Sep 272012
 

It looks like the NHL and the NHLPA are in a stale mate in terms of the CBA negotiations.  As of right now the NHL is holding firm on its stand of limiting players to 47% of revenue and the players are holding firm on its stand of not wanting to see any roll back of salaries either through a negotiated roll back or through escrow though the players are willing to scale back the growth of player salaries.

When the CBA negotiations started outside observers believed a final resolution to the CBA would see the owners and the players split revenues more or less along the 50% line, not unlike the NBA.  The question is when and how long it will take for both sides to capitulate to those numbers.  While driving around in my car yesterday I thought up a more innovative solution that might appease both the owners and the players and it has aspects within the system that both the owners and the players could view as a “win”.

Under the old CBA players got a fixed 57% of revenue.  It really didn’t matter what was written on their contracts because their salaries fluctuated depending on revenues.  A portion of the players salaries as written on their contracts were withheld every year (the dreaded “escrow”) by the NHL and once final revenue numbers were calculated the NHL would distribute from escrow whatever money the players still deserved to collect according to the 57% revenue rule.  Players hated this, even if there was potential to earn more than what was written on their contracts in the event of significant revenue growth.

Under the old CBA the salary cap and floor was calculated as being $8M above and $8M below the “midpoint” which was calculated as 57% of the average team revenues.  So, if the league had a projected revenue of $3B for 30 teams (I am using $3B to make calculations easy, actual projected revenue for next year was closer to $3.3B), it would be an average of $100M per team and the players share, or midpoint, would be 57% of that or $57M.  This would make the salary cap $65M and the salary floor $49M.

The system I am proposing is quite simple and revolves around adjusting how the salary cap and floor are calculated.  Instead of having the midpoint at 57% of average team revenue we set the salary cap at 57% and the salary floor at 43% (as an example I’ll use the owners initial offer).  This would make the salary cap $57M and the salary floor $43M.  Teams sign players according to those constraints and the numbers written on the players contracts are their actual cap hits.  If every team spends to the cap, which they won’t, the players could theoretically earn a 57% share of the revenue.  If teams individually choose to spend less, they can.  The more teams that choose to spend below the cap, or even right down to the floor, the players share of revenue will drop accordingly.  If every team chose to spend only to the floor, the players would earn just a 43% share of revenue.   In reality the players share will probably end up somewhere in the middle, in the 50% range, sometimes more, which the players might see as a “win” and sometimes less, which the owners might see as a “win”.

Under this system, escrow is not needed as players salaries aren’t explicitly tied to revenues, only the salary cap and floor are.  A player with a contract that will pay him $6M will have a salary cap hit of $6M and will get paid $6M, no more, no less.  Eliminating escrow is a win for the players.  Linking the players actual salary, and not their cap hit manipulated front loaded contracts, to their salary cap hit improves competitive balance which is a win for the owners, and the fans.

Under this system there will be no more long term front loaded contracts because the players actual salary in a given year is what is used as the cap hit, not the average salary over the term of the contract.  There would be no benefit to tacking on several years of $1M salaries as it won’t reduce the players cap hit in the early years.  This is a win for the owners, particularly the small market owners who couldn’t play that game.

I’ll also propose that every player earning an NHL salary (i.e. playing in the NHL or are on NHL one-way contracts) will count against the salary cap.  This includes players that have been demoted to the AHL like Wade Redden.  This also eliminates some of the big market advantage which improves competitive balance.

I’ll also propose significantly more revenue sharing, more along the lines of the players proposal.  If the owners are serious about competitive balance and 30 financially viable franchises significantly increased revenue sharing is the only solution to that.

There are a number of transition issues that will need to be resolved like how to transition from a $70.7M cap system to a 62.7M cap system and what to do with existing players on heavily front loaded contracts who will now see their salary cap hits rise dramatically as their front loaded salaries will now become their salary cap hits.  These can be negotiated and can probably be achieved through a 2-year transition period where escrow still exists but there is enhanced flexibility with regards to the salary cap.  Some of the teams that have significant numbers of front loaded contracts (i.e. the Flyers) may still have long term cap issues (that they will be forced to resolve) but too bad for them.  It’s their own fault for manipulating the system like they did.

When all is said and done, I think this system is a good one for both the players and the owners and the fans.  The players still definitely see a hit to their share of the revenues (they certainly won’t be earning 57% any more) but they get rid of escrow and there is still some upside potential to earn more than a 50% share if the league is able to develop 30 financially viable franchises.  The owners see the players share of revenue fall (if they so choose) possibly even down to the levels they have asked from the players.  With greater revenue sharing and eliminating the benefits front loaded long term contracts the small market owners will be the big winners which improves competitive balance which is something the league has identified as being good for the game.  The fans win because of the greater competitive balance, but also because I think the system is something that could work long term for the league and the players and hopefully eliminate the need for any future work stoppages.

It sounds like a win-win-win to me.  Now lets get it done and lets get back to hockey.

 

Sep 212012
 

There is an article in the Globe and Mail today discussing the possibility of the NHL expanding to 32 teams, and more specifically Seattle being one expansion possibility.  To many expansion seems counter intuitive considering there are a lot of teams that are already in financial distress that can hardly keep their heads above water as it is.  Some people are actually suggesting contraction is the much better option and on the surface that makes sense.  At least to us the fan.  Drop off the weak teams that can’t support a strong fan base and in the process improve the average talent level among the remaining teams and presumably make the product more enjoyable to watch.  The thing is, from the owners perspective that is the completely wrong way to solve the problem of weak teams.  The solution is rather, bring in more weak teams and collect a hefty fee while doing so.

Let’s put aside the fact that the owners will probably collect $300-400M, possibly more, from expansion fees to say Seattle and Quebec City and lets take a look at the impact such an expansion will have on the financial viability of the other weak teams in the league.

The 2012-13 league wide revenue is/was projected to be $3.3B, or about $110M per team.  But, a sizable portion of that revenue (National TV contracts, league licencing, etc.) is not team generated but league generated.  Let’s suggest that that amount is a mere $300M to make some numbers easy (it is probably significantly higher).  This would make team generated revenue $3B or an average of $100M per team.  Some teams most certainly bring in closer to $150M in revenue and maybe more, the weak teams probably bring in closer to $50M, maybe less.  Lets, for argument sake, suggest the NHL expands by 2 teams that are in markets that will generate slightly below average revenue.  Say $75M/yr.  Now, let’s crunch some salary cap numbers using the old CBA where the players get 57%.

At $3.3B in league revenue, the revenue per team average is $110M and the players allocation is 57%, or 62.7M which makes the salary cap $70.7M and the salary floor 54.7M.

Now, if we add in to $75M revenue generating teams the league-wide revenue rises to $3.45M but the team average revenue falls to 107.8M.  57% of that comes to $61.45M making the salary cap 69.45M and the salary floor 53.45M.

Expanding to 2 smaller markets just caused the salary cap and salary floor to drop $1.25M which essentially cuts the expenses of weaker teams such Coyotes by $1.25M per year.  That is not insignificant to a team losing money.  If you were a salary floor team you can cut your player expenses from $54.7M to 53.45M, about 2.3%, all while collecting $10-15M (per existing team) in expansion fees.  On top of that, you can do it without making the NHLPA mad because the NHLPA will be all for expansion because it means more jobs for them.  The only complaint the NHLPA may have is, why not expand to a big market like a second team in Toronto.

Now, the only loser in all of this is us, the fans.  We get a more diluted product and potentially more diluted rivalries (likely fewer games and less chance of playoff meetings against true rivals) but since when did the NHL ever care about the fans more than the dollars.

 

Sep 042012
 

Last week the NHL CBA negotations too a turn for the worse as both sides basically agreed to disagree and have temporarily walked away from negotiations.  Despite that I am still reasonable optimistic that there will not be a lock out or work stoppage anywhere close to as long as the 2004-05 lost season and I believe that any lockout will be measured in weeks and not months.  The reason is, the NHL is not losing money this time around as they were in 2004-05 and if there was a lost NHL season there would most certainly be significant lost profits at the hands of the owners.

If you recall back in 2004 the NHL hired Arthur Levitt to take an independent look at the financial state of the NHL.  You can read the report here but basically Levitt concluded that the NHL lost $273M on $1.996B in revenues during the 2002-03 season.  He also concluded that the players salaries worked out to 75% of total revenues during the 2002-03 season, or $1.494B.  With that knowledge, let’s crunch some numbers.

If total revenues were $1.996B and player salaries were $1.494B and total losses were $273M that would mean that non-player salary expenses totaled $775M.

The projection for the 2012-13 season was that revenue would be about $3.2B and under the old CBA agreement players were to be owed 57% of that, or about $1.824B.  The 43% that the owners get to keep would amount to $1.326B.

So, at this point we have the NHL owners share of league revenues totaling $1.326B and in 2002-03 non-player salary expenses totaled $775M.  Assuming no inflation in those non-player salary expenses and we have the NHL posting a league-wide profit of about $551M.  That is over a half a billion dollars in profit.  Of course, in the 10 years since 2002-03 non-player salary expenses have probably inflated as well.  I don’t know what the average inflation rate has been over the past 10 years but I suspect it is in the 2-2.5% per year range.  Now, for argument sake, lets assume non-player salary expenses inflated 1.035% per year.  This would equate to approximately a 41% increase in non-player salary expenses over the 10 year period which would estimate non-player salary expenses to be $1.093B for 2012-13.  Subtracting that from the $1.326B which is the owners share of the $3.2B in revenue and we could estimate owners profits next season to be a combined $283M, or close to $10M per team per year.  Now, not all owners will be posting a $10M profit next year, but as a whole the league will do quite well.  This is why I don’t believe the NHL owners will have the same resolve to sustain a lengthy lockout.

In the owners latest proposal they proposed the players get a 46% share of revenues while the owners themselves get to keep 54% of the revenue.  Plugging these numbers into the equations and we could forecast the NHL owners combined profit to be closer to $635M, or about $21M per team per year.  Think about that when the owners decide to lock out the players on September 15th.  They aren’t locking out the players to minimize league losses, they are locking out the players because they would rather pad their own pocket books to the tune of $20M/year instead of a mere $10M/yr.

 

Sep 032012
 

A month and a half ago Eric T at NHLNumbers.com had a good post on quantifying the impact on teammate shooting percentage.  I wanted to take a second look at the relative importance the impact on teammate shooting percentage can have because I disagreed somewhat with Eric’s conclusions.

For a very small number of elite playmakers, the ability to drive shooting percentage can be a major component of their value. For the vast majority of the league, driving possession is a more significant and more reproducible path to success.

It is my belief that it is important to consider impact on shooting percentage for more than a “very small number of elite playmakers” and I’ll attempt to show that now.

The method that Eric used to identify a players impact on shooting percentage is to compare that players line mates shooting percentages with him to their overall shooting percentage.  As noted in the comments the one flaw with this is that their overall shooting percentage is impacted by the player we are trying to evaluate which will end up underestimating the impact.  In the comments Eric re-did the analysis using a true “without you” shooting percentage and the impact of driving teammate shooting percentages was greater than initially expected but he concluded the conclusions didn’t  chance significantly.

Overall average for the top ten is a 1.2% boost (up from 0.9% in story) and 5 goals per year (up from 4.5). I don’t think this changes the conclusions appreciably.

In the minutes that a player is on the ice with one of the very best playmakers in the league, his shooting percentage will be about 1% better. For a player who gets ~150-200 shots per year and plays ~40-60% of his ice time with that top-tier playmaker, that’s less than a one-goal boost. It’s just not that big of a factor.

He also suggested that using the “without you” shooting percentage instead of the “overall shooting percentage” would probably result in “more accurate but less precise” analysis.  This is because a guy like Daniel Sedin would get very few shots when playing apart from Henrik Sedin because they rarely play apart and this small “apart” sample size might be subject to significant small sample size errors.

Continue reading »