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.