• Inferences About the NHLPA CBA Response

    by  • August 14, 2012 • Hockey • 18 Comments

    The great thing about the past seven years of NHL coverage is that we haven’t really had to witness guys who really just wanted to cover hockey struggling with explaining business/legal stuff, the odd arena here or Kovalchuk contract there aside. Watching some of the reaction/stories that’s come out of today’s NHLPA proposal for a new CBA, I’m getting a bit of the old desire to slam my face into a table. I’ve taken a stab at figuring out what the little bits of information that we’ve heard mean; if what we’ve heard is wrong, this analysis is no good.

    There seems to be near-universal praise for a proposal that I’ve yet to seen clearly explained by anyone. Having now watched Don Fehr talk to reporters after the meeting with the NHL and illicitly checked out Aaron Ward’s Twitter feed, I think I’ve figured out what’s going on. In his comments to the media, Fehr mentioned that he isn’t going to go through the proposal line by line, so I think that his comments are likely as good as we’re going to get, barring the old “Someone in the PA gives a journalist his password to the player site so he can read it for himself.” Interestingly, he adverted to there being information that he wasn’t allowed to release – I bet the NHL wasn’t happy with the PA basically telling us the order of revenues in the NHL last time. It’s in the interest of neither the NHL nor the NHLPA for the good people of Edmonton to know that they have a mid-revenue club…with a $0.75 dollar.

    According to Ward, the NHLPA proposal includes an “artificial slowing of salary growth by players…as follows: year 1 will increase by 2%, year 2 by 4% and in year 3 by 6%. If Revenue growth exceeds 10%, anything over 10% is subject to 57% that exists under present system.” Ward goes on to say that it is “Important to remember average revenue growth is 7.1% so this is a three year payroll reduction of $465MM to help teams in need.” In his comments, Fehr said that the player proposal provided that, at the end of three years, the players would have the option to revert to a 57% share of revenues.

    What does this mean? Well Ward isn’t perfectly clear – Twitter isn’t a great medium for things more complex than brief snark about whatever’s on TV – but I suspect that what he’s saying is that whatever number the players were entitled to this year (a number I’ve seen reported as being $1.89B), they get 2/4/6% growth on it per year, plus 57% of any NHL growth in excess of 10% per annum.

    In return for giving this up, the players want the excess money from the growth of the game to go towards a pot for revenue sharing for the less tumescent markets. Fooling around with the numbers a little bit, I come up with $1.89B in player salary and benefits this year meaning that the league earned about $3.3B in revenue. That means that the teams were left with about $1.43B to run their operations and collect fat monopoly profits in some places.

    If you then assume an annual growth rate of 7.1% in league revenues and an increase in player salaries of 2%, 4% and 6% in years 1, 2 and 3 of the deal, you get $456MM less paid to the players than you would under a system in which they get 57%. That pretty much checks out with Ward’s number that I’ve cited above.

    In the fourth year then, when the player share reverts to 57%, (again assuming 7.1% growth in revenue), you come up with $4.36B in revenues, $2.487B in player salary and benefits and an owners’ share of $1.876B, of which a healthy share is going to be devoted to revenue sharing. Fehr talked about as much as $250MM in revenue being shared.

    It seems to me that what the players are offering to do is effectively put a drag on their salaries for the next three years in order to fund the revenue sharing program and then, once league revenues have hit a point that the revenue sharing can basically be paid for by the league without the owners noticing the increased revenue sharing payments in their bottom line, they’ll pass the responsibility for funding it off to them.

    It’s probably worth noting at this point that the players are likely going to get back or pay very little in escrow this year. This seems to have been a real sticking point for them, which I’ve never really understood but it does seem to matter to them. Salary growth has declined significantly in the past few years. Fehr can say to the players “Look, your contracts will be worth about their face value if we do this and then we can hand the responsibility for paying revenue sharing over to the owners.”

    It’s an interesting idea in that it will force the owners to show their hand and what they’re really on about. If their real issue is finding a way to make terrible markets viable, this does sound like a way of doing so. The players fund the fix in the short term and, in the medium term, growth in the game funds the fix. If it’s really about cranking up profits for a league that, for a variety of reasons including stupid governments, faces no real competition in terms of providing elite professional hockey, it doesn’t work.

    Enjoy the brief period while we wonder about the answer to that question. I’m a bit cynical about these matters, so I think I’ve got a pretty good idea what happens next.

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    18 Responses to Inferences About the NHLPA CBA Response

    1. August 14, 2012 at

      I expect the owners will still want to carve out a larger chunk of cash from the players, however. Recall just a few days ago that Gary Bettman said that revenue sharing isn’t what this is all about, and that the current environment is untenable for the owners in general.

      Fehr certainly has the media won over, that’s for sure.

      • Gerald
        August 14, 2012 at

        “Fehr certainly has the media won over, that’s for sure.”

        Ain’t that the truth.

        I think the hockey media may be in for a rather shocking (to them, at least) realization – that they will not decide the outcome of this with theis assessments of who is more “fair” or who are the “good guys”. Based on the commentary thus far, I think many (though not all, I’m sure) think that it is all about the PR, which puts the media in an important position. THe reality, IMO, is that they were irrelevant last time around and they will be again.

    2. August 14, 2012 at

      I really want to know what they NHLPA’s reply was to the 5 year ELC and 5 year contract length limit. I thought those would be hot topics. I am glad the NHLPA’s game plan is to be reasonable. Makes it look like the owners brought AK47′s and the NHLPA released a box of puppies to be their deterrent.

      The only thing I wouldn’t like as a player is the fact that they are trying to be the good guys. Why not make the owners take on more responsibility to help the less strong? The owners are clearly trying to shiv the players; the players are only looking good in front of the fans (who have no merit in discussions, unless we collectively boycott the league).

      • Triumph
        August 14, 2012 at

        The NHLPA understands that nothing else matters until they settle the revenue split and revenue sharing. They can do horse trading of various items like ELCs and maximum contract length after that gets settled, but until then, it’s irrelevant. The PA is right not to respond to those incendiary items in the NHL’s proposal.

        • dawgbone
          August 14, 2012 at

          Who the money gets paid to is basically irrelevant to all the parties, it’s how much.

          The PA offer seems to be a ploy to pit the haves vs the have nots. There’s probably at least 10 teams who like this offer on it’s face, and 10 who probably don’t.

    3. August 14, 2012 at

      I am generally an optimist that a solution will be found without too much disruption to the season, but the cynic in me believes this might be too complex for Gary Bettman (not that he doesn’t understand it, he just seems complexity adverse and would prefer a simpler ‘lets just lower player salaries even more’ solution).

    4. Woodguy
      August 14, 2012 at

      Talking about this with my friends a few weeks ago (before the initial NHL offer), we all figured that the player’s salaries would be pegged somewhere around 51.5% with no roll-back, just a freeze until revenues caught up to put the current figure at 51.5%.

      It looks like the NHLPA is going down that road, but its interesting that they are telling the owners where to spend the extra cash they generate. No extra profits for the TOR, MON, NYR, BOS, PHI types, but to keep the marginal franchises afloat.

      Its a brilliant tactic. There is no way Bettman can say no without looking like an asshole, and he will say no.

      I always stand by the thought that if I want to know the NHL’s position on anything I just think “Does this benefit Ed Snider?” I haven’t been wrong doing that in a long time.

      This doesn’t benefit Ed Snider (unless he gets to spend over the cap and pay a minor penalty), telling the NHL how to revenue share is a non-starter.

      I still stand by my original thought on the 51.% and no roll-back, but it may be a long way from here to there.

      Like Brad I’m also interested in their stance on what the NHL is asking in terms of contract length (my guess is “FU”) and RFA term (also guessing “FU”)

      Why does a little voice in the back of my head telling me that Bettman is feeding Fehr some of this stuff because he wants to help the poor sisters, but Snider and Jacobs won’t hear a second of it?

    5. john doe
      August 14, 2012 at

      If everyone looks at the details of this offer and say the players responded with a box of puppies, that is not true. Look at the details and read between the lines. The players really give back nothing. The best paragraph is paragraph number 3 about the actual numbers and break down.

      The players share would initially go to 54% of HRR and slowly creep back up to 57% and they are saying we will only take a 2% raise, then 4% raise, and 6% raise over the three years. Then saying if the NHL grows at 8% that first year, the owners can keep 6% and the players get 2% and so on and so forth for the following two years.

      However, the caveat is one little sentence in the third paragraph with all those other numbers. If the league “goes nuts” to create more revenue like the players suggest, and grows by more than 10% (which I believe it has in both of the last two seasons) the players would automatically get the old 57% number in the previous CBA.

      I can not see the owners going for this. Once they look at the fine details and crunch the numbers they will come up with the same solution. Fehr for sure is a good in terms of finance to make things look better than they appear.

      • Hank
        August 14, 2012 at

        I believe it is only 57% of the excess of 10% revenue growth.

      • Triumph
        August 14, 2012 at

        The players are under no obligation to ‘give stuff back’. Each signed contract in the NHL was agreed to by ownership.

        The key to this offer is changing the NHL framework. The NHL’s initial offer – and initial offers are what they are – did very little to address the issues that exist between large and small markets in today’s NHL. All it did was propose that players should give back loads of money. But that doesn’t address the larger issues. I honestly think in 2004-05 the small market teams felt that a salary cap would seriously help them. I also think the big market teams genuinely saw it both as a tool to create profits but also as a way to curb their own spending excesses. As a fan of a mid-market team, I loved the idea – competitive balance might be restored. But for small market teams, the salary floor forced them to spend money they didn’t have on players they might not have even wanted. I don’t see what incentive a team like Columbus or Phoenix has to agree to anything that the big market teams want, except in order to get back to playing as quickly as possible before their fan base is even more eroded.

        The players will be forced to give stuff back – that’s how these things go – but the skeleton here appears to create a much healthier NHL than the offer the NHL gave.

        • August 15, 2012 at

          Players contracts are tied to the CBA and thus essentially expire on September 15th if there is no new CBA that picks them up (this is why players won’t get paid and are free to sign contracts in other professional leagues). So while players aren’t obligated to give stuff back the NHL isn’t obligated to honor existing contracts either. How existing contracts get transferred to the new CBA is up for negotiation and there is no reason the owners can’t ask for a roll back as part of that negotiation.

          Also, the NHL’s offer did address the disparity between large revenue teams and small revenue teams. They did this by cutting the players salaries enough that the small revenue teams could better survive financially without any additional revenue sharing. The side effect of course is the big market teams would make significantly more profit which the players rightfully didn’t think was fair. Why should the players be the only ones taking a hair cut in order to help the small market teams?

          The players offer is a little more creative in that they are willing to help finance the small market teams in the short term but are asking the wealthier NHL teams to finance the small market teams in the long term. Will that fly with the owners? Probably not. At least not with the big market owners because in 4 years they will still be in a position of them spending 57% of league average revenues on player salaries and diverting a much larger sum of money to small market teams. The players are only offering to ease the transition period.

          The real solution is somewhere between the two proposals where the wealthy owners give up a little more in revenue sharing and the players give up a little in salary on a permanent basis. How quick they can get to that solution is anyone’s guess but I still think they get a solution without too significant a disruption to the NHL season.

        • Doogie2K
          August 15, 2012 at

          I don’t see what incentive a team like Columbus or Phoenix has to agree to anything that the big market teams want, except in order to get back to playing as quickly as possible before their fan base is even more eroded.

          That ilk of team was losing less money locked out than they were playing hockey, and they didn’t have very large fanbases outside their hardest-core, anyway. I’m not sure this was terribly relevant to them; I think, as you said, they genuinely believed it was the way out. I don’t think anyone expected the floor to reach the farcical level it has.

          • Triumph
            August 15, 2012 at

            Right – but I’m talking about now. I don’t see why those teams would agree to a rollback with the current system remaining in place knowing that in 3-4 years they will be right back in the same boat. It’s just a temporary fix.

    6. Gerald
      August 14, 2012 at

      Tyler, further to our conversation with Staples this afternoon, it seems to me that one of the biggest benefits for Fehr with this proposal is that he would buy that which is most precious to him – time.

      Time for the education process to continue within his membership. Time for him to build more unity, which is the truly crucial ingredient in any future NHLPA success.

      If one reads up on the early years of Marvin Miller’s tenure at the helm of the MLBPA, you will find a great deal of similarity between what he did and what Fehr is trying to do with the NHLPA. Miller focused very intently on building trust with the players by satisfying himself with a few “wins” from what he painted as a nasty, brutish group of owners. He knew that he could not lead a strike with a union:

      (a) that was not sufficiently educated on the issues,

      (b) in respect of which he had not yet had an opportunity to earn their full trust, and

      (c) had not yet been sufficiently radicalized (which he would accomplish through a combination of education, spin and owner arrogance).

      The concept of offering a “giveaway” of growth that you have not yet achieved is a perfect example of something that can be sold to the players as a “win”. Salaries would not go down. Perfect in this example. Fehr beats back the horde of barbarian owners. He shows the players that the problems are the owners’ problems, and they can fix them without reaching into the players’ pockets.

      The big question is whether the NHL is willing to let Fehr get this foothold in the players’ psyches and negotiate off this. This stuff about splitting owners into warring factions is simply stuff and nonsense.

      In a way, all that Fehr seems to have presented (albeit without my having seen a formal document and limited reports) is that he has proposed a transition period to a lower percentage for three years, as opposed to immediate compliance with a lower cap (with the necessary immediate haircuts on all contracts), tacked onto a revenue sharing plan and an out clause at the end. Not sure how people that is all that creative.

      • Gerald
        August 14, 2012 at

        Oh, and to anyone who buys Fehr’s or anyone else’s suggestion that this changes the “framework”, it does nothing of the sort IMHO. We are still talking percentages of revenue. The NHL offered 46% with immediate compliance and “we’ll do what is necessary for revenue sharing”. THe NHLPA has countered with “percentage sliding down to about 51/52% over 3 years, with some upside opportunity if growth is exceptional, and back to 57% after 3 years, and a whack of reveneu sharing”. This is not apples and oranges.

    7. OIler Al
      August 15, 2012 at

      Question?? In reference to reverting back to the 57% figure in the 4 th year… is it 57% of HRR or 57% of the 10 % increase?

      In terms of Revenue Sharing [RS], not sure that a big money genertaing team would want to be dicated as to how much they should send down to the poor brother the road!,especially if the sturggling team is giving tickets away @ $25 , while the rich boy is charging his fan $150/ plus per ticket.Essentially, Ranger Fan ie. is sending someone in Long Island to the game on the cheap, with not incentive for the team to improve their revenues.

    8. Dan
      August 15, 2012 at

      I’ve heard a couple of journalists/bloggers over the past couple of days say that they didn’t understand the players’ dislike of the escrow process. I find that strange, it seems clear to me. (I point out that I am NOT an NHLPA-lover in this debate)

      Escrow is there because more teams are at or near the cap ceiling than there are teams at or near the floor. Thus, the salaries tend to add up to more than 57%. In this case, the amount over 57% gets refunded to the teams. An amount of the player salaries is withheld in escrow during the season so that the league doesn’t have to actually claw the overage back from player bank accounts. If (for example) the players have to pay 12% escrow through the season, and at the end of the season it gets calculated to be more like 10%, then in essence a $5M player is getting paid through the season as though he were a $4.4M player, and then gets $100k back as a bonus at the end of the year. So, a guy who signs a $5M contract can never really expect to get $5M in any given year (that would sure bug me).

      Think of it in layman’s terms. Let’s say you’re a guy who makes $100k at your desk job, but $12k of that is withheld for some reason, and they give you $2k back at the end of the year once the calculations are all finalized. That feels a lot like income tax, which nobody likes. And in the case of income tax, you can calculate up front how much will be taken off and how much you’re likely to get back, whereas with escrow you could be off by 5-10%!

      I think players want their contracts to be paid out at their face value, because that just makes sense. The problem is that the current system leads teams to spend towards the cap ceiling.

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