Negotiating A New Collective Bargaining Agreement Should Not Be This Difficult!

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We now have less than a month to go before Gary Bettman and the NHL will “lock out” its players if a new collective bargaining agreement has not been agreed to by then, and yet the NHL and the NHL Player’s Association have only exchanged one proposal each so far. Worse still, they don’t appear to be at all close to an agreement, and the clock just keeps on ticking.

I don’t know why they waited until a month before the “lock out” deadline to really start negotiating, but it’s discouraging that they still do not seem to be on the same page as we near September. It seems Gary Bettman and Donald Fehr take their Green Day songs a bit too literally.

What are the issues? They’re really not as complicated as the NHL and NHLPA proposals would have you believe when you break down the major points. Here are the big three (in my opinion).

1. The few top, big-market NHL teams are making huge amounts of money while many other teams struggle not to lose money, even teams that are only spending to the cap floor (sound familiar?).

2. Big-name players now demand outrageous, long-term front-loaded contracts on the open market from any team that wants to sign them thanks to a loop-hole in the last CBA (well done, Bettman).

3. The entire point of having a salary cap in the first place–the salary cap being what we hockey fans lost an entire season for last time, is being ruined because the cap ceiling and floor are way too far apart.

The NHL looked to fix the issues that concern them most by proposing the following to the NHLPA in their first and only proposal (and these are just some of the major points, paraphrased):

• that the players take a “hockey related revenues” cut from the current 57% to 46%, which would really be 43% by today’s standards except that the NHL’s proposal would seek to re-define what “hockey related revenue” means in the first place.

• that players cannot sign contracts of more than five years in length; no more long-term, front-loaded contracts

• That players have to play ten seasons in the NHL before becoming unrestricted free agents as opposed to seven now, and would lose arbitration rights, while entry-level contracts would last five seasons instead of three

The NHLPA responded back in its first counter-proposal with the following points as it sees them (paraphrasing again):

• The NHL should not be asking the players to bail out the league’s struggling owners by themselves. Under the NHLPA’s proposal, the players would give up 3% in hockey related revenues, from 57% to 54%, to help the struggling owners, but the wealthier owners of the big market teams would also have to increase their revenue sharing dramatically with the struggling owners. Additionally, the players’ 3% concession in hockey related revenues would only last three seasons, then the players would have an exclusive option for a fourth year back at the current 57%

• Under the NHLPA proposal, there would be no changes to contracts or free agency rights, but GMs would be able to trade salary cap space, presumably so that none of the cap space of small market teams not wishing to spend to the cap would get wasted (unfortunately this goes against the whole idea of having a salary cap if every team is not spending equally)

This may all seem complicated, and of course it is in so far as it’s always going to be complicated getting two different parties to agree on something that encompasses hundreds of ideas and issues ranging from revenue shares to contract lengths to player discipline to everything else.

However, when you break the main issues down and look at them individually, the picture does come into focus, and with one major exception, it’s not as complicated as the NHL and NHLPA are making it out to be.

First, a note on league finances. Earlier this summer, the San Jose Mercury News reported that the San Jose Sharks lost fifteen-million-dollars last season despite selling out every game, according to one of the Sharks owners Kevin Compton. Compton also classified the Sharks as middle of the pack in terms of league revenues and profits (or lack there of), which suggests over half the teams in the NHL are losing money.

It’s important to take these numbers with a grain of salt because the Sharks have not made their official financial records public, nor are they required to. However, the sense I’ve been getting across the whole league from the reports out there is that a significant number of NHL teams are losing money–plenty of them sure refuse to (or can’t) spend enough to truly contend, and I can only assess the CBA negotiations based on the information that is out there and that I’ve come across.

Let’s start by taking a look at topic number one on my list: money.

Right now, what is known for certain is that the big market teams, like the Toronto Maple Leafs, are making huge amounts of money. Likewise, and bare with me on the relevancy of this next obvious bit, we know the big-name players, the Sidney Crosby’s of the world, even the Ryan Suter’s of the world, are also making lots and lots of money.

In fact, all the players are making money. The top players get huge amounts: one-hundred-million-dollar contracts in some cases; the good players are making perhaps forty to sixty million-dollars over their careers, the mid-tier players maybe twenty to thirty-million, and even the fourth liners and bottom-pairing defensemen are still significantly in the black, making at least five-hundred-and-fifty-thousand-dollars a year.

When you ask yourself the question, “So who is not making money, then?” is where you will notice the first glaring imbalance between the NHL teams and the players. You have top NHL players getting huge money, and you have top NHL teams getting huge money. That’s balance. But then you have the NHL players at the bottom still making good money, while the NHL teams at the bottom are losing money. And that’s a problem, whether it’s truly fifteen or twenty teams all in the red, as Kevin Compton suggests, or even just, say, ten. You can’t be asking organizations to pay players fifty to seventy-million-dollars a year, with all those players going home with profits at the end of the season, while the organization itself that pays all of them loses money.

And here is where it all becomes pretty simple. On one hand, we have the players who are making a lot of money, and the big-market teams who are making a lot of money. On the other hand, we have the small-market teams–and even many mid-market teams (at least according to the NHL)–that are not making money. Which means what the new CBA should really be about is the side that is making all the money helping the side that is losing money. The NHL is a multi-billion dollar business; no one involved should be losing money! (Unless there’s a good reason, like a unique situation i.e. Phoenix).

The new CBA should ensure that the money-side shares enough of it to enable every NHL team to be financially stable, if not profitable, and most importantly to make sure every team in the NHL has enough money to spend to the salary cap ceiling so that we can finally have true parity. Because a salary cap system where some teams are spending seventy-million and some are spending only fifty-four million is really no salary cap system at all; you may as well remove the cap.

But who pays to help the struggling NHL franchises, the players or the big market teams? Well, both. That’s obviously a lot of what the current fight is between the NHL and NHLPA. The NHL wants to players to foot the whole bill, while the NHLPA has proposed significantly increased revenue sharing whereby the ultra-rich teams like the Maple Leafs would bail out the struggling teams every year.

The way I see it after looking at my crude but telling equation is that the players should pay more (but certainly not all). I only say that because you do have 100% of the players in the NHL making money right now while only, what, 50% of NHL teams do? 60-75% at most? We don’t know for sure because NHL teams do not tend to make their financials public, but whatever the percentage is, it’s lower than the players’ 100%, and as I alluded to earlier, that’s where the imbalance seems to lie.

Granted, the profit of the Toronto Maple Leafs’ organization is much higher than that of any one player, but there are also many more players than organizations, so that’s much more of a false comparison than the other way I used. Because obviously the NHL’s highest paid player will always make more money than the NHL’s most struggling organization, and certainly vise versa. To compare the two would be apples and oranges. However, when the average player, even the below-average player, is making good money while the average NHL organization appears not to be, or at least the below-average NHL organization, that’s a problem.

There’s a parallel and an analogy to be drawn to the US economy here as well. The big-market NHL teams could be characterized as the “one-percent” (so to speak, in reality it’s more than that) making all the money, while all the other NHL teams are losing money.

You can increase revenue-sharing from the big-market clubs, which would be the real-world equivalent of raising taxes on the rich and giving that money to the middle class, and that would obviously help the struggling franchises or “middle class” to a degree. Certainly in the immediate, if someone needs money, they don’t care where it’s coming from as long as they’re getting it for free. However, in the long run, if you really want a healthy league (or economy) and you want to make a big change, you need a “middle class” that is actually creating enough “value” or money on its own to be self-sustainable as opposed to just being dependent on hand outs from the top “one-percent”.

And that’s where the players’ reduction in revenue comes in, because it’s clear that the “middle class” of NHL franchises is not self-sustainable right now with the players getting 57% of the hockey related revenue pie. And I don’t think that changes at the NHLPA’s proposed 54%, either, so the question that needs to be asked is whether you believe average, or even below-average NHL organizations have a right to be solvent. And I believe they do. I believe it’s what’s best for the league, the game, parity, and the fans. I don’t believe fans should have to root for a team that loses money, and thus can’t spend competitively, because history has shown that to be tantamount to rooting for a team with no chance to win, and what’s the point of that?

Now, that’s not to say I believe the players should be responsible for making, say, the Phoenix Coyotes financially solvent. Situations like Phoenix are another story. It is certainly not the players’ responsibility to be bailing out experiments by the NHL that aren’t working, or the NHL organizations that are outliers in that their financial problems exceed far past them not receiving a big enough slice of the revenue pie.

But I do believe the NHL needs an environment going forward where all the teams that don’t belong in that group can be self-sufficient for the long-term, and that is not going to happen simply through revenue-sharing. Obviously. Because that would be a paradox.

In the end, without having access to any NHL financial documents or really being at all qualified to make a determination like this, I think the NHL and NHLPA need to change the players’ revenue share to somewhere in the 48% – 51% range, then add some modest increases in revenue-sharing from the big-market teams on top, and I think that would go a long way towards fixing the financial problems the NHL has in its smaller markets, and appears to also have in many mid-markets, too. But I am absolutely not an expert on the NHL’s finances, and that’s just based on what I’ve read and learned about this subject.

So that’s issue number one, the biggest issue in the eyes of both the players and the NHL, and I believe as long as both sides really break it down and understand what I’ve just written, it should not be difficult to come to an agreement on that issue, provided what I’ve just written isn’t bullshit.

Issue number two is, likewise, simpler than meets the eye. I’m talking about contract lengths. I know the NHLPA’s counter-proposal did not suggest changing anything on the contract front, but that’s just because they want to keep that as a bargaining chip for later in the negotiations. The truth is, I believe the NHLPA wants a contract-length limit, too, they’re just banking that the NHL wants it worse (and they would be right).

Yes, a handful of players, like Zach Parise and Ryan Suter for example this summer, do benefit from long-term, front-loaded contracts, but those types of contracts only go to the top “one-percent.” Most NHL players don’t get them and thus have no stake in keeping them.

In fact, as I understand it, such contracts actually hurt a lot of NHL players because it costs them more in escrow. The NHLPA has to look out for a majority of its players, so you can bet they will be on board with contract limits in some form, just like they swiftly agreed to the NHL’s proposal after Ilya Kovalchuk signed his mega-deal with the New Jersey Devils that tacked on years at the end of such contracts had to pay at least one-million dollars per year, along with other tweaks designed to curtail, if only slightly, the long-term front-loaded contract epidemic. The NHLPA is not the US government; they will do what’s best for everyone, not just the highest of high paid players.

So what we have here is the NHL wanting to put a cap on contract lengths, and the NHLPA wanting the same thing. Why then didn’t the NHLPA agree to the NHL’s proposed idea of five-year contract limits? Beyond them wanting to maintain their bargaining chip, the truth is that five years is likely just too short, plain and simple. The NHL I would imagine realizes and agrees, too; they just wanted to shoot for the moon in their first proposal and ask for the ridiculous wherever they could so they’d have room to come down later.

I don’t even think most NHL owners would want to be capped out at five years. If you have a promising young player with no history of injuries and he’s willing to sign a seven-year contract at a discounted rate, I think NHL GMs would want to at least have that option open to them in such cases (and other similarly beneficial ones).

So what’s the answer? At the end of the day it should not be difficult for the NHL and NHLPA to meet somewhere around eight-year contract limits, give or take. Certainly neither side wants to see these thirteen to fifteen-year contracts continue.

This is another issue where it really should not be that hard for them to come to an agreement. Nothing here so far should spell a lockout.

Likewise, what year players can become unrestricted free agents, arbitration rights, entry-level contracts, etc, these rules have worked at least decently the last five years since they’ve been implemented, and re-negotiating them for the next CBA should not be complicated as I doubt either side will demand large changes to them in the end.

With that said, the NHL may have an argument that it’s unfair for teams to lose players they’ve drafted so early as age 27, as we saw with Ryan Suter this summer. His leaving Nashville for nothing after they did everything in their power to keep him certainly was not what you would call “fair.”

Of course, it would not have been anymore fair had it happened two or three years from now, although that’s no reason not to make a change that at least reduces the level of unfairness.

If the NHL wants to try to change free agency eligibility to 28 or 29-years-old instead of 27, or some tweaks like that, I would understand. The NHLPA would be far less understanding I’d imagine; they would certainly fight changes like that, but again, the system we’ve had in place the last five years in this area has pretty much worked, so if either side is looking to change it, I can’t see that they would demand anything too drastic, and thus it shouldn’t be a deal breaker in the end.

Issue number three is the salary cap. Neither side has proposed it be changed much so far besides the NHLPA’s proposal to allow the trading of cap space, but the truth is the current cap system is broken, and adjustments will have to be made to it once the revenue percentages are changed whether the NHL or NHLPA want them or not.

What’s wrong with the cap right now? The whole point of implementing a salary cap in the first place after the 2005 lockout was to keep big-market teams from spending twenty-million more dollars per season than other teams, and thus purchasing themselves a huge competitive advantage. The idea was that with a salary cap in place to keep every team spending about the same amount, the days of beating other teams with your wallet alone were supposed to be over. Except, when the salary cap floor and ceiling are twenty-million dollars apart (or almost), it’s literally no different than the example I outlined of the pre-salary cap NHL.

As we speak, the Boston Bruins are currently spending twenty-four-million dollars more on talent than the Phoenix Coyotes, although the Coyotes are currently under the floor. Unfortunately even the teams at the floor are facing about fifteen-million dollar disadvantages compared to the cap-ceiling teams.

This is not true parity, and there is a reason these floor teams seldom win the Cup. I can’t even think of one that made the final the last few years, which are the only years I remember of teams’ approximate payrolls. The Cup finalists the last five seasons, the Los Angeles Kings, New Jersey Devils, Vancouver Canucks, Boston Bruins, Chicago Blackhawks, Philadelphia Flyers, Detroit Red Wings, and Pittsburgh Penguins, were all cap-ceiling teams if I recall correctly. In other words, no top-ten payroll (approximately), no chance, and no Cup.

Then why all the talk of long-live-parity coming from Gary Bettman and the NHL the last few seasons? Well, ever heard of spin? Wishful thinking, maybe? The truth is that NHL hockey is by its nature a close, low-scoring sport on the small ice surface. This gives the impression of parity when you watch a game, just as three-point games give the appearance of parity when you look at the standings. But it’s not true parity where every organization has a fair shot at success, and we won’t have true parity until the cap is fixed.

That makes this maybe the most important issue for the next CBA. But how to solve it?

Everyone has focused so much on what the cap ceiling will be, but the truth is only a fraction of NHL teams actually spend to that ceiling. Only six teams are currently spending within five-million of it right now (although that number is a bit misleading since it’s still summer).

Just as important, in fact more important for as long as a majority of teams aren’t spending to the ceiling, is where you set the cap floor. It’s clear with the way the cap ceiling has skyrocketed since the lockout that it will have come down with the new CBA. Too many NHL franchises are losing money just spending to the cap floor or slightly above. The players obviously don’t like the sound of that; they view it as lost revenue, but what I’m not sure they realize is that a large amount of the loss they will see from the reduced payrolls of let’s say the top ten spending teams can be negated by the bottom “twenty” teams, provided they are required to spend much closer to the cap ceiling in the new CBA than they do now.

For instance, what’s better for the players? A salary cap ceiling of 80-million where ten teams spend to the ceiling, and the other 20 spend to the floor of say 55-million, or a lower salary cap ceiling of 70-million, where 10 teams spend the 70-million, but the other 20 teams are not allowed to spend any less than 64-million, for example?

The players will obviously lose money off the top-end teams in my example, and really that will always be true in a cap system because, by their nature, cap systems are designed to curtail the spending of the top teams that would otherwise be willing to spend much more than the average team, but the players will make that lost money up (in this example at least) from the other 20 teams no longer spending far below the cap ceiling and wasting potential player-revenue.

In other words, (10 * 70,000,000) + (20 * 64,000,000) equals more than (10 * 80,000,000) + (20 * 55,000,000). The cap ceiling goes down, but total player revenue actually goes up. In this example.

Of course, the example I gave did not use real world numbers. With all players making money, but not all teams, this is the reality: the players are likely going to take a hit no matter what when it comes to overall (hockey related) revenues, which will result in the lowering of the salary cap. However, keeping the gap between the next cap floor and ceiling tight will mitigate that hit and help the players, while also doing what’s best for the competitive integrity of the game.

Let’s remember what really matters here: the hockey! And that’s what will endure for years after this CBA is signed and forgotten and we’ve all gotten back to what’s important in this National Hockey League. I believe improved parity was always Bettman’s intent in introducing the salary cap to the NHL five years ago, but in failing to keep the cap ceiling and floor close enough, the original intent of the salary cap has failed. It’s time to fix that. A much tighter gap between salary cap ceiling and salary cap floor will do wonders for the competitive balance of the league.

Unfortunately, for all my positive thoughts on how coming to a new CBA should not be that complicated, there is a fourth issue–you could call it issue 3B (don’t trust the salaries (salarbee’s?) in CBA article 3B, yes I just made that up (yes I’m turning this into the “Inception” of parentheticals)), that could be difficult for the NHL and NHLPA to reconcile.

I’ve discussed the need for a lowered salary cap ceiling and a much tighter gap between cap ceiling and floor, but what about current player contracts?

If the player revenues go down, and thus the cap-ceiling, do already-signed player contracts get reduced as well? (You would probably have to calculate it based on the new average between cap-ceiling and cap-floor).

Or just new ones? Rather, will only unsigned players see their new salaries affected as GMs adjust to the lowered cap and the market takes care of itself?

That would be the easy answer, but then how are teams like the Boston Bruins and Vancouver Canucks supposed to get under the new lowered cap if the 67-million-plus dollars of payroll they already have on their books is not adjusted along with the salary cap? They would likely need to manually shed fifteen-million-dollars in payroll. Last time I checked, Ketih Ballard only makes $4.2M. (Let’s take a moment to savor this historic event as it’s the first and only time in the history and future of our world that you will hear the words “only,” “Keith Ballard,” and “$4.2M” in the same sentence. But I digest divest digress).

If the NHL doesn’t reduce teams like the Bruins and Canucks’ payrolls for them by automatically reducing all current player-contracts to match the lowered salary cap, they will be screwed, along with a handful of other teams. And it won’t just be unfair to them, it will be unfair in favor of the low-payroll teams who will find themselves in extremely favorable negotiating positions, able to pick up tons of quality players on the trade market and waiver wires off teams in desperate need of unloading them.

It’s a double-whammy of unfairness, punishing not just the big-market teams, but in many cases the well-run teams who have been able to draft, cultivate, and acquire enough talent to fill out their payroll.

Punishing a team like the 2010 Chicago Blackhawks for drafting too much quality talent under a set cap was harsh enough; to do the same to approximately a third of the NHL by virtue of lowering the cap like a window being slammed shut on someone’s fingers, would go too far.

But is retroactively reducing the salary of a player who a team knowingly and willingly entered into a contract with for a given amount of money any better? Morally, no, not really, not in my opinion, although you could argue the average GM would not have given the average player as much money had the salary cap at the time of the signing been what it will be under the new CBA. It’s actually a very good argument, but it opens a whole can of worms. What about players who signed contracts when the cap was lower? Their salaries did not go up when the cap went up, so why should they go down when the cap goes down? Touché…

Bottom line, retroactively altering contracts that have already been mutually agreed to, without the consent of the parties being shafted (every player in this instance), is a bad practice, and it’s certainly not a better option in a moral sense than screwing the teams over instead. Neither is a good option. But the former (where the players get screwed not the teams, essentially) is a better option for the league, for the game, and for the fans who want to see their teams and their league come back intact. And in a difficult choice with no perfect answer, that’s where I have to side, with the game, with teams being able to keep the players that they fairly drafted and acquired.

In other words, if the players have to take what will probably be around a ten percent pay-cut for the betterment of the game and the league, as someone who is not a player but who does enjoy the game and the league, that’s what I would have to be in favor of. But there’s no good choice here, and I don’t expect the NHLPA to be very receptive to any sort of retroactive contract-reductions.

In any case, those three-plus-B issues are the main ones facing the NHL and NHLPA, and I really think if they put their minds together, it should not be as difficult for them to come to a fair deal that benefits both sides as they are making it out to be, at least when it comes to the first three issues I covered here. I just hope they do not lose sight of what is most important here: the integrity of the game, the game itself, and playing the games, all of them. Not even one regular season game should be missed if that can be avoided, and I truly think it can and should be, meaning that if a game is missed, it should be viewed as a failure by the party or parties responsible.

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Written by Shark Circle

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