Kukla's Korner

Is New York a “small market”?

Good old Larry Brooks of the New York Post is at again, crying to the heavens that the NHL’s revenue sharing guidelines are “unfair”, because the woeful New York Islanders are unable to tap into those funds.  Specifically, since the Islanders play in a market with more than 2.5 million households (PDF), they are excluded from any distributions under the current Collective Bargaining Agreement (CBA).

Larry understands this much, for as he says, “NHL owners couldn’t bear the prospect of giving a portion of their revenue-share money to the Blackhawks back in 2005 when Bill Wirtz was doing his very best to drive his historic franchise into the ground.” The NHL was, somewhat understandably, reluctant to dish out revenue sharing to a team that could tap into a major metropolitan market, but failed to do so purely through its own misguided policies.

Why, then, should the Islanders deserve anything different today?

Now that the Blackhawks have proven how quickly things can be turned around, both on and off the ice in a large traditional NHL market, the New York Islanders stand out all the more as a shining example of enduring incompetence, drafting talented players then trading them away as they approach NHL stardom (Roberto Luongo, Olli Jokinen, Todd Bertuzzi), locking themselves into awful long-term contracts (Alexei Yashin, Rick DiPietro) and failing to address stadium issues which have lingered for far too long.  Back in 1998 the team had to abandon the Nassau Coliseum for a time due to structural concerns, and they’ve been trying to move forward with plans for a replacement venue for a decade now, without the first brick being laid.

The question that needs to be asked is, are the problems the Islanders are facing tied to the local market, or are they self-inflicted?  I’d lean towards putting the blame on their ownership and management. If they can snag a $20 million/year TV deal, they certainly should have the market to draw upon to fill a rink that is among the very smallest in the league (capacity 16,234).  Heck, if even the Islanders bloggers are calling out Brooks on this one, you know it stinks.

A major reason behind the big-market clause, and the performance measures like paid attendance minimums, was that the current revenue sharing system was intended to help teams in smaller markets that demonstrated commitment on the business side. The league was leery about handing out cash to reckless losers. The Blackhawks were an absolute basket case in recent years, just as the Islanders are today.  The responsibility for that rests entirely with the ownership and management of the team.  But Brooks wants to lump them in with teams like the Nashville Predators, which are a beneficiary of today’s revenue sharing plan:

Bettman has endorsed the concept of teams purchasing their own tickets at deep discounts in order to reach revenue-share recipient benchmarks. He has flat-out rejected the notion that such an act constitutes circumvention of the CBA, though it sure seems to violate the spirit of the agreement.

The Islanders, though, can’t worm their way into eligibility. And they need help, every bit as much help as the Predators, who always seem to be in the middle of some scam, not that there’s anything wrong with that.

Nice, but inaccurate, dig at David Freeman there; yes, he discussed the possibility of purchasing tickets if needed to help the Preds reach the revenue sharing requirement (at market price, not “deep discounts”), but it’s looking like that won’t even be necessary.  Besides, the NHLPA (and NHL) don’t have a problem with it because the money spent on such tickets counts as Hockey Related Revenue, so the majority of it goes right into paying player salaries.

As for the “spirit of the agreement,” I think it’s worth quoting from the preamble to the appropriate section of the CBA:

The NHLPA has conditioned its agreement to the Team Payroll Range System, set forth in Article 50 of this Agreement, on the NHL’s agreement to establish this Player Compensation Cost Redistribution System.  The Player Compensation Cost Redistribution System acknowledges the reality that the Upper Limit of the Payroll Range prevents certain high-revenue Clubs from spending as much of their revenues toward Player Compensation (i.e., Player Salaries, Bonuses and Benefits) as they might otherwise be capable of spending.  In addition, there may be lower-revenue Clubs that may have challenges in spending more than the Lower Limit of the Payroll Range.  The NHLPA has focused on the limitations on the spending ability of the Clubs, and desires that these Clubs be financially supported and thereby able to spend sufficient amounts on Player Compensation Costs to achieve a closer range of payroll spending than might otherwise occur.

The Player Compensation Cost Redistribution System described herein, therefore, is designed to cause certain high-revenue Clubs to contribute even more of their revenues toward the payment of Player Compensation - albeit indirectly - by redistributing a certain portion of the revenues of such Clubs to the lower-grossing, small market Clubs so that such lower-grossing, small market Clubs may be able to, and elect to, spend more on Player Compensation.  The Player Compensation Cost Redistribution System is intended to enhance the ability of all Clubs to be financially competitive with one another, and, at the very least, to allow all eligible Clubs to be able to spend to at least twenty-five (25) percent of the Team Payroll Range, plus the Club’s share of Benefits, on Player Compensation (i.e., Player Salaries, Bonuses and Benefits).

Basically, in exchange for agreeing to the salary cap, the players got a salary floor, which, in the case of “lower-grossing, small market Clubs”, was to be subsidized in part by the top revenue-generating teams.  The goal was to ensure that all clubs could spend to at least a quarter-way into the overall salary range (with today’s cap of ~$56M, and a floor of ~$40M, that target is $44M).

The CBA sets out three barriers to a club becoming eligible for revenue sharing, and the “small market” requirement is just one of them.  The other two are 1) being in the Top 15 in terms of Preseason and Regular Season Revenues, and 2) if the team “has Available Team Player Compensation for the League Year that exceeds the Targeted Team Player Compensation for such League Year.” So how do the Islanders fare on those fronts?

#1: Again, with a $20M annual local television deal, I’d be very interested to see that ranking of NHL clubs by Preseason and Regular Season revenue. I find it hard to believe that the Islanders are too far down that list.  If they are out of the Top 15, I doubt they’re any lower than 20th.  I’ll give them a cautious “maybe” here.

#2: As to the ability to pay the targeted 25% mark, it doesn’t appear that the Isles are having trouble there; this season they’re right in the middle with a team salary over $48M, and last year they were at the mid-point as well with a payroll just shy of $42M, between last year’s cap of $50M and floor of $34M.  If things were so bad, you’d think the Isles would be scraping the salary floor.

At best, the Isles match only one of three criteria to qualify for revenue sharing, and for good reason.  The intent of the program is to enable financial competitiveness (the relatively narrow $16M spending range that teams have between the floor and the cap) by redistributing some revenues from the major markets to the smaller ones.  It’s not designed to support struggling teams under any and all circumstances.  We don’t know the actual state of the Islanders’ books, but I’d bet that this is more of a case where the team isn’t foundering nearly as badly as some would claim, but if the do get their act together, they could make an absolute killing, much like Chicago is.

The bottom line is that since the NHLPA has declined to re-open the current CBA for renegotiation, it will remain in force through at least September 2011 (the players have the option of extending it to 2012).  Whether or not Brooks thinks the current system is “unfair”, it’s not going to change anytime soon.  Yes, the Islanders are in a sorry state, but that’s not related to the strictures of the Salary Cap System; it’s the fault of on- and off-ice management that has ruined a proud tradition on Long Island.

UPDATE:  Lest ye think that I’m merely harshing on the poor Islanders, I have a constructive suggestion for a better way to help them.

Filed in: NHL Commentary, | On the Forecheck | Permalink


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