Back in 2004, it was clear that the NHL’s owners and players were miles apart in their efforts to construct a Collective Bargaining Agreement (CBA) that both sides would find amenable. The issue from the owners’ side was that player costs were rising at a rate much faster than revenues, and that they needed “cost certainty” in order for their businesses (the NHL teams) to survive. In fact, no less an authority than former U.S. Securities and Exchange Commission (SEC) chairman Arthur Levitt was brought aboard, delivering an infamous report in which he said that the league was “on a treadmill to obscurity.”
Eventually, the players caved, agreeing to a CBA that provided the cost certainty the owners were looking for in the form of a salary cap. And in the ensuing seven seasons, league revenues rose dramatically (from $2.1 billion in 2006 to $3.3 billion in 2011) while the league’s TV exposure went from virtually nonexistent (on OLN, the Outdoor Life Network) to very prominent (NBC). The introduction of the Winter Classic allowed the NHL to take over as the primary U.S. sports event on New Year’s Day. And everything looked to be coming up roses.
But alas, the now-expired deal failed to properly address the core issues, and now it’s quite likely that another full season (or more) could be lost as the two sides find themselves further apart than ever before.
In an article I wrote for the New York Sun back in December 2004, I identified the most important issue at play during the then-ongoing negotiations: revenue sharing. A big reason for the NFL’s huge success is that many years ago, the New York Giants agreed to share television revenues equally with the Green Bay Packers, even though the Giants play in a television market that dwarfs the Packers’ (thus making the Giants’ TV rights far more valuable). In sharp contrast, most of the NHL’s income was – and still is – locally generated, thus there remains a huge disparity between what wealthy teams in Toronto and Boston earn versus what is earned by teams in Phoenix and Nashville. The problem with the CBA that was ultimately implemented in 2005 is that it was based almost entirely upon a salary cap determined by the collective revenues of all 30 teams. In other words, the payroll range for both Boston and Phoenix was based upon 30 teams’ collected income, and it wasn’t much of a surprise how things turned out.
The Coyotes are struggling badly at the gate, even following a run to the Western Conference Finals, and their future in Phoenix is bleak at best. Meanwhile, the Bruins just enjoyed seven of the successful seasons in franchise history. While it’s true that Boston only won the Stanley Cup once (in 2011), they leveraged the new CBA to effectively eradicate the perception that owner Jeremy Jacobs was “cheap.” They accomplished this because the NHL implemented a CBA for which Jacobs (the head of the NHL’s Board of Governors) was likely the chief proponent. Under the just-expired CBA, the Bruins weren’t allowed to spend beyond the cap, thus setting up a scenario where they could no longer see their payroll compared to the likes of the Rangers, Red Wings, Flyers and Maple Leafs. By restricting their more profligate rivals, it became far easier for the Bruins to emerge as Cup contenders without needing to spend wildly.
If anyone’s uncertain about the impact of this, they need look no further than this summer’s situation with goaltender Tim Thomas. Thomas was the hero of the Bruins’ Cup victory, then gradually fell from grace over the course of the past year, using his public persona to further his political agenda while refusing to be held accountable for the things he was saying. Thomas notified the Bruins that he wouldn’t play for them in 2012-13, but because he signed his contract after his 35th birthday, he would still count for $5 million against the salary cap. Thomas’s no-trade clause expired on July 1st, freeing the Bruins to trade him to any team in the league. It’s hard to imagine that there wasn’t meaningful demand for his non-services, as teams struggling to meet the payroll minimum (like the Coyotes) likely would’ve given up an asset of value in order to save $5 million against the cap by acquiring Thomas’s contract. But we never heard a peep, the Bruins counting on the combination of the Cup victory and whatever remaining positive capital Thomas has with the fans to give them a free pass. By failing to trade Thomas, the Bruins will necessarily be putting an inferior product on the ice, for they could and should have used that $5 million to fortify the team that will now be playing in front of Tuukka Rask.
There are other examples as well. The NHL had little choice but to allow the Thrashers to move to Winnipeg when no Atlanta-area buyers emerged. So why wouldn’t they also want the Coyotes to move from a hockey wasteland in Phoenix to a hockey hotbed in Canada? It’s actually quite simple. As long as the players’ compensation is tied to an aggregate of league revenues, the wealthiest owners have no interest in seeing overall revenues go up – thus increasing their player costs – by relocating the Coyotes to Quebec or Hamilton. The national television revenue in Canada is virtually tapped out – there isn’t much opportunity for growth – and if anything, the presence of another team in Canada (versus Phoenix) would have a deleterious effect on the value of the NHL’s U.S. television rights. The Coyotes’ lack of success drags down league revenues and consequently the salary cap, but their presence in Phoenix actually provides some value with regard to the NHL’s U.S. television deal with NBC (national revenue). Meanwhile, putting another team in Canada would increase overall league revenues (and consequently the salary cap) without putting another penny in the pockets of the NHL’s wealthier owners. And in fact, moving the team from Phoenix to Canada would likely reduce the value of the U.S. television deal, thus reducing the wealthy teams’ income (negatively impacting the U.S. television contract) while simultaneously increasing their operational costs (higher player salaries).
So what comes next? It is abundantly clear that the wealthy owners are the ones driving policy, and they have no interest in sharing their money. The small-market owners’ influence is far more limited, and they’re depending upon the wealthier owners – with teams in established, successful markets – to fight for a CBA that will allow them to survive. For the players, the situation is actually quite dire. The average NHL players’ career lasts only 4-5 years, and another lost season would exact a price they cannot recoup. The players are being asked to compromise in a significant way – to accept a huge pay cut – for a deal that is essentially all about preserving the wealth of the most powerful owners. The CBA the owners are proposing could easily lead to a repeat of this very debate in another seven years.
NHL Players’ Association executive director Donald Fehr said Thursday that the most recent proposal from commissioner Gary Bettman calls for a 17.5 percent reduction in revenue sharing, totaling $330 million a year. In other words, rather than conceding on the most important issue – figuring out a way to get the NHL’s wealthiest teams to share with its poorest – they are trying to focus the negotiation on current player compensation as relates to aggregate league revenues. One would hope that the NHL would learn from its mistakes, but following a seven-year period in which overall revenues rose by more than 50% and in which the wealthiest teams got far richer, it’s hard to call the events of the last seven years (including the lockout that canceled the entire 2004-05 season) a mistake. So the owners’ modus operandi will likely remain the same, to “stick with what’s working.”
For the fans, a major concession by the players is probably the only way this lockout will come to an end before the 2014 Winter Classic, as it is quite likely that this dispute will result in more than a full season’s worth of games getting canceled. The owners have no reason to concede, the fans proving last time that their loyalty and undying love for hockey will bring them back in droves whenever the puck drops again. And unless the players have the financial resources and requisite moxie to dig in their heels until the owners cave, there’s virtually no way that the owners will concede anytime soon on the most critical issues.
It’s easy to blame NHL commissioner Gary Bettman for this mess, but that would be misguided. Bettman has expertly managed the league exactly as the owners wanted him to, and these labor disputes are but a blip in the radar for the owners, many of whom are billionaires. During the last lockout, Bettman infamously proclaimed that cost certainty would lead to affordable ticket prices. Instead, ticket prices went up dramatically across the league following the 2004-05 lockout, largely because the owners quickly realized that there was a direct correlative between rising player salaries and the wealthiest owners’ profits.
Make no mistake, the fans’ interests play absolutely no role in these negotiations. Their willingness to return in droves in 2005 sent a clear message that scarcity (a work stoppage) would only serve to increase demand. Unless the fans figure out a way to send a contradictory message – or NBC uses their weight to influence this process – the most likely scenario is that the owners will hold tight to their position until the players cave. And with Donald Fehr offering the type of reasoned leadership that the NHLPA has long been lacking, it’s unlikely that the players will cave until they’re left with no other choice. Given how things turned out last time, it’s hard to imagine the players caving before it becomes likely that they’ll have to go two full seasons without NHL salaries.