(Editor’s note: Breaking: I’m not a lawyer. Therefore, my opinions on the lockout and the ongoing CBA negotiations are roughly as valuable as that of the guy I met the other day who told me that “NBC cancelled the season today.” Got it.
Fortunately, I am friends with a (kinda concerning?) number of lawyers, some of whom also happen to be hockey fans.
One of them, @67Sound, offered up a “quixotic” lockout solution (a quick trip to dictionary.com explains that “quixotic” means “exceedingly unrealistic; unrealistic and impractical.”), which turns out to be less quixotic, and more completely reasonable and excellent. It makes sense, and could work.
Give it a read and see what you think, then let’s hash this thing out in the comment section.)
For months now, it has seemed obvious to me and many others where any fruitful lockout negotiations had to go. The players’ bottom line was protecting current contracts; the owners’ was a 50/50 split of Hockey Related Revenue. The obvious solution was a gradual decline to 50/50 that protected current contracts. From the moment the owners proposed taking 57% of HRR and the players countered with a proposal that forced the owners to grow their way to a more favourable split, this has been obvious.
Yesterday, the players made a series of offers that, assuming even modest growth, met these two requirements. Current contracts would be protected, but HRR would decline over time to 50/50. While the growth-contingent structure of their proposals made it unclear how long it would take to get to 50/50, given historical growth trends and a lucrative new Canadian national TV deal coming up in 2014, it seemed only a matter of time.
The NHL, however, quickly rejected the players’ offer and cut off negotiations. They refuse to accept any deal that does not immediately move to a 50/50 split of HRR. The players, for their part, refuse to accept any deal that does not protect current contractual commitments. I was reading an interesting discussion between @mirtle and @darrendreger on Twitter this morning, and they questioned whether it was possible to reconcile these two solitudes. Someone would have to blink.
I am not so sure. Here is my solution: introduce the “Make Whole Cap”.
My plan is based off the NHL’s last proposal, and would include a salary cap and floor set annually based on 50% of HRR. The NHL’s plan also included a one-year allowance to exceed the new salary cap (estimated at $59 million) up to the $70 million salary cap that would have prevailed under the expired CBA. However, this $70 million figure would be illusory, as escrow would take roughly 13% of all salaries to ensure a 50/50 split.
(I am leaving the owners’ “make whole” proposal out of my solution, as it involves the players effectively paying themselves out of future contracts. The proposal therefore does not honour current contracts any more than telling the players to take out a loan against future income to make up money lost to escrow).
My proposal is that any salary paid above the salary cap of $59 million, and up to the “make whole cap” of $70 million, would not count towards the players’ share of HRR. I would also extend the make whole cap, fixed at $70 million, over the life of the CBA (to the extent the salary cap was below this amount and the make whole cap remained necessary). This means that the owners would be paying more than 50% of HRR to the players—the exact amount would depend on the degree to which owners exceeded the salary cap. However, the only ones who would be doing so would be those owners who have already indicated they are willing and able to pay this much by signing contracts for the amounts in question.
The key to this proposal is remembering that a number of teams are extremely profitable under the current regime. It puts the onus on them to make the players’ whole, while providing the salary relief of a 50/50 HRR split (and an ensuing lower salary floor and cap) to the financially struggling teams. Even better, to the extent that my proposal would be financially untenable to a team like the Wild, they can simply trade their way out of it. Teams like Detroit, Toronto and the Rangers have plenty of room under the make whole cap, and could easily afford to take on salary from teams that cannot afford their current commitments. As the league’s revenues grow over time, the salary cap would ultimately meet and eclipse the make whole tax and the system would return to normal, with the players getting 50% of HRR. Recall that under the previous CBA, the salary cap went from $39 million to $64 million. Going from $59 million to $70 million should not be too difficult if they save this season, particularly with an influx of additional Canadian TV money in 2014.
What does my proposal mean for the bottom line? That is unclear, and will depend on how many dollars over the salary cap and exempt from the players’ HRR share are paid. According to NHLNumbers.com, teams currently have commitments for roughly $82 million above a $59 million salary cap. That’s an $82 million improvement off the owners’ last offer, paid entirely by owners willing to do so. Depending on how much salary winds up above the salary cap, the players could see that figure go up or down, though it seems unlikely the entire value of current contracts above 50% of HRR would wind up exempt. This means there would be losses of current commitments to escrow. However, escrow was a fact of life under the previous CBA too—the players lost 2.5% in 2006-07, and 12.9% in 2008-09.
The virtue of my system is that it takes both sides at their words. NHL owners who claim to be unable to survive in a world where the salary cap is over $59 million can spend to that cap. NHL owners who can survive in a $70 million cap world—and clearly there are a number who can—will honour their commitments to their players. Both sides will give up a little money, but their bedrock principles will be respected.
The only remaining counterargument is that the make whole cap will harm parity by allowing rich teams to spend more. I find this unconvincing for three reasons. First, under any proposed system, the rich will spend more than the poor. The percentage gap between my make whole cap and the salary floor will be roughly the same as the gap between the salary floor and cap were in 2005. Second, it will be time limited, and it will narrow over time. The effects on parity will be minimal. Third, as @geoffdetweiler has argued, the luxury tax system in baseball has not harmed parity to any noticeable degree.
My hope is that everyone wins under this proposal. Struggling franchises get financial relief. Players will see their contracts respected in a manner consistent with the expired CBA. Rich owners may pay more in the short term, but should see a commensurate benefit in the standings. One can argue that one side or another deserves more or less depending on your perspective, but if we want a deal now that respects both parties’ positions, this is the best solution I can see.