Today’s topic is the KHL salary cap mechanism and its calculation. The league has been preparing for this moment for a couple of years and it is a cornerstone of the league’s development strategy.
Rich Clubs Wanted to Rise the Salary Cap Ceiling
In the first place, the league registers all KHL players’ contracts & transactions with the specialist league department – the KHL Central Information Bureau (CIB). It is the registered office of the league, its function is very similar, if not the same, to the NHL’s Central Registry. Moreover, both leagues share information about contracts’ structure & all database among each other. So, the KHL knows every detail about the KHL players’ contracts, especially basic salary and bonuses. Of course, the KHL knows this information about NHLers as well, and vice versa, but it is not a point now.
However, without such a database, it would be much more difficult to control the clubs discipline regarding the salary cap mechanism.
So, the KHL Board of Directors approved all technical rules regarding the salary cap mechanism on February 27, 2020. Even still, the Russian Hockey Federation & some rich clubs wanted to amend the basic principles of the mechanism. With this intention, they wanted to increase the cap ceiling from ₽900 million (around €13 million) to ₽1.3 billion (around €18 million) while remaining all exemptions from the cap calculation. So, including these exemptions – see below – the cap would be on the current level of the richest teams, around ₽1.7 billion (around €25 million) or more.
The Salary Cap Calculation – Basic Salary
So, the KHL salary cap ceiling is ₽900 million (around €13 million). But we need to know how the cap is calculated.
First of all, we need to divide the payroll into basic (fixed) player’s salaries and individual/team bonuses. Then, the salary cap includes:
1. Basic players salaries on KHL roster
2. Basic players’ salaries on VHL roster.
So, basic salaries of players who are listed at team’s VHL (farm) roster. Their basic salary while playing in the VHL has to be lower than their basic salary on the KHL roster. The league considers their KHL roster salary for days when they are in the KHL to calculate the cap. The league wants to avoid a situation when a player would have the same salary in the KHL & the VHL. So the club would formally assign him to the VHL in intention to avoid cap’s calculation. In that situation, the player agrees to this. But the player would not agree to this scenario if his VHL salary will be significantly lower.
The Salary Cap Calculation – Bonuses
The salary cap also includes:
3. Individual & team bonuses if they exceed 20% of the basic salary.
So, the league avoids a case when a player would have a low basic salary, but his bonuses would be very high. That being said, the clubs will not avoid the cap in that way because unreasonably high bonuses will be counted towards the team’s cap ceiling.
But it also means that both kinds of bonuses below 20% of the player’s basic salary/team’s cap ceiling are not counted in the cap. That means the additional ₽180 million (around €2.5 million) for individual bonuses per team and the same sum for team bonuses. So, the club’s payroll fund will rise, reaching ₽1.26 billion (around €18 million). That is actually the real ceiling proclaimed by the salary cap mechanism, even though, it is still without under 21 years players and other cap exemptions as written below. But they are not a part of the cap.
However, what are the clubs payroll funds in other European hockey leagues? Just for trivial comparison, but surely not definitive. Likely, the Swiss’ National League is the second in line with players’ payments. According to ZSC Lions CEO, Peter Zahner, the biggest clubs’ salaries budgets could reach ₣12-13 million (around €11-12 million) in Switzerland, while the average payroll is around ₣6-7 million (around €5-6 million) per team. The Swedish SHL clubs could spend over 50 million SEK (around €5 million) in some cases, perhaps reaching a maximum of 80 million SEK (around €7 million).
The Salary Cap Calculation – Relatives of Players
The salary cap also includes:
4. Material benefits to a player or his relatives (wife etc) from a club or a company/person affiliated with a club (so, club’s sponsor/owner) – so flat, house, car, furniture, presents, company’s shares, loans etc.
5. Income from a sponsorship (advertising) agreement between a player and his relatives and a club or a company/person affiliated with a club.
These material benefits count in the salary cap in case the player gets them into ownership for the lower price than the market price or using it for free. Of course, the clubs compensate the player’s living costs (renting a flat/house) and this compensation is not a part of the cap, but only if this compensation relates to special kind of a flat/house (owned by a municipality or state and given to a person while serving in public organs).
Moreover, the league will count the income of players’ relatives as well. So, a club will not be able to avoid the cap calculation by signing a sponsorship agreement with a player’s wife or parents. This applies to the club’s sponsors as well. All will be included in the cap.
Exemptions From the Salary Cap
Of course, there are certain payments which are not counted in the KHL salary cap.
The salary cap does not include:
1. Club’s payments for food & other nutrition, sports equipment (sticks etc), uniforms, other clothes and other stuff needed for player’s training and performance in games.
2. Club’s payments for player’s accommodation (if the special status of a flat/house as written above).
3. Bonuses for reaching the Conference Finals or being among the top three in the league (sniper, scorer, scorer among defencemen and best in plus/minus) in regular-season and the best goalie in the playoffs.
So, such kinds of bonuses are unlimited and it is not counted in the salary cap. There are some complaints among journalists that it is an unreasonable rule, benefiting rich clubs. On the other hand, nobody can guarantee a player this achievement before the season’s start. It just motives the player to do his best.
4. Player’s salary if he is listed among injured players for all season. The league does not count his salary in the cap since the moment of his injury.
5. Salaries of players under 21 years. The league supports the clubs to skate young prospects as much as possible.
6. Special buy-out compensation to a player.
This rule is special for the transition period in the upcoming season. The clubs signed long-term contracts with players in previous years when the salary cap was not applicable. And these contracts run for 2020-21 and beyond. Of course, these clubs will need to re-consider these contracts to get under the cap. But if that player and club sign a new contract after the termination of the previous deal, the buy-out compensation will be considered in the cap. So, clubs will not be able to avoid the cap rules by signing this player to a lower salary.
How to Control the Salary Cap Ceiling
Of course, the league will control the clubs and their spending daily. On the other hand, the final data will be available when a season is over. There might be a situation when a player meets a performance bonus, so the club has to pay it even though the cap ceiling would be exceeded.
The KHL calculates with the following rules in these cases. If a club exceeds the salary cap ceiling for less than 2%, the club’s cap ceiling will technically decrease for the upcoming three seasons in the following way. For the first season, the ceiling will be lower for a sum equal to three-times of the exceeded sum. Let us imagine, the club spends ₽5 million over the ceiling. So, its ceiling will decrease to ₽885 million in the first (upcoming) season. For the second season, the ceiling will decrease by two-times that exceeded sum, so ₽890 million in our case. And finally, the third season, the ceiling will be lower for that exceeded sum, so ₽895 million.
In contrast to this, the sanctions for exceeding the cap ceiling for more than 2% are much tougher. First of all, the club’s results on ice are dissolved for that season. Consequently, the league would not share revenues with that club. Besides it, the club’s leadership is obligatorily suspended for one to three years. Moreover, the KHL Board of Directors might exclude the club from the league. Of course, the league does not want to exclude their richest team. However, these rules should prevent unexpected attempts by a team to break rules regarding the salary cap.
The Salary Floor Will Grow in Seasons to Come
Finally, the league has implemented the salary floor as well. We have already discussed it. The league aims to decrease the gap between the richest & bottom clubs. Here is the method of how to calculate the salary floor. It is less complicated than the ceiling. The league considers just the basic players’ salaries, without bonuses. They need to reach at least 30% of the cap ceiling for 2020-21, so ₽270 million (around €4 million). The salary floor will rise season by season to reach 50% of the cap by 2023-24. So ₽450 million (around €6,5 million). Just for clarity, this sum is without individual & team bonuses.
But the clubs need to guarantee a minimal payroll fund at 35% of the cap ceiling for 2020-21. And 55% of the cap for 2023-24. Otherwise, the KHL Board of Directors might decide to exclude a team from participation in a season. This additional 5% of the cap is reserved as a minimal sum for bonuses. In conclusion, the KHL teams should pay their players at least ₽450 million (around €6,5 million) plus bonuses by 2023-24, so at least ₽495 million (around €7 million). That is a very high amount of money for European club hockey.
Of course, the KHL predicts the sanctions for teams not reaching the salary floor. If a club does not reach it for the first time, the club will pay a fine at the level of 50% of the difference between the salary floor & the real payments of that club. For the second time (season), the fine is 100% of that difference. If a club does not fulfil its salary floor obligations in three seasons in a row, the KHL Board of Directors might exclude that team from the league.
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Feature Image Credit: (Photo by Mikhail Metzel\TASS via Getty Images)