• CBA Optimism: A Good Week

    by Tyler Dellow • October 19, 2012 • Hockey • 19 Comments

    James Mirtle has done some outstanding work on the NHL CBA, simply killing some of the other stuff that’s come out of media guys. (Full disclosure: I know James and consider him a friend of mine.) He’s put in the work necessary to actually crunch some of the numbers on the various offers that have been exchanged by the NHL and NHLPA and, as such, isn’t saying the sorts of foolish things that the guys whose careers depend entirely on having a lot of sources are saying. I’m going to borrow some of his work to comment on something that I noticed with this week’s flurry of NHL negotiating.

    Prior to this week, the last exchange of offers that touched on dollars occurred shortly before the last CBA expired. After making an offer that called for the players to get 49% of HRR in year 1, 48% in year 2 and 47% in years 3-6 of a new CBA, Bettman made the following comment on September 12, 2012:

    “I reiterated and I’ll reiterate here that what we did do today will be off the table if we don’t have a deal by the expiration of the collective bargaining agreement.”

    As might be evident from the amount I’ve written about it over the years, I find negotiation to be a pretty fascinating thing. I’ve had a few years of getting some experience at it, albeit not on the billion dollar level, since the lockout. I found that comment from Bettman interesting because when I’m in a negotiation, I’m always trying to figure out what the other side’s bottom line is. There are two ways to do this. The first is by listening to what they say. The problem with that is that people aren’t always entirely honest in what they claim their bottom line is. You’re constantly engaged in a process of trying to identify how credible they are. The second is by doing my own thinking, trying to put myself in their shoes, and figure out what my bottom line would be. The problem with that is that I’m not always privy to the information that they have.

    These negotiations differ from many negotiations in that the NHLPA basically has access to all of the NHL’s financial information. This permits them to measure the league’s claims against the financial information and kind of engage in an ongoing process with respect to whether what the league is claiming seems to be true. If it checks out, you’re more likely to take their position seriously on a given point. If it doesn’t, you’re probably more comfortable in assuming that they’re bluffing.

    Building credibility during the course of a negotiation is important to you if you’re representing a side because there are times when you make statements that can’t really be checked for reasonableness. Like, for example, when you say: “What we did do today will be off the table if we don’t have a deal by the expiration of the collective bargaining agreement.” You can have an informed opinion, based on the data, as to whether the party making that claim is likely being truthful but it’s hard to be certain. You’re going to rely on the opinion you’ve formed over time.

    Which brings us to the NHL’s offer earlier this week. I’m going to use some of James’ number crunching here to make a point. He’s done his calculations based on 7.1% NHL growth, which is the historical figure. Note the total player compensation for the next six years:

    It got about $650MM better. We also know, from the NHL’s release, that they backed off on some of the demands that they were making in terms of player contracting rights. So the players seem to have gotten a much better offer from the league, simply by figuring Bettman was bluffing and waiting. It’s awfully hard to square that with Bettman’s comment about the September offer being off the table if there was no deal by September 15. It’s probably worth noting as well that the NHL essentially bargained against itself here – it’s generally not considered to be a desirable thing to do because you’re making concessions without getting anything in return.

    When the NHL made its offer earlier this week, there was much excitement amongst hockey fans, followed by dismay when Bettman came out to the microphone after a brief meeting and dumped all over the PA’s response. His comments included this:

    “The proposal that we made, so we can be clear about it, at 50/50 and all the other things, was the best that we could do. We gave it our best shot. It is our best offer. We gave the Players’ Association what we had to give. But the longer this goes, and particualrly if we’re not in a position to have an 82 game season, the damage may in fact make it even more difficult as time goes on to make a deal…This is the best offer that we have to make.”

    Do you believe him? If I was in the PA office, the balance that I struck between believing Bettman and believing my own analysis would have shifted with the NHL making a better offer after September 15 despite saying that their offer was off the table as well as with the NHL evidently feeling some pressure to make another offer. The NHL also seems to feel some pressure to get an 82 game season in and the deadline for that is coming up.

    All of which is to say that I’m feeling sort of optimistic about this. The gap between the parties has shrunk – Mirtle made the following point in his breakdown after the NHLPA’s three offers:

    Getting to 50-50 at the tail end of the PA’s agreement is great – it’s a sign that finally there’s some real commonality (!) between the two sides here. And the total “difference” we’re talking about is now in the realm of $100-million a season or less in several scenarios.

    That’s roughly 3 per cent of hockey-related revenues. And losing a season over that would be absurd.

    I tend to think that James is right about the absurdity of losing a season for 3%. And I also tend to think that Bettman is a smart guy and that he would be able to tell that the PA’s proposal represented movement towards some sort of a middle ground. I also tend to think that Bettman wasn’t really expecting that the PA would show up and accept his offer. Which leads me to think that, if he wasn’t really all that surprised by the offers that the players came back with – and I doubt he was – that what was done was a piece of theatre, for the benefit of Fehr’s constituents. The way that he has conducted himself in this negotiation – saying that the September offer would disappear and negotiating against himself kind of cuts at his credibility when he makes these pronouncements.

    Which leads me to think that the NHL may be willing to go further and that the PA has kind of signalled its line in the sand: protection of existing contracts and it’s now on the NHL to find a way that protects those contracts that were signed while simultaneously satisfying itself otherwise financially.

    I was intrigued by the PA’s third offer, which was dismissed by the NHL out of hand. I’m going to do a little more serious number crunching on it but what struck me about it was that the PA is openly suggesting that some of its players be treated differently than others. While I have trouble with this in a regular workplace context – it’s a favoured union trick, screwing the next generation of workers, it’s kind of intriguing in this context because the net effect would be that the guys who take it in the neck would would be the grunts who don’t have long term contracts and the young players.

    If I’m a guy who’s only going to have a short NHL career anyway, I don’t know that I particularly care about the difference between a players’ share of 50% and a players share of 48%. Say I expect to have a three year NHL career averaging $800K under the old CBA which, statistically, a lot of NHLPA members should expect. Going from 57% to 50% of revenues drops that from $800K per to $702K per. Going from, say, 50% to 47% would drop that to about $660K.

    A three season career is worth about $1.98MM in salary at 47% or $2.11MM in salary at 50%. The difference between those numbers is about $130K; about 20% of a single season salary under a 47% solution. If I miss 20% of one of the seasons of my three season career to keep 50%, I should be neutral about the choice between 47% and 50%. All of which is to say that for players like this, getting the deal now is perhaps more important than the precise share of revenue that they’re guaranteed. For stars, it’s a little bit different – they have some more skin in the game. Of course, most stars also have long term deals these days and guaranteeing their deals takes the bite away from them and passes it to the lesser players.

    All of which is to say that it strikes me that there’s possibly a deal available that protects existing contracts while giving the NHL more than the players have given by simply reducing the player share of revenues for new deals below 50%. It sucks for the guys who wouldn’t be protected that they’d be stuck with what is effectively a different CBA than the players who do have longer deals, one that reallocates wealth from them and to the stars of the league but, as I’ve pointed out before, the lesser players in the league did well under the old CBA while the better players didn’t enjoy the same level of financial gain. Maybe the lesser players should bear a greater portion of the pain this time and maybe it’s in their interests to do it.

    So, unlike the vast majority of the real hockey media, I’m optimistic that something will get done in the near future. Bettman’s statements this time aren’t as consistent with his actions as they have been in the past. The players’ have indicated a willingness to treat existing contracts different from new contracts. Bettman and the NHL seem to feel some pressure to get an 82 game schedule in. The two sides have moved closer together over the past few months. There are, I would argue, a lot of reasons for optimism based on what’s happened and, in negotiations like these, I tend to pay more attention to actions than words. The ways in which the parties are acting are suggestive of the possibility of a deal which preserves the possibility of a 45 or 50 loss Oiler season.

    Email Tyler Dellow at mc79hockey@gmail.com

    About Tyler Dellow

    19 Responses to CBA Optimism: A Good Week

    1. October 19, 2012 at

      I agree, I think there is a deal to be made based on where both sides currently are. Despite all the fuss yesterday, in the span of a few days the NHL and NHLPA agreed on the most important aspect of this negotiation: Long term the players/owners split of revenue will be 50/50. The only remaining question related to the revenue split is how quickly they get to 50/50. While the remaining difference between sides may not be insignificant, it does seem like it is a difference that can be somewhat easily overcome if both sides feel an urgency to salvage an 82 game schedule (which they probably do). They have come a long way from the owners 43/57 and the players 57/43 with an offer from the players to fund a revenue sharing pool over the short term.

    2. Triumph
      October 19, 2012 at

      Fantastic summation and I agree 100%. The owners have been bluffing that they will cancel the entire season – leaking out info about the Winter Classic being canceled, leaking out info to their trusted journalists about the possibility of a canceled season. It’s bluster – they have too much to lose and too little to gain. That’s why I said after the NHL came out with their almost-but-not-quite conciliatory offer this week, the PA should respond by promising to negotiate in good faith, promising to bring an offer to the players for a vote, but that if an agreement wasn’t reached by say, Nov. 1, that the players wouldn’t negotiate for the rest of the season. Now that might’ve been a too easily called bluff, but still – it’s surprising that the one bullet the players now have is the loss of the entire season, and that one bullet should be enough to save most of the season.

    3. Black JEM
      October 19, 2012 at

      I was pleased to see Bettman just throw up over the three responses rather than cherry pick and come back with a worse offer for optics. Now everyone can huff and puff over the weekend.

      Your comment on Bettman was interesting – he allowed himself to negotiate with himself with the 50/50 offer the other day, it was more than just a PR stunt. He obviously has a faction of the owners willing to strike a deal.

      My question to you would be Fehr, I don’t trust him. I’m sure the owners don’t. Do you think he is reading Bettman the way you think? The pressure is the 82 game season. A tight window we are now in. Does Fehr believe the theatre and have enough to get the players to accept something in the 50/50 world with some way to deal with this year’s contracts? He knows this isn’t baseball right?

      • Tyler Dellow
        October 19, 2012 at

        I think Fehr gets a bit of a bad reputation as a result of 1994, with people missing what he did in 2002 and 2006, when MLB got deals done without any time being missed. In 2002 in particular, it went right to the wire, with a deal being done that just averted a strike.

        In other words, if you look at his track record, you can see a guy who doesn’t just blow up seasons and who’s found a way to work with real deadlines, which September 15 never was.

        • Black JEM
          October 19, 2012 at

          I realize Sep 15 wasn’t the deadline – but this isn’t the real deadline either, though it is the last deadline for the players to get a full season check maybe.

          He was forced to move in those 2006 negotiations because he managed to steer the players into being more unsympathetic than the baseball commissioner on the PED issue. Not sure that says all that much. But I will hope.

    4. October 19, 2012 at

      The ways in which the parties are acting are suggestive of the possibility of a deal which preserves the possibility of a 45 or 50 loss Oiler season.

      Fun stuff.

    5. October 19, 2012 at

      While it’s true that Bettman and the NHL negotiated against themselves, I’d suggest that they’d always planned this point in the negotiations to unveil 50/50. They can still get an 82-game season in, players have missed a paycheck – it just seems like a set play.

      The NHLPA simply failed to play ball, allowing the NHL to keep doing what it was doing without making any concessions in the month between plays (which reflects well on Fehr, if that was in fact NHL strategy).

    6. Mike
      October 20, 2012 at

      A three season career is worth about $1.98MM in salary at 47% or $2.11MM in salary at 50%. The difference between those numbers is about $130K; about 20% of a single season salary under a 47% solution.

      The other thing to keep in mind is that all these numbers are pre-tax, so in the end we’re not even arguing over $130k, it’s more like $70-$75k.

      • Yasin
        May 31, 2013 at

        Is it just me or are the owners flat out lying about not maikng money? They talk about the players maikng too much money and yet they are sprinting to sign as many players as possible at big $$$$money contracts before Sept 15. Tyler Hall, Phil Hartnall, and Shane Doan indicating he will sign the rumored 4 year deal before Sept 15. A bit hypocritical for me! After the lockout Bettman deserves every Boooooooo he receives. The luster will fall off Rocky Wirtz too.

    7. Mike
      October 20, 2012 at

      A three season career is worth about $1.98MM in salary at 47% or $2.11MM in salary at 50%. The difference between those numbers is about $130K; about 20% of a single season salary under a 47% solution.

      The other thing to keep in mind is that all these numbers are pre-tax, so in the end we’re not even arguing over $130k, it’s more like $70-$75k.

    8. Mike
      October 20, 2012 at

      Ffs, double post and a screwed up quote. Fail all around.

    9. speeds
      October 20, 2012 at

      Tyler, did you see this proposal by @67sound? If so, what did/do you think of it as a way to bridge the remaining gap?

      http://blogs.thescore.com/nhl/2012/10/19/how-a-make-whole-salary-cap-would-provide-a-win-win-lockout-solution/

      Followed by Eric at NHL Numbers working through it:

      http://nhlnumbers.com/2012/10/19/nhl-lockout-proposal-50-50-split

    10. speeds
      October 20, 2012 at

      Tyler, did you see this proposal by @67sound? If so, what did/do you think of it as a way to bridge the remaining gap?

      http://blogs.thescore.com/nhl/2012/10/19/how-a-make-whole-salary-cap-would-provide-a-win-win-lockout-solution/

    11. speeds
      October 20, 2012 at

      Tyler, did you see this proposal by @67sound? If so, what did/do you think of it as a way to bridge the remaining gap?

    12. speeds
      October 20, 2012 at

      Tyler, did you see the proposal by @67sound? If so, what did/do you think of it as a way to bridge the remaining gap?

      I would include the link, and to the follow-up by Eric at NHL Numbers, but I can’t seem to post links here

    13. speeds
      October 20, 2012 at

      Ha, sorry!

    14. Mike
      October 20, 2012 at

      Oh speeds, you always know how to make me feel better.

    15. Greg
      October 20, 2012 at

      I don’t know that it’s a fair characterization to suggest that the 3rd NHLPA proposal throws some of the union under the bus. If that proposal was taken at face value and put into place, guys signing under the new CBA would only see a marginal increase in escrow clawbacks compared to guys with existing deals. Because the plan still kept 87% of existing contracts subject to the 50/50 split, the difference in escrow clawback would be minimal between the 2 types of contracts. Here are some numbers that illustrate this:

      Let’s assume the NHL overestimates revenues one year and needs to keep 10% of player salaries to get back down to 50/50. Two players, one with an existing $5M contract and one with a new $5 million contract get their escrow pulled back in different ways:

      Existing contract @ $5M gets $650K (13%) guaranteed and the other $4.35M (87%) is subject to escrow. If you lop 10% of that you’re left with $3.915M. So add back the 13% guarantee and you’re back up at $4.565M after escrow.

      Now a guy with a new contract at $5M has 100% of his salary subject to escrow so he loses 10% which is $500K leaving him with $4.5M.

      So on a $5M contract the difference in escrow is $15K, which is half a day’s pay. Pocket change basically.

      I really do think there’s a deal to be made, perhaps with a portion of existing contracts being guaranteed and only for a few years and then going back straight to 50/50. If the NHL segregated let’s say 8-10% and only did that for 2-3 years, tthey could have a 5-6 year CBA where the effective players’ share over the life of it would be in the 51% neighborhood assuming 3-5% revenue growth.

      • Jason
        October 21, 2012 at

        I really think that’s the endgame for this one. The NHL will exclude a certain percentage of existing contracts (less than the 13% the PA wants) and only for a few years. I think it will be 2 years because that covers the majority of the existing contracts. If the NHL comes back with a proposal that has those two elements then it’s just a matter of haggling over numbers instead of the makeup of the entire system.

    Leave a Reply

    Your email address will not be published. Required fields are marked *