Over the next few weeks, The Business of Hockey’s Mike Colligan and Jeff Angus of Angus Certified will make sense of the most pressing issues facing the players and owners in this summer’s CBA battle.
Today’s topic: How should revenues be split between the NHL and NHLPA?
MIKE COLLIGAN: Well, Jeff, the first shots have been fired by the NHL. According to numerous reports, the owners are calling for sweeping changes to the CBA that should perk up the ears of the NHLPA and their chief Donald Fehr. Among the proposed changes, owners want to slash the players’ share of Hockey-Related Revenue from the current level of 57-percent down to 46-percent.
For comparisons sake, the NFL players just agreed to receive 55-percent of national media revenue, 45-percent of NFL Ventures revenue, and 40-percent of local club revenue. The new NBA deal offered players 51-percent of basketball related income this year and between 49 and 51-percent in subsequent years.
The knee-jerk reaction is to assume the NHL and NHLPA will settle somewhere around a 50/50 split, but that would still be quite a setback for a players association that made massive concessions in the last round of negotiations in 2005. With this issue having such a large financial impact and Fehr now steering the ship, should we expect the players to dig their heels in at 57-percent?
JEFF ANGUS: I don’t think the players will dig their heels in at the 57-percent mark. I wouldn’t put much stake in the 46-percent number either. It is the opening of negotiations. Start at your end point, and work towards a bargaining zone. Both sides know that the league has been doing very well since the last lockout, and wouldn’t waste an entire season unless there were once again strong philosophical differences.
Looking at other leagues, the share of revenues for the players in the NHL appears to be high. The NHLPA made significant concessions in 2005 (salary rollback and the implementation of a salary cap, to name two), and I don’t expect them to do so under the strong leadership of Donald Fehr.
However, Fehr likely recognizes that the 57-percent number is high compared to other sports. I’d expect a settlement somewhere in the 51-53-percent range once things are all said and done. The players will likely try to use the decrease in share of revenue as a bargaining chip for something else. The NBA’s short-lived lockout last fall was fought over largely the same issue – the players had a large share (close to 57 percent) and the owners wanted to reduce it. The two sides ended up agreeing to a near-even split.
Since the lockout, hockey-related revenues have increased from $2.1 to well over $3 billion. The league is doing very well, and the players can use this as ammunition for the owners who want a larger share of revenues.
And don’t forget – a drop from 57 to 46-percent would concurrently drop the salary cap upper limit from $70 million to $56 million. The way teams have operated this summer seems to fly in the face of expecting a $14 million salary cap decrease.
Your move, Mr. Fehr.
COLLIGAN: Earlier this summer, I heard from executives at two teams that said they expected General Managers to operate as if there wouldn’t be a major drop in the cap. Players certainly weren’t going to argue against reckless spending, and the thinking on the General Manager side was that any large changes would need to be accompanied by salary rollbacks and/or penalty-free buyouts.
Like you said, Jeff, league revenue has been growing at record levels almost every year under the current CBA. I’m just not sure NHL owners need the large drop in the revenue split that we saw in the NBA to remain successful as a whole. Does that make them less desperate and more willing to compromise?
ANGUS: I don’t think the owners could ever be classified as desperate, but they definitely don’t need to have the players receiving only 46% of HRR. Another note – Many NHL owners are willing to sacrifice the first few months of the season. Why? They compete directly with MLB playoffs, the NBA, and NFL during that time. They figure they can perhaps get the players to make concessions. With Fehr in charge, I personally don’t see that happening.
COLLIGAN: I can remember at this time last year, NBA commissioner David Stern was telling anyone willing to listen that the system was broken, 22 of 30 franchises were drowning in red ink, and there needed to be significant changes in order for the league to survive. Stern and the owners were obviously exaggerating a bit, but there were definitely problems that had to be fixed.
From a league-wide perspective, I think the NHL is in better shape. Sure, there are about a dozen franchises in some recent state of ownership flux or concern, but I have trouble taking all of the distress calls seriously. A (very) small-market team like Columbus spent $61 million in player salaries last season (cap was $64.3m) and then complained that they were losing money hand over fist?
Revenue sharing tools are in place to help the small-market teams stay financially viable. If ownership groups want to dig into their wallets and spend to the cap, that’s their choice. But it’s tough to turn around and complain about a broken system just because your high-priced team misses the playoffs.
ANGUS: Teams like Columbus may not personally generate enough revenues to break even or make a profit if they spend to the cap (or above the floor), but they are receiving money from the likes of Vancouver, Detroit, and Toronto to make sure they aren’t losing it.
I agree – a lot of the owners look hypocritical. Another thing working against them: the short and long-term nature of sports. Many GMs know that they won’t be in their jobs for more than five or six years (or at least they know they aren’t guaranteed to have job security). Where is the harm in giving a player a 10+ year deal? Even if he only performs above the contract for the first few years, it will probably end up being someone else’s mess.
COLLIGAN: Overleverage, spend recklessly, then walk away and leave the mess for someone else to clean up. Sounds reminiscent of the world economy a few years back, no?
There’s one important element we haven’t addressed yet though. What makes up Hockey-Related Revenue?
Under the current agreement, HRR is basically composed of anything directly or indirectly related to games or other NHL-related events: ticket sales, parking, concessions, broadcast rights, advertisements and sponsorships, to name a few.
The biggest items excluded from the current definition of HRR relate to struggling franchises. The players never saw a dime from the $60 million Atlanta-to-Winnipeg relocation fee last summer. They wouldn’t share in the proceeds from any expansion fee, which some estimate could exceed $200 million in a place like Quebec City or Hamilton. The NHLPA even contended that the $25 million Glendale paid to the NHL to operate the Coyotes last year should have been considered HRR.
You can bet the players will want these items included in the new agreement, and who knows what the owners want to exclude from the current formula? The players and owners can debate all they want over a percentage, but it doesn’t matter if they aren’t talking about the same pie.
ANGUS: Although the revenue split is the most important issue in the CBA negotiations, I don’t see it as the one to lead to a lockout. The league is doing well, and both sides are making lots of money. They just need to keep the negotiations professional from both sides.