• Four Quick Thoughts

    by  • September 28, 2012 • Hockey • 11 Comments

    I listened to Bob Stauffer’s show the day after the whole Katz in Seattle affair just to keep up with the Katz Group spin on the entire affair. It was pretty awesome stuff – you got the sense that the Katz Group was a bit surprised by the blowback. Bob reassured us all that the arena deal would probably get done and that in May of 2016, the Oilers would be late in the playoffs, Rexall would be jumping and everyone would be thinking “This was totally worth it.” True if you’re one of the people who can afford a seat, I suppose. As one of his callers pointed out, most people don’t even go to Oiler games and they’re the ones complaining if their taxes go up.

    It wasn’t all sunshine though. Bob continued to beat the “It almost happened before and if the Oilers don’t get a deal and the economy goes south, look out” drum. I get why Bob beats that drum – as he acknowledges, he’s getting a pay cheque from the Oilers. I wouldn’t go on the radio and dump on their interests. He’s paid to promote their interests. Why CHED lets that program go on the air without some sort of a disclaimer is, perhaps, another question but that’s an issue for CHED, its conscience, and the CRTC.

    Stauffer, like most of the arena fanboys/distinguished media members in Edmonton, has just handwaved away utterly legitimate arguments about whether the City of Edmonton is getting hosed financially in the arena deal. Nobody even pretends to acknowledge that there’s an awful lot of reason to think that CRL’s just move tax revenue around, as opposed to generating new tax revenues. Something I’ve found curious in all of the “The Oilers almost left in 1998; it could happen again” handwringing though is the failure to acknowledge the impact of the 2005 CBA, salary caps and revenue sharing, which seems likely to continue indefinitely.

    We’ve been told previously that the Oilers were basically run on a breakeven basis by the EIG when they bought the club. We know that NHL revenues were about $2.1B in 2005-06 and that they were growing at something like 7% per year in the late 90s and early aughties. If you assume a player’s share of revenues of 54%, you can go back in time and kind of imagine what the NHL might have looked like in terms of a salary cap.

    Doing the math, I come up with salary caps, starting in 1998-99, of $32.7MM, and growing from there. There would also have been substantial revenue sharing, from which the Oilers may or may not have benefitted – teams like Nashville are pulling in huge money from it. All told, I’d assume that the Oilers would either be substantially better off or that their position wasn’t as bad as was stated. And, it bears mentioning, this was with a 65 cent Canadian dollar, $10 oil and a sole owner who had spent years alienating everyone in Edmonton.

    I’m sort of surprised that the few remaining media people in Edmonton who aren’t somehow on the Oilers’ payroll haven’t pointed this out. The CBA supposedly made the business of hockey a heck of a lot better. What would we need now for Edmonton to be in a comparable position as it was in 1997 or 1998, given the revenue sharing and salary limitations? A 50 cent dollar? 40 cents? The Government of Alberta paying people to come up to Alberta and just haul the oil away?

    It seems to me that it doesn’t matter what Edmonton and Oilers fans do – there’s always going to be a demand for more money, whether in the form of demands on the City or asking for support while the players are locked out. If things get really bad again, a lease doesn’t prevent a bankruptcy and the team leaving. Which would be preceded by a demand for more money. That’s how Jerry Moyes did it in Phoenix. If I was an Edmonton taxpayer, I’d rather consider the question of “What happens in a crisis?” if and when that crisis occurs, not try to make a crisis unimaginable by burying the guy in a solid ten feet of free money.

    * * *

    Twitter’s @67Sound (a fine follow) was quoting from a Sports Illustrated article this week written by a former Florida Panthers’ owner. He hate the article and mentioned this:

    2. Says owners had only 43% to pay “almost everything else”, leaving out all the direct costs subtracted from HRR before players get a dime.

    While enduring Oilers Now the other day, I noticed that Stauffer made a similar point. At the risk of coming off as a communist, am I missing something here? What, exactly, do the owners do for their share of the money other than run the business and shake down communities? Their function in this is running the business; that’s the expertise that they’re bringing to the table, the basis for their entitlement to more than 0% of the money. “You run the business and deal with the costs.” How is this even an argument?

    (The answer, of course, is that what the owners bring to the table is iron control over 25+ publicly funded arenas. They’re able to take positions like this and assert that it’s outrageous that they’re not just handed money but are expected to perform some function in exchange for it because there is no serious possibility that they’ll face any competition. Thanks for the second lockout in seven years, stupid governments of North America and their friends in the media who enable them.)

    * * *

    As I’ve referenced here before, I find negotiation to be a pretty fascinating thing. I was talking to a friend the other day, smart guy, about mediation. Now mediation is just a structured form of negotiation, with a “neutral” third party present to help identify the interests that each party has and look for a way that those interests can be mutually satisfied. Neutral doesn’t generally mean an employee of one of the parties but that’s a separate issue. My buddy’s comment – and I think he was absolutely right – is that the side that wins a mediation is the side that does the best job at convincing the other side that it’s willing to walk away. This applies to negotiation generally, I think.

    One example: Ryan Smyth’s negotiation for a new contract versus Shane Doan’s. When you look at their numbers, however you want to look at them, there’s not really that much of a difference between them. I’m not really sure that I buy the “Smyth slowed down” line from last year to any great degree – his scoring obviously tailed off but then everything he touched went in earlier. I’m not sure that either extreme is a representation of how he played.

    If you just look at Smyth and Doan’s ES scoring the past three years, it’s pretty similar. Smyth scored 40-60-100 in 3408.78 minutes. Doan scored 39-74-113 in 3537.87 minutes. The difference between them is a combination of Doan playing a few more minutes each year on average (about 43 minutes) and Doan getting a few more assists. Both have tended to have the puck in the right end of the ice (50.7% of shots when Smyth was on-ice were for his team; 51.8% for Doan). Their on-ice S% are strikingly similar – 8.38% and 8.35% respectively.

    Even last year, when Smyth was supposedly in his winter and Doan was taking the Coyotes to the conference finals, things were awfully similar at ES. Doan scored 17-18-35 in 1226.48 minutes. Smyth scored 15-23-38 in 1184.67 minutes. Smyth didn’t score as much on the PP, playing an awful lot of second unit time, as I recall, and playing about 50 minutes fewer than Doan. Doan barely outscored Smyth in points, 50-46.

    Both guys were born in 1976 and have similar mileage on the odometer. So why, given the similarity of their short/long term stats, did Smyth end up signing for $4.5/2 and Doan for $21.2/4? At least in part, it’s that Smyth couldn’t convince the Oilers that he was willing to walk away – unsurprising, given the manner in which he returned and Doan could convince the Coyotes that he was willing to do so.

    This applies in other areas, like arenas. Katz is never going to get his $21.2/4 deal if he can’t convince Edmonton he’s willing to leave. It’s a curious sort of negotiation, in that the City of Edmonton would be best served by convincing Katz that it’s willing to walk away if he doesn’t take what they offer. Katz has a bunch of people who’ve made livings off their ability to negotiate on his side though, while the City of Edmonton’s side is made up of politicians, who may or may not possess that skill set. Given that one of them responded to his latest stunt by basically saying that he’d give Katz more tax money if Katz could prove he needed it, you tell me: as pathetic as the Katz Group efforts to create an alternative have been, who’s done a better job of establishing that they’re prepared to walk away from the deal? Seems obvious.

    You’re never going to know how much you could get unless you convince the other side that you’re prepared to walk away. That’s how it works. If you accept that principle, then it doesn’t matter what Edmonton offered Katz in the first place, or where they drew their bottom line. If they offered him $100 a year until the end of time from every man, woman and child in Edmonton, he’d still be smart to threaten to walk to see if there was more to come. All of which is to say that in real hardball negotiations, this sort of stuff is inevitable. Edmonton’s sort of approached this all wrong – it would have benefitted from about four more city councillors faking opposition to the deal – and will have fewer dollars for other things as a result.

    * * *

    I’ve never been all that impressed with Jimmy Devellano – I read his book on Lowetide’s recommendation and was left with the sense that he’s one of these self-made guys who doesn’t realize that even self-made guys have a lot of luck along the way. He struck me as the sort of guy who’s about 80% as bright as he thinks he is. Elliotte Friedman had a cool piece on collusion in the NHL after Devellano’s stupid interview the other day that I thought I could add something on.

    Way, way back when Dustin Penner was signed, Cal Nichols kind of acknowledged that he’d taken some heat for the signing from his friends around the NHL and in the NHL office. So Devellano’s not the first person to raise this unwritten rule. Two points though: as I’ve pointed out before (and as Friedman references) there is no specific prohibition against collusion in the CBA. That’s the difference between hockey and MLB. There is also a provision in the CBA that reads as follows:

    50.4 (c) League-wide Player Compensation and the Players’ Share.

    (i) Notwithstanding any agreement, circumstance, contract, argument of fact or law, or ruling in any arbitration, litigation, or other proceeding, and notwithstanding anything in this Agreement that may indicate to the contrary, League-wide Player Compensation for a League Year shall equal (i. e., shall never exceed nor be less than) the Players’ Share for that League Year. Any ambiguities in the language of, and any dispute concerning the operation or interpretation of, this Agreement, including specifically this Article 50, shall be resolved in a manner to ensure that League-wide Player Compensation for a League Year shall equal (i. e., shall never exceed nor be less than) the Players’ Share for that League Year.

    (ii) No agreement, circumstance, contract, argument of fact or law, or ruling in any arbitration, litigation, or other proceeding may be permitted to have the effect of increasing or decreasing League-wide Player Compensation for a particular League Year to an amount that does not equal (i.e., that either exceeds or is less than) the Players’ Share for that League Year.

    So you’ve got a case in which there’s no explicit provision against a gentlemen’s agreement (I think that the circumvention argument referenced by Friedman is very weak) and a provision in the CBA saying, basically, “No matter what, the Players’ Share can’t exceed whatever it’s supposed to be.” Say that some RFA sued under anti-trust laws and a court find violations. Then what? Can it award him damages in light of the agreement that the players never get more than their share? Would the NHL have a claim over against the NHLPA for the amount of those damages, in order that the rule against the players ever receiving more or less be respected?

    Oh, also: there’s good reason to think that, collusion or not, the pay difference between UFA/RFA players is now pretty minimal, with RFA players actually making more in some cases than comparable UFA players. All of which is to say, I can’t see how any of this leads anywhere. It’d be fraught with problems and, by virtue of linkage, a dollar more for one player is a dollar less than the whole.

    The people who should be really upset with Devellano are Detroit ticket holders, who financially support a team with a large hole on the blue line for next year and management that would rather honour some stupid unwritten rules from which they derive no benefit rather than try and hurt a key rival and strengthen the team.

    Email Tyler Dellow at tyler@mc79hockey.com


    11 Responses to Four Quick Thoughts

    1. PopsTwitTar
      September 28, 2012 at

      “Katz has a bunch of people who’ve made livings off their ability to negotiate on his side though, while the City of Edmonton’s side is made up of politicians, who may or may not possess that skill set. ”

      I think this is a great, and often overlooked point. This applies to almost any “business” decision made by politicians (which is really any decision made but whatever). Its one thing for Katz to spend millions of dollars to fight for a business result and lose or give up. Yeah it might be bad for shareholders in some cases, but businesses can generally budget for those types of expenses and survive. But a city led by non-multimillionaires? Different pressures, different equations, different resources. Not even a fair fight.

      • FastOil
        September 28, 2012 at

        ‘Not even a fair fight.’

        It shouldn’t even be an option. Bylaws or legislation should be drawn to provide parameters for politicians to follow in terms of how projects can involve taxpayer funds. Of course we are unlikely to see that because too much of the excitement, chest puffery and wining and dining would be gone.

        When things get too complicated or difficult, having a core position that is stuck to eliminates the problem. The City doesn’t need world class negotiators. They should pick a model and dollar amount, end of story. The City has plenty of resources to draw information from in terms of how they would structure a deal. There are enough projects out there to look at.

        It’s public money after all. This is all we have, this is how we can provide funding, take it or leave it (outside of minor tweaks). Even if the team leaves, this is what should be done to ensure the public interest is met.

        These aren’t two businesses making a deal. There shouldn’t be that much negotiating, more of a specific offer to participate from the public side.

    2. Tach
      September 28, 2012 at

      Your second point, or the aside about the ownsers and the arenas, is the crux of why we aren’t going to have NHL hockey this season. Do you know if there is a source where each of the 30 arenas, their financing and arrangements with their NHL teams is summarized or laid out somewhere? This could make for an interesting lockout project for someone bored and smart enough to tackle it.

    3. spOILer
      September 28, 2012 at

      This entire arena thing disgusts me. I had hoped Edmonton and Alberta were smarter than that. That there was at least some semblance of free market sensibility in this corner of the world that has elected a semi-right wing government for the past 45 years.

      Which reminds me… Why is no one upset at the Province for saying something along the lines “in our view government should not be in the business of financing private enterprise.” Why do we find that acceptable on a provincial level but not a municipal one?

      But the one thing that is driving me nuts, is the fact that no one is considering the consequences to the City if the economy continues to turn south. Tyler, your comment “What happens in a crisis?” is a very very big part of why I have been against this deal from the outset. That is the very reason why we do not put taxpayers on the hook for private risk. And bad times are a comin’. Katz knows this. he has to deal with finance and leverage every day of his life. He knows the systemic risk that is roiling through the global economic system right now. If the house of cards collapses (and eventually it will, it’s a mathematical certainty), he doesn’t want to be the one holding the bag.

      And has has been pointed out on many blogs, allowing Katz to be a renter just allows him further leverage to move. Being tied to the building takes away that mobility. So I fully expect, when the bad times come. he will have his hand out again with more not-so-implied threats.

      What a stupid world this is.

      • Tyler Dellow
        September 28, 2012 at

        Couldn’t agree more with your last line.

      • September 28, 2012 at

        The ‘what happens in a crisis’ argument for building a new arena makes no logical sense to me. It would be the same as justifying financing a new car by saying, “Sure, my current car runs okay, and I’ve already paid it off, but what happens if I lose my job in the future and then my car breaks down. In that case, I might choose to buy groceries instead of getting a new car. Better to get the new car now, so if I do lose my job, I won’t be tempted to spend that money on silly necessities of life instead.”

        If the local economy and/or Canadian dollar do tank in the future, either we already have a new heavily financed arena that we are obligated to make payments on, limiting our options to prioritize spending as needed, or we don’t. And if not, instead we’ll have the flexibility to decide then and there if we can afford to build a (probably less costly) new arena to get the Oilers to stay. I think there would be an awful lot of Edmontonians with buyers remorse in this hypothetical economic crisis if the city can’t afford snow removal because they are servicing debt on a downtown arena. And if things go sideways so fast that the Oilers can’t survive the 2 year lead-time on building a new arena, frankly, we’ll probably all have bigger problems on our minds anyways.

    4. clrkaitken
      September 28, 2012 at

      I’m assuming the callers saying “the people complaining don’t even go to Oiler games” are doing so as a pro-arena sentiment? As if, somehow the decision to not patron the Oilers makes their voice on how to use half a billion dollars of taxpayer money less valid?

      Which of course would be the most categorically stupid thing I’ve read today.

      • Maestro Fresh Mess
        September 29, 2012 at

        These are the same people who don’t understand the difference between funding a publicly owned cultural institution like the Royal Alberta Museum, and a privately owned for-profit professional hockey team. Moronic comments surrounding this arena discussion are a daily occurrence.

        • JJohnson
          September 30, 2012 at

          I question the premise that a Museum should/must be publicly owned.

          In any given municipality, some fraction X of the population is interested in the events held within the walls of a facility, and 100-X of the population is apathetic (obviously X is different for Museums vs. SportsArenae, with modest overlap). I don’t understand why the attentiveness-to-profit of the owners/caretakers/landlords of either genus of facility has anything to do with the justice of making the 100-X people pay upfront for something they’ve expressed no interest in.

          For both Museums & SportsArenae, it seems quite right to demand that entrepreneurs should take all of the risk of guesstimating X, and take all of the profits (or whatever share they negotiate with the talents that are displayed within) once the revenue stream has paid off the NRE (non-recurring expenses = the capital cost of building). What the facility’s entrepreneurs do with their profits should be irrelevant to both X and 100-X citizens, where only the former need care that their ticket price was worth the spectacle.

          What, museums are different because they’re “Culture”? HorseShite. Hockey is as much Culture as Picasso. [Checks GoogleImages for paintings by Picasso; checks YouTube for video of Bure, Orr, and Lemieux in their prime] …. actually, more so!

          If some of the 100-X people later discover a latent interest in the events showcased in the Museums/SportsArenae they’d previously eschewed, then that’ll be a bonus profit for the entrepreneurs (actually, “latent interest” is factored into their guesstimate of X).

          • Aaron Paquette
            October 4, 2012 at

            You’re conflating an art gallery with a museum. These structures, along with libraries, house the physical artifacts of our culture. The science, the math, the art and the literature. I love hockey, but you certainly can’t make the argument that it has more value than the sharing and preserving of our accumulated human history, knowledge and artistic expression?

            Public buildings are for the public. And most are free to enter or there may be a nominal cost. It gives everyone a chance to self educate. I never saw a pro hockey rink that fulfilled that function.

            Just my nickel.

        • rubbertrout
          October 1, 2012 at

          I was kind of hoping the Maestro could pay for the new arena with all of his “bills of brown”.

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