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Would the NHL ever consider a luxury tax?

Oct 15, 2012, 4:38 PM EDT

Gary Bettman, Bill Daly Getty Images

The idea of a luxury tax has been floated by myriad media members as the NHL lockout has worn on. And while there’s no hard evidence that one’s about to be put on the table, a report that the NHLPA is working on a “radically different” proposal got us wondering if the league would ever consider such a system.

In its most basic form, a luxury tax allows a team to exceed the salary cap by paying a tax on the amount it exceeds said cap by. The tax that’s collected is then distributed to the needy franchises.

The NBA has a luxury tax. Starting next season, teams will have to pay $1.50 for every dollar up to $4.99 million over the threshold, $1.75 for every dollar of the next $5 million, $2.50 per dollar of the next $5 million, and $3.25 per dollar for the next $5 million.

Now, the most obvious consequence of the NHL implementing a luxury tax would be a decrease in parity. No, the big spenders don’t always win. But more often than not they do.

In the NBA, there are numerous teams with practically zero shot at winning a championship. To illustrate, Bodog lists 13 sides with odds of 100/1 or more. For the NHL, Bodog has just one team over 100/1 (Columbus, 150/1).

That’s not to say a luxury tax would turn the NHL into the NBA. One basketball star has considerably more of an impact than one hockey star, since that one basketball star can play almost the entire game (if not the entire game).

There are also benefits for leagues when the big-market teams have a competitive advantage over the small-market ones. For example, which match-up do you think would get better TV ratings – a Rangers-Red Wings final, or Lightning-Predators?

And for big-market teams, a luxury tax that allows them to gain a competitive advantage might be more palatable than simply forcing them to cut a revenue-sharing check and getting nothing for their money.

The risk, of course, is that fan interest drops for teams that can’t afford to pay luxury tax.

There’s also the more considerable risk that owners who can’t afford to pay luxury tax still end up paying luxury tax. As we all know (and the NHL freely admits), some owners have trouble controlling themselves.

For that last reason, if the NHL were to even consider a luxury tax, there would have to be stopgaps that would ensure some semblance of cost certainty.

  1. tarotsujimoto74 - Oct 15, 2012 at 4:48 PM

    Would not be a fan. I love the current parity of the league.

  2. ucaneverscorenoughgoals - Oct 15, 2012 at 5:05 PM

    Im not for it either.

    The ranger’s, wings, maple leafs, canadians, blackhawks and even the flyers will spend an extra 15 million dollars to go over the cap by 3 million. If they make it to the second round of the playoffs , two home playoff games will pay for that extra 15 million.

    So, the richer team’s won’t even blink at a luxury tax. It will simply give them another loop hole to get around the cap system just as the lax wording regarding player’s yearly salary did within contracts.

    • trick9 - Oct 16, 2012 at 6:47 AM

      Why would they all pay that, when they haven’t even had money spent close to the current cap? Only few teams have spent money to get even near the cap’s in each of the last few years and those are Flyers, Canucks and Capitals. Canadians and Red Wings aren’t even near to those 3.

  3. spicyjimbolaya - Oct 15, 2012 at 5:12 PM

    Sounds to me like whomever in the media is in favor of a “luxury tax” is in bed with Donald Fehr.

    Luxury tax is not logical at this stage, and only detracts from real-world solutions to the problem.

  4. blomfeld - Oct 15, 2012 at 5:13 PM

    No Way Jose !

    The bottom line is that a luxury tax would fly directly in the face of Bettman’s “sunbelt” vision and so there is “zero” chance of that ever happening. Even as it is with the “so-called” parity right now, at least 4-6 x sunbelt teams are on “financial” life-support. If you start allowing already strong teams in traditional markets to get even stronger, then it’ll be “good-bye sunbelt, hello contraction” faster than Bettman could get that fly off of Daly’s bald head ! In all seriousness, there’s absolutely “no” way this happens.

  5. atwatercrushesokoye - Oct 15, 2012 at 5:28 PM

    I’m a supporter of a luxury tax (I’ve debated with a few of you about that) but just pushing that aside, the reason the odds are so much different in the nba is cause there’s so few of them on the roster and all of your stars play 40-45 minutes of a 48 minute game and it’s definitely an individual driven sport. Meanwhile in the NHL you need a lot of players playing well and working together in order to make a run at the cup. Having 1 or 2 star players doesn’t mean anything if you’re 3rd and 4th lines are garbage. Also the top stars (for the purpose of this arguement offensive stars) play maybe 20 minutes out of a 60 minute game. Because of all of that you just can’t eliminate teams before the season starts like you can in basketball.

    • ucaneverscorenoughgoals - Oct 15, 2012 at 5:49 PM

      Sooooo, your saying more players who can potentially get injured = not as much impact from spending more money?

      I’ll still put my money on the wealthier teams to make the playoffs 8 out of 10 times over the poorer teams and if you bet against me you will be homeless by the third go around.

      • davebabychreturns - Oct 15, 2012 at 6:44 PM

        It’s like that now. Short of having a hard cap and forcing every single team to spend within 95% of the ceiling, it will always be the way things are.

        As it is the NHL has basically achieved artificial parity, there are only about five teams in the league that are pretty much out of playoff contention by the trade deadline, even though it’s obvious that several others are going nowhere fast.

        I’m not a fan of that and while it may keep some of the more gullible fans interested for another few weeks personally I think it detracts from some other interesting aspects of the game (the trade deadline for example).

        Anyway, a luxury tax might be a means to establish meaningful revenue sharing in a way that the league has failed to do thusfar – frankly any scheme that allows the league to pocket and redistribute half (or more) of money teams are paying to sign a player should be given serious consideration.

        Some hybrid scheme in which there was a lower hard cap and then the possibility to spend another $10-20m (at a steep “tax” rate) might be a good scheme. Say a $45m floor and a $55m “ceiling” where teams could pay $2 for every $1 of cap hit between $55-65m and $3 for every $1 between 65-75m.

        Sure you would see loser franchises like the Islanders clinging to the floor $30m below some of their competitors but the difference would be that the teams $30m over the floor would be paying $30m into revenue sharing each year as well.

      • atwatercrushesokoye - Oct 15, 2012 at 8:31 PM

        Wasn’t even talking about the cap or a luxury tax or any of that just explaining why more nba teams would be basically eliminated from contention already as far as odds are concerned. Easier for 1 star to have an impact (or 2 or 3) in a game where you play 8 in the game as compared to a game where 19 players will be on the ice.

  6. gmenfan1982 - Oct 15, 2012 at 6:00 PM

    I support a luxury tax. Let teams spend. Rich teams can spend and poorer teams get the money they need. Money doesn’t always buy championships anyway. Parity is overrated anyway. The sport is a competition. Why in a competition should everyone be forced to be equal? Sounds like a way to solve the financial crisis causing the lockout.

    • ucaneverscorenoughgoals - Oct 15, 2012 at 6:32 PM

      hahahahahahahah

  7. dannythebisforbeast - Oct 15, 2012 at 8:16 PM

    Considering Comcast owns my team. I don’t need my cable artificially inflated any more than it already is

  8. firemarshal1 - Oct 15, 2012 at 8:20 PM

    If the owners adopt a luxury tax system, they have to eliminate 6 teams immediately. There’s no need to have any small market teams. Then, the NHLPA can claim victory with the loss of approximately 180 player jobs. You can’t have it both ways. Why would a small market team owner want to own a team that can’t compete on equal terms? In fact, you may have to eliminate 10 teams to make the luxury tax system work. Hey, that’s only another 120 player jobs eliminated for grand total of 300 player jobs lost. But, the NHLPA can claim Victory. That’s really smart, NOT!

  9. gmenfan1982 - Oct 15, 2012 at 10:08 PM

    A luxury tax would not force 10 teams out of the league. It would give them the money they need to spend more. And it’s not necessarily true that rich teams have a competitive advantage. The rangers have the money to spend on anyone and they are way under last years cap. Not every team that spends a boatload of money wins every year anyway.

  10. gmenfan1982 - Oct 15, 2012 at 10:10 PM

    Not every rich team spends over the cap anyway so it’s not accurate to say that those teams who are less wealthy wont have a chance against the richer teams.

  11. tmoore4075 - Oct 16, 2012 at 9:26 AM

    First some have thrown out the Red Wings as big spenders they really haven’t been the last few years. Currently the Oilers, Sabres, Flames and Wild have more salary committed to players for next season than the Red Wings do. So it’s not always the big clubs. Heck currently this system is making teams spend money they probably shouldn’t be. The Wild are an example. They even said they lost money last year and then went and dropped huge money on Parise and Suter.

    We’ve had this conversation before and people think it will hurt teams so much. The parity we have now as someone said is mostly fake. It’s caused by limiting the big clubs from spending, making the smaller teams pay more and the shootout has made the races closer. If you took away the shootout games and ended them as ties things wouldn’t be as close. While on the ice things might close many teams are still losing money. Some sort of a luxury tax system would actually benefit smaller teams. The current revenue sharing system is a joke. Phoenix and NYI don’t get money cause of the tv markets they are in.

    I’m with davebabychreturns. A hybrid system is the way to go if you were to do this. Have a soft cap of 57mil and let them to 72mil for example but tax the crap out of them as they go up. Heck even at $1 for every $1 a team at 72mil would actually be paying 87mil of actual money. If you only had 3 teams spending to 72mil and all the rest under the cap of 57mil that would be $45mil going to the struggling teams. So if you tax them even more and had more teams over the soft cap, which you would, that’s a lot of money helping out the Jackets, Panthers, Yotes, Isles and whoever. Also learn from the NBA and MLB and put restrictions in there. If you keep staying at the floor and not making any moves to try and compete after so many seasons you don’t get revenue sharing. Don’t let a team be the Pirates or Royals.

    Does the NHL want as many at least somewhat healthy franchises as possible or parity on the ice at the cost of teams bleeding money? Teams were still losing money in the first couple seasons of the CBA when the cap was 39mil and 44mil respectively. So just lowering the cap isn’t going to save these teams.

    There was parity before this CBA it just wasn’t shown in the regular season standings. 2003 WCF’s was the 6 and 7 seeds. 2004 Western Conf Champ was the 6 seeded Calgary Flames.

    Now in saying all of that, it won’t happen because the big clubs don’t want to prop up the struggling clubs. Which is fricking funny considering they were all about adding those teams when they got the expansion fees.

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