History Doomed to Repeat Itself?

It doesn’t seem very long ago that former SEC chairman Arthur Levitt was speaking on behalf of the NHL’s owners, explaining that the league was on a “treadmill to obscurity” and that a drastically different financial model was needed to ensure the league’s survival.

In service to that concern, NHL commissioner Gary Bettman canceled the entire 2004-05 season in dogged pursuit of the current Collective Bargaining Agreement (CBA) with the NHLPA. With a salary cap based upon league-wide revenues, it appeared (at least to some observers, if not this one) that the desired “cost certainty” had been attained, if at a very steep price.

“I want the fans in every market to think, at the beginning of the season, that their team has a chance,” Bettman told the Edmonton Journal back in 2003. “I don’t want fans — you pick the market — to think, well, this team over there is spending three times as much, how can we compete with them?”

Unfortunately, only six years later it’s painfully clear that the current CBA is every bit as flawed as the one that preceded it, and probably even worse.

For where a cash-strapped team could have tightened the purse strings in order to remain profitable, teams are required to spend a minimum of $48 million on players in the 2011-12 season. For many of the small-market teams, that represents a serious financial hardship, and it flies in the face of the CBA’s purported objective. Indeed, the payroll minimum has risen by a shocking 100% (from $24 million) in only six years.

By forcing every team to spend a minimum of $48 million, every team will have no choice but to ice an expensive roster. But with this year’s free agent pool one of the thinnest I’ve ever seen, it’s unlikely that the forthcoming spending spree will actually do precious little to alter the balance of power.

The biggest star available is Brad Richards, a very talented 31-year-old center whose history of head injuries should give every potential suitor serious cause for pause. But with a lack of comparable alternatives available, look for the bidding to be fast and fierce for Richards, with the final contract numbers likely coming in somewhere around five or six years and $40 million. Moreover, those teams struggling to reach the payroll minimum will also find it difficult to remain in their current city.

So while the CBA might be attempting to enforce competitiveness, it’s also likely going to force some teams to relocate to markets where they can actually turn a profit. With that in mind, the league probably made a huge mistake in preventing RIM billionaire Jim Balsillie from purchasing the Phoenix Coyotes.

Back in January, Bettman told the Toronto Globe & Mail that the lockout was his biggest regret as commissioner: “I wish we didn’t have to go through the lockout. We had no choice. And as a result of the things that were accomplished coming out of it, we’re in a much stronger place than we were. But to have to have to have gone through that was extraordinarily painful for everybody associated with the game.”

“We burned a year for nothing,” concurred Sean Avery in an interview with the Los Angeles Times following the lockout. “We didn’t win anything. We didn’t prove anything. We didn’t get anything. We wasted an entire season.”

All true. And now, essentially one year from the CBA’s expiration, there’s good reason to believe that the NHL is about to go through the same exact thing all over again.

By forcing teams like the Florida Panthers and Nashville Predators to spend $48 million on players, the league is making it virtually impossible for those teams to turn a profit. And because the cap is based upon league-wide revenues, the movement of the Atlanta Thrashers to Winnipeg means that overall league revenues will spike higher while teams like the Panthers and Predators see no real benefit. Instead, their cost of operation – based upon the current CBA – will rise.

When the Philadelphia Flyers signed the Buffalo Sabres’ Daniel Briere to an eight-year, $52 million deal back in the summer of 2007, it was a clear sign that the current CBA wasn’t potent enough to allow the Sabres to compete with the likes of the Flyers for top-tier talent. That front-loaded deal will see Briere earn $47 million through the first six years of the deal, but his cap hit will remain constant throughout the duration of the contract ($6.5 million per year).

What that means is that in 2003-14 and 2014-15, Briere might well be the most highly-coveted asset in the entire league. For a team struggling to meet the payroll minimum, it will cost only $5 million to be credited with $13 million. In other words, a cash-strapped team like the Panthers would probably be willing to surrender a coveted young asset or a high draft pick just to add Briere to their payroll, even if he won’t have much to offer on the ice at that point in his career. Likewise, whatever team holds the rights to the Montreal Canadiens’ Scott Gomez in 2012-13 and 2013-14 will essentially save $4.6 million over the course of those two seasons.

All the talk leading up to the July 1st free agent spending spree has focused around Richards, but the real story is likely to be Tampa Bay Lightning forward Steven Stamkos. A restricted free agent, Stamkos is unquestionably one of the league’s top talents, the kind of player around whom virtually every NHL club would like to build. If a bidding war ignites around Stamkos, the Philadelphia Flyers are likely to be a suitor. But they shouldn’t be alone.

The Colorado Avalanche – before the lockout one of the league’s most aggressive spenders – are currently $16 million under the payroll minimum with 15 players under contract. Would it be out of the question for them to offer Stamkos an eight-year deal worth $100 million? Such a move would not come without risk, but it would unquestionably accelerate the team’s efforts to rebuild into a legitimate Cup contender.

The Toronto Maple Leafs are on a desperate quest to regain relevance, and perhaps no move (other than an unlikely acquisition of Sidney Crosby) would accelerate that process more quickly than the signing of Stamkos. With $18 million in cap space and 18 players already signed for 2011-12 – and with very few “untouchable” assets on their roster – Toronto is a very possible destination for Stamkos. And perhaps most importantly, playing in Toronto would likely make Stamkos – already the cover athlete for EA Sports’ popular NHL video game title – the undisputed king of hockey endorsements within 1-2 years.

The New York Islanders have 18 players under contract already, and they’re $10 million beneath the payroll minimum. The franchise’s future depends upon an August 1st vote to ratify a deal made between Isles owner Charles Wang and Nassau County officials to replace the decrepit Nassau Coliseum. Wang hasn’t been afraid to throw big money around (see: Alexei Yashin, Michael Peca and Rick DiPietro). With the opportunity to land one of the NHL’s top five players, might Wang offer up a deal worth $12 million per year? Even if the move doesn’t spur excitement enough to turn the arena vote the Isles’ way, the acquisition of Stamkos would increase the franchise’s value, something Wang will no doubt also be considering.

All of this, of course, is predatory discussion, with the potential gains in Philadelphia, Denver, Toronto, or Uniondale coming at the expense of the Lightning. With over $45 million committed to 16 players, the Lightning would be pushed into a very precarious position should they match a big-dollar offer for Stamkos. There’s no guarantee that they’d be able to unload Vincent Lecavalier ($7.8 million/year through 2019-20) to make room for Stamkos. Another prospective suitor also provides an instructive look at the league’s past, a past it’s clear no one’s learned very much from.

The Winnipeg Jets are $12 million under the minimum (also with 15 players under contract). Aside from Evander Kane, there isn’t a single player on their roster for whom they must save space, so add them to the list of potential suitors. It’s unclear whether a player of Stamkos’ caliber would want to relocate to Winnipeg, but moving from Tampa to a hockey hotbed (even one in Manitoba) would also mean a significant surge in endorsement opportunities (though not on the level a move to Toronto would generate).

Back in 1995 (not long after a lockout that cut the 1994-95 season to 48 games), the previous iteration of the Jets (now the Phoenix Coyotes) saw their RFA (and team captain) Keith Tkachuk sign a 5-year, $17 million deal with the Chicago Blackhawks that included a $6 million salary for the 1995-96 season. That $6 million salary made Tkachuk the game’s third-highest-paid player, behind only Wayne Gretzky and Mark Messier.

The Jets, desperate to keep their fans aboard an obviously sinking financial ship, made the ill-advised decision to match the offer, and were sold and moved less than one year later. It wouldn’t be too far-fetched to imagine this scenario playing itself out in reverse, with the (at least currently) well-heeled Jets bidding up Stamkos to a level that ultimately forces the Lightning to sell and relocate.

Once again, here are Bettman’s pre-lockout words: “I want the fans in every market to think, at the beginning of the season, that their team has a chance.”

Looking at this landscape, it’s clear that the Lightning have a chance to compete on the ice. They did, after all, reach the Eastern Conference Finals. But it’s also clear that their best player is probably not long for their roster, and if they take the steps likely needed to keep him, it’s a good bet that the fans in Tampa soon won’t have a team to root for. In other words, damned if they do and damned if they don’t, and that’s what this tragically flawed CBA is all about.

With Donald Fehr now heading up the NHLPA, it’s a fait accompli that the union won’t be pushovers in the forthcoming labor negotiations. And with it now abundantly clear – look no further than the Thrashers/Jets and Coyotes for proof – that small-market teams are suffering badly under the current CBA, it’s clear that the owners will be asking for more givebacks from the players’ union. In other words, a battle is brewing and it probably won’t be pretty.

It’s all well and nice that the league got a 10-year television deal with NBC/Comcast, but it’s important to note that Comcast also happens to own the Flyers. In other words, the league and its television partner are in a sense now one and the same, so don’t expect that deal to have any effect on the negotiations.

The prior CBA created a scenario where large-market teams consistently raised the cost of doing business, leaving small-market teams to choose between trying to remain profitable and trying to compete. The current CBA forces small-market teams to compete whether they can afford to or not, and the league’s revenue-sharing plan doesn’t level the playing field enough to ensure profitability (or even solvency) for those teams.

Needless to say, things aren’t looking very rosy right now, and they won’t look any better if a team like the Jets or Islanders poaches Stamkos for an earth-shattering deal worth a maximum 20% of the cap (over $12 million per year).

Here’s hoping that sanity prevails, and that rather than attempting to slightly alter the current CBA, the league and its players instead take a good hard look at both the past and the future and come up with a CBA that will ensure that it’s possible for teams in all market sizes to not only compete on the ice, but also to survive (and thrive) in their current location.

It won’t be easy, but it’s unquestionably necessary.


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One Response to “History Doomed to Repeat Itself?”

  1. Kevin Greenstein
    July 1, 2011 at 10:45 am #

    Here’s a super-interesting article about “losses” as relates to professional sports owners: