Oct 032012
 

At this time eight years ago the NHL had locked out the players and the NHL was on the verge of cancelling regular season NHL games, and eventually went on to cancel the whole 2004-05 NHL season.  Back then the issue was related to controlling player salaries so more teams can compete on the ice and more importantly be able to compete, and survive, financially.  Eventually the NHL and NHLPA came to a resolution, after the NHLPA all but imploded, which saw the players salaries rolled back 24%, a salary cap system would be instituted, and the players salaries as a whole would be capped at 57% of all hockey related revenue.  Essentially the players folded and the owners got pretty much what they wanted and Gary Bettman touted the deal as the start of a new era for the league where all teams would be financially stable and we would see greater parity on the ice.

Unfortunately, it didn’t work out that way with respect to the financially stable part.  The Atlanta Thrashers failed to survive in Atlanta and eventually relocated to Winnipeg and we all know about the Phoenix Coyotes fiasco.  Additionally there are a number of other franchises that are in weak, if not perilous, financial situations. The 2005 CBA did not fix the financial problems of the NHL.

Back in October 2004 I wrote about the most important financial problem with the NHL on a now non-existent previous incarnation of this website:

Yesterday Gary Bettman was in Raleigh, North Carolina with Carolina Hurricanes owner Peter Karmanos Jr. telling the world and most importantly reassuring Carolina Hurricane fans that contraction is not an option and he is committed to keeping all 30 teams in the league. But honestly, shouldn’t contraction be an option with Carolina at the top of the list?

According to Karmanos the Hurricanes lost $22 million last year on a $38 million payroll. So, for them to break even they would have had to have a payroll of $16 million. Is that a formula for a successful franchise? This is a team that made it to the Stanley Cup finals a couple years ago and couldn’t capitalize on that success by expanding it’s fan base. Even if a $30-35 million salary cap was put in place like the owners want the Hurricanes will still lose money. How can the Caroline Hurricanes compete with the likes of the Maple Leafs, Red Wings, and others when Carolina would break even with a $16 million payroll and the Leafs and Red Wings make oodles of money with $62 and $78 million payrolls respectively. They can’t and that is the problem with the NHL. The disparity between the rich teams and the poor teams is so huge that only a rediculously low (for the rich teams) salary cap can help many teams survive.

A salary cap does not address the key problem in the NHL. A salary cap will not fix revenue disparity between the rich and poor teams. Only a massive revenue sharing program or contraction of the 4-6 poorest teams will address that problem. But the NHL isn’t talking about revenue sharing to any great extent or it being a key component of a multi-pronged solution.

In February 2005, as we were approaching the drop dead date for saving the 2004-05 season I wrote the following:

According to the NHL’s latest ‘take it or leave it’ offer, the proposed deal will have a $42.5 million salary cap with a $0.50 on the dollar tax starting at $34 million. Under this agreement a team like the Maple Leafs with a $42.5 million payroll would be spending $46.75 million in payroll after taxes. Last year their payroll was closer to $70 million. The players are not going to accept any deal that will see the Maple Leafs, and other big revenue clubs who are already making money, making upwards of $20 million more in profit while they are taking a 24% paycut. The reason the players are accepting a paycut in the first place is to help the small market teams survive, not to line the pockets of the big market owners.

So, the key to any new deal is going to be revenue sharing. If the NHL wants a $42.5 million salary cap the NHL will probably have to be willing to accept significant revenue sharing, possibly seeing the Maple Leafs and other big market teams sharing upwards of $10 million, possibly more, each with the smaller market teams. Should the league be unwilling to accept revenue sharing don’t expect the players to negotiate down their salary cap significantly, if at all.

What the NHLPA is really saying is, we aren’t going to bail out the small market teams if the big market teams aren’t willing to help out as well. The fix to the economical mess has to be a multi-party solution, not a players only bailout and if you ask me, that makes a lot of sense.

In the end, the NHL got it’s salary cap, but the players forced the NHL to commit to a significant revenue sharing program. Problem was, the revenue sharing program was not significant enough simply because the revenue disparity across the NHL is so great, and got even greater over the past 7 years of the CBA.  Once again revenue sharing is an issue for the players and they aren’t willing to take a pay cut without increased revenue sharing.  Here is a quote by Don Fehr after the NHLPA submitted their initial CBA proposal to the NHL.

“In essence, when you boil it all down, what were suggesting is that the players partner with the financially stronger owners to stabilize the industry and assist the less financially strong ownership groups” -Don Fehr

From all reports, there is a gap in the revenue sharing that the owners have proposed ($180-190M) and the revenue sharing that the players have proposed ( approximately $240-250M) and this is the core of the problem.  The owners want to solve the weaker teams financial problems largely on the backs of the players, while the players want the big market owners to share in the small market assistance plan.  This was the core of the problem in 2005 and is the core of the problem now.

There are solutions to the problem of the financial security of all 30 NHL franchises but the unfortunate problem is the NHL owners can’t agree on the real solution. They can only agree on finding a solution on the backs of the players. The big market owners aren’t reluctant to give up their large profits to assist their fellow owners (who are both partners and competitors) and the small market owners aren’t willing to accept a CBA without seeing their financial situation improved significantly, either through large player salary reductions or significantly increased revenue sharing.

The truth is, the NHL can’t resolve the financial woes of its small market franchises through cuts to players salaries alone. Even if the NHL successfully cuts the salary cap/floor by $10M, that only reduces the small market franchises expenses by $10M. All indications are that the Phoenix Coyotes have been losing upwards of $25-30M per season, even after existing revenue sharing programs.  Reducing player expenses by $10M does not make them a profitable or financially stable franchise, it only cuts their losses to $15-20M. Only when the NHL gets serious about revenue sharing will financial stability exist within the NHL.  So despite what the NHL wants you to believe, this lock out, like the last one, is more about generating more profits for the league as a whole, not about improving the financial situation of the small market teams.  Until they start proposing massive increases to revenue sharing all indications are that this lockout is just an attempt to milk the players for everything they can, and are willing to sacrifice the game we love to do so.

If the owners view the players as nothing more than cattle, they view the fans as nothing more than cattle feed.  Fans are here so they can feed the cattle so they can then milk the cattle for everything they can. What the fans think or what is best for the game of hockey is pretty much irrelevant. It is all about profits.

For more insight on the revenue disparity in the NHL have a read of Kent Wilson’s excellent piece on the topic.

 

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 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.

 

Apr 152012
 

We are less than a week into the playoffs and it seems the main story line of the playoffs so far has been head shots and general player safety whether it was the Shea Weber non-suspension or the number of dangerous hits and other ‘goonery’ that took place last night and it probably all started with the hit and concussion suffered by Daniel Sedin a couple weeks ago.

For me, I find the whole player safety debate interesting because it seems the most silent group in the debate is the players.  There is a lot of media outrage against head hits and other dangerous events and even some fan outrage (though less significant than the media portrays) but player outrage doesn’t seem to exist.  The players are the ones at risk here, not the media or the fans, and it is my opinion that until the players feel outraged by the lack of player safety should I really care?

Many players are highly intelligent with college or university degrees (or intelligent without degrees, you don’t need a degree to be intelligent).  Players are paid a lot of money, they have a players union and can hire highly intelligent agents and union representatives to fight for their rights.  As of yet I haven’t seen any indication from the players that player safety is nearly as important a concern for them as it is for much of the media.  In the next couple months the players and the owners will begin negotiations of a new collective bargaining agreement.  One of the main reasons why unions formed was to demand better work place safety in factories.  If the players don’t take this new CBA negotiation opportunity to raise player safety concerns why should I as a fan care one iota about player safety.  I am willing to be proven wrong, but I suspect money and player freedom (free agency) will remain the #1 issue for players and player safety will hardly get discussed.

Note: I want to mention that this only applies to professional hockey dealing with adults, often very well paid adults.  Kids hockey and junior hockey players need to be protected by external groups because they are less fit to do so themselves.

 

Sep 292010
 

Ok, let me start by stating that Wade Redden is not worth $6.5M.  He may be never was and the contract (6 years, $39M) the Rangers gave Redden was one of the worst ever handed out in NHL history.  In part because he is not worth that and in part because there is no evidence that any other team had any interest in offering anything close to that amount so the Rangers were bidding against themselves and still paid well over market value.  But that isn’t the point of this article.  The point I want to make is that Redden was, and still is a good defenseman that should be in the NHL.

Ok, now for some straight forward stats:

Year Team GP G A PTS Pts/GM
2005-6 OTT 65 10 40 50 0.77
2006-7 OTT 64 7 29 36 0.56
2007-8 OTT 80 6 32 36 0.45
2008-9 NYR 81 3 23 26 0.32
2009-10 NYR 75 2 12 14 0.19

As you can see there is a clear drop off in his offensive production.  The question is, can Redden be fully blamed for that dropoff?  Here are his teams goals per game production during that time compared to Redden’s points per game production.

Year Redden Team
2005-6 0.77 3.76
2006-7 0.56 3.45
2007-8 0.45 3.11
2008-9 0.32 2.39
2009-10 0.19 2.64

Clearly Redden’s offensive production, up until last year, was in part due to the fact that his teams overall offensive production dropped.  In Ottawa it was due to losing some quality talent off the team as well as becoming a more defensive team than an offense first team.  Then he went to New York where the Rangers offense was awful because they played a defensive style and had no real elite offensive players.  Not all of Redden’s offensive production drop off can be explained by team influences but a good chunk of it can.

Continue reading »

Jul 102008
 

There are some strange happenings in regards to the Toronto Maple Leafs attempts to sign Jonas Frogren and one has to wonder if and why the NHL is standing in the way of the Leafs signing the Swedish defenseman. Yesterday was the day it was expected that the Leafs would finally announce the signing of Frogren but instead news came out that the league had nixed the deal stating that Frogren had to be signed to an entry level contract, not a standard contract.

Yesterday news came out that the NHL has rejected the Leafs contract with Jonas Frogren stating that his contract needs to be an entry level contract. Steve discussed the issue saying that the contract issues made no sense because the CBA states that a player age 28 isn’t required to sign an entry level contract and although Frogren is 27 now he will be 28 on August 28th so the Leafs just need to wait until then.

But it gets even stranger because in the same section of the CBA that states that a player aged 28 does not need to sign an entry level contract it also states the following:

9.2. Age of Players. As used in this Article, “age,” including “First SPC Signing Age” means a Players age on September 15 of the calendar year in which he signs an SPC, regardless of actual age on the date he signs such SPC.

Now I don’t give Gary Bettman and his gang a lot of credit but I will give them the benefit of doubt and assume that they are able to read. Now I believe my reading comprehension skills are not too shabby either and when I read the above it seems clear to me that Frogren’s age when he signs the contract is not an issue but rather his age on September 15th of the year he signs the contract. Now my understanding of the calendar is that August 28th is before September 15th and thus Frogren will be 28 on September 15th. Hmmm, maybe they can’t read all that well.

So you would think that Fletcher just had to call up Mr. Bettman and inform him of the rules and the contract would go through. But apparently that hasn’t happened, or at least Bettman didn’t accept Fletcher’s argument. Instead Frogren’s agent Don Meehan said “We are working with the NHL Players’ Association to resolve the matter.” So it appears that the NHLPA is going to have to file some sort of informal or formal grievance on behalf of Frogren to get the deal to be accepted.

So, what could be the issue? Well, as many of you are probably aware, the NHL and the European teams no longer have an IIHL transfer agreement in place. The transfer agreement allowed NHL teams to bring over their European prospects at a cost of $200,000. But now there is no agreement and thus NHL teams are technically free to bring over whoever they want, potentially even players signed to a contract with a European club with no compensation required. Essentially the NHL could grab any European player regardless of their contractual situation with no consequences. Conversely the European teams could do the same. In essense a contract signed in one league is not required to be honoured by other leagues.

This is a potentially big issue for the NHL because of the cration of the new Russian super league. If the Russian Continental Hockey League is not required to honour NHL contracts there is no obligation by Continental League teams to wait for an NHL players contract to expire before the lure them over to Russia to play. The fear is that at some point down the road, maybe one year, maybe 5 years, some Russian team will offer Alex Ovechkin or Evgeni Malkin a $20 million a year contract that Ovechkin or Malkin can refuse and the NHL will lose one of their prime superstars. So, it is in the best interest of the NHL to not get into the habit of breaking existing contracts and set a precident.

And guess what? Jonas Frogren has an existing contract with Farjestad. The Hockey News Ryan Dixon has an interesting story on the Frogren contract and how he himself is going to buyout the final year of his Farjestad contract.

In the absence of a player transfer agreement between the NHL and IIHF, teams associated with both organizations have agreed not to go after players currently under contract on either side of the Atlantic.

The NHL’s collective bargaining agreement prevents teams from negotiating individual release fees with each other, but by giving Frogren the money directly by way of a salary – which will count against the cap – the Leafs found a way to get it done.

To get around those issues the Leafs are seemingly intending to give Frogren a hefty signing bonus which Frogren will use to personally buy out the contract he has with Farjestad. So if this is all true, could the NHL big wigs be looking at the hefty signing bonus and Frogren’s personal buyout as a workaround to the system and ultimately create a fear that this could be the first step down a downward slope to a near anarchy system where contracts on both sides of the ocean are not honoured as the NHL hopes they will be? Could this be the reason why this seemingly imminent announcement more than a week ago still has not been announced and is this the reason why the NHL is playing every possible card in the book to hold up the signing, including playing semantic games with CBA rules that are seeming perfectly clear to anyone able to read? It is the only possible motive for the NHL nixing the deal that I can see.