NHL

Fear, loathing and 'I can't believe we're doing this again'

{eot}
Bob McKenzie
9/10/2012 7:21:13 PM
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I've spent the better part of my first week back from vacation trying to get a handle on the NHL-NHL Players' Association labor negotiations, or lack thereof, and in the immortal words of Roberto Duran, "No mas."

My head is spinning, and if you've seen my noggin, you know that's no small feat. And to think we're likely just taking the first few steps this week towards walking through what is likely to be a very long, dark tunnel.
 
In some respects, I can't believe we're on the verge of another lockout, eight years after we went through a stoppage that cost us all an entire NHL season. And yet I'm not the least bit surprised at the vast gulf that exists, thus far anyway, between the positions of NHL commissioner Gary Bettman and NHLPA executive director Don Fehr. It has been entirely too predictable.
 
Based on what we've seen of the negotiations to this point, the overriding sense I get from the public opinion reaction of fans and media -- for what that is ultimately worth -- is that the NHL is looking for an awful lot, too much too fast. I would generally agree with that characterization.
 
I mean, the typical reaction goes something like this: The NHL locked out its players for an entire season in 2004-05, was able to implement a relatively rigid salary cap, got a 24 per cent wage rollback on all existing NHL player contracts, created much sought-after "cost certainty" with the escrow feature of a cap that linked revenue and salaries, introduced entry-level restrictions and the league took this whole new economic system for a seven-year test drive only to come back now and say they don't like how it's driving.
 
Oh, yeah, did we forget to mention that in the seven years the CBA has been in place, NHL revenues have grown from $2.2 billion to $3.3 billion?
 
Seriously?
 
So that's the backdrop as the NHL, in its initial proposal to the NHLPA, suggested the players' share of revenue be decreased from 57 per cent to 43 per cent -- an actual one-year reduction of the player salary pool of 24 per cent -- which would undoubtedly lead to wage rollbacks on existing contracts and/or significant escrow payments. Since then, the NHL has upped the proposed players' share number to 46 per cent, presumably meaning the NHL is prepared in a negotiation to go even higher still and we can reasonably guess the final target is likely to be around the 50 per cent mark.

It hasn't helped matters that the NHL has been proposing a new definition of Hockey Related Revenue, effectively offering the players a smaller piece of a smaller pie and at the very least confusing us who are math challenged and forcing us to repeatedly ask: Was that (fill in the blank) per cent of old HRR or new HRR?.
 
In any case, whichever percentage figures you use, I think it's fair to say the NHL is looking for an immediate and significant auto-correct in this new CBA.
 
So I do get that the players are not in an overly giving mood.
 
I know if I were a player:
 
-- I would be adamant about not giving a rollback on an existing contract. It is true that escrow has always been part of this deal and the absolute 100 per cent value of an existing contract has never, not ever, been fully guaranteed in this system, but actual wage rollbacks should be for industries or businesses that are in crisis and whatever internal economic issues the league may have -- and in fairness, it does have some -- the growth pattern indicates it's not a crisis.
 
-- I would be vigilant about not agreeing to any instantaneous and drastic reduction in the players' share of revenue -- less than 50 per cent -- that would create a guaranteed and/or double digit escrow that would act in the same manner as a rollback. That isn't to say there can't be escrow because of year-to-year fluctuations in revenue and/or team overspending, just that it shouldn't be a designed rollback dressed up as escrow.
 
-- I would want the existing definitions of Hockey Related Revenue to remain constant, if for no other reason than allowing for an easy apples-to-apples (57 per cent to ?? per cent) comparison in any future proposals. It was such a challenge (Levitt Report, anyone?), because of mistrust in the last lockout, to come up with the definition of HRR, it would be confusing and counterproductive to alter it now.
 
-- I would want to ensure salary arbitration rights continue in some form in the new system and that there are no substantive changes to the age/experience qualifications for unrestricted free agency, which was the major perk I received for agreeing to a cap and a 24 per cent rollback in 2005.
 
Beyond that, if I were player, anything and everything else would be wide open to negotiation.
 
So I think it's fair to say a lot of people can identify with the players' mindset entering into these negotiations. For that reason, it seems a given the NHL will not win the public relations battle in this dispute, not like in 2004-05, when many fans couldn't grasp the NHLPA's stubborn anti-cap ideology, which ultimately led to the lost season.
 
That said, though, just because the NHL has proposed such a dramatic reduction in the players' share of revenue doesn't necessarily mean the players should have an inalienable right or entitlement to 57 per cent. I mean, it went from 54 per cent in the first year to 55.6 to 56.7, to 56.73 to 57 over the life of this CBA. Is it insane to conceive that it could or should slide the other way?
 
Quite aside from the severity of the NHL proposal, can we not allow that the league is entitled to make a judgment on whether, upon the expiry of this deal, the existing ratios still make sense? The NHL view is the players receive 57 per cent of revenue and are not responsible for any of the expenses associated with running the business and the league receives only 43 per cent of revenue and is fully responsible for the increased expenses of running the business. And the NHL maintains those expenses -- the cost of transporting players, accommodating players and equipping players, amongst other things -- have increased dramatically over the last seven years, as has the players share of each incoming dollar (from 54 to 57 per cent).
 
Obviously, the dramatic 50 per cent increase in overall NHL revenues cannot be overlooked in this equation. The industry as a whole is thriving, but the NHL maintains the cost of doing business has rapidly escalated and the amount spent on players' salaries is out of whack. It's quite obvious that within the NHL, there's been a growing disparity between the wealthy clubs that are largely driving the upward spiral of revenues and the more financially-challenged clubs who for a variety of reasons are not faring well economically. The players don't even dispute that.
 
Consider some numbers:
 
-- In 2005, the NHL and NHLPA negotiated a salary cap of $39 million. After one year of the new CBA, based on the linkage to revenue, the cap went up to $44 million. This season, if the CBA were not expiring, the salary cap would have been $70.2 million (which includes the NHLPA's right to inflate it by 5 per cent for anticipated growth). So in seven years, the cap has gone up $31.2 million dollars.
 
-- In 2005, the NHL and NHLPA negotiated a salary floor of $21.5 million. After one year, it went to $28 million and it would have been $54.2 million this season. So, in seven years, the minimum amount an NHL team must spend on player salaries has gone up $32.7 million.
 
-- The players' share of HRR started at 54 per cent and has risen to 57 per cent. The annual reconciled escrow rates -- the actual premium or discount on the players' annual contracted individual salaries -- have fluctuated as follows: +4.64 per cent; -2.49 per cent; +0.66 per cent; -12.88 per cent, -3.86 per cent; and, while last season's final number hasn't been fully verified yet, it appears the discount on players' contract value is less than one per cent.
 
-- The average annual player salary at the end of the first year of this CBA was $1.45 million. It now stands at $2.45 million. It was $1.7 million prior to the lockout of 2004.
 
To the surprise of many who thought a salary cap was the end of the players' world as they knew it, the players have done quite well in the current system. From an average salary of $1.45 million at the end of the first year of the deal to $2.45 million -- a bump of almost 70 per cent in seven years. Even if you use the pre-lockout, free-market figure of $1.7 million, the average player's salary has still gone up $750,000 or about 44 per cent in the new system.
 
No one doubts for a moment that the wealthy NHL clubs have prospered like they've never prospered. The rich have most certainly gotten richer. But there are a lot of NHL teams -- certainly more than half -- not thriving financially. Now, I get that the NHL has never been a sympathetic subject when it comes to finances. There's always been distrust or skepticism from the players regarding financial numbers, especially when citing losses.
 
Many don't like that the NHL propped up Phoenix when it perhaps could have gone to a more lucrative market. Many have difficulty reconciling that one day Minnesota owner Craig Leipold is giving the sun, the moon and the stars to Zach Parise and Ryan Suter and virtually the next day he's sitting on the NHL bargaining team hellbent on curtailing precisely everything that he just did. It goes on and on...
 
I get all of that, but I also allow for the possibility the financial health of each individual franchise in the NHL may not be nearly as rosy as the league-wide revenues make suggest.
 
I also get that "cost certainty" shouldn't necessarily equate to "guaranteed profit" for every team. I know some of those franchises are victims of their own follies or maybe they're in markets that just don't work. And, yes, in a new CBA there should be more revenue sharing from the wealthy NHL clubs. And I'm not for a minute suggesting the players should shoulder the entire burden of subsidizing the NHL's weak sisters, especially with the revenue explosion.
 
But is it really so absurd to think the players' share of revenue could, at some point, in a new CBA be as low as 50 or some number between there and 57, especially in a universe where the overall revenues continue to grow?
 
The NBA and its players, after going through their own lockout, recently agreed to a deal that is approximately 50-50. The NFL and its players did a deal that gave the owners' a favorable 53-47 split. The NHLPA has noted, correctly to a point, that the size of the revenue pools in those sports differs greatly from the NHL, and other variables mean they're not necessarily precisely valid comparables to the NHL. And that if one is to play the comparison game, why not compare the non-capped world of Major League Baseball. Fair enough. The NHL would tell you it should be a valid comparison at 50 per cent because precisely because NHL revenues are less than NBA revenues but NHL operating costs are higher. In either case, I'm not sure one can simply ignore that the other two North American pro sports leagues with caps have ratios where the players get 50 per cent or less. It is at the very least indicative of some sort of a trend, is it not?
 
Which brings us to the NHLPA's proposal to the NHL.
 
It's fascinating, actually, to look at the difference of how the dueling offers were received. The NHL's proposal of significantly less than 50 per cent was, quite accurately, portrayed as Draconian. The players' proposal was widely hailed as creative, imaginative and conciliatory and the players themselves seem to think it's a generous offer that addresses what needs to be addressed in the NHL. And yet if the NHLPA perceived the NHL offer as a kick in the teeth, the NHL looks at the NHLPA proposal as a slap in the face, a total affront.
 
Here's why:
 
Effectively, the NHLPA proposed to limit the players' share of future "growth" over the next three years -- creating what the NHLPA maintains is a "projected" minimum $465 million windfall to the NHL -- before "snapping back" to a full 57 per cent share in the fourth and final year of a new CBA.
 
Or to put it another way, the NHL spent $1.873 billion on player salaries last season and the NHLPA proposed that number be INCREASED by 2 per cent in the coming season, 4 per cent in year two and 6 per cent in year three. So, basically, the NHLPA is proposing the actual dollars spent on player salaries to go UP at a time when the NHL fully expects they should go DOWN.
 
The NHLPA position is predicated on the basis that revenues are growing and will continue to grow. The PA used a factor of 7.1 per cent compounded, which was the average growth over the life of the expiring CBA. The PA notes the percentage increase over the last two seasons would be substantially higher because the two best revenue years the NHL has ever had are the last two.

The NHLPA maintains that if the NHL continues to generate revenues of this nature, the players are sacrificing a significant chunk of their share of that future growth and those monies are going directly to the clubs' bottom line. And that if the NHL really does a bang up job of increasing revenue in the next three years, the owners could generate untold wealth that is virtually all theirs.
 
But in order for the NHL to get this more favorable share of future growth for three years, the league must be willing to: a) assume the NHLPA's growth projections are accurate; b) ensure that the players go back to 57 per cent in the fourth year, a full return to the status quo; c) the wealthy NHL teams must generate an additional $100 million in annual revenue sharing monies for what the PA calls an Industry Growth Fund, which would allow the NHL commissioner to administer as the league sees fit to franchises in economic need; and, d) teams would have to be able to sell or trade cap space, that if a team, say, Florida knew it was going to be $4 million under the cap it could trade or sell that $4M in cap space to a team, say, Philadelphia, that was spending to the cap and the Flyers could now spend $4 million over the cap.
 
The NHLPA believes this proposal addresses every NHL need: it slows the growth of monies spent on player salaries and puts additional monies in the owners' pockets, it helps to reconcile the disparity between rich and poor teams and gives franchises more flexibility within the cap system to do their business. The PA is not prepared to buy the league's argument on escalating expenses because it says there are no limits or caps on players' or managers' or the commissioner's salary increases and as costly as it may have become to do business, the huge revenue gains made the league should cover those expenses. It has become the players' mantra.
 
The NHL, though, doesn't see it that way. Not even close.
 
Because the NHLPA is offering to reduce its share of future "growth," the league feels there's an intangible quality to it. It could be "this" much ($465 million), it could be "that" much (more or less). It's a temporary, short-term (three-year) fix on a propsed four-year CBA, which isn't long enough. The NHL is not looking to increase the $1.873 billion it spent on salaries last season, it's looking to decrease it. And yet the NHLPA proposal calls for a real-dollar increases in each of the next three years and full return to status quo percentage of 57 in Year Four, a move which the NHL interprets as the players thinking they have an absolute "entitlement" to that magic number of 57.
 
Make no mistake, as offensive as the players find the NHL proposed player share cut to under 50 per cent, the NHL owners find the NHLPA proposal equally offensive, especially in light of what has happened in the NBA and NFL. NHL owners cannot fathom that just days before the CBA is set to expire, the only offer on the table from the players sees actual salary expenditure increases in each of the next three years.

They're not happy that negotiations didn't begin until June 29, that the NHLPA exercised its right to employ the 5 per cent inflator to the summertime cap and that the PA rejected a league proposal to freeze the cap at the end of last season, so teams wouldn't spend their way into potential difficulties this summer since there's a practical expectation or sense that the cap number, in a new CBA, is more likely to be less than more.
 
Earlier, I characterized the NHL's position as extreme. And it is. I don't like that the league is going for a home run (grand slam?) on its first at bat. But don't kid yourself into thinking that the NHLPA position isn't hard line, too. To be honest, I'm shocked we're less than a week from a lockout and the players' proposal doesn't include a tangible reduction in their share, not even to 56 per cent, if only to acknowledge practical considerations that the number is realistically going to end up somewhere south of 57 and the number of real dollars spent on salaries will likely be less this coming season than last season.
 
These two sides are not speaking the same language. Not even close. One might as well be talking Mandarin while the other is speaking Swahili.
 
The only time they're on the same page now is when they're talking about how out of touch with reality the other side is. They both talk about how they believe there's "no choice" to proceed any way but how they're proceeding, that the other side's intransigence has backed them into a corner. They both talk about how they fear their respective proposals have been interpreted as "a sign of weakness" and maybe that's contributed to the absence of any real negotiating.
 
The last lockout was fought on ideology -- the free market system vs. the cap system. It was foolish to lose a whole season on that basis, but it's not the first or last time a war was fought defending a principle or ideal. Dumb, but understandable. This time around, though, the "system" isn't on trial so much as they're just trying to figure out how to share a dollar. Or a few billion of them.
 
It would seem logical to anyone who's not totally invested in one side or other that there's a deal to be made here. The NHL has to get off its notion that the "correction" to the ratio needs to be swift and dramatic. If the players' share gradually increased over seven years, why can't it gradually decrease to ensure minimal suffering (no rollbacks)? And the NHLPA needs to recognize, in spite of rosy NHL revenues but given the NBA/NFL outcomes, the practical reality is that 50-50 is the NHL goal and hanging on a "snap back" to 57 per cent appears delusional.. Surely, some creative genius must be able to meld the conflicting concepts and numbers and come up with something that works for both sides while the revenue pot still has a shot to be in growth mode.
 
Far greater minds than mine -- I nearly flunked Grade 12 math -- will have to come up with what the precise magic number is over the life of the next agreement and how best to implement it. In the meantime, we'll be treated to displays of owner and/or player solidarity, much chest and tub thumping, to say nothing of acrimonious treatises as to why one side's proposal makes no sense and the other side's concept is genius. All of which isn't worth a pinch of you know what when you consider, in the wake of the last lockout, it was declared virtually unanimous by anyone with an opinion at the time that the last CBA was a slam-dunk victory for the owners. A crush job, it was...and of course it's been anything but.
 
It's doubtful we're going to find that middle ground. Certainly not this week anyway. So it appears inevitable a lockout will commence Saturday night. Here we go again, it would seem. How long it goes, what twists and turns it takes, who knows. I'll presume, like last time, both the owners and players are "tough" enough and fully committed enough to miss an entire season. You don't need to convince me.
 
This will be the NHL-NHLPA lockout rubber match, In 1994-95, I could probably be characterized as mostly pro-player, because I felt the pendulum had swung way too far in the owners' favor. In 2004-05, I was seen as mostly pro-owner because I felt that pendulum had swung back too far in the players' direction and I simply wasn't convinced a salary cap was evil incarnate.
   
This time, I don't sense the pendulum is wildly out of line and probably only requires adjustments that, in theory, shouldn't be enough to threaten the 2012-13 season. But that doesn't mean it won't happen.
 
As for being pro-player or pro-owner, I suppose on an emotional level I can empathize with the players more this time than last time for reasons outlined throughout, but on a practical level, in the face of the reality that's about to strike, I'm also finding it hard to believe the players can't do better with their offer than they have. But at the end of the day, does it really matter what I think or who wins in the court of public opinion, who sides with whom? We're all pretty much just spectators here.
 
I just hope both sides know exactly what they're getting into -- they should, because they have lots of experience to draw on -- because I figure that pie they always talk about sharing will only get smaller the longer they're out. But since it's an occasion when self-interest is paramount, I have but one request: Make the next CBA eight years long. I'll be in retirement by the time it expires and won't have to endure another...and you won't have to read another one of these.
 
No mas, indeed.

 

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