’s look at few players that could be potential targets for Seattle in such a deal:

PlayerPositionTeamAgeCap Hit
Bobby RyanRW, LWOTT347.25m
Joe PavelskiRW, CDAL367m
Loui ErikssonLW, RWVAN356m
Cory SchneiderGNJD356m
Dustin BrownRW, LWLAK365.875m
All information from capfriendly.com

All the players listed above will have one year left on contracts paying them well over market value in June 2021. Dallas and Vancouver expect to be Stanley Cup contenders in 2021 and could use any cap flexibility they could get. Meanwhile Ottawa, Los Angeles, and New Jersey all have promising prospects who could push them into contender status by 2021. These players could also bring something to Seattle besides the draft pick attached to their contract: leadership. Each skater listed has been either a captain or alternate captain during his career. Seattle’s team will be made of a patchwork of players from different teams who will have no experience playing together. A proven leader like Joe Pavelski or Dustin Brown could be a valuable voice in the Seattle locker room for its initial season.

While the flat cap will cause difficulty for the 31 established NHL teams, it will provide NHL Seattle with a unique competitive advantage. Although COVID-19 has left us stuck at home without sports or even a team name to get excited about, we can be optimistic and think about the ways NHL Seattle can make the team the best it can be once normalcy returns.

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