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NHL Lockout: do not resist – the league needs this

Written on September 15, 2012 at 12:41, by HTTN

Look, no one wants a lockout. Owners, players, fans — everyone wants the NHL back as soon as possible. Problem is, too many teams were struggling under the expiring CBA.

According to Forbes Magazine, 18 of the NHL’s 30 teams lost money during the 2010-11 season. Things need to change, and until the players are willing to accept this, a lockout needs to happen.

The faulty CBA

Let’s start by stating that the goal of the 2005 CBA was to restore competitive balance in the NHL by creating greater parity. A league in which all teams have a chance to win is a healthier league overall.

Fact is there are and always have been a number of teams in the NHL are simply not on equal footing as others. They have a smaller fan base, lower box-office sales, lower merchandise sales and a smaller broadcasting deal — meaning they have a ton less incoming cash to build their teams with.

The goal of the 2005 CBA was to place a limit on how much each team could spend so the rich teams would not “buy championships,” while the poor teams watched and served as doormats. Did it work? This is what has happened since:

1. The well-off teams have had a ton of success, and have driven league-wide revenues up.

2. As revenues grew, the salary cap and floor have been inflated.

3. As a result, the poorer teams have been forced to spend more.

Also:

1. Teams looking to sign big-name players had to add value without messing up their internal cap structure, so they used longer contract lengths to entice them.

2. Rich teams played this game with no issue (see the Luongo deal), while poor teams were forced into it to stay competitive, or hoping a big name could revive their brand (see Kovalchuk or Weber).

Many NHL fans, and certainly the players, are angry at the owners for forcing yet another lockout so quickly after the last one, especially since they got the salary cap they wanted. What you must realize, though, is the salary cap they have now is not what they wanted.

When “more than half” of the teams in a league are not thriving financially (according to Bob McKenzie), something needs to change.

A new CBA

-The salary cap needs to be reduced, and more importantly, the salary floor, so more teams can be financially viable.

The players would argue that if the Rangers simply took a portion of their massive revenues and donated it to the Blue Jackets (and so on) everyone would be fine. But if you own the McDonald’s in Times Square, you’re not donating any portion of your massive profits to a fledgling McDonald’s in Esquimalt, BC.

-Contract lengths must be capped at a certain limit, so rich teams cannot offer absurd amounts of term, forcing poor teams to match.

-The definition of HRR should change to include more of the owners’ expenses such as arena improvements and the cost of selling luxury suites, because these improvements benefit the players and the bottom line.

What’s next

At the moment, the players are nowhere near accepting a pay cut or any of the other concessions I’ve listed above. If they won’t listen now, maybe they will after they start to miss their paycheques.

As hockey fans who don’t care about all this money business and wish they’d just get back on the ice, we must accept that in order for the NHL to have long term success, the CBA needs to be fixed.

If we don’t want to see another lockout in six years, we need the problems to be solved this time around.


  • Rw11je

    I’m sorry but HRR, has to do with REVENUE and NOT expenses (aka costs), so what you are saying in this paragraph 
        “The definition of HRR should change to include more of the owners’ expenses such as arena improvements and the cost of selling luxury suites, because these improvements benefit the players and the bottom line.”
    does not make sense.  
    Here you are talking about hockey related profit (HRP), however you cannot have players salaries tied to HRP, as player costs factor into hockey related expenses.  (Profits = Revenue – Expenses)
    The bottom line players salaries are tied to HRR, which has zero to do with expenses.  If you want a to redefine HRR, eliminate some of the revenue indirectly tied to hockey, but don’t add expenses. (eg eliminate revenue from parking if the team owns the parking lots.) 
    Just some basic economics for you.

  • Anonymous

    You have proven that you’re very good at being condescending, but clearly you don’t know what you’re talking about. To see a breakdown of what the owners were originally asking for in their redefinition of HRR, check out Elliotte Friedman’s post here: http://www.cbc.ca/sports/hockey/opinion/2012/08/nhl-proposals-to-change-revenue-formula-would-be-significant.html

    HRR are not Gross Revenues, or any other conventionally defined term. The CBA defined HRR.

    Just some knowledge for you.

  • Rw11je

    Well I’m sorry.
    Thanks for the Friedman link.

  • nucklebucker

    Hockey teams are nothing like MacDonald’s franchises.  In a typical franchise, each owner  must make their own money to stay afloat.  In the NHL, southern expansion is a long term plan, largely meant to increase the value of the other franchises (ie. Philly, TO, Van).  Thus it is up to the league (the other teams) to keep these teams afloat.  

    Other leagues understand and do this.  The NHL understands this, I can only presume.  However they want to see if they can get the players to pay for it.  Can’t blame them for trying.  However, I can blame them for locking out the players over it when play could go on.

    I think that it’s more about Bettman covering his failures than anything.  Southern expansion hasn’t turned profitable in many markets and the Coyotes have bled the owners money.  If he can squeeze this money out of the players, he saves his skin, so he convinces the owners that it’s attainable.

    The fact is, the salary cap is indexed to revenues, so an increasing cap shouldn’t be a problem–its just about a suitable distribution so that weak teams can afford the floor.

  • Anonymous

    Good comment and good argument. You’re right, if enough revenue is shared by the rich teams to the poor teams, it might fix all the problems. The question is, is that the right solution? If 18 NHL teams lost money last season, it would mean that a minority of teams are generating revenue and would be supporting the rest. Clearly this isn’t a sustainable business model and it’s not how it should work.

    Don’t get me wrong – revenue sharing does have to be part of the plan. The players have made it look like the NHL wants no part of it, but really, they’re increasing revenue sharing in their new proposal by about $40M over last year. 

    Seems to me if both sides give a little – players give back some salary, rich owners give back some revenue – everyone will be happy and this will be a sustainable business.

  • nucklebucker

    I hate to have a one sided opinion about things but this seems pretty one sided to me.  
    I’d be pleased to be convinced otherwise.  So please convince me otherwise.  Here’s a few arguments on the players side awaiting a decent rebuttle:

    First, the money scenario goes something like this: your boss comes to you and says, “Look Johnson, things are going great around here, we’re making record profits and you contributed to that.   But it seems that a few departments aren’t bringing in much.  Sure we didn’t expect them to but the point is the other departments are going to have to carry them …  oh, sorry did i say ..uh… what i mean is that you are going to have to carry them.   Johnson, your and your co-workers are going to have to take a pay-cut.   And your benifits packages have to go too.  Buck up, Johnson, we’re making a killing around here.  And keep up the good work.”

    The idea is that the teams and the players are partners in growing the game–the game wins, everyone wins.  Yet when the NHL is making way more money than ever before and seeing crazy growth, the players have to take a pay-cut?  Huh?   I haven’t heard a good reason as to why.  the usual tactic in labour relations (in the real world, not sports) is for companies to plead scarcity (real or fabricated).  Though feigning scarcity is hardly believable after they brag about how much money they are making.  The reality is that the cap was set up (favorably for the owners) to work for the teams so that if the money goes up, there is lots to go around.  It’s just a matter of it going around.  

    So on the topic of money going around, I’ll respond to your comment on revenue sharing.  First, a few don’t need to be supporting the rest.  It’s a question of structuring the revenue sharing in a way that works.  There is no reason that a few can’t support a few and the rest be good on their own.  Revenue sharing should incentivise success while supporting teams that need it.  It needs to be noted that a some of the money that the rich teams get is due to the existence of poor teams (TV deals need the geography or they are way less lucrative).  Baseball has huge revenue sharing and labour stability and it all seems pretty sustainable (no lockouts anymore).  And that’s without a cap.  With a cap, the sharing should be much reduced.  
    Interestingly, without significantly increased (way over 40M) sharing, the weak teams become an unfair way to drive down player’s share and thus the league has a huge money incentive to have losers–talk about not sustainable.

    Okay, I know this is already blog-long but last thing: the negotiation.  
    We all want to consider ourselves reasonable people.  Reasonable people know that there are multiple perspectives to any story.  If one person argues ‘black’ and another argues ’white’ the truth is often grey.  But if they argue about the colour of a crow, the damn thing is black.  
    Another analogy:  I’m selling a car for market value: 5000$.  Someone offers me 20$.  I tell them 5000.  He offers 30.  I say 4900.”  ”35.”  I say no.  He says “c’mon, man, 40 bucks I’ve doubled my offer, don’t be a cheapskate.”  I say “bye.”
    Obviously that’s a bit silly but I haven’t heard a good reason why owners should increase their share at the expense of the players (they are already hugely increasing their profits).  Had the players opened the process with 65% and acted magnanimous by looking like they might settle for 60%, we’d all be saying that’s fair.  
    Everyone likes the 50/50 number because it sounds fair but that has no basis in reality.  They aren’t remotely equal parties in what they bring to the table.

    I personally think the old CBA wasn’t perfect–I’d like to see the long contract die and a few other things but overall it was quite fair and the structure was good (cap based on % of HRR), even if it means that players make under market value (the market is mad, anyways).  Squishing players into the cap system is one thing but doing it and then using it as a lever to squish them everytime (we can expect this to repeat) is just not okay in my book.  

    Sorry for the novel.  I suppose I had to get a few things off my chest.

  • Anonymous

    Another well thought out comment. I don’t like how you’re saying, if it’s black, it’s black. It’s not.

    Here is an important fact: there are 3 major groups: money-making owners (small group), money-losing owners (larger group), players. 

    Another fact: the cap was put in place to provide “cost certainty” – Bettman’s words. He meant that with the cap, contract costs cannot skyrocket past the point where poorer teams can compete with richer teams. Without saying why it has happened, we can both agree that the poor teams don’t have the cost certainty they thought they were getting. 

    We also agree that the expiring CBA needs some tweaks because 18 teams should not be losing money. Personally, I’m not sure siding with either side’s position is the answer. Problem is they’ve dug in their heels so deeply that neither will move. 

    We can be more objective, though. What do the sides want? 

    Players: contract certainty – they hate having this potential contract reduction over their heads every few years. They’d like to keep the money they have signed for, and they’d like them to be fair.

    Poor owners: more money + cost certainty – they don’t like being forced to spend so much, and having to compete with behemoths who can offer massive 10 year contracts.

    Rich owners: they’re pretty happy. They’d like to keep the money they’ve earned by running good businesses. They also want to see the other teams able to compete, because, like you said, it helps them too. 

    When talking about solutions, your example of the department store is not great because there are multiple owners here. If each of a store’s departments had a separate owner who had to somehow cooperate with the others for everyone’s success, it would be more accurate. Of course a department making tons of money would be loath to share with a poor, money-losing department. 

    So now, here’s what we have: 3 sides, each with it’s own needs, and we need to find a solution. If I’m an arbitrator, I try to think up solutions that will satisfy all three parties. The first thing you must realize is all of them will have to make some sort of concession. 

    Solution ideas: 

    - Owners should offer a longer CBA this time, giving players more certainty in the contracts they sign.

    - If players agree to a lower percentage of HRR, and a potential pay cut, it should only apply to future contracts. It can apply to the cap hits of currently signed contracts (so everyone makes it under the cap), but players should still get the money they signed for. (Ovechkin has a point, why did the owners sign those contracts if they didn’t want to pay them)

    - Cap should be set at such a mark where at least half the teams would be able to pay its players even without revenue sharing. (Not sure where this is, but surely it’s lower than what it is right now).

    Do you have any ideas?