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Puckin' Around With Spector

Reducing Players’ Share of Revenue Won’t Save Poorly-Managed Teams.

When the NHL and NHLPA finally get together to open the latest round of CBA negotiations, it’ll be interesting to see what the league hopes to gain from the proceedings.

In the previous CBA negotiations, it was all about “cost certainty” for the league and the team owners, in the form of a salary cap. The owners wanted it so badly, assuring fans it was what was needed to “save” the league, they were willing to lose an entire season to achieve that goal.

Today, of course, “cost certainty” has been around since 2005. The owners got what they wanted, but in the years since “winning” the great labor war with the NHLPA, the salary cap hasn’t eradicated the problem of money-losing franchises.

Media speculation suggests the league will once again push to reduce the players’ share of revenue as a means of addressing that problem.

In 2004, the league claimed the players were getting over 75 percent of league revenues (though some independent estimates put that number closer to 64 percent), and demanded the players accept a much lower share of the pie.

The league ultimately succeeded in not only reducing the players share to 57 percent, but also implementing an escrow clause to ensure the players didn’t get a penny more.

The justification behind that drastic reduction was some teams, notably those in supposed “small markets” in Canada and the southern United States, were struggling to make ends meet, couldn’t afford to retain their best players or bid competitively for top free agent talent, and thus their very existence was threatened without some measure of “cost certainty”.

One would’ve thought a dramatic reduction of the players’ share from 75 percent down to 57 percent would’ve been enough to “save” those supposedly struggling franchises in danger of folding or relocating because they were paying too much in player salaries.

If the recent rumors about the league intending to seek another reduction in the players’ share - perhaps going with a “50-50” split, or even lower - are true, the league’s grand scheme of “cost certainty” would appear a failure.

“Cost certainty” was sold to the fans as a “cure-all” for the league’s supposed woes, that it would magically level the playing surface and make it possible for all teams to have an equal shot at becoming playoff contenders, possibly even Stanley Cup contenders.

That, however, is a myth.

Reducing the players share of revenue has not resulted in significant improvement for supposed “small market” Canadian franchises like the Edmonton Oilers and Calgary Flames.

Reducing the players share of revenue hasn’t turned the perennially moribund Florida Panthers, Columbus Blue Jackets and New York Islanders into perennial playoff contenders. 

It certainly didn’t provide the Phoenix Coyotes with stable ownership, nor did it prevent the Atlanta Thrashers from pulling up stakes and moving to the smallest market in the NHL.

Former elite franchises, like the Dallas Stars, Colorado Avalanche, St. Louis Blues and Toronto Maple Leafs, certainly weren’t able to remain that way under cost certainty.  The once-proud Montreal Canadiens certainly didn’t regain their long-lost Cup contending form, while the Buffalo Sabres, which looked like Cup contenders in the early years of cost certainty, weren’t able to follow up on that promise.

It didn’t help the Tampa Bay Lightning and Carolina Hurricanes successfully follow up on their respective Stanley Cup championships in 2004 and 2006, nor did it make the Minnesota Wild - located in the fabled “State of Hockey” - a franchise worth following for die-hard Minnesota hockey fans.

If the league’s intention is to further reduce the players’ share of revenue, we can likely expect the league’s selling point will, once again, be based on the supposed “necessity”  to “save” most of those struggling franchises, to make it “easier” for all teams to build and maintain competitive rosters.

What the league brain trust won’t tell you is they could slash the players share of revenue back to the pittances of the Original Six days, and it still wouldn’t result in all teams having an equal chance of being competitive on an annual basis.

The reason, quite simply, has to do with what the management of each team does with their share of revenue; specifically, how they invest in their respective rosters.

Slashing the players share of revenue won’t make perennially crappy teams magically become perennial Cup contenders.

If a struggling team still has an indifferent or overbearing owner, or incompetent management and/or coaching staff, it won’t make any difference how much more of the revenue pie they’ll get, or how much players salaries are rolled back, or how much the salary cap floor and/or ceiling is reduced.

A larger percentage of revenue for the owners, a salary rollback and a lowering of the cap doesn’t matter if the folks running your crappy team are doing a lousy job.  Giving them more money to play with won’t make them smarter. It won’t make the team any better. It won’t help them staunch their losses, remove the threat of relocation, or make the problem of money-losing franchises disappear.

But the league will keep trying to sell that to the fans, especially those in markets which either haven’t seen the playoffs in a number of years, or haven’t come near to the same level of success they once enjoyed under the previous CBA.  Just give the team owners an even bigger share of the revenue pie, the league officials will say, and we swear that’ll make it easier for those poorly-run teams to get better.

The league will likely get what they want, largely because the players, despite having the respected Donald Fehr now running the NHLPA, probably lack the stomach for another lengthy, nasty labor war threatening to kill another season. 

Fehr will get them the best deal he can, but ultimately, it’ll be one in which the players give up yet another chunk of revenue to the owners.

The question, however, is how successfully the league can sell this to a fan base largely and wilfully ignorant of labour issues, who really don’t care how revenues are distributed, so long as they don’t miss part or all of another season to a lockout or player strike.

It would be nice to assume the majority of NHL fans won’t buy into the myth, but odds are most of them will, just like they bought into the myth that “cost certainty” would magically level the playing surface for all NHL teams, without telling them the catch was based on the assumption all NHL teams would be managed with the same level of competence.

Five years from now, there will still be money-losing NHL franchises, which could finally force the league to face the fact that it can no longer squeeze the players for more revenue in order to address this problem.

Filed in: | Puckin' Around With Spector | Permalink
 

Comments

Marc Siciliano's avatar

fantastic article. you hit the nail on the head on so many levels

Posted by Marc Siciliano on 02/01/12 at 01:36 PM ET

mrfluffy's avatar

Good stuff. Too bad logic and the NHL don’t seem to run in parallel…

Posted by mrfluffy from Long Beach on 02/01/12 at 02:07 PM ET

J.J. from Kansas's avatar

The problem with the concept of “cost certainty” remains that it is a leaguewide concept, but not a team-by-team concept.

The players get 57% of league revenues.. meaning that if the Toronto Maple Leafs (thanks to the cap) only spend 45% of their revenues on player salaries, then the Florida Panthers have to pay 65% of THEIR revenues on salaries just to meet the floor.

The “cost certainy” NHL has ensured that the rich got richer and the poor fell behind.  What’s worse is that it made it even more difficult for the poor to NOT fall behind thanks to the rules about teams having to meet certain criteria to qualify for group 1 revenue sharing dollars (and outpacing the league average attendance growth is VERY HARD to do when Chicago’s bandwagon fills back up overnight).

If it’s about “cost certainty” than make it certain that 57% of EVERY TEAM’s revenue goes to paying player salaries, regardless of the cap.  If that means the Leafs essentially have to pay enough money into that pot to field two complete NHL teams, then they can cry all the way to the bank that their 43% is still much, much bigger than any other team’s 43%.

Posted by J.J. from Kansas on 02/01/12 at 02:08 PM ET

Avatar

The “cost certainy” NHL has ensured that the rich got richer and the poor fell behind.

And that about sums up the “hard” cap and general lack of revenue sharing. Some fans truly did believe the cap was about helping competiveness. Maybe now they realize it was about the original 6 being allowed to print money and the small markets hoping the overall league revenues would remain stagnant.

Posted by hockey1919 from mid-atlantic on 02/01/12 at 03:19 PM ET

George Malik's avatar

And the fact that the league tried to sell fans on the elimination of an “inflationary spiral” of salaries yielding higher ticket prices proved to be a supply-and-demand-evident lie, too…

I don’t know if a team-by-team cap would fly in Bettman’s dream league of parity, parity and more parity, whether the league will allow the cap floor to drop to a more reasonable $20-25 million gap or whether the PA will allow the cap to be determined by a different calculation of, say, a median survey of league-wide revenues instead of an out-and-out averaging, or whether they’ll be equally willing to reduce their inflator in terms of their cut of revenues (especially after the forensic accounting of 3 teams’ books found enough hidden money to raise eyebrows), but there is room for negotiation in terms of trying to figure out ways to keep the smaller-market teams from spending Florida Panthers money to just keep up.

Posted by George Malik from South Lyon, MI on 02/01/12 at 04:22 PM ET

HockeyFanOhio's avatar

Excellent article.  I live just west of Columbus so I see a poorly run organization close up.  Columbus spent a lot of money this year to try and make themselves a contender.  But they spent poorly (along with some injuries early) and are the worst team in the league, eleven points behind Edmonton who is 29th.  (To compare, 11 points separate 1st and 7th in the Western Conference.)  Giving the owners more money to play with doesn’t mean they will spend it wisely. 

Of the bottom 10 teams, 5 are in warm weather or non-traditional markets.  (Counting Buffalo and NY as traditional markets.)  Montreal, for example, is 25th in points.  So it’s not just a non-traditional problem.  Though I don’t know how to check market size, so that may be a factor.

Posted by HockeyFanOhio from Central Ohio on 02/02/12 at 12:02 AM ET

HockeyFanOhio's avatar

Sorry for two posts in a row, but does someone know where or how to check market size?

Posted by HockeyFanOhio from Central Ohio on 02/02/12 at 12:03 AM ET

Avatar

There are two issues.  First, and Spector has been pointing out this out since before the lockout, is that the reason that the Canadian teams were having trouble making money was the low value of the Looney.  Since the cap has been in place, the Looney has become competetive with the US dollar and Canadian teams have artificially had their revenues increase.  I’d also throw in that a couple large, traditional markets in the US have had resurgences and seen their revenues increase significantly. So, about 8 or so teams have seen their revenues surge disproportionately compared to the rest of the NHL.

Second, the CBA’s assumption that a cap system based on 57% of league revenues would ensure profitability for all teams is flawed.  In reality, revenues between teams vary widely and do not change equally from market to market.  I assume 57% allowed everyone to at least break even at that point in time, but clearly not now.

The net effect is that ~8 teams have seen disproportionate revenue increases, which has pushed the cap and floor higher while other teams haven’t had the luxury of having their currency rise or of being an original six team whose rebuilding process finally paid off.

So while reducing players salaries will lower the floor and might allow the smallest markets and most mismanged teams to break even, what happens when Phoenix gets moved to Canada? When Edmonton’s rebuilding finally pays off?  When something else unforseen happens to dramatically increase the revenues of a few teams while driving up the costs for everyone?

Posted by Niko from KS on 02/02/12 at 02:44 PM ET

Avatar

This is one of the most intelligent articles about the NHL I’ve read in a long time. 

Back in the days of the Original Six, players’ salaries were “pittances” compared to teams’ revenues, as this article points out.  Yet, during that time, the Canadiens, Maple Leafs or Red Wings won the Stanley Cup every year, except for one—1961, when the Black Hawks, led by Bobby Hull and Stan Mikita, took the Cup.  The Bruins never won the trophy, and the Rangers never even got past the first round of playoffs.

Posted by LeticLady from New York, NY on 02/03/12 at 11:19 PM ET

Avatar

Like the rant, you’re just short on solutions. It’s good to identify the problem- which is one I agree with- but it’s better to solve the problem. This is what I would do:

-A better revenue sharing system. I’m not an economist so I can’t figure out exactly what the best system would be, I just know the current model isn’t working.

-Promotion/Relegation. This is likely a pipe dream, but let’s face it- the NHL is too large, and quite frankly there are now a lot of markets that just can’t compete with each other no matter how hard they tried. So I think it would be better if we split the league in half and only have the “top half” worry about needing the finances to be competitive. It would also say something about the quality of play in the league, which has long been an issue- this way we can keep the better players on the better teams instead of spreading them too thin as they are now (let’s face it- there aren’t enough first and second liners to go around. There just aren’t). It might not also be bad for “poorer” teams as well- if they know they’ll be in the second half, they don’t have to worry about spending which should keep their costs down.

-DG

Posted by DG from Toronto on 02/05/12 at 06:57 AM ET

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About Puckin' Around With Spector

I’m Lyle Richardson. You might know me from my website, Spector’s Hockey, my thrice-weekly rumor column at THN.com, my weekly column at Eishockey News (if you read German), and my former gig as a contributing writer to Foxsports.com.

I’ll be writing a once-weekly blog here with my take on all things NHL. Who knows, I might actually find time to debunk a trade rumor or two.