How does the NHL encourage us to move on and love hockey again?

Face it, if you’re reading this post, you’re going to return to watching hockey. Maybe not right away or even this season, but you’re coming back. They’ve got you. But you might never be as passionate or excited as you once were. And you’re a big fan. How about the casual fans who jump on the bandwagon when their team is doing well? The league and its teams (and perhaps its players) need to come up with some sort of olive branch that they can offer, which won’t make up for the lockout but is a nice gesture that makes a difference in how we feel about them.

What would make a difference for you? The past couple of weeks I’ve seen heard a few ideas kicked around on sports radio and in various blogs and columns online. Some seem reasonable, others border on ludicrous, but each idea was championed by someone for whom that gesture would have made a difference.

The idea I’ve heard most often would have the NHL make the Center Ice package and/or GameCenter Live free for this season. I also read some information that makes it sound pretty unlikely that it will happen. But this idea made me think: who is it that I think owes me something (and do they really owe me anything)? Is it the league? The players? My hometown team? All of the above? Free Center Ice would be a league-wide thing, nothing to do with my local team (the Canucks), and to be frank I’m more of a Canucks fan than I am an NHL fan. Center Ice isn’t something I’ve ever considered purchasing – I have enough trouble finding time to watch 82 Canucks games + playoffs – so for me Center Ice would not be a meaningful gesture.

I’ve also heard the suggestion that the Canucks should give a free jersey to everyone who attends game #1. Sounds great, gets your brand out there, but this only affects the season-ticket holders and a few others who get a single-game ticket. I let my half-season tickets lapse after the last lockout, so this wouldn’t do anything for me.

Another interesting idea would have the Canucks spend some money at some local businesses frequented by their fans – restaurants near the arena, local sports retailers, etc. – and having those businesses randomly give some customers their purchases free “on the Canucks”. Cool idea, and I think it’s something they should consider. It would definitely get people talking, but it would mostly be a Vancouver thing. In my mind, the Canucks are BC’s team, not just the domain of Vancouverites. The fans in Prince George and Kamloops have just as much a beef with the lockout as I do.

I also heard a suggestion that the team should hold a free exhibition game with access to tickets for all. I like this idea, and I’d definitely try to get tickets for me and my son, but unfortunately I don’t think it’s going to happen. Timelines are very cramped right now, and it’s going to be tough to even get a training camp going, much less an exhibition game. I’m hearing that there will be no exhibition games this year for any team. It was also suggested that the players should do more public service and appearances. I think this is true, but unfortunately with a compressed season the players will have much less time than usual – good idea but it’ll be tough to make happen.

I think it’s somewhat likely that the Canucks or even the league will offer discounts on merchandise this season. I think this is about the least they could do. Right now I definitely have no plans to buy a jersey, or even a new hat, but a good deal might change my mind.

I’ve been racking my brain, but I haven’t come up with any great new ideas of my own. (By the way, I had to look up whether I was “racking” or “wracking” my brain – turns out my first instinct was wrong). But I’m curious, what would make a difference for you? What would make you feel better about watching your team this year?

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Why the players needed to stretch it out until now

The NHL lockout was settled in the wee hours of this morning with a tentative agreement to be ratified by the players and the owners. Watching my social media accounts this morning, I see some jubilation, more apathy, and a lot of rancor.

Most of those who express dismay don’t appear to be as upset about the missed games as they are about the lack of respect shown the fans by the league and the players. My cousin, a knowledgeable hockey fan and former sports blogger, believes we’ve been shown contempt. I definitely feel the lack of respect, though I think contempt is a bit strong. But I can certain understand where he’s coming from.

If this lockout had been settled in October or even in November, I don’t think the fans would have been nearly so upset. Thus, I think it’s fair to say that a big part of the problem is how long it’s taken to resolve this dispute. So why did it have to take so long? Here are my thoughts…

From the perspective of the league, it’s clear that they made some substantial errors in how the last CBA was designed. No-one could have predicted the rise in the Canadian dollar and other factors which would lead to the salary cap nearly doubling during the 7-year term of the CBA. In order to ensure competitive balance among teams, they insisted on a $16M gap between the cap and the floor, which means that the floor has risen with the cap – from $24M in 2005 to $54M in 2012-13 (prorated). This isn’t sustainable for the smaller-market teams, and thus the owners felt they need to make a big push to fix it.

Trouble is, this kind of system will never work without meaningful revenue sharing, something the players pointed out last summer. Unfortunately big-market owners are never going to send substantially more money to smaller teams, thus the league felt it necessary to push the cap, and associated revenue split, down as far as they could go.

The players, on the other hand, saw that an immediate change from a $70M cap to a $60M cap, and from 57% revenue split to 50%, would cause big problems in player movement. If a dozen or more teams are over the cap already, this substantially reduces the number of teams who can compete for a player’s services. The players pushed hard at the end for interim measures that would allow for transition.They also pushed hard early on for transition payments to ease the move from 57% to 50% – they succeeded in getting $300M of “make whole” money to ease the inevitable increases in escrow percentages that we’ll see over the next couple of years. Overall, I think the players did a good job of getting the things they needed in order to soften the blow of drop in revenue split.

The problem is that in order for the players to get these concessions, they had to outwait an NHL negotiating team that had no interest in negotiating. It was clear from the start that the league wanted what they wanted, and they weren’t going to accept anything less. The only way to get them off their position was to push them to the point of discomfort with the prospect of a 2012-2013 season disappearing entirely. The players rightfully believed that the profitable teams would not allow Gary Bettman to cancel the season entirely, and that the best possible deal would come in the hours and days just prior to that cancellation. In essence, the players called Bettman’s bluff, and they were right.

It’s clear that the NHL has come to believe that the first course of action on the expiration of a CBA should be to lock out the players and shoot for the moon, assuming that the players will crack sooner or later. Unfortunately for them, the players made a smart move in hiring Donald Fehr out of retirement to whip them into shape. He knew from the start that the best deal would come come at the last possible minute. He also knew that the players simply can’t keep giving back substantial concessions every time the CBA expires. Did you ever wonder why the players were pushing for a 7-year CBA rather than a 10-year deal? Here are Elliotte Friedman’s reports on that:

Couple of weeks ago, I was talking to a former player. He said he’d heard the NHLPA wanted a short-term CBA because the union was worried a 10-year term would allow everyone to forget this disgraceful work stoppage.

The next day, I ran into two active players who believed the same thing. “People will forget,” they said. “And it will give the owners licence to do the same thing in 10 years.”

Whether you think that’s accurate or not, I think you can bet that the league will think twice next time before assuming that a lockout will result in major concessions.

There’s no wrong answer when it comes to your reaction as a fan to this whole disgraceful mess. I personally feel that the league was careless with its fan base and should expect a fair bit of fan blowback, at least for the remainder of this so-called season. I also think that the players were thinking ahead to the next CBA negotiation, looking out for their own but also your interests in trying to avoid another lengthy lockout. They saw the writing on the wall and gambled that some short-term pain would teach the league a lesson, while allowing them to get their best-possible deal this time around. I’m disappointed in the league, but I can’t blame the players. In the end, I’ll be watching my Canucks this year, but it’s going to be a while before I spend any real money on NHL hockey. After the last lockout, I cancelled my season tickets, and I’m more weary this time than I was then. But if the Canucks took a long run, well…..

Let’s be clear – they’re not $182M apart

Even since the NHL released its scorched-earth proposal in July, they pretty much gave up the public relations battle in the current CBA standoff. A proposal like that looks so ridiculous that it’s difficult to even take seriously. Having said that, they started to look better as the two sides moved closer to one another and the players seemed to be slowing things down. Thus, the NHLPA needed to take some steps to put the heat back on the league.

They accomplished that in a very clever way a couple of weeks ago when they made their most recent proposal. They proposed a compromise where they would accept a 50/50 split of revenues and an increase in the league’s funding of the “make whole” provision. Everyone seems to agree that the two sides will eventually land on a 50/50 split, and if true then the other major monetary issue is the funding of the so-called “make whole” provision. The league has proposed to set aside $211M to compensate players for earnings lost as the revenue split moves from 57/43 to 50/50, while the players have asked the league to fund $393M in compensation. After that recent proposal by the NHLPA, a memo to players was leaked in which Donald Fehr cleverly made the assertion: “Now that we have made this proposal, there is no longer any doubt as to how far apart the parties are in dollars….. Under our proposal, it is now undisputed that the gap is only $182 M over 5 years. “

This was a masterstroke. Since then, dozens of writers have written that the two sides are only $182M apart. Try Googling “NHL $182 million” and see what comes up. Plenty of people have divided that by 30 teams and 5 years and come to the conclusion that it’s peanuts in the grand scheme of things. Which it would be if it were accurate. But, as often happens in this kind of negotiation, people don’t always tell the whole truth. One part of the truth is that the difference between the two “make whole” proposals appears to be $182M. However, it goes unsaid that the two sides don’t agree on the nature of the 50/50 split. The NHLPA’s proposal would put the NHL solely at risk in case NHL revenues fluctuate, while the NHL proposal would see the split be 50/50 in any case (check out my previous post on how this could play itself out). The truth is that while the two sides are within striking distance of an agreement, they still have some fundamental ideas which are in opposition to one another.

It’s also true that the NHL has asked for a number of concessions on contracting terms, most of which have not been accepted by the NHLPA. From what I can see, those terms would not result in changes to the amount of money paid to the players on the whole, but they would allow the owners more leverage in how they pay out that money.

When you see an analyst on TV saying “They’re only $182M apart, why can’t they get this thing solved?”, don’t believe it. They’re not that close. But they’re also not that far – it’s thought that the moderates among the NHL owners would push to give up most of those contracting demands if the players would agree to their version of the 50/50 split and some sort of compromise on “make whole”. And that is what they two sides should be talking about when they get together next…

NHL Revenue and how it’s confusing the issue – Part II

In Part 1 of this series, we looked at the fact that the NHLPAs recent CBA proposals are tied to NHL revenue growth, as well as the possibility that this growth is unsustainable. Let’s take a further look at that possibility here.

Let’s be clear – the NHL never expected its revenue to grow as quickly as it has since the last lockout. If they had, they would never have setup a system in which the salary floor could ever have risen as high as $54 million. Why did the numbers grow so quickly? Well, there’s been some organic growth, and some of the poorer markets have acquitted themselves well since the last lockout. But the majority can be attributed to two reasons which might have been unthinkable during the last lockout: a Canadian dollar that rose to par with the US dollar, and skyrocketing ticket prices in a few major markets.

Let’s first take a look at the organic growth. According to ESPN.com, nine NHL cities have seen attendance increases of more than 10% since the 2003-04 season. Remarkably, Pittsburgh’s attendance has risen 56.3% while Chicago’s rose 62.50%, increases which can be attributed to much-improved teams in those markets (and a new building in Pittsburgh). Even strong markets like Calgary and Boston rose over 16%. Meanwhile, just 4 teams have seen attendance decreases of over 10% during that period – Dallas, Colorado, Columbus and Phoenix. In all cases, it would be fair to attribute those decreases to declining team success, as well as ownership issues in the case of Dallas and Phoenix.

The overall attendance numbers for the NHL are up 5% since the last lockout – not overwhelming numbers, but healthy growth. Considering that a number of markets are selling out every night, you could argue that the numbers might be artificially constrained by building sizes. Assuming that ticket prices stayed the same or rose slightly over the past 7 seasons, this should have translated into modest revenue increases for the NHL.

But there’s where it gets a little sketchy. Remember that talk about NHL teams lowering ticket prices after the last lockout? Not so much. According to agent Allan Walsh, “The average NHL ticket price has increased 39% since 2004”. ESPN reports that the average ticket price last season was $57.10. Now, no-one should have put much stock in the idea that ticket prices would go down after the last lockout. NHL tickets are a commodity, whose prices are governed by supply and demand. The NHL product itself has arguably become more entertaining due to tighter enforcement of obstruction rules, and as such fans have returned in droves. But are going to see another 40% increase in ticket prices over the course of this next CBA? This guy doesn’t think so, and points to a recent poll by Leger Marketing to prove it. He says that “70% of Canadians making less than $40,000 a year say they haven’t attended a single NHL game in the past five years,” and that the NHL has priced itself out of reach of the average Canadian. Certainly in many Canadian cities, the NHL has become a big ticket, where the best tickets are owned by corporations who want to impress their clients. You don’t see a lot of dads taking young kids anymore – it’s just too expensive. The average ticket price in Toronto is now $123. Meanwhile, in cities where there are lots of seats available, teams are still having to make tickets a bargain in order to draw a crowd. It’s just not realistic to think that even the biggest markets can continue to absorb huge price increases, nor is it realistic to pretend that sun-belt markets will ever be paying big-dollar prices for tickets. Do you think Winnipeg, whose tickets average $99 already, is going to go for $140 tickets in 5 years? Or that Nashville fans will pay what Rangers fans pay now? Unlikely.

The biggest concern, however, is the effect of currency on revenues. In the past decade, the Canadian dollar has risen from around 63 cents US to just over par, a climb of approximately 60%. Remember the Canadian Relief Program, the supplement for northern teams to compensate for the fact that they were paying US salaries with Canadian dollars? These days the seven Canadian teams are accounting for around 40% of the NHL’s revenue. This has been a tremendous boon for the NHL, and one which they could not have fully predicted. Unfortunately, it’s not sustainable. There is very little likelihood that the Canadian dollar will rise another 60%; in fact it might be reasonable to think that it could drop somewhat as the US economy recovers.

If you combine the 60% rise in the Canadian dollar with 40% increases in ticket prices, it’s likely that gate revenue from Canadian teams has increased 120% since 2004. Undoubtedly there is still room for growth in revenue, but growth at this rate is absolutely unsustainable. Given that the Canadian teams account for around 40% of NHL gate revenue, it has to be a concern for the NHL when the NHLPA’s proposals make assumptions of 5% year-over-year growth. It’s not inconceivable that revenues could decrease slightly during one or two of the years covered by the next CBA. Thus, don’t be surprised as the NHL rejects player proposals which guarantee player-revenue increases.

In Part 3 of this series, we’ll take a look at the myth and reality of profit and loss for NHL teams.

NHL Revenue and how it’s confusing the issue – Part 1

The more one reads about the current NHL lockout, the easier it is to become confused about the revenue issues.  In part, this is because the issues are complex. It’s also because both the league and the NHLPA muddy the waters with their terminology and statistics.

At the risk of seeming a bit pretentious after 4 whole blog posts, I’m starting a three-part series examining some of what’s been said and written about NHL revenue (and a little on profit).

In this opening salvo, let’s take a look at the recent rhetoric from the NHLPA regarding revenue splits. On October 18, the NHLPA made three mini-proposals to the NHL, attempting to bridge the gap on revenue sharing. James Mirtle of the Globe and Mail summarized them succinctly. In the first proposal, “Players would receive a set revenue figure for a small raise in Years 1, 2 and 3 but would have their salary frozen at the Year 3 number until their share hit 50 per cent. If league revenues increased at 5 per cent a season, the players would receive a share of 55.4 per cent in Year 1 and 50 per cent in Year 5.”  The NHLPA trumpeted this as a big concession in which they agreed to a 50/50 split of revenue. To be fair, it’s a big step from the guaranteed 57% they received in the previous CBA. But this proposal only gets to 50/50 if NHL revenues continue to increase as quickly as they have the past few years. Let’s say, just for the sake of argument, that the lockout really affects the fan base, and the NHL revenues begin a slow decline over the next several years. With fixed revenue amounts, actually increasing over the first 3 years, that would have the effect of actually increasing the players’ share above that previous 57% number. You could say that decreasing revenue is the fault of the owners, especially having tested the fanbase with this lockout, but you definitely can’t say that the players have agreed to a 50/50 split. They’ve agreed to a plan that could conceivably end up in a 50/50 split one day, but that’s a far cry from what the owners are asking for. (And I’m not even confusing the issue further by talking about the so-called “make-whole” proposal, which would return some money to the players over the first few years in order to soften the blow of an immediate move to a 50/50 split.)

We’ve heard the the league complaining that the NHLPA has refused to negotiate off the league’s proposals. Ever wonder why that’s a big deal? Why can’t the league work off the players’ proposals? Because the players, until this week, have never proposed any deal which tied the cap to league revenue on a percentage basis. And while they did finally do so this week, they also included a “ratchet” clause, which essentially means that as revenues change over time, the dollar amount of the players’ share can increase but never decrease. (Think the league’s going to agree to that one?) Every proposal by the players thus far has had guaranteed minimum dollar figures, regardless of what happens to league revenues. The NHL prefers to share the risk and reward of revenue movement, which is why they’ve appeared appalled at the players’ proposals so far.

So why haven’t the players wanted to go to a percentage split? At least in part, it’s because they wanted to try to hold the league’s feet to the fire on the revenue split in year one. The NHLPA has argued that revenue losses due to the league-imposed lockout should be the responsibility of the owners. Let’s back up and think about it. They’ve proposed to have their share go up slowly – for the sake of argument, let’s say $1.8B in year one, $1.85B in year two, etc., and as league revenues grow at 5% per year, maybe from $3.3B in year 1 to $3.45B in year 2 and $3.6B in year three, pretty soon you’re down to 54% instead of 57%.  Keep going and you eventually hit 50%. But what happens in year 1 when the season is only 64 games, or even 48 games as we had in 1994? League revenue goes way down in that year – given that the league is largely gate driven, every game lost might mean $30-$40M. In a 64-game season, you might reasonably assume that a $1.8B player share would be around 70% of league revenues. In a 48-game season, it might be more like 90%. With that as a starting point, eventually agreeing to a pro-rated number for this first shortened season might seem like a huge concession. Remember the league’s first proposal, which was completely unreasonable? Well, so is the idea of a non-prorated amount for year one, aka. making the owners responsible for the losses incurred by the lockout.

After this week’s proposal, NHLPA head Donald Fehr sent a memo to the players, informing them that the owners had declined their offer. In it, he said “Under our proposal, it is now undisputed that the gap is only $182M over 5 years.” Since then, many respected journalists have parroted that statement, yet NHL Commissioner Gary Bettman has said that the two sides are still far apart. You can see why they’d disagree, given the numbers above.

All of this leads me to wonder why the NHLPA has been so set on fixed numbers rather than percentages. I suppose it could just the year 1 issue, but I don’t think so.  I think that the players think the current rate of growth of league revenue is unsustainable, thus they’re better off locking in some numbers rather than allowing their share to float up and down along with league revenues. So, in part 2 (coming soon), let’s take a look at revenue growth, the myth and the reality.

Pass or Fail – Bure to the rafters in Vancouver

On Monday, the Hockey Hall of Fame finally did what they should have years earlier, in admitting Pavel Bure.  Bure was one of the most exciting players in league history, but had his career cut short by injury, which, presumably, is why they made him wait six years.  He finished his career with 0.623 goals per game, third among the 100 highest goal-scorers of all time, behind only Mario Lemieux and Mike Bossy.  Suffice it to say, he loved scoring goals, and he did so better than almost anyone else, during an era in which other players were allowed to waterski behind him to slow him down.

Monday’s induction kicked off a fresh round of debate as to whether Bure’s number should be retired in Vancouver.  For a time, Bure was one of the most-loved Canucks ever.  From his first shift against the Jets, he lifted fans out of their seats.  For the first time ever, the Canucks had a star, and Vancouver fans could hardly believe their eyes.  In his second and third seasons, Bure scored 60 goals, proving him an elite talent, and it appeared that the best was yet to come.

Then came the 1994 playoffs, and with a 2nd-overtime series winner against the Flames in the 1st round, Bure became a legend.  His 2nd-round flying elbow on Shane Churla made it clear he wouldn’t take any crap from anyone, and had the Canucks won game 7 in the Stanley Cup Finals, Bure could have run for mayor.

What happened instead was a series of rumours that Bure, whose agent had been renegotiating his contract, had threatened to pull himself out of the lineup during the playoffs (something GM Pat Quinn publicly and vehemently denied).  Ultimately Bure signed a new 5-year deal, but he later admitted he had already asked to be traded.  It’s never been clear why Bure wanted out of Vancouver, though it’s commonly thought that he felt mistreated by Canucks management.  It might have been reasonable for him to feel that way – GM Pat Quinn, while generally an honourable sort, has been accused of a number of less-than-friendly tactics, and there’s enough smoke that there must be some fire.

Then came the 1994 NHL lockout, after which Bure held out for 4 days and eventually sued the team, over a claim that his contract was guaranteed to be paid even during a lockout.  It can’t be a good situation to be playing for a team that you’re also suing, and the shortened season wasn’t among the best for either the team or for Bure.

Before the 1995-96 season, Bure changed his jersey number from 10 to 96, then tore his ACL.  The following season he played through a neck injury and his point totals suffered.  In 1997, he switched back to #10, and his point totals rebounded – he finished the year in 3rd place among the NHL’s scoring leaders.  But another report of a trade request proved accurate, and Bure chose not to play again for the Canucks, finally forcing a trade to Florida for Ed Jovanovski and some spare parts.

I tell that whole story to illustrate that it’s fair to say that Bure’s time in Vancouver was a mixed bag.  Ask some Canucks fans for adjectives describing Bure, and you’ll get “selfish” just as often as you’ll get “incredible”.  The way he left Vancouver has soured some on Bure, and that group of people would vote against retiring Bure’s number.  Some have even said that Bure wouldn’t want to attend a retirement ceremony out of fear that there would be as many boos as cheers.

So, should Bure’s sweater be retired?  The arguments for retiring Bure’s are somewhat obvious – he’s still 7th in Canucks team scorring, 5th in goals, 3rd in hat tricks, 4th in game-winning goals, 2nd in power-play goals, 1st (by a long shot) in short-handed goals, 3rd in playoff scoring, 2nd in playoff goals; he also had the most goals in a season (60, twice), and most goals and points in a playoff season, not to mention his leading role in the team’s magical playoff run in 1994.  He was the most exciting player in team history, and he was the person who turned many non-Vancouverites into Canucks fans.  In the 90s, if you saw a Canucks jersey outside of Vancouver, it was likely Bure’s.  Quite simply, Vancouver has never had a player like him before or since.

However, the arguments against retiring his jersey are also out there.  The way he left Vancouver is the one quoted most often – when a guy can’t wait to get out of Vancouver, it’s not hard to argue that he doesn’t belong amongst the team’s most revered players in history.  This argument is also the most petty.  It says nothing about the way he played or how beloved he was for most of the time he was here.

People outside Vancouver point to his career stats and the fact that he’s been inducted into the Hockey Hall of Fame, and say if he’s good enough to be honoured among the league greats, how could he not be good enough to be one of the top Canucks ever?  This argument has merit, but only to a point.  Bure spent only 7 of his 13 seasons in Vancouver, and had two of his best four years offensively while in Florida.  428 of his 702 games were in Vancouver, along with 254 of his 437 goals, but that also means that much of his career success came in Florida, and to a lesser extent in New York.  Compare that to Markus Naslund, who spent 884 of 1117 games in Vancouver, and scored 346 of 395 goals there.

There’s also an argument that can be made for the Canucks having some specific criteria for their retirees.  Each of the 3 who were previously honored were longtime captains and each was very involved in the community, to go along with team-leading career statistics.  Bure, on the other hand, was rarely seen in the community outside of Vancouver’s night-life scene – he preferred to make his statements on the ice, and as a young kid only learning to speak English, he was never comfortable as a spokesman for the team.

Personally, I have a different argument that gives me pause.  The Canucks, as a 41-year-old franchise, have 3 sweaters in the rafters of Rogers Arena already.  Few in Vancouver could argue with those choices.  And let’s be honest, if Daniel and Henrik Sedin finish their careers in Vancouver, theirs will go up as well, for many of the same reasons we see Linden’s and Naslund’s up there, bringing the total to five, or six if you include Bure.  Now, let’s just dip into fantasy for a moment – let’s say the Canucks win a cup or two in the next 5 years.  I have to think that would ultimately result in a couple more retirements – Kesler, maybe Bieksa, possibly Schneider depending on how the rest of his career goes and how long he stays in Vancouver.  Now you’re up to somewhere between 7 and 9.  Let’s compare that to the Detroit Red Wings, an original-six team with 11 cup wins.  They have six jerseys retired, soon to be 7 once they put Lidstrom’s up.  Does it seem right that Vancouver, with no cups and a 40-some year history, should have so many numbers retired?  At some point you have to hold the bar high in order to keep the totals from getting ridiculous.  Should Bure be above the bar? Arguably, yes, but you can definitely debate it.  Some would say that if it’s debatable at all, then there should be no debate.

Regardless of how you see it, it’s fair to say that it’s not a slam-dunk either way.  Most-loved or most-hated, or both?  It’s clear that he should be honoured in some way by the team, but is retiring his jersey the best way?  It’s been reported that Bure was offered a spot in the Canucks’ “Ring of Honour” but declined.  If that were true, then it would be jersey retirement or bust.  Tough call.

What say you?  Bure’s #10 to the rafters – Pass or Fail?

NHL Lockout – what are the goals of the league?

In my last post, I discussed the difference between positional and interest-based negotiation.  I also mentioned that I believed the NHL has been mostly using positional tactics, while the NHLPA has dipped somewhat into the interest-based mode.

I’m curious, what would happen if the two parties engaged a mediator who employed an interest-based mode, where the first step would be to explore the underlying needs and wants of each party before proposing solutions or terms.  What would be the underlying concerns for the owners?

I’m not in the heads of either the owners or the commissioner, but here are what I think are their primary motivating factors:

  • League Parity:  The league, in the person of commissioner Gary Bettman, has worked hard not to go back to the days where Detroit and New York had $70M payrolls while the Oilers and Predators tried to get by on $20M or so.  Fans in Edmonton can lament endlessly about star players lost for financial reasons, including Doug Weight and Jason Arnott (not to mention Wayne Gretzky and many of his 80’s era peers).  No-one I know wants to return to those days, thus the league needs a system where team payrolls are in relative sync with one another.  This is why they’ve stuck with a system which has the gap between the Salary Cap and Salary Floor at a fixed number ($16M under the previous CBA) rather than a percentage-based calculation.  From a certain viewpoint this appears ridiculous – in the first year after the last lockout, the cap and floor were $39M and $24M, but in 2011 they were $65M and $51M.  This resulted in some teams (Hello Florida!) overpaying for washed-up veterans just to reach the floor; for that reason I would also argue that this has resulted in salary inflation.  But, to be fair, this policy has also resulted in a different Stanley Cup winner each year of its existence, and no real excuses for teams to perform poorly – if your team is terrible, it’s because it’s terribly managed, not because of finances.  However, it has also resulted in teams being forced to spend significantly beyond their means.
  • Ability to make a profit in a variety of situations:  Most of the league’s owners are, at their core, businessmen.  To be fair, some of them seem to see their teams as rich men’s toys, but most of them are in it to make money.  This doesn’t seem unreasonable to me – they commit hundreds of millions to players and other operating costs, and they should be afforded at least some possibility of seeing a return on that commitment.  Some would argue that the profit comes when the team is sold for double its original price, but that’s only valid for someone who wants to flip a team – many of the NHL’s owners are longtime contributors to the league and have no interest in selling.  Others would say that the profit comes from parking, concessions, and other events in the building, but not every team owner also owns their team’s arena or has a beneficial arrangement to share non-hockey revenue.  With all of these different ownership circumstances, what sort of system would allow each team a reasonable opportunity to make a profit?  One “easy” solution that the league has proposed is to simply reduce across the board the percentage of their revenue paid to players, but the players have reasonably seen this as merely a way for the richest teams to get richer.
  • Ability to realize the benefits of growing their markets:  Imagine you’re a mid-market team that has done a great job to build your fan base and manage the on-ice product, and you’ve started becoming significantly profitable after losing money for a number of years.  Would you then want to give some percentage of those profits away to teams which have built perennial losers, or teams who overpay for washed-up players?  This is one of the major arguments against meaningful revenue sharing.  If you’ve done a good job managing your business, you’d like to think that you’d be able to realize the benefits.  Revenue sharing is an easier sell in the NFL, where their massive TV contracts and lucrative product licensing generate billions in centralized revenue which can be distributed evenly among the teams.  But the NHL is primarily a gate-driven league, where the most successful teams have spent years in some cases to build their markets.  The NHLPA would like to see more meaningful revenue sharing, and it’s likely that the NHL will agree to increase the pot somewhat, but it would be surprising to see significantly higher-levels of revenue sharing.
  • Ability to keep winning teams together:  In addition to an increased share of the revenue, the owners are also demanding changes to arbitration rights, a 5-year cap on contracts, and a delayed progression to unrestricted free agency, as they believe these terms will help control escalating salaries.  The players have asked “If we’ve agreed to a 50/50 split of revenue, why do you care how it’s spent? Why are you so hung up on contracting terms?”  The answer to that question is best illustrated by looking at the Anaheim Ducks during the summer after their cup win.  The Ducks won the cup in 2007 with a team loaded with some strong defensive veterans and a youth-filled forward core.  Their line of Ryan Getzlaf, Dustin Penner and Corey Perry were all playing on their first contracts, and thus cost their team little in actual salary or cap hit.  Over the next year or two, GM Brian Burke would need to sign these three budding stars to their second contracts at a reasonable price in order to continue to challenge for future cups.  Then, out of nowhere, Oilers GM Kevin Lowe signed Dustin Penner to a 5-year, $21.25M offer sheet.  Burke was livid, and accused Lowe of destroying the notion of the “second contract”, ie. a few more relatively affordable years before the player cashed in with a contract that took him into his UFA years.  Since that time, Burke has been proven correct, though Lowe can’t shoulder the blame alone.  League GMs, in order to hold onto their top talent, have since given lucrative second contracts to many players which tie them up for years, sometimes at incredible cost.  To a certain extent, this has been exacerbated by the contract terms ceded to the players in the last CBA negotiations (negotiations which the owners supposedly “won”).  In order to sell a hard salary cap to the players, the owners agreed to loosen rules related to unrestricted free agency.  Prior to the last lockout, players could become eligible for Unrestricted Free Agency at age 31, but the last CBA allowed players to become UFAs at age 27 or after 7 years of NHL service (keep in mind that some elite players start in the league at age 18).  Now, in order to keep an elite player, owners would have to open up their wallets.  But what happens once you’ve committed huge portions of your salary cap to a few elite players?  The rest of your team becomes disposable and interchangeable.  You know who your top line and top 2 or 3 defensive will be, but beyond that you have to look for bargains every summer.  Fans who used to identify with the 2nd-line supporting cast and 3rd-line grinders now see them move on to another team after a year or two.  The owners would prefer to see a more organized distribution of money, where elite players can still be paid what their worth, but perhaps a bit later in their careers (and paid for performance rather than potential), allowing supporting players to stick around a bit longer.
  • Fewer loopholes:  NHL Commissioner Gary Bettman appears to hate loopholes, and wants them closed or at least significantly tightened.  Truthfully, this is not an underlying reason, but to be honest I haven’t determined precisely why Bettman has pursued this so doggedly.  Most of the loopholes involve finding creative ways to circumvent the salary cap.  One such loophole has seen Wade Redden playing in the AHL for the past 2 years.  Redden was good enough to play in the Rangers’ top 6 defencemen, but with his $6.5M cap hit they’d rather use the money somewhere else – thus, they assigned him to the AHL, essentially burying his cap hit in the minor leagues.  Another loophole comes in the form of so-called “back-diving contracts”, contracts with big dollars in the early years, and smaller salaries in the last few years, keeping the salary cap somewhere in between those high and low numbers.  The trick here is that some of these contracts seem to go well beyond the point where the players might reasonably be expected to retire, thus forfeiting the lower-dollar years – this effectively allows a team to pay a player more than his cap hit would otherwise indicate.  In fact, Bettman has generally said that he wants to eliminate all long-term contracts, even those without the back-diving provisions, as changing circumstances might make those contracts eventually seem much less reasonable than they seemed when they were signed.  I would put most of these contract situations in the category of “saving the owners from themselves”, ie. reducing the ability for teams to get themselves into financial trouble, and in fact that might well be the underlying reason for the league’s desire to close these loopholes.

I’m sure that there are more factors which are important to the league and its owners, but I believe that these 5 main interests account for the majority of the league’s behaviour to date in these negotiations.

What good is it to know these underlying reasons?  Perhaps not much.  However, it might help one to understand why the league has made some of the demands they have.  And, if a mediator were to step in at some point, perhaps some brainstorming would result in some new ideas for solving the league’s problems.  Wishful thinking?  Probably, but I’d sure like to see what would happen.