(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.

 

Comments (29)

  1. So if I’m reading this correctly, you are proposing a temporary luxury tax system? The main difference being that the payment isn’t distributed to low revenue producing teams, but a deferred payment to its’ own players?

    • More of a luxury cap, since in a luxury tax you are penalized for exceeding a set threshold. There’s no penalty here; they just pay the contracts they signed.

  2. The only problem I have with this is that current contracts were signed with a $54 mil floor. Going by a 50-50 split, that becomes closer to the midpoint than the floor (and that’s assuming they don’t fall short of the projections which established that floor, which they will; they always do, even without a lockout hurting their business). Therefore you have basically every team spending over the midpoint because they had no choice but to (they had to spend over the floor). That’s going to skew things.

    If the PA thinks 50-50 is an acceptable place to be, then they’re either not going to get all of what they signed for or they’re going to take it from future potential signings (such as a deferred cap penalty to teams that are over the cap, as with the bonus cushion previously). If they intend to get all of what they signed for then 50-50 isn’t possible, not initially.

    I personally like the idea of capped escrow. No player has ever had the expectation of getting 100% of his contract under the previous CBA, so asking for it now is silly. But if the owners can live with paying more than 50% for now simply by limiting how much players would have to risk to escrow this season, it might hurt a bit less. The problem is I doubt they’ll want to do that unless they get something back in later years in the deal.

    • Which is to say, you’d have to play some games with escrow in this. Even if you assume every team that’s over 59 is at 59 instead (such that every dollar over 59 goes straight to the players and is ignored), you’re going to have most/all teams over the midpoint (be it 54 or 51 or whatever it is in your estimations). Players would get reamed by escrow if every single team is above the midpoint. Granted, they’re going to get reamed either way if 50-50 is the goal, but in this case if every dollar over the cap is exempted from the count I wonder if this would lead to escrow unfairly targeting one group of players or another. Maybe not.

    • “Shared Sacrifice” time! (or “some games with escrow”)

      I think a way to solve the problem of having all but three teams (according to Capgeek) above the midpoint is to set the midpoint (as far as it relates to targeted team spending) to the same $62.2M figure that it’s at right now while the spending/revenue adjustment period settles.

      Here’s the kicker for the extended difference: the money that teams put into contracts to get them to where they are to this point that puts them between the “real midpoint” versus the “adjustment midpoint” is what would be owed back by the players in escrow, except it would be DIRECT escrow paid by the entirety of the NHLPA to the specific teams whose prior floor-commitments forced them to spend this high.

      Revenue sharing would cover the gap between targeted team payroll range and actual club spending up to the direct escrow threshold.

      Looking at the figures as of right now, that would be $43.6M total coming back from the NHLPA to teams. The figure would be adjusted by teams who shouldn’t qualify to get direct escrow back (Specifically the Red Wings, Penguins, and Rangers who are all currently below the $62.2M salary threshold) based on that team’s standings in the overall revenue creation rank (top-10 teams wouldn’t qualify)

      The essential effect these two moves would have is that it would lower the floor for struggling teams. The big clubs help them a bit with revenue sharing and the players help them a bit with giving back in escrow only to the teams that actually need those dollars.

      This would only count for contracts already on the books and, when a player is traded, any “new” dollars created against a team’s payroll (caused by a positive difference in salary brought in versus salary outgoing) don’t get grandfathered into the calculation. This is to prevent goofy things like the Panthers taking on Wade Redden’s contract to essentially get him to play for them free, seeing as how those dollars would come back in direct escrow paid by the entirety of the NHLPA.

      Of course, the negative difference of dollars for traded players simply becomes that team’s adjusting themselves to a new lower total salary commitment.

      By biggest concern with that system is that it gives lower-earning teams financial incentives NOT to sell off players for draft picks, as the portion of their salaries which drive that team into the Direct Escrow zone will just end up coming back to them, but that’s a risk I think would be worth it, considering that this is entirely a temporary set-up while we wait for leaguewide revenues to make these calculations obsolete and end the direct escrow system.

  3. This statement is patently untrue (next to last paragraph…final sentence):

    “Third, as @geoffdetweiler has argued, the luxury tax system in baseball has not harmed parity to any noticeable degree.”

    • Have you read Geoff’s article? He makes a good case.

      • Yes…the quote was mined from the article.

        In my opinion, the “Luxury tax-based” CBA of MLB kills parity.

        • For example…in MLB it’s difficult, often impossible, to re-sign your key players if you have to match a Yankee offer sheet.

          • Yep, and how often do the Yankees miss the playoffs?

            Having 11 teams that have not made the playoffs in at least 4 years is not parity.

          • And yet as many teams reach and win the World Series as in hockey.

        • Also note in my proposal the payroll range is vastly narrower than in MLB, and comparable to 2005. The issue would also diminish over time and disappear in 2-4 years when the salary cap surpasses the make whole cap.

        • If you look at the last 10 years of MLB World Series champs, 60% of them have come with payrolls outside the top 10, and if the 2010 Twins had found a way to squeeze about another $1.2M (or you know, about 1.2% more of their overall salary), you’d have a 70% number of series champs (the ultimate in legitimate contenders) coming from the middle or bottom-third of the league.

      • I agree with Jim on this. Yes, the odd low budget Cinderella team sneaks into the MLB playoffs now and again essentially since they added the wild card and the very odd time before.

        But true parity has not been achieved in MLB with the luxery system. By and large the vast majority of teams that have made the playoffs in the last decade are in the top 1/3 to 1/2 of team salary.

        • “Having 11 teams that have not made the playoffs in at least 4 years is not parity.”

          How much of that is because baseball lets half as many teams into the playoffs as hockey?

          If only the top four from each conference made the hockey playoffs, the last five playoffs would’ve featured:

          Rangers
          Boston x3
          Florida
          Pittsburgh x5
          Washington x4
          Philadelphia
          New Jersey x3
          Buffalo
          Montreal
          Vancouver x4
          St Louis
          Phoenix x2
          Nashville
          San Jose x4
          Detroit x3
          Anaheim x2
          Chicago x2
          Minnesota

          That leaves 12 teams that haven’t made the playoffs in at least five years. And a small number of teams dominating the playoff spots.

          If “lots of teams make the playoffs” is your definition of parity, then the problem isn’t the lack of a cap; it’s the playoff structure.

          Look at http://www.fangraphs.com/blogs/index.php/2012-payrolls-and-wins/ or http://www.hardballtimes.com/main/article/money-and-wins/ and you’ll see that the relationship between wins and payroll isn’t as strong as you might think and aside from a late 90′s blip isn’t changing much over time.

        • Patently false. The teams that made the playoffs in baseball this year are: 1, 5, 6, 8, 9, 16, 17, 19, 20, 29 in payroll. Please go spread lies elsewhere.

          • no…you have to look at more than a year!!! Also…even for the current year…look at the teams that were legitimately in the race for a playoff spot.

            Not to mention the “re-signing” point…..

  4. you want to talk about solutions.

    the players walk away from the NHL and form their own league

    can anyone say 0% HRR?

    duh

    • And where would they play? The team owners are also the arena owners.

      • Not sure all the arenas are owned by NHL team Owners. Even still, if the players were to form their own league then the current NHL cities stand to lose out on their chance to have the best league going in their cities. Even where you don’t have a hostile situation between city and owner like the Katz/Edmonton situation, you can bet that a city won’t hesitate to Emminant Domain their asses and take away their toy. Remember, a lot of these arenas are publically paid for, so the compensation to the owners would be the so very little they put into the making of the arena in the first place. Awesomely, their very greed in the making of the arena by getting the city to put up most of the money, would help to boot them out of arena ownership and NHL team ownership! F the owners and their F’n game playing!

      • I think Competition Law (at least in Canada) may force arena owners to give a competing league access to rinks on competitive terms. Even the Toronto Toros got to play at MLG.

  5. Isn’t this essentially the same as the players third proposal? You pay the current deals at higher than 50% for players and then get to 50-50 later.

    I propose that its 50-50 at least in year 3 and the actual contract value during that year should be the actual cap hit like it is in the NBA. Pay $10 million now but $1 mil in 10 years and that’s $10 mil to the cap now and $1 mil 10 yrs later rather than an average. There’s no cost certainty to that.

    Allow restructuring of deals and amnesty waivers in the first year of transition. This would solve the NHL’s problems with loopholes and players problem of getting paid for existing deals. 50-50 all the way with real transparency on true cap hits seems ridiculously easy and the way to go.

    • That’s what it sounds like to me. And yeah, Bill Daly really sounded like he hated it.

      I really hate to admit it, but the guy with the best idea to bridge this gap is the biggest buffoon on Hockey Night in Canada (no, not Don), Glenn Healy. Give the players a haircut on current contracts that they get back, with a little bit of interest, as an annuity when they turn 50 or something. Every union on Earth takes that deal and it’s the cheapest way possible for the owners to meet the players’ one criterion.

    • The Player’s 3rd proposal had the players taking 13% off the top from the very beginning to pay existing contracts. The owners & players would then split the remaining 87% 50/50. That left both sides with 43.5%. But the players were getting that 13% too. So the players were in effect getting a 56.5/43.5 split which is only 0.5 lower than the current CBA.

      The proposal above says split the HRR 50/50 but dollar spent over the $59M cap comes directly out of the owners pocket like any other expense and is not part of HRR.

      The league gets their 50/50 split. The rich owners get a small competitive advantage for a couple years (which they’ll love) and the players get the full value of their contracts. It’s a win win win.

      • A good solution, though it could prove expensive for a few teams that have recently signed some expensive contracts and are now over the $59mil cap. In the past they would qualify for revenue sharing, but under this new system would be undergoing a heavier tax. Granted, as suggested they could trade assets and get back under the cap.

        Some of the richer teams, who already get dinged quite a bit in revenue sharing, now have to carry the added salary % with this new tax. I doubt the so-called advantages are worth the added expense, but in today’s world unfortunately the rich pay! Which brings me to the players….. how exactly are they “paying” back in this new system. Oh right, instead of getting 57% of HRR they only get 50%. Poor kids.

        • First of all, any solution that comes close to making the players ‘whole’ on the currently signed contracts is either going to be expensive (pay them) or painful (some trading mechanism) for the clubs that are over the soft 50-50 cap. That is the consequences for signing those contracts when they knew that this is where their group wanted to go.

          Second, 67′s proposal does not include a ‘tax’ of any kind. Owner’s can spend over the cap at will, they simply have to live up to their commitments. You have some sort of problem with this?

  6. Seems like a great idea, except that it seems to me that you need a way to determine what part of salaries are considered to be under the 50-50 cap, and what part is the ‘excess’?

    Regarding escrow, it really shouldn’t be an issue. Escrow is just a means to make both sides ‘whole’ per the CBA for the given year. If the players sensibilities can’t deal with this, then move the escrow to the owners side. This, of course, would require a reduction in the salaries of the players up front, and then they would get ‘bonuses’ to make them whole, rather than ‘give-backs’ to make the owners whole. It is the same amount of money for each side in the end regardless – which is why it should not be an issue at all.

  7. I think that a combination of the players’ 2nd proposal (the players taking a reduced percent of new revenues for a time to lower their overall percentage), and the core concept of 67′s proposal would be fair. The first part makes both the owners and the players responsible for the contracts that have been signed. As to the second part, for already signed contracts, make the player’s share of HRR only responsible for player’s salaries up to the individual player’s cap hit under the old system – the individual owners would be solely responsible for salary $ above the individual players’ cap hit amounts for a given year. Going forward, on new contracts, make the cap hit for players directly equal to their actual salary, and limit how much annual variation in salary is allowed within a single contract.

    Finally, going back to the first part, make the date where the split reaches a hard 50-50 certain, say after the 3rd or 4th year of the new deal. That way, if revenue growth is slow, the sacrifice is more evenly shared.

  8. The definition of compromise is: Nobody’s happy.

Leave a Reply

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