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.