Despite the attempts of sports talk radio call-in programming, spouting poorly formed opinions on the current National Hockey League labor presumably reached its zenith of stupidity back in September when Canada’s Donald Trump suggested that NHL owners should simply fire all the players, sign replacements with incentive-laden contracts and be done with the matter entirely. Not to be advised by what is rational, hyperbolic commentary on the lockout – with outlooks ranging from the implementation of indentured servitude for players to guillotine sprees for the aristocratic owners – has continued to emerge, much to the detriment of the impressionable.

Thinking beyond sports, it seems that the more severe the conflict, the less likely a true victor is to emerge. In hockey, we have come to expect identifiable winners and losers. In fact, since the introduction of the shoot-out, each contest in the NHL can only result in win and lose outcomes. And so, as hockey fans turn desperate for the thrill of competition, we find ourselves taking sides in a dispute about dollars rather than goals, and aligning ourselves with negotiators in a similarly vicarious sense to how we once followed the sport.

In order to understand the dispute, a little bit of background information is necessary. First of all, we must recognize that when a player in the NHL agrees to a guaranteed contract for a particular amount of money, the dollar figure is not absolute; it is relative to the revenue that the entire league earns. So, what we refer to as a $5 million contract is actually an agreement for five million shares of a percentage of the league’s revenue. The value of each share isn’t determined until the end of the season.

In 2011/2012, the players earned 57 per cent of league revenue. Initially, the NHL wanted to restructure the new CBA so that the players received only 43 per cent for the coming season. They have since relented, with Commissioner Gary Bettman admitting that the low ball offer was a tactic to move toward a more even split.

I think the view some have of our first offer is fairly naive as it relates to collective bargaining. A sophisticated negotiator would have looked at it and said, ‘Obviously they want a 50-50 split.’ If we’re at 57 and they propose 43, they must be telegraphing where they want to end. If your intention was to use it in an inflammatory way, you could do that. If your intention was to make a deal, you could pretty much chart out what the course should be.

In addition to restructuring the players’ share of what is referred to as hockey related revenue, the NHL also proposed modifications to what is considered hockey related revenue, a proposal that would further reduce the figure from which the players draw their salaries. This creates another contentious issue for negotiations because existing contracts would not be worth as much as they were originally intended. Compensation would have to be assigned as part of any change.

While the percentage split remains the biggest issue in negotiations for the owners, others include setting maximum terms for new player contracts, eliminating signing bonuses, extending entry-level contracts and increasing the qualification for unrestricted free agency. Their goal is to make owning an NHL team profitable for every owner, pointing to such things as thirteen out of thirty teams reporting a negative operating income for the last season.

The National Hockey League Players Association, not surprisingly, was fine with the arrangement agreed to in the previous collective bargaining agreement when league revenue increased at a far higher rate than what the owners anticipated, leading to the players earning an escalated 57 per cent of league revenue. In their most recent proposal to the owners, the NHLPA agreed to an even split of hockey related revenue in the next CBA, but with a larger amount of money for transitional payments than what their opposition would prefer.

In justifying their stance, the union points to seventeen out of thirty teams operating at a profit, and the large increase in overall revenue over the last few years. It also looks at the reported operating income critically, suggesting that it is often in the best interest of franchises to adjust their finances so that generally profitable ventures appear as though they are operating at a loss, when in fact, they are not. This is perhaps best seen in a team like the Florida Panthers, who reported a loss of $12 million last season, while the conglomerate that it is involved with in terms of ownership reported yet another year of profit.

All the while, owners generally benefit from increases in equity on a yearly basis, as it almost always proves financially beneficial to own a sports franchise. If an owner truly does not agree with the direction toward which the league heads, they can always opt out, sell the franchise for a far greater price than they originally bought it, and enjoy the profits. This is a luxury not afforded to the players.

However, with this in their arsenal, the NHLPA has recommended increased revenue sharing among the clubs to satiate the opposition’s goal of making ownership profitable for everyone. It is a suggestion at which the owners have largely balked, leading the union to flirt with the idea of decertification, which would allow the players to sue the owners in court under anti-trust law. By disbanding the union, as was done in recent labor negotiations in both the National Basketball Association and National Football League, the players risk losing the protection offered to them under labor law, such as guaranteed contracts, pensions, health benefits and more. However, as a union, the owners are allowed to lock out the players, not as a union, it becomes an illegal group boycott punishable by severe financial damages.

With the hope of avoiding an already ugly situation from getting even more unpleasant, both sides have agreed to further negotiations with the assistance of a mediator. While it is unknown as to how this will develop, it is assumed that observers of the process will no longer be updated on the progress of the negotiations while under mediation.

So, as discussions “go dark,” we, as hockey fans, are left to wonder not only about the future of the game, but also our own interest in this ongoing struggle.

Falling short of endorsing collusion, when one examines the demands of owners, outside of a redistribution of revenue, the issues seem to be of the variety that would be better solved by hiring smarter management rather than a harder stance in negotiations. The owners desire increased restrictions to essentially protect themselves from their own general managers.

We have the same people who approved long-term contracts to players like Ilya Kovalchuck, Zach Parise, Ryan Suter, and Shea Weber, not only demanding that they pay them as much as ten per cent less after already agreeing to the deals, but also insisting that they be protected in the future from the risks that such contracts offer. I am unsure as to whether this is a better example of bad faith or sheer stupidity.

Prior to this, I was of the belief that the NHL was a competition; that one team signing a player to a bad contract was good for the 29 other teams. Why would ownership want restrictions in place to level the playing field in an already salary capped system? A bad contract signed by your competitor should be considered good for you. The cap already in place diminishes concerns over dramatic salary escalation, and so I fail to see the need for such protections as being more important than the need for common sense when handing out contracts in the first place.

Nonetheless, there exists a feeling among fans that millionaire players should accept what is offered to them by billionaire owners. I understand the sentiment, but cannot find reason to support it. It is easier for the great many of us to relate to players before owners, but only in so far as them having an employer. We cannot extend our empathy past this because the great many of us earn far less than a typical hockey player. So, while it is originally easier for us to put ourselves in the players’ skates, it becomes progressively difficult to keep those skates on our feet. We realize the players’ perspective, but do not see it fully, resulting in something of a shock as to why they would refuse to be paid more than most of us could possibly imagine receiving.

Arguments supporting ownership suggest that the sport has to be profitable in order for them to be expected to provide fans with the hockey that they desire. However, this stance assumes that the owners alone are the ones providing fans with hockey. That is simply not the case. It is an equal partnership with the owners facilitating the sought after viewing of player talent.

Pro-ownership arguments would also be better received if the National Hockey League were verging on bankruptcy. However, this is not an auto union making outrageous demands of a manufacturer on the brink of going out of business. It is a largely profitable industry, especially for a few select teams at the top, which has the power to solve its supposed problems through increased revenue sharing without exploiting the talent on which it depends to make its product desirable in the first place.

This is what NHL ownership either fails to realize or refuses to admit: players are necessary, and fair payment of their services is a requirement. While we wait to see if decertification is a threat or a genuine avenue of consideration for the players, we witness a disturbing lack of good faith in the negotiations from the side of the owners.

Aside from admitting to making unfair proposals and attempting to unfairly adjust contracts that were signed mere months ago, the owners have taken a hard line approach to negotiations, refusing to discuss NHLPA proposals and threatening offers off of the table. All the while, the players have made concessions, essentially agreeing to a seven per cent decrease in salaries despite record revenues.

At the beginning of this article, I suggested that in our unfulfilled desire for competitive hockey, we have taken to picking sides in an off-ice dispute much like we would an on-ice contest. This is somewhat misleading because if we were to accurately envision this labor dispute as a game of hockey it would be a match between a talented team of All-Stars that represent everything we love about the game and a privileged roster of goons whose tactics would make the Broad Street Bullies quiver in fear.

Sources:

Kevin O’Leary Tells The NHL To Fire All Players. [CBC]
Escrow A Nasty Word To NHL Players. [Globe And Mail]
NHL Commissioner Discusses Lockout Issues. [Winnipeg Free Press]
Making Sense Of Hockey-Related Revenue. [CBC]
Complete NHLPA Offer To The NHL. [ESPN]
NHL Valuations. [Forbes]:
2012 NHL Lockout: Creative Business Structure, Profitability, The NHL And The Florida Panthers. [Defending Big D]
Answers To NHLPA’s Decertification Questions. [CBC]
Why You Should Support The NHL Owners. [Arctic Ice Hockey]
The Glass Eye: NHL Self-Destruction. [Gant Daily]

Comments (10)

  1. I’m ignoring my labour law professor at the moment and thinking about decertification. I’d love to see the players decertify the NHLPA. The lockout has become the default response to the expiration of a collective bargaining agreement in the NHL/NBA/NFL and in every instance, the players are forced to make the bulk on the concessions. In the current NHL-PA dispute the owners aren’t conceding anything at all. Furthermore, it is clear that the NHL is taking advantage of the benefits that it and its member clubs derive from a collective agreement with the players. It’s time for the players to call the owner’s bluff.

    To clarify, the players are proposing to reduce their share of HRR from 57% to 50%. That’s a 12% cut, not 7%.

  2. This is a great overview.

    One thing people seem to be overstating, though, is what the players give up under decertification. Specifically pensions, guaranteed contracts, health benefits, etc. All they lose is the absolute right to those things, they can still negotiate contracts with all those things in place if they insist (with the exception of pensions, maybe).

    Ultimately, in a diluted 30 team league that is incredibly stretched for talent, any halfway-decent players will only benefit from a completely free market – we all remember the pre-cap era.

    Does a marginal fourth liner, playing 6 mins every night really deserve half a million dollars a year anyway?

  3. All of this is very interesting and informative. Seeing different perspectives is important and enlightening. However, the thing that kicks me the most in all of this is the lack of consideration for those who put the money in the pockets of these combatants. There is no proper avenue for the fan base to dictate and be privy to the dispute that is ultimately affecting so many. This is not even including the team employees who are out of work. It’s truly unfortunate that the large collective of fans couldn’t some how band together on a unified front and uphold a boycott or take legal action representing the folks who lost their jobs due to this lockout. We all know there will be sellouts for the first game back whenever that may be and that is truly the most disappointing part through all of this. I know for certain I will not be paying $$ to attend any more NHL games.

  4. What a poorly edited load of populist BS.

    The idea that it’s ok for teams to lose money because the value of their franchises will go up is oft-cited nonsense. Please feel free to have that discussion with the owners of the Oakland Seals, the Cleveland Barons, the Minnesota North Stars, the Atlanta Flames, or even Matthew Hulsizer, and yes, Wayne Gretzky. Ask them how their investments did. In general, the value of businesses that make money go up.

    Then, just like all player apologists, you come out with the ‘But teams make money apart from HRR!”. Yes, that’s true in some cases. And well done to the owners that manage that. HRR is what the CBA is about though. It’s definitional. Other revenue does not count, nor should it. For decades, North American car companies lost money making lousy cars, but made money on their service and leasing companies. So they kept making lousy cars. The incentives were all wrong. You want companies making money on their core businesses. In the case of a hockey franchise, that’s the on-ice product.

    What you probably want is a financial system that would see a team in an average market, finishing at the the bottom of the standings repeatedly, who was well established, losing a bit of money. When I see teams like the Sharks, with the second best record in hockey in the last 7 years, a full building, and excellent TV coverage losing $60m over the last 3 years, I see a broken system.

    Of course the response is “more revenue sharing”. Again, populist nonsense. I’ve got another idea. How about we take the top %10 of players with the biggest contracts, and have them share their salary with the bottom %30 of the players? How about that Sid? Alex? Wait…. where did you all go?! Not so easy when it’s your money.

    Finally, I get SO tired of people whining about GM behavior. They are SUPPOSED to use all means at their possession to build the best team. That means looking for every nook and cranny in the CBA. It means taking advantage of things before they disappear. It’s a competition! You might as well applaud Burke for not doing deals at Christmas, or criticize players for trying to draw penalties – it’s silly. The CBA is the set of rules that define the boundaries the GM’s are supposed to work within. Don’t like the boundaries? Change the CBA! Which is exactly what the league is trying to do.
    I don’t see a lot of Minnesota fans complaining about their summer signings. Nor should they be.

    • It’s always noble to cite examples completely irrelevant to the discussion. Noble, but not very accurate.

      Instead of seeing a broken system when teams claim to be losing money, try putting on your critical thinking cap and think what might be motivating them to be making such claims. Then, look a bit deeper at their parent companies and the profits that they’re claiming. You might be surprised what you see at this point. No one is claiming that equity alone is the reason that owners shouldn’t complain about the system.

      The best part about your ownership revenue sharing vs. player revenue sharing is the fact that THE PLAYERS DO SHARE REVENUE. This is the whole point of the current system.

      Your final paragraph isn’t countering anything I wrote about the owners attempting to protect themselves from their own hires.

      • Sorry. Did I misunderstand “attempting to unfairly adjust contracts that were signed mere months ago”. Seems like calling adjusting contracts that were fairly signed under the previous CBA “unfair” is exactly what I was talking about.

        Your HRR argument is spurious. The league and the players have an agreement on what HRR is. As I said, it is definitional in the CBA. Don’t like it? Make changing it a negotiating point. The players are not asking for that, nor is the league at this point. Complaining about non-HRR revenue in a CBA discussion is pointless, and about as relevant as complaining about the size of the owners yacht.

    • Right, and while we’re at it, let’s get rid of the salary cap system that ties player compensation to LEAGUE revenues and let the individual clubs be responsible for their own fiscal health.

  5. In a cap system with a floor you have to include a legitimate profit sharing system so that have-not teams can reach profit. Until that is in place negotiation is impossible. Players have no clue what they are truly negotiating against. If they eliminated the floor no team could justify not making profit. It would be the teams’ fault for going into the red.

    A lot of these teams have multiple revenue avenues that don’t include hockey related revenue. For example, The Leafs jumped to a value of a billion dollars without playing a single game. As an outsider, dissolving the NHLPA may be the only choice players have. As stated earlier, they have moved 12% down in income, have made all of the legitimate offers (that the public has seen), while the owners have made little to no movement.

    Owners have abused their ability to lockout players (3 work stoppages with this commish), have multiple revenue streams which they do not have to report, yet cry poverty. From my understanding, the offer that owners have posted eliminates certain rights which were fought for by past incarnations of the PA. If that’s the case, perhaps the Player Association has run its course.

  6. Parkes, this is really great work. Well reasoned and beautifully written opinion is a true art.

Leave a Reply

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