Woah, this picture owns

Let’s say that the Forbes valuations of revenue and team value (they aren’t) are correct, and that Capgeek‘s assessment of player salaries (they aren’t) are also correct. Just fitting the numbers in the general ballpark, we can say that the Phoenix Coyotes contributed less than 2% of total National Hockey League revenue in 2011-12 and were to pay about 2.8% of the player salaries in 2012-13.

Conversely, the Toronto Maple Leafs,  were slated to pay their players a little over $10M more: They were effectively going to pay 3.3% of all player salaries despite contributing about five times the revenue the Coyotes did.

See the gap, there? Brian Burke, who prides himself on good business sense, has never really had the luxury of spending in a big market with an unlimited money pit. Since the team he runs is corporate-owned, and thus more likely to run the team as a business and not as an art piece with tangible value, from one angle you could say the Toronto Maple Leafs are a successful organization.

Toronto spends less comparatively. Surprisingly, the biggest hockey market in the world, Toronto, has a hockey team that has less money tied up for the 2014-15 season than any other NHL franchise. They spend less than Phoenix:

Player salary by team for 2014-2015 (via Capgeek)

 

Team No. Players Total Salary
Tampa Bay 9 $46,666,667.00
Boston 13 $45,857,500.00
Chicago 8 $44,650,000.00
Vancouver 9 $43,414,000.00
Los Angeles 7 $41,550,000.00
Carolina 8 $39,850,000.00
Nashville 9 $39,775,000.00
Washington 8 $38,900,000.00
Philadelphia 10 $37,300,000.00
Minnesota 7 $35,900,000.00
Columbus 8 $31,716,667.00
Montreal 8 $30,500,000.00
Florida 7 $29,442,875.00
Pittsburgh 4 $27,750,000.00
Winnipeg 6 $27,350,000.00
San Jose 7 $26,960,000.00
Ottawa 8 $25,882,500.00
NY Islanders 7 $25,804,000.00
Detroit 6 $25,000,000.00
New Jersey 4 $22,966,667.00
Anaheim 6 $22,962,500.00
NY Rangers 3 $21,850,000.00
Phoenix 5 $21,550,000.00
St. Louis 6 $20,750,000.00
Colorado 7 $20,725,000.00
Dallas 5 $20,650,000.00
Buffalo 6 $20,000,000.00
Calgary 5 $19,000,000.00
Edmonton 4 $15,925,000.00
Toronto 3 $14,750,000.00

Obviously, I don’t know explicitly what Bill Daly and Steve Fehr were talking about when they met secretly this weekend, but I have to think that this is an indication progress is being made. Rather than the heads leading both the NHL and the NHLPA making declarations and giving ultimatums in front of an assembled media crowd, a couple of higher ups were discussing a few creative solutions informally.

Why creative? Because the NHL wants a 50-50 split and player salaries for 2012-13 already equal about 53.4% of hockey-related revenue. Moreover, take the salary players are slated to make in 2013-14 and, to fill out rosters, add on simply the average player salary of 2003-04, and players are already making a raise on this season. This isn’t a problem if the league grows in revenue, but you have to think it’d be near impossible for the NHL to grow as much in revenue this season as it did any season between 2006 and 2012. A lot of people are simply turned off the game.

***

Salary caps are fascinating on their own and are designed to prevent the hyper-competitive people who run NHL teams from paying players what they’re worth. When Gary Bettman initially wanted to institute a salary cap, what he was really saying was that he didn’t trust the people running the teams to make prudent business decisions for the health of the league. What he was really saying was that the NHL couldn’t afford to pay hockey players their market value. I just wonder, if every contract for every hockey team in the world was wiped, just how much the 30 teams that compose the NHL would spend on their players. I’d bet it would be much higher than $1.7-billion.

Jeremy Jacobs, who once signed Martin Lapointe to a deal worth roughly the GDP of a small island republic, is largely believed to be a driving force behind the current lockout.

While $1.7-billion sounds like an overpay for roughly 680-700 hockey players, keep in mind that’s below the market value of these players. While 50-50 sounds “fair” to the average viewer, keep in mind that that’s what the NHL had in mind when they hired a PR firm to court slogans out of fans just days before they rolled out the proposal that proposed to 50-50 split. The market value of players is much higher than this: In 2004, it’s been noted that the NHLPA’s share of hockey-related revenue was closer to 74%.

How do Phoenix and Toronto come into this? Well, one team makes a pile of money, but spends little more of it on players than the team that’s running on subsidies. The free market doesn’t like general managers like Brian Burke hanging around big markets. The free market wants teams like Toronto to spend more. Every player signing acts as a miniature auction, with teams assessing any players’ value in real-time. “Winner’s Curse”, which ultimately states that the winner of any auction has actually overpaid the value of the product, simply changes the value of the next player up for auction, and the price of free agents slowly increases. Remember, general managers don’t have the most prudent business sense when it comes to hockey players. If they did, we wouldn’t need a salary cap in the first place.

The way I see it, Fehr and Daly were sitting there over drinks, laughing and coming up with creative ways to combat this reality. The NHL has too many teams, it overvalued itself in the 1990s when it expanded past 21 teams, into the realm where you wouldn’t only dilute the player talent pool, but also the managerial talent pool. As such, it needs to find a way to reconcile the money-having teams with the not money-having teams. Unfortunately, continuing to restrict the market and apply salary caps for far less hockey players are worth every seven years probably isn’t going to work out in the long-run.

You can split the revenues 50-50, for sure, and then in seven years when this deal expires, and Phoenix has grown at a rate less than the rest of the NHL as a whole, you can cut that back to 45-55. Then 40-60. The NHL walked right into the casino and thought they could beat the house, first by assuming a new audience would embrace the game without being culturally connected to it, and secondly by assuming that player salaries would remain at the percentage of hockey-related revenue they negotiated.

Unfortunately, the market doesn’t really do that. Even the Tampa Bay Lightning don’t want in on that. As you can see from the chart above, no team will spend more in 2014-15 than the Lightning. They have $12M commit to Vincent Lecavalier and Martin St. Louis, $7.5M to Steven Stamkos, $9M more to Ryan Malone and Teddy Purcell, and over $16M commit to a defensive core of Matt Carle, Victor Hedman, Eric Brewer and Mattias Ohlund, though the latter will apparently retire soon.

Tampa Bay took on a lot of financial risk signing all those guys. I’d like to see it pay off for them.