2026-27 Salary Cap Projections are Incredibly Low

I keep reading articles that suggest that the projected salary cap for the 2026-27 season will be around $97M (most recently in yesterday's article by James Mirtle at The Athletic). This is seemingly using the annual 5% inflator that has been in place since last season.

As everyone knows, coming out of the shortened and fanless seasons due to COVID, the league lost a ton of revenue, but the players continued to get paid, causing them to go into debt with the owners as part of the CBA mandated 50/50 revenue split. As part of the return to play agreement, in order to pay back that debt, the amount of escrow that was held out of players' checks was increased and the salary cap frozen until the "escrow debt" was paid off.

Assuming it would take a while to pay off the debt, the league didn't just want there to be a huge jump in the salary cap from $81.5M back to the 50/50 split in revenue, so they introduced the "lag formula" that would incrementally increase the salary cap by as much as 5% each season until the expiration of the current CBA (September 15, 2026).

Here's the relevant points from the Return to Play MOU:

• "Upper Limit will remain at $81.5 Million until Preliminary HRR for the just completed League Year surpasses $3.3 Billion." The fanless season in 2020-21 earned $2.33B in revenue, causing the salary cap to remain at $81.5M for the 2021-22 season.
• "For any League Year where Preliminary HRR is between $3.3 Billion and $4.8 Billion, the Upper Limit for the following League Year shall be between $81.5 Million and $82.5 Million on a pro rata basis (e.g., if Preliminary HRR is $4.05 Billion, the Upper Limit will be $82 Million). Once Preliminary HRR for the immediately preceding League Year surpasses $4.8 Billion, the Upper Limit will increase by $1 Million per League Year until the Escrow Balance is paid off." Revenues dramatically exceeded the $4.8B in 2021-22 — a league record $5.93B — allowing the salary cap to increase by $1M to $82.5M in 2022-23. The NHL had another record revenue year in 2022-23, but the escrow debt wasn't quite paid off yet, so the cap only increased by $1M again to $83.5M for the 2023-24 season.
• "Introduce the ‘Lag’ formula after the Escrow Balance has been repaid but not earlier than establishing the Upper Limit for 2023/24 League Year . . . Maximum year-over-year increase in the Upper Limit will be the lesser of 5% and the trailing two-year average HRR growth percentage." The escrow debt was finally paid off during the 2023-24 season, causing the salary cap to jump by 5% to $88M (a 5% increase would have actually been $87.675M, but they apparently had some leeway to round up).
• "[In the event the escrow debt is not paid off by the end of the 2024/25 season], the term of the CBA will automatically extend for one additional League Year (i.e., through the 2026/27 League Year and expiring on September 15, 2027) (the 'Extension Year')." The escrow debt was paid off well in advance of this deadline, so the CBA will not be automatically extended. That means the lag formula that is spelled out in the Return to Play MOU expires after the 2025-26 season.

Once the current CBA expires, the league will presumably return to a 50/50 split of revenue between the owners and players. Keep in mind, the salary cap hasn't been calculated by the 50/50 split since it was set at $81.5M for the 2019-20 season. Here's a list of the hockey related revenue and salary cap from the last 10 years:

^\): Shortened and/or fanless season ⁺: Escrow debt ⁺⁺: Lag formula

The calculation of the salary cap is a complex formula based on revenues, less expenses, divided by the number of franchises. That calculation sets the salary midpoint. The salary cap is 15% above the midpoint and the salary floor is 15% below it. Using the salary cap as a percent of HRR isn't a perfect formula to determine what the salary cap will be, but it's a good approximation. During the years preceding COVID since the 50/50 split was established, the percentage was always around 50-55%.

With the implementation of the flat cap due to COVID and the adoption of the lag formula to mitigate a huge jump to the salary cap once that debt was paid off, the salary cap has increasingly lagged (pun intended) behind the normal 50/50 split calculation. Assuming a modest 4% increase in revenues each season since the last revenue numbers were reported in 2022-23, revenues would look like this:

The salary cap for the 2024-25 and 2025-26 seasons are mandated to increase by 5% per the Return to Play MOU. The salary cap for the 2026-27 season is not. The particulars on how the salary cap for that season will be calculated still needs to be negotiated as a part of the next CBA. However, if the NHLPA successfully negotiates the 50/50 split as they did in the last CBA, the salary cap will be significantly higher than $97M.