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For the first time in 266 days of the National Hockey League lockout, there is hope for an end, as sources with ties to both sides of the labour dispute say the players and owners have cleared their biggest hurdle by agreeing on a formula for a salary cap.

The cap, which sources say will be tied to a percentage of team revenues, is expected to form the foundation of a six-year deal.

According to a source with ties to both owners and players, and another source close to the owners, there will be a team-by-team salary floor and cap based on a percentage of each team's revenue. The actual percentage is not known, although the league had been demanding 54 per cent.

In the first year of the agreement, the salary cap will range from $34-million (all figures U.S.) to $36-million, based on revenue projections by both sides, with a floor of $22-million to $24-million.

The Canadian teams left in the worst shape by the new salary cap will be the Toronto Maple Leafs and the Ottawa Senators, due to their high team payrolls. The Leafs, according to figures from the NHLPA, already have eight players under contract for the 2005-06 season for a total of $27.1-million. The Senators have 10 players under contract for $23.6-million. Both numbers include the 24-per-cent pay cut offered by the NHLPA.

The other Canadian teams are in reasonably good shape, as the Edmonton Oilers have 12 players under contract for $13-million and the Calgary Flames have 11 at $12.8-million. Next are the Montreal Canadiens with eight players at $14.5-million, with the Vancouver Canucks at six players at $11.8-million. Those numbers also include the pay cut.

While a number of issues remain to be negotiated, there is now optimism that a collective bargaining agreement can be reached by early July.

The outstanding issues include salary arbitration, free agency, qualifying contract offers, drug testing and NHL participation in the Olympics,

"You are very, very dead on there," said a high-level source. "I can confirm this is where they're at."

NHL vice-president Bill Daly, the league's chief negotiator, declined to confirm or deny anything yesterday, but he did say publicly on Tuesday that the negotiators had moved on to other issues.This was confirmed by a third source with ties to the highest level of the NHL.

The negotiating teams met yesterday in New York for the second consecutive day. The talks expanded yesterday from the small groups on each side to include members of the NHL Players' Association executive committee and members of the owners' negotiating committee.

Mr. Daly's counterpart with the NHLPA, senior director of business affairs Ted Saskin, could not be reached for comment. A union spokesman said in a statement that no agreements have been reached, although he also admitted talks have moved into other areas.

It's possible that new snags connected to other issues could develop, which would delay an agreement or possibly force both sides to revisit the cap concept. However, both sides have come a long way from the bitterness of the season cancellation in late February.

What is still not clear is how the percentage of revenue will be applied to each team, since there is a large disparity in revenue among the NHL's 30 teams.

And it's clear the agreement is complicated. If a strict percentage was used, then a wealthy team such as the Toronto Maple Leafs would have a salary cap not only much higher than $36-million, but vastly higher than a team such as the Phoenix Coyotes, whose financial situation is regarded by insiders as one of the worst in the NHL.

According to the formula, a dollar-for-dollar luxury tax will kick in if a team's player payroll reaches the midway point between the floor and the cap. If the floor next season of the lowest team proves to be $22-million and the cap on the highest team is $36-million, then the tax will come into play at $29-million.

This will allow the wealthier teams to spend a little more money, but will prevent the large gaps in spending in the previous agreement that saw teams such as the Pittsburgh Penguins with payrolls as low as $18-million a year, while the New York Rangers were spending $80-million.

The luxury tax will be spread among the lower-revenue teams to help them stay at the salary floor or higher. Plans for further revenue sharing are still vague, aside from the owners' offer to share some playoff gates, but management sources say they have long been assured there will be further sharing.

One source close to the owners said it is important to realize that the $36-million cap does not mean all of that money will be spent on player salaries. It includes all player compensation, which means signing and performance bonuses, and benefits will be paid out of that pool of money.

That might mean an end to performance bonuses, commonly put into contracts to end contentious negotiations. With a hard cap, teams will be reluctant to commit to bonuses that might put them in violation.

The benefits and bonuses could take, the source said, as much as $5-million off the cap number, which would leave about $31-million for salaries. This was what the owners demanded as a salary cap in an offer made in October, 2003, which came in response to an NHLPA offer of a 5-per-cent pay cut for every player along with other concessions.

However, that $31-million also included all player compensation and no minimum payroll, so the figures finally agreed upon represent an increase. But it is believed the offer of a 24-per-cent pay cut made by the players last December will be part of the new deal.

Management sources said the agreement on the cap was reached because moderate voices such as NHLPA president Trevor Linden were willing to make a deal and because both sides were able to agree on accounting methods after long and arduous studies of team finances by groups from both sides.

What is not clear is the role of NHLPA executive director Bob Goodenow in the agreement. While management sources insist he has moved into the background, with Mr. Linden and Mr. Saskin handling most of the negotiating, there is a long history of animosity between owners and general managers and Mr. Goodenow, who fights hard at every turn for the NHLPA members.

The blueprint

WHAT'S DONE

An agreement on a salary cap and floor based on team-by-team revenues.

The cap ranges from $34-million (all figures U.S.) to $36-million, based on revenue projections, for 2005-06.

The floor ranges from $22-million to $24-million.

A luxury tax kicks in at the midway point, currently $29-million.

The tax is dollar-for-dollar for amounts over the cap for redistribution to lower-revenue teams.

TO-DO LIST

Work out a complete revenue-sharing system.

Decide on how high-payroll teams will drop to the new maximum.

A new salary arbitration system.

Work out qualifying offers for pending free agents.

Settle on unrestricted and restricted free agency, based on age and/or years in league.

Olympic participation - players want it, owners don't.

Drug-testing policy.

New rules for equipment and the game.

IN SPORTS

Stephen Brunt: The players just want to play again.

Analysis: What the salary cap means for rich and poor teams.