The Effects of an NHL LOCKOUT

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Once again the billionaire NHL owners are at odds with the millionaire players and it’s forcing yet another work stoppage as of September 15. Empathy for either side is nothing but wasted energy and emotion. Instead, concern should be focused towards those employees working behind the scenes or with the spin-off companies and their workers who depend on the league playing its 82-game regular season. There’s the usher who needs money to help pay for school, or the guy trying to sell overpriced popcorn and drinks while slogging up and down the aisles or the young woman selling programs. The trickle-down effect can be enormous.

Both the NHL and the NHLPA have outwardly been working towards a new collective bargaining agreement since mid-July, but as of our publication date, the two sides remained far apart in negotiations. Not as far apart as 1994-95, when that lockout cancelled the season leaving a trail of destruction that set the league back in so many ways. Unfortunately, owners and players have short memories so those who don’t learn from failures in history are doomed to repeat them over and over again.

Why is it that North American professional sports leagues have shown a historical penchant for self destruction? The NHL has been growing in popularity, especially south of the border, where lucrative television contracts have been increasing substantially. Just last year, the league and NBC signed a record 10-year contract.

The Great Divide

There are several primary problems that must be solved, but it boils down to the fact the NHL owners believe they are paying the players too much money. Not surprisingly, the players don’t agree. Depending on how long the lockout lasts, the collateral widespread economic damage could be huge. Merchandisers, bars, restaurants, hotels, vendors on the street and many other businesses that are directly impacted could be hit hard. A bar owner in Pittsburgh estimates his establishment earns up to $14,000 more on weekends when the Penguins are playing. Cities have said they would likely need to increase costs for public parking to make up for the lost revenue from money made during games. Even the Canadian and U.S. governments lament the loss on all that delicious tax money the players and owners pay each year.

Further down the road, if the Winter Classic is forced to be canceled, it will be a huge loss for the city of Detroit and the state of Michigan. The contract between the NHL and University of Michigan allows the league to cancel the Jan. 1 outdoor game between the Red Wings and Toronto Maple Leafs as late as the day of the game. The NHL is to fork over a $3 million rental fee for use of the 105,000-seat football venue, if the contest is played. The league has been hoping to have 115,000 in attendance, which would set an outdoor hockey attendance record. According the NHL, it’s estimated the Winter Classic earns the host city anywhere from $30 to $36 million. Many people in the know believe the lockout will be resolved long before this date. If not, it would be a colossal PR nightmare for the league at which point the entire season would be as good as lost. A number of people closely following the situation have stated an agreement needs to be in place no later than the U.S. Thanksgiving in order to salvage a credible hockey season.

Owners vs. Owners

Despite the league claiming losses of $15 million, it hasn’t stopped Bettman’s annual salary from rising more than $2 million this past season, bringing it to about $6 million per annum. Contrary to popular belief, the problem has not been Gary Bettman. He works for the owners and is the figurehead, so it stands to reason the messenger gets the blame. The bigger issue is that the owners don’t work together and they need protection from themselves. Bettman tries to do that, but at the end of the day, he’s powerless to do much other than implore them to stick to the game plan. It is they who cut the legs out from one another all in an effort to land a marque player. No sooner will Bettman publicly state that the league has drawn a line in the sand, when a renegade owner will obliterate that line, which results in other owners being upset and Bettman rolling his eyes having to absorb the public humiliation. A problem, according to some, is that a few of the old hardline owners still wield too much power – the likes of Boston Bruins owner Jeremy Jacobs and Philadelphia Flyers owner Ed Snider.

At the opposite end of the negotiating table from Bettman is NHLPA Executive Director Donald Fehr, who is most famous for leading the Major League Baseball Players Association through a long and painful strike that wound up cancelling the 1994 World Series. From that, Fehr earned a reputation as a tough negotiator. But during his time at the helm, the average baseball player’s salary went from about $290,000 in 1985 to just over $3.2 million by 2009. Fehr has been known as a proponent of expanded revenue sharing, conceivably attained through a form of luxury tax that penalizes teams for going over set spending limits.

“One of the things that differentiates my job from Gary Bettman’s is I have about 30 times the number of constituents that I need to converse with than he does and so it takes a little more effort,” Fehr jabbed during a media conference call from Chicago with the media.

“The way I have always viewed my role both here and at the baseball players’ association before is to make sure the players understand that they’re the bosses here,” Fehr continued. “Negotiations continue at a committee level and hopefully we’ll find a way during that process to achieve more common ground than we have so far.”

Back and Forth Proposals

Proposals have been sent back and forth from each side with the prerequisite statement that theirs is forthcoming and designed to bridge gaps in negotiating. At the core of the disagreement is hockey-related revenue and how that pie gets divvied up. At the core of the owners’ proposal is to have a reduction in players’ salaries, which in turn would generate a larger percentage of revenue sharing for their side.

“The owners have proposed a whole series of changes in the way players and clubs conduct individual contracting, which would drastically reduce players’ mobility, flexibility and bargaining power,” Fehr stated. “On our side, we’ve said that to the extent there are problems, the players would be willing to forego some increases that they would otherwise receive as revenues rise going forward that they would take fixed aggregate salaries rather than a percentage for the next three years.” Fehr went on to say it would include enhanced revenue sharing and a portion of that would be what the NHLPA calls the Industry Growth Fund, which would put $100 million a year to go directly to the assistance of teams that need it. There would be some discretion as to what teams qualify and for what amounts they’d be entitled to receive. According to Fehr, a large part of that discretion would be vested in the commissioner’s office.

“The players are not interested in changes in player contracting, which would effectively reduce leverage, make free agency drastically less valuable and have players wait a much longer time,” Fehr continued and stated that remains the gulf between the two sides.

Fehr bristled at the notion when it was suggested some veteran players who lived through the last lockout are pushing hard to get a deal done and putting pressure on the NHLPA to do so. In fact he flat out denied he’s been approached in that regard but clarified how those players may be feeling.

“I do not mean to suggest that there are players who would rather not miss any games; no player would like to miss games,” Fehr remarked. “I think the players who were in the lockout the last time are particularly sensitive to that.”

Among the players on-hand supporting Fehr and the NHLPA was Toronto Maple Leafs captain Dion Phaneuf, who spoke with the media following Fehr’s update.

“We want to play and we want a fair deal and right now we’re working towards that with ownership,” Phaneuf stated. “I’ve found the meetings very informative.”

There has been a concern as to whether the true nature of what each side wants has been laid out for the public to understand in a transparent manner.

“The biggest thing when it comes to negotiations like this is the confidentiality of the offers and everything that’s involved,” Phaneuf replied. “As players we all want to play and have kept a positive attitude.”

When asked if players’ preparations for the season have changed, given the circumstances, Phaneuf says it’s all the same for them.

“Right now it is status quo, hoping to be there for the start of training camp and you prepare as if you’re getting ready for a season and that’s what we’re working towards.”

Closing the Gap

According to a recent tax filing, the NHL shows a loss of almost $15 million. From the outset, Commissioner Gary Bettman has insisted the league must invoke a more rigid salary cap as well as ensuring there are no massive signing bonuses or back-loaded contracts to player salaries. Bettman, who represents the owners, says the players should not be taking in 57 per cent of the total NHL revenue. The number they have publicly bandied about is 46 per cent. It’s known that both sides will bend to a degree, so the owners’ real number is more likely closer to 50 per cent. But that still represents a large 7 per cent drop should the players accept it, and as of now, they’ve shown no indication they’re willing to do that. Players in the NFL and NBA get about 46 per cent of the revenue, although admittedly there are basic fundamental structural differences.

“I’m sure that from the owners’ standpoint any number below 57 per cent looks better and the farther you go down the better it looks,” Fehr said. “The economic systems are different in those sports. The football number is not based on the same revenue definitions even remotely and there are different anticipated revenue growth streams. In football for example, they were expecting a big chunk of revenue to come in from a previously negotiated television contract.”

“Baseball has no cap and does have substantial revenue sharing. It has rapidly increasing franchise values as we’ve seen from a couple of recent sales in southern California,” Fehr notes. “Baseball is completely stable from a labour relations standpoint. All the threats of lockouts and shutdowns have come from the capped sports in the last 15 years.”

Both Bettman and Fehr agree there has been a lot of fruitful discussion and progress made on some of the secondary issues, which is cause for a degree of optimism. But the differences regarding the primary topic of revenue sharing continues to be a major sticking point that must be resolved.

Player Movement Options

During the 2004 work stoppage, more than 350 NHL players went to Europe to continue their careers. However, some leagues including the Swedish Elite League have already stated they won’t take out-of-work NHLers on a short-term basis. The KHL in Russia on the other hand has indicated it’s willing to take players on week-to-week contracts, especially if it meant attracting native stars such as Evgeni Malkin.

Former player Bill Guerin made headlines when the NBA players were sidelined by a lockout, essentially saying that they couldn’t win and getting a deal done as soon as possible was in their best interests. This coming from a player would had been on the front lines with the NHLPA during the 2004-05 NHL lockout. In fact, Guerin had this eye-opening statement during an interview with the Fort Worth Star-Telegram.

“It wasn’t worth me giving up $9 million a year, or 82 games plus the playoffs, then having a crappy year and being bought out.”

NHL players will have to collectively decide how much they’re willing to sacrifice in their battle with the owners. Outspoken former players such as Jeremy Roenick and Bill Guerin have gone on record as saying it’s not worth the fight because the lost money can never be regained and that the players should focus on getting a deal done as soon as possible. Funny how perceptions change when you become a former player and not a current one. While the average NHL salary isn’t nearly on par with those of the NBA, NHL salaries have risen substantially in the past seven years catapulting from $1.45 million to $2.45 million.

It’s estimated NHL players may have lost $1 billion as a result of the last lockout. On the assumption the league was to maintain its annual rate of growth of 7 per cent, the 57 per cent share under the current CBA would net them in the neighbourhood of $2 billion and that’s too much according to Bettman and the owners.

“We believe we’re paying out more than we should be,” Bettman told the media in Toronto. “It’s as simple as that.”

According to CapGeek.com, a site overflowing with amazing statistics for hockey fans, it indicates that this year’s 30 highest paid players will make about $258 million, or an average of $8.6 million per player. Recently signed players such as Shea Weber, Zach Parise and Ryan Suter will benefit from long-term, front-loaded contracts that league owners want to remove in the CBA. But if that transpires, what happens to teams like Minnesota, who’ve invested $196 million on Parise and Suter over the next 13 seasons? Will the unthinkable happen and will they actually be forced to buy them out before they ever get the chance to play a game in a Wild uniform? As wild as that sounds, it could in fact happen in a worst case scenario, although admittedly unlikely.

Will the contracts in place now be accepted and the new rules grandfathered in? What if the salary cap rests at $58 million from where it stands now at more than $70 million? That being the case, it would mean 16 teams finding themselves over the limit and forced to shed contracts. Boston and Minnesota would both have a herculean task in front of them as each team is about $10.8 million over the top. Vancouver would be $9.7 million over the line. All these issues must get sorted out before we get back to seeing hockey on the ice. Meanwhile at the other end of the spectrum, the barely breathing Phoenix Coyotes are at $44 million, which would be $14 million below the cap. Their problem is just reaching the cap floor (minimum).

NHL salaries have increased over the past two decades. In the 1990s, the average NHL salary more than tripled. If you look at the average salary for this year’s highest spending teams such as the Boston Bruins or Minnesota Wild, the average player salary on those teams is about $3 million.

It’s evident the owners are digging in and are certain they can win this battle, as echoed by Commissioner Gary Bettman, when he very bluntly told the media the NHL’s position.

“We believe we’re paying out more than we should be,” he said. “It’s as simple as that.”

However, Bettman seemed to infuriate the NHLPA and some fans when asked about his concern if a lockout takes place.

“We recovered well last time because we have the world’s greatest fans,” Bettman stated. He may have had good intentions in buttering up the fans, but some spun it to mean that he believes fans are nothing but lost sheep that will come back when the lockout ends.

In 2005 the owners clearly came out the winners. The stoppage also didn’t affect the game as fans immediately came back, so there’s not the fear from that side either. The last time two key objectives were reached: the installed a salary cap and forced the players to accept a 24 per cent rollback on existing salaries. It’s still to be seen where things will sit once the dust settles in 2012-13. 

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