Sunday, December 09, 2012

Union: Yes! Why I Support the NHLPA

Before I take your questions, I think a bit of background is in order. During the 04-05 lockout, I backed the owners. Given the financial situation at the time, a cap didn’t seem to be such a terrible thing to me. By linking the cap to revenues, it also gave the players a financial interest in the health of the game and the league. In return for taking a 24% pay cut and the limitations on the cap, the players got to enter free agency a bit earlier. Overall, it worked out pretty well for both sides – revenues jumped 50%, average player salaries tripled, and the league had (finally) gotten an American TV deal. Sounds great, right?


It turns out, the league is in serious financial straits. Worse than ever. Some clubs are on the brink of collapsing. Well, if you listen to the league from July onwards, that is. Before July, Gary Bettman crowed about “another record for revenues for us (the league)” and “record ad sales, record sponsorship activation”. Go ahead, read it for yourself. 

Accordingly, the league decided that the only way to assist the clubs in need was to cut player salaries. Again. The first offer from the league was a blatantly insulting reversal of the 43-57 split, along with the elimination of arbitration, lengthening the time to free agency and limiting contracts to five years and a 5% variance on a year-to-year basis. Oh, and if the players didn’t accept it, they’d be locked out.

And this is why I’m backing the players this time. The league was doing just fine under the last CBA, but the owners got – in my mind – greedy. They wanted more, and decided that they’d just wait out the players again until the NHLPA caved in. Just like the 2004-05 lockout. It seems to be irking ownership that Don Fehr, the NHLPAs executive director, seems to have prepared the players for the eventuality of a lockout ahead of time. Overall, the players are pretty sure of themselves, and you’re not hearing near the grumbling that was heard during the last lockout. For the owners, this is bad news. They had expected for a division in the ranks, to be able to starve out some players in an effort to break the PA. It isn’t happening, and many are not happy about this.

I’ll take your questions now.

Forbes Magazine says 18 teams are losing money, smart guy. What do you say to that?

I have two things to say about the Forbes lists. First, they aren’t accurate. Also, according to the latest list, we’re down to 12 teams losing money. With that in mind, I’m going to send you to read this very good article about just how Forbes is missing the mark. (You should also follow @mc79hockey on Twitter. He’s a smart fellow).

The second point I’d like to make is a business lesson I learned very early in life: Get. A. Good. Accountant.

For instance, the movie “Harry Potter &  the Order of the Phoenix”? It took in over $1 billion in revenue. It also lost money – over $165 million. Go look and come back when you’ve picked your jaw back up. Is it really that big of a stretch to think that maybe, just maybe, those savvy billionaire owners just might engage in legal and legitimate, yet loss-producing accounting tricks? They didn’t get to be billionaires by not taking every advantage there was. I see no reason to assume that they would not attempt to massage the numbers to create a more advantageous tax situation for themselves.

That being said, accounting trickery can’t cover all the losses. I fully acknowledge that there are teams that are in trouble. Of course, in many of those instances it is poor business decisions combined with poor hockey decisions creating a vortex of suck. Of the 12 teams on Forbes list that lose money, you could safely remove San Jose, Washington, Nashville and Minnesota. That leaves eight teams that might be really losing money.

You’ll also note that the notion of revenue sharing amongst franchises hasn’t really been a big deal in these negotiations. That would mean that the owners would have to learn to share, and they don’t seem terribly keen on doing that. I know there isn’t the same pie to divide as in the NFL, but if the owners are so worried about the health of the league and these other franchises, maybe they could help shoulder some of the load? Maybe each team puts 10% of revenue into a pot, and then re-divide it out to each team? Teams at the bottom would gain some, teams at the top would lose a bit. (No, I haven’t run these numbers. I’m brainstorming).

Well, yeah, but why shouldn’t the owners get 50%? Or more? It’s their money on the line if the team loses money!

Yes, the owners take the financial risk. They also take none of the physical risk. Let me know when owners need to worry about this. Or this. Or can no longer run their business because of post-concussion syndrome.

And I’m not sure about you, but I’m not going to games to see Mark Chipman square off against Charles Wang. The players are why fans go. Remove the starting six players from every team – send them to the KHL, say – would you be as interested? Or do you want to see the best. Seeing a hockey game is easy – the AHL did quite well here in Winnipeg. Seeing the best players in the world is why we want to see NHL games.

The players are also on the hook for any downturn in revenue, too, don't forget. The linkage between revenues and the salary cap means that if crowds suddenly took a dive, they feel it in their wallet, too. The money players put into escrow disappears, and they don’t see it again.

Yeah, well, the players should just be thankful they get paid so much to play!

Most players are. What I suspect most players aren’t too happy about are about are owners who gloat about record revenues in one month, then cry poverty in another. How’d you feel if your boss talked about how business was so great, they could buy that new Corvette they’d always wanted, then told you the next month that you needed to take a pay cut “due to financial shortcomings in the company”? Oh, and your vacation time and health benefits were being cut, too. Times are tough, y’know. You should just be thankful you have a job.

The other problem is, players aren’t just guys from your beer league. They are, as I mentioned before, pretty much the best 700 hockey players in the world. The elite. How well do the elite get paid for their services, as compared to us mortals in other professions? How about, say, businesspeople? Lucky for me, Forbes has a nice list of CEO pay. Spoiler: they make a lot. In the 5-yr. category, the lowest (of the 350+ that have a 5 yr. average), is VMWare’s Paul Maritz, who made a paltry $4.15 million, and is left holding another $4.6 million in stock. (Warren Buffet is the actual bottom of the 5-yr. list, by the way, having only earned $1.9 million in that time. The $44 billion in stock probably keeps him in beer and pretzels, though.) So, if we’re going to talk about being thankful for being overpaid for what you do….

Ok, fine. But the owners and GMs need those contract limits to prevent abuse!

I’m actually in agreement with you on this one, fellow reader! The first thing that happened after the cap was imposed was for GMs to find ways to get around it. Backdiving contracts being a favorite way to reduce the cap hit. Smart businessmen exploit loopholes to their benefit - remember what I said about accounting?

Where I disagree with the owners is both in term and variance. To address the latter, I’m more comfortable with the PA proposition of a 25% move from top to bottom over the life of the contract. That is, if the top value for a year is $10 million, there can be no year lower than $7.5 million.  It gives some more flexibility than the NHLs strict 5%/year offer, yet accomplishes pretty much the same thing – getting rid of the $1 million/year “bonus years” when a player is in their late 30’s (and unlikely to play) to balance the cap hit of the contract.

The variance alone would likely curb a lot of the ridiculous contracts that have been signed (looking at you Kovalchuk!), but for the contract duration, I understand why the players aren’t thrilled about five year terms (seven if it’s the current team). For guys with star potential, that kind of term offers no stability. I also think it does a disservice to teams, as they will be unable to lock up guys for the long term / career. How would you feel, as a Penguins fan, if Crosby bolted after seven years? Or worse, after five? I don’t think the eight year cap the PA offered was so terrible. As others have noted, there are less than 100 contracts that are longer than five years anyways. I think the players would even be amenable to a sliding scale based on age – that way you could lock up someone like Crosby to age 35 and not worry about losing them to another team.

Of course, I also think teams should be permitted one amnesty buyout (that is, not counting against the cap) per year to get bad contracts off their books. That serves two purposes – one, it gets an overpaid guy off the roster and frees up cap space to bring in someone who is worth that kind of money. Two, it allows the market to correct itself in a way, by taking a highly paid “comparable” out of play. The player would likely be re-signed somewhere, at a far more reasonable rate. To prevent abuse, I also think it should only cover contracts with three or more years left on their contract.

But Donald Fehr is just in this for himself! He doesn’t want to make a deal!

Donald Fehr is no Bob Goodenow, I will give you that. For the players, that is a good thing. As I mentioned before, I believe Fehr told the players from day one that a lockout would be coming, and to plan accordingly. It follows the Gary Bettman School of Negotiating – make an offer (your “best”), add an ultimatum, and wait. Fehr just happens to be willing to play chicken with Bettman, and I think it is driving Bettman crazy that Fehr and the players aren’t backing down. The “best offer” in July has changed in the players direction on a monthly basis.

So it isn’t that Fehr doesn’t want to make a deal. He does. The players do want a deal. They just want a deal they can live with. Right now, Fehr is staring Bettman down and getting the owners to come back to the middle. I suspect that we will eventually see a deal and a portion of this season, but it won’t be the deal the owners originally thought they would get, that is for sure. The reason for that is Donald Fehr doing his job – standing up to the owners and ensuring that his constituency (the players) is prepared for what is going to happen.

Right. Fehr wanted the deal from this past week to fail. I know it!

No. The owners insistence on three different items being absolutely non-negotiable caused the talks to fail. Their hardline stance on contract length, variance and CBA term caused the failure. Fehr said the money was agreed on, which is a huge deal. And no, I don’t think Fehr was lying about that. If the money wasn’t agreed on, he would have used terms like “very close” or “in the neighbourhood”. Something that wouldn’t be a lie, but may not have been the precise truth, either. Saying there was agreement between the two sides mean just that – that they had agreed on the financial issues.

For the NHL to walk, rather than negotiate from the PAs counter-proposal is appalling. The league didn’t like the 8 year CBA (option to get out at 6)? Why not come back with a 7/9 offer? Or just eight years, with no option? And shave a bit of the “make-whole” money based on the term. See! That is negotiating. It really is that easy! The PA offered 8 year contracts? Maybe the league could have said six, with one year bonus for home team re-signings. That is why we don’t have a deal, my friend. Because Bettman can’t actually negotiate. He only gives ultimatums. When he doesn’t get a yes or no, he runs off again to prepare his next “best offer”.

My fingers are getting tired now. I may be back for a second Q&A, if this lockout drags on. Drop more questions in the comment section below.

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