CBA discussions.

[piston]

(part 1)

Hi Guys,

I just read your thread on Goodenow's belief that a lockout is a 100% certainty. There were some excellent points made there, particularly Bad Company’s observation that the owners are hardly united here given their disparate interests. In this thread, permit me to review the most significant developments I have seen over the past year and opine as to where this thing is headed. I have to say, that on the margin, I am more optimistic regarding a settlement than I was last year at this time. Events seem to be helping us out, us being the fans who want Hockey and no loss of games.

In my opinion, the three most significant event of the past season on the negotiating front were the resumption of talks between the League and the Union where the latter made significant concessions, the Levitt Report, and the recent American TV deal. If I have missed something here, please, by all means, jump in. Negotiations between the NHL and its player’s union resumed some time in late 2003. By all accounts, these talks are on going despite attempts at secrecy, and at least the two sides are facing off against each other. The NHLPA made a very constructive proposal which the owners were far too quick to reject out of hand. Goodenow offered and immediate, across the board 5% roll back in all player salaries, an admission that the owners really were losing money. In addition, the NHLPA were willing to have the luxury tax and revenue sharing placed on the bargaining table. I thought this was quite curious at the time since the baseball strike of 1994 and near stoppage in 2002 were caused by player resistance to these two concepts. As I clearly stated on my financial report, the largest financial problem faced by the NHL is a disparity in revenues between teams, and the players’ willing ness to discuss this seemed like a huge leap forward. Bettman (and I will use him as an entity independent of the owners) rejected this offer because it did not involve ‘cost certainty’, a euphemism for a salary cap. He also stated that the NHL owners needed to give the players a smaller share of overall hockey revenues than what the NFL owners receive (55% vs 65%).

In February, the NHL released the Levitt report which was prepared by the former head of the Securities and Exchange Commission, a man with an impeccable reputation for integrity. The Report verified much of what I had said in my own report on the Kings finances with collective operating losses for the League at $273 mm last season and that a “catastrophe” was approaching. Two quotes best sum up Levitt’s conclusions: "They [the NHL] are on a treadmill to obscurity, that's the way the league is going” and "I would not underwrite as a banker any of these ventures, nor would I invest a dollar of my own personal money in what appears, to me, a business that's heading south." Not much room for equivocation here. Most significantly, Levitt also made the startling admission is that two teams were not audited because “accountants concluded they were not viable ongoing concerns.” This is the first time that contraction as a viable option to solve the NHL’s financial problems was openly discussed. I believe this aspect of the report did not get more play because it was contrary to the wishes of Gary Bettman who has steadfastly refused to entertain any form of contraction. On the other hand, the fact that Levitt was willing to brooch the subject over the objections of the man who commissioned the report gives it more credibility in my eyes.

The Union reacted to the report in predictable fashion. Ted Saskin, the numbers guy at the NHLPA came out and claimed the owners were under reporting revenues and not really losing money. I had the opportunity to talk to Mr. Saskin in December 2003, not for as long as I would have wished, and the crux of his argument is that the owners are taking revenues generated from suites and premium seats off the books of the hockey team and crediting them instead to the arena, thus making it look like the clubs have lower revenues than they actually do. With all due respect to Mr. Saskin, I can state definitively that at least with the Kings and Staples Center, he is dead wrong. Remember from my report, the Kings get 25% of all luxury box and premier seat revenues. This is the same amount the Lakers receive with the remaining 50% going to Staples Center which incurs all associated costs such as sales and maintenance. There is no way the Kings deserve a number as high as 25% and AEG, the Kings’ owners, is extremely generous in crediting the club with such as high percentage. The suites and premier seats are purchased primarily by basketball fans who want to see the Lakers and by corporations who want to entertain their clients. I was told flat out by the President of my company that the only reason we maintain a suite is because of the Lakers and would be willing to bet that this is not uncommon. In addition, one of the main reasons suites are purchased is to get access to prime music concerts. In my opinion, the Union is blowing smoke when they say the NHL players are not getting their fair share of these revenues.

Just this past week, the NHL signed a new television deal with the U.S. broadcast networks. It was a disaster for the League. The NHL resigned with ESPN at ½ the dollars per season of the exiting contract. In addition, ESPN will broadcast fewer games and will move the NHL to ESPN2 which has less cable carriage and will mean a smaller audience. The network deal with NBC doesn’t guarantee any money to the League whatsoever. The SC Finals will be shown in primetime, but NBC will have to recoup all its costs before the NHL sees a penny. All will depend on how successful the two partners are in selling advertising, a dubious proposition given the low rating that a Tampa and Calgary final will generate south of the border. This past season, each club received $5.7 mm in national (including Canadian) television dollars. By my rough calculations, this will fall to $3.7 mm per club if the stars align correctly. This contract is the final proof that Bettman’s expansion strategy has been a complete failure. Expansion was always predicated on growing revenues, particularly from TV. In an era where revenues are shrinking, downsizing would seem to be the only answer, something that every other business in North America is subjected to. Contraction, folks, is now inevitable.

[piston]

Part 2

Given all this, why am I optimistic. My main reason is that I believe there is a recognition on the part of both the owners and the players that a work stoppage would be a disaster. European players like Nik Lidstrom and Peter Forsberg will go home, never to return to the NHL. Fan bases in markets like Atlanta, Tampa and Columbus, cities where the NHL has a viable chance, will be decimated, forever destroying the ability of these teams to make it over the long run. This would also be the final nail in the NHL’s TV coffin, just when HDTV is ready to emerge as the sport’s technological savior on the small screen. A work stoppage means lower revenues, fewer teams, less jobs and lower pay. Everyone loses. I think the players are more on board with this line of thinking than the owners, hence their willingness to discuss pay cuts, luxury taxes and revenues sharing. These are all solutions designed to save jobs while at the same time driving down salaries at the high end since the rich teams will no longer have the ability to go on spending binges. I find it hard to believe the NHL’s stars will go along with something that restricts their salaries excessively, but I don’t think any player wants end up on the assembly line in Windsor or Detroit rather than find a settlement. I believe very few Canadian and American players will actually find work in Europe.

As to the owners, the issues are more complicated. A group of owners led by hard liners such as Bill Wirtz (Chicago) and Jeremy Jacobs (Boston) want to break the Union. In fact Bettman told a friend of mine to his face that this goal was his objective. They are joined by a bunch of small market clubs whose viability is in question and who want a salary cap low enough to ensure their survival. This is Bettman’s power base, and he has instituted a rule to require a 75% vote from the owners to over turn any deal he cuts with the players. Gary Bettman is in a very powerful position. In fact, I would argue that he is the main obstacle to a settlement and that his removal may be necessary to prevent a work stoppage. If you look at Bettman’s tenure, it has been filled with failure. Larger operating losses, lower TV ratings, and labor unrest have been the hallmark of his reign. Now, in my opinion, it is his stubbornness and bruised ego over the issue of over expansion that stands in the way of a settlement. He seems more interested in trying to justify past decisions than in coming up with current solutions to current problems.

One area where Bettman does deserve credit is in brining a new group of owners into the game, many of which have build their own arenas. I point to LA, Colorado, Dallas and St. Louis as prominent examples. Here is likely where the internal opposition to Bettman resides. These are clubs with large debts to service on their arenas, who need hockey dates to fill their suites, consume the concessions and keep the sponsors happy. Prominent advertisers in Staples Center can break their 10 year deals after this season should they so choose. Another common trait is that these newer owners bought rather than inherited their teams. They see no reason why the NHL shouldn’t cooperate with its union rather than fight it as they look to an expanding pie that will make everyone happy and worry less about how to cut the slices. It is from this group that pressure can be brought for a settlement. Look for the newer owners to take an increasingly high profile in the negotiations—they have far too much to lose, and this is not a religious issue for them.

There is another player in this drama, potentially the most important, that has yet to be heard from. I am surprised it has not been mentioned yet. The Canadian economy would be devastated by a loss of Hockey. The sport is one of the biggest industries north of the border and employs hundreds of thousands. I do not believe the Government can afford to sit idly by and watch this spat between millionaires and billionaires cost this many jobs. Canada would be well within its rights to revoke the franchises the teams have within its borders and grant them to third parties. It can also invalidate all the player contracts making every player an unrestricted free agent over night. In addition, the Government can easily demand a seat at the bargaining table since its wholly owned network provides significant TV money to the League. This is a constituency that even Bettman cannot resist. It is for this reason that I am ultimately optimistic that we will have a hockey season next year.

I would love to debate this subject with some great hockey fans.

Phil

[Neo]

Excellent post....Indeed, it will be very interesting to see how things play out.

[Cranky]

Sheesh…..do you have a condensed version?


As for government involvement…..

Lastly to firstly. I don’t think the Canadian government will poke it’s nose in this. They tried to get involved and had a political hot potato a couple of years ago and had to do a quick about face. As far as saving jobs, I don’t think that issue is even on the horizon. Bottom line, the hockey industry does not amount to a hill of lima beans in the economy of any city, let alone a Province or a COUNTRY.

Bettmans survival…..

I do not think that Bettmen is in a powerful position. He stood for expansion and TV revenues and both are now in either retracting, or about to retract. If there is an extensive shut down with no results, inevitably, he will pay the price.

Loss of market…..

I also believe that work stoppage will be very destructive to some markets. Even if the owners of some of these market is in a position to survive a lockout, I can see those owner giving up if their fan base is counted in the 4 to 5,000 range. After all, in a gate driven industry, if the turnstiles are not spinning, then the club is spinning into bankruptcy. Contraction will be an inevitable result of a prolonged strike. Two to four for sure, maybe more.

Levitt…….

Are you saying the NHLPA has bought into the Leavitt report and that is why they offered concessions? I can tell you one thing, a 5% reduction in salaries does amounts to heaping mound of IRRELEVENCE because the players will get a minimum 10% increase the next contract offer they get. As far as revenue sharing, at what level? And why? Why would the owners who put up all the money want to share everything with the players unless they want to limit what the NHLPA can take? Isn't it a bit stupid for the owners to "share" everything AND have the high salaries to boot?

Luxury smuctury....

As far as luxury tax, I am not so sure that the NHLPA has anything to do with that. it’s not any of their business as to what owners of companies do to share their revenue with each other. The NHLPA offering their blessing is hollow at best and intrusive at worst. By definition, if the owners have ANY discussions about it with the union, they just gave the union enormous power to control the business relationship between the teams. No wonder the owners rejected it.

Think about it this way. You and I decide how to pool our resources and place some rules to share some revenue in order to survive. BC, the meddler that he is (), decides that even though he has not put any money into either of our businesses, he wants to discuss HOW to share OUR revenue between us. The only thing that I would then discuss is who is going to punch him on the snazolla.

The union will argue that they have a right to discuss it because it indirectly affects their salary structure. The only way they are going to get THAT line of thinking approved is in the courts. The way the courts work now, they may win the argument eventually, but they may be older then fossils before it sees it’s way through the courts. That is IF they win the argument.

Why not a hard cap?

Nothing more then 55% and then they players can talk about sharing ALL the revenues. Dwindling as they are. In my industry, manufacturing, no one in his right mind let’s his product consume more then 50% in labour and material. If you do, you are dead. I heard numbers as large as 70% for salaries and that is just ridiculous. Any owner who has let is slip that far is stupid and deserves bankruptcy.

Conclusion....

There is only one thing that makes sense from a owners perspective and the long term health of the league. Cost certainty. Sure, it’s the owners asking the players to save them from their own stupidity, but it is the only thing that will help them survive. 5% and other trivial concessions will mean nothing to the next negotiation where the agent sharks will play every game in the book, including crying to the fans, crying and manipulating the media, in short, hold the owners hostage to whatever demands they can think off. Once a salary cap goes into effect, no agent is going to be able to beat “that’s all the money we have under the cap”. To some extent, it disassociates the owners from the money and defuses the direct "responsibility" the agents want to place on them.

"That cheap owner did not want to pay little Billy-Joe Malakov, YOUR superstar player, a paltry 6 million and that that is the reason this club is never going to win the cup". That is what they hear in EVERY city, EVERY year, from the agents and the cooperating media. Take this threat out and you scare, nee, you give the NHLPA and agents nightmares.

~~~~~~~~~~~~~~

BTW, I modified the header and stuck it on top of the page. It is a very interesting and the most important discussion for the future of hockey....and the Hab's. Heck, you just saved the board from another punishing unleashing my my humour.

[Skilly]

Three things in your post caught my eye.

5% reduction of payroll. Whoop dee F-in doo. Do you know who this benefits? The big spenders, that's who. Some team spending 70 million (Toronto) now gets back 3.5 Million dollars. But teams spending less than 30 million (Pittsburgh's) only get 1.5 Million. And as HA said it wouldn't fly under the current NHL, because in essense, most of the league is staring qualifying offers at a 10% increase in the face, so this amounts to to a 5% wage increase. Pretty good in most other industries.

Luxury Tax system. Explain to me how this system is working for baseball? Steinbrenner is still spending oodles of money on players. Why? Because he doesn't care that he has to give the league $20 Million to split amongst themselves. 20 Million divided 29 ways doesn't give any team enough money to sign me, let alone enough to make a difference to theie team. There will always be a team or teams out there willing to spend over the limit, so it isn't helping the league. One Booby Holik, means that a another similar player is going to disrupt his team if he has better numbers. It isn't going to fly.

Hundreds of thousands of Canadians are employed by hockey (NHL?) Where did you pull that number from?
If I assume you mean 3 hundred thousand people are employed in Canada, through hockey, that would be 50,000 employees per region for each team. I would venture a guess that the CBC doesn't employ that many in any one region in Canada, and for hockey they employ maybe one thousand ...... Each team probably employs one thousand ....... hundreds of thousands??? .... If that is the case then the US economy is going to go kaplooey as well ....... They have 24 franchises. Wouldn't that mean that 1.2 Million jobs are affected (using the 50,000 per region analogy)?

[Goldthorpe]

I wouldn't expect too much of the canadian government... the general public see the league as a bunch of whiny millionaires and would bark at any public monetary involvement in the matter.

As for Bettman... I don't see the owners change horse and fire Bettman that late in the negociation process. I think he will keep his jog, for now. The final result will be his ultimate test.

Piston, your report is well known and is a recommended reading for anybody remotely interested in the topic. How hard would it be to implement a system similar to the NFL, which appears to my view as the "best" one?

[M. Beaux-Eaux]

A useful reference site re the CBA:

www.andrewsstarspage.com/cba.htm

[Habs_fan_in_LA]

Brilliant read Piston. Thank you.
I can't comment authoritatively because you are in posession of far more detailed info than I have at hand, but I do have one relevant comment.
Cost Certainty/Salary Cap (a rose by any other name), is not to protect the owners from themselves. I believe it is to protect Calgary from the Rangers and Ottawa from Detroit.
The field is not level and Toronto has far more revenue available to spend on salaries than Pittsburg does. Fans in Pittsburg will support a team that has Lemieux, Jagr and Kovalev on the marquis. If they feel that they have been raped and the product is diluted, they won't show up.
Montreal has/had a baseball team, but year after year their star players were bought up by the haves of MLB. Interest died even though the team remained somewhat competitive.
Salary cap simply makes it possible for the small market teams to compete on an almost level rink. Small market small costs small payroll.
Since hockey does not have evenly shared TV revenue of any consequence, the small market teams are at a disadvantage. I see Tampa and Calgary fighting for the cup while Detroit and the Rangers are golfing, but there are a lot of teams in trouble like Washington, Pittsburg, Florida and Nashville. Those teams won't benefit from the extra playoff revenue and they are the rule while Tampa and Calgary are the exceptions.

[Forum Ghost]

Clear example of why the NHL needs a fixin':


REPORT: Successful Sharks lost money

Despite their success this season, the San Jose Sharks still couldn't keep their fiscal heads above water.

The Sharks lowered their payroll by $10 million, gained revenue from nine playoff games - and still didn't make money this year, Sharks President and CEO Greg Jamison told the San Jose Mercury News on Saturday.

"There's no question the playoffs cut into the deficit, but we're not in the black," Jamison told the paper. "The Sharks are still going to lose $6 million or $7 million."

Jamison had set the team's losses after the 2002-03 season in excess of $10 million. The payroll was reduced by that amount and ended this season at about $36 million.

The loss of 2,500 season tickets from one year to the next led to a drop in average home attendance during the regular season from 17,350 to 15,835, with only 10 sellouts. That was somewhat offset, however, by a franchise-high nine home playoff games where full-house crowds of 17,496 paid prices that escalated up to $173 for a front-row seat in the Western Conference Final.

Other factors that kept the Sharks from finishing out of the red included empty suites and a drop in corporate sponsorship.


www.tsn.ca/nhl/news_story.asp?ID=84990&hubName=nhl

*

The lack of corporate sponsorship and empty suites doesn't help the situation, but it's still sad to see a team lose $6-7M even though they lowered their payroll by $10M and made it to the second round of the playoffs on top of that.

[rhabdo]

I thought they made it to the third round.

[M. Beaux-Eaux]

They did.

[piston]

San Jose's main problem was the decline in the tech sector in Silicon Valley. THis meant lower suite sales and fewer sponsorships. They should be OK as tech slowly recovers.

Phil

[piston]

Habs_fan_in_LA said:

Brilliant read Piston. Thank you.
I can't comment authoritatively because you are in posession of far more detailed info than I have at hand, but I do have one relevant comment.
Cost Certainty/Salary Cap (a rose by any other name), is not to protect the owners from themselves. I believe it is to protect Calgary from the Rangers and Ottawa from Detroit.
The field is not level and Toronto has far more revenue available to spend on salaries than Pittsburg does. Fans in Pittsburg will support a team that has Lemieux, Jagr and Kovalev on the marquis. If they feel that they have been raped and the product is diluted, they won't show up.
Montreal has/had a baseball team, but year after year their star players were bought up by the haves of MLB. Interest died even though the team remained somewhat competitive.
Salary cap simply makes it possible for the small market teams to compete on an almost level rink. Small market small costs small payroll.
Since hockey does not have evenly shared TV revenue of any consequence, the small market teams are at a disadvantage. I see Tampa and Calgary fighting for the cup while Detroit and the Rangers are golfing, but there are a lot of teams in trouble like Washington, Pittsburg, Florida and Nashville. Those teams won't benefit from the extra playoff revenue and they are the rule while Tampa and Calgary are the exceptions.

I will attempt to answer each of the comments on this thread as I have time. I say again, a salary cap in the NHL under current conditions will not work. The problem is the differential in team revenues, not the spending that results. Say you had an immediate salary cap of $31 mm tomorrow. Under those circumstances, Calgary may have a chance of breaking even next year. Dtroit will have have a wholesale sweep of its roster dumping several expensive players on the market with no takers. Now, Detroit will have $50 mm in profit (a guess) while Calgary will be at break even.

Point #1 is that Detroit will then take the $50 mm and spend it on coaches, scouts, player development and other ways to seek to regain its advantage. Calgary will eventually be forced to respond. For instance, Detroit fears Daryl Sutter-- they can now pay him $5 mm to be chief of scouting and keep him away from Calgary. Detroit also pays its players through sponsorships of pizza (Mike Illitch owns Little Caesars). They can just turn the profits they make to another entity and increase non-salary compensation.
As long as one team has greater revenues than another, they will have an incentive to spend to maintain their competitive advantage.

Point #2 goes to the Union. If I am Bob Goodenow, why would I ever agree to cap salaries at the level of the poorest franchise. Why should Detroit be allowed to make $50 mm in profit that my players have no ability to capture. If the average salary is set to make the poorest team profitable, there is an entire pool of hockey revenues generated in the big markets that the players will be denied.

Given these points, a salary cap will by definition fail unless the underlying problme of revenue disparity is first addressed. In the NFL, a salary cap works because revenues are equalized thanks to the TV and sponsorship deals.

Phil

[piston]

Goldthorpe said:

I wouldn't expect too much of the canadian government... the general public see the league as a bunch of whiny millionaires and would bark at any public monetary involvement in the matter.

As for Bettman... I don't see the owners change horse and fire Bettman that late in the negociation process. I think he will keep his jog, for now. The final result will be his ultimate test.

Piston, your report is well known and is a recommended reading for anybody remotely interested in the topic. How hard would it be to implement a system similar to the NFL, which appears to my view as the "best" one?

The NFL system works solely for one reason-- revenues are shared (TV, sponsorships). This means Green Bay has almost the same revenues as Chicago. Under this system, as salary cap can work because the players are assured of getting a fixed cut of all football related revenues. In Hockey, the differential revenue base of the teams means that a salary cap will only be a bandaid covering up an infected wound. Can we convince the owners to share a great percentage of their revenues? Well, some owners play in new arenas with lots of suites that they financed. Should they be forced to share these revenues with teams who play in decrepit buildings without all the suite and sponsor revenus?

With regards to Bettman, I fear you are right. He has the hammer of the gag order and the knowledge it will take 75% of the votes to overturn any deal he makes with the players. Only the Canadian government possess the power to push him out. I don't live north of the border and am not familiar with the politics, but I just don't see the government allowing the loss of hockey for two seasons because Bettman is unwilling to find common ground. The government would not have to put any money up, just threaten to revoke the franchises and invalidate player contracts. That will force the owners to listen.

Phil

[piston]

Skilly said:

Three things in your post caught my eye.

5% reduction of payroll. Whoop dee F-in doo. Do you know who this benefits? The big spenders, that's who. Some team spending 70 million (Toronto) now gets back 3.5 Million dollars. But teams spending less than 30 million (Pittsburgh's) only get 1.5 Million. And as HA said it wouldn't fly under the current NHL, because in essense, most of the league is staring qualifying offers at a 10% increase in the face, so this amounts to to a 5% wage increase. Pretty good in most other industries.

Luxury Tax system. Explain to me how this system is working for baseball? Steinbrenner is still spending oodles of money on players. Why? Because he doesn't care that he has to give the league $20 Million to split amongst themselves. 20 Million divided 29 ways doesn't give any team enough money to sign me, let alone enough to make a difference to theie team. There will always be a team or teams out there willing to spend over the limit, so it isn't helping the league. One Booby Holik, means that a another similar player is going to disrupt his team if he has better numbers. It isn't going to fly.

Hundreds of thousands of Canadians are employed by hockey (NHL?) Where did you pull that number from?
If I assume you mean 3 hundred thousand people are employed in Canada, through hockey, that would be 50,000 employees per region for each team. I would venture a guess that the CBC doesn't employ that many in any one region in Canada, and for hockey they employ maybe one thousand ...... Each team probably employs one thousand ....... hundreds of thousands??? .... If that is the case then the US economy is going to go kaplooey as well ....... They have 24 franchises. Wouldn't that mean that 1.2 Million jobs are affected (using the 50,000 per region analogy)?

The 5% reduction in payroll was accompanied with an offer to lower payments to new players coming into the league and to look at arbitration. Essentially, the players were willing to cut their comp for younger players in order to preserve the current system for UFAs over 31. Ah yes, seniority, the bane of all unions.

As to revenue sharing, it will have to involve a great percentage of total revenues than in baseball if it is to be successful. I ask again, however, do you feel comfortable in asking AEG which paid for Staples Center out of its own pocket to share suite revenues with Pittsburgh where no one is willing to finance a new stadium? Doesn't seem fair to me. I don't mean to suggest that a luxury tax and revenue sharing will necessarily solve any problems right away. I think what is clear is that a salary cap imposed on top of the current stracture will never be accepted by the players and cannot possibly work.

The problem the NHL faces is DIFFERENTIAL REVENUES BETWEEN THE TEAMS. It is not that salaries are too high. Salary inflation is the symptom, not the cause of the current problem. Any solution will have to recognize this. I fear this focus on curing the symptoms will lead to a long work stoppage. Only focusing on the underlying cause will lead to a successful conclusion.

As to the number of people employed by hockey in Canada, I will defer to your knowledge. I took and expansive view to include ushers, people emplyed at the minor league and junior level and everyone involved in merchandising. In any case, Hockey does have an economic impact on Canada, I don't think anyone can deny this.

Phil

[Habs_fan_in_LA]

piston said:

I will attempt to answer each of the comments on this thread as I have time. I say again, a salary cap in the NHL under current conditions will not work. The problem is the differential in team revenues, not the spending that results. Say you had an immediate salary cap of $31 mm tomorrow. Under those circumstances, Calgary may have a chance of breaking even next year. Dtroit will have have a wholesale sweep of its roster dumping several expensive players on the market with no takers. Now, Detroit will have $50 mm in profit (a guess) while Calgary will be at break even.

Point #1 is that Detroit will then take the $50 mm and spend it on coaches, scouts, player development and other ways to seek to regain its advantage. Calgary will eventually be forced to respond. For instance, Detroit fears Daryl Sutter-- they can now pay him $5 mm to be chief of scouting and keep him away from Calgary. Detroit also pays its players through sponsorships of pizza (Mike Illitch owns Little Caesars). They can just turn the profits they make to another entity and increase non-salary compensation.
As long as one team has greater revenues than another, they will have an incentive to spend to maintain their competitive advantage.

Point #2 goes to the Union. If I am Bob Goodenow, why would I ever agree to cap salaries at the level of the poorest franchise. Why should Detroit be allowed to make $50 mm in profit that my players have no ability to capture. If the average salary is set to make the poorest team profitable, there is an entire pool of hockey revenues generated in the big markets that the players will be denied.

Given these points, a salary cap will by definition fail unless the underlying problme of revenue disparity is first addressed. In the NFL, a salary cap works because revenues are equalized thanks to the TV and sponsorship deals.

Phil

I have no doubt that it is and will always be better to be rich than to be poor. Drive a better car, hire better players.

A cap would still allow wealthy teams an advantage over smaller market teams, but the advantage would be diminished over where it stands today. In addition, (as in the NBA) star performers would be spread out with each team able to pay only one or two under the cap. Iginla wouyld have to stay in Calgary because New York, Toronto and Detroit already have their upper payroll slots filled with expensive players.
Paying coaches and scouts uncapped money wouldn't get Iginla away from Calgary and their fans could continue to enjoy good hockey.

Detroit would continue to lavish their players with lucrative off ice promotional opportunities to sell cars and pizza's in numbers that Calgary could never match.
To me it's more important to keep weaker teams afloat than to stop big market teams from making big profits. The players are handsomely compensated for their artistry. Yes, basketball players, movie stars and rock idols make more, but if Lindros wants to be in a movie, he has that choice.
It's not in the interest of the NHLPA to cap salaries at the level of the poorest team, but it's not in their interest to shut down franchises and lose jobs either. Fewer jobs means more competition for work and lower salaries. (supply/demand) It's a Hobson's choice. The Rangers will always have more revenue than the Penguins. In order to make the competition somewhat even either revenue sharing or salary caps will be necessary. Small market teams are already are in a crunch and losing fans makes their situation worse.
Getting Steinbrenner to donate money to the Expo's without a mandated formula is impossible. The Yankees don't care if the Expo's fold, but MLB and the players union does care if the league goes back to 8 franchises per league.

[piston]

Habs_fan_in_LA said:

I have no doubt that it is and will always be better to be rich than to be poor. Drive a better car, hire better players.

A cap would still allow wealthy teams an advantage over smaller market teams, but the advantage would be diminished over where it stands today. In addition, (as in the NBA) star performers would be spread out with each team able to pay only one or two under the cap. Iginla wouyld have to stay in Calgary because New York, Toronto and Detroit already have their upper payroll slots filled with expensive players.
Paying coaches and scouts uncapped money wouldn't get Iginla away from Calgary and their fans could continue to enjoy good hockey.

Detroit would continue to lavish their players with lucrative off ice promotional opportunities to sell cars and pizza's in numbers that Calgary could never match.
To me it's more important to keep weaker teams afloat than to stop big market teams from making big profits. The players are handsomely compensated for their artistry. Yes, basketball players, movie stars and rock idols make more, but if Lindros wants to be in a movie, he has that choice.
It's not in the interest of the NHLPA to cap salaries at the level of the poorest team, but it's not in their interest to shut down franchises and lose jobs either. Fewer jobs means more competition for work and lower salaries. (supply/demand) It's a Hobson's choice. The Rangers will always have more revenue than the Penguins. In order to make the competition somewhat even either revenue sharing or salary caps will be necessary. Small market teams are already are in a crunch and losing fans makes their situation worse.
Getting Steinbrenner to donate money to the Expo's without a mandated formula is impossible. The Yankees don't care if the Expo's fold, but MLB and the players union does care if the league goes back to 8 franchises per league.

I have to disagree with you, my friend. I'm Mike Illitch and your Jarome Iginla. Jarome, I say, I see that Calgary is paying you $5mm a year right now. They cannot afford anymore because they are right at the salary cap. Jarome, I am going to offer you $1 in salary and $10 mm in promotional opportunities. And, by the way, our broadcasting job is open for when you retire. I just don't see it possible to cap salaries when revenues are so disparate.

In addition, it is easy for you to say that you don't care if the rich teams are now going to make obscene profits. Goodenow does not have that luxury if he wants to keep his job. He is charged with getting a fixed amount of all hockey related revenues from the owners to his constituency. Set a salary cap low enough to save the weakest team, and a whole pot of revenues now escapes the players and ends up in the hands of a few owners.

Also, the basketball example doesn't work for a couple of reasons. Basketball has a large TV contract which equalizes the revenues. Moreover, one star player makes far more of an impact in basketball than he does in hockey.

Phil

[Skilly]

piston said:

I have to disagree with you, my friend. I'm Mike Illitch and your Jarome Iginla. Jarome, I say, I see that Calgary is paying you $5mm a year right now. They cannot afford anymore because they are right at the salary cap. Jarome, I am going to offer you $1 in salary and $10 mm in promotional opportunities. And, by the way, our broadcasting job is open for when you retire. I just don't see it possible to cap salaries when revenues are so disparate.

In addition, it is easy for you to say that you don't care if the rich teams are now going to make obscene profits. Goodenow does not have that luxury if he wants to keep his job. He is charged with getting a fixed amount of all hockey related revenues from the owners to his constituency. Set a salary cap low enough to save the weakest team, and a whole pot of revenues now escapes the players and ends up in the hands of a few owners.

Also, the basketball example doesn't work for a couple of reasons. Basketball has a large TV contract which equalizes the revenues. Moreover, one star player makes far more of an impact in basketball than he does in hockey.

Phil

I see where you are going with this but, the NHL still has
1) a minimum salary - so they won't be able to lowball another team beyond that.
2) all contracts and trades must first be approved by the NHL. So they could prevent something like this from happening right off the bat.
3) Jerome Iginla still has an agent who get's paid based on his NHL contract. You are basically taking the middle man out of it (I guess it wouldn't be hard to get them to agree to get paid on advertising deals, but the NHL money is guaranteed, the advertising money isn't necessarily so.)

I still am at a loss as to why you think the Canadian government (why not the all mighty US govt?) can revoke franchises at its whim?? I don't think they can, for one thing if they could it would have to be for just causes. The Canadian economy goes as the US economy goes, and even though hockey is apart of our culture and we like to think it defines us as a people (it only became our joint national sport (along with lacrosse) about 10 years ago) the economy is not going to be as greatly impacted as you believe.

For starters, it is only the concessions, ushers, broadcasters, technicians, and NHL players that will be effected by this strike/hold-out. Minor leaguers, minor hockey, merchanisers, retailers will all still be working. I would venture to guess that about 5,000 Canadian jobs may be affected. I just went through a strike where 20,000 employees were out for one month. The provincial economy survived. But when you take into account that about 1,000 of these 5,000 jobs are well above the poverty line, well I can't see the Canadian government doing anything. The Canadian government itself just made about 7,000 job cuts in April. They didn't care about its effect on the economy then.

The last time the government got involved with trying to help the NHL with its problems, their was such a public backlash, that the Liberals spent about a week trying to apologize to all Canadians for even entertaining the idea.

You may be right somehow on this point, but I just don't see it right now ...... maybe I will one day, but not today.

[Habs_fan_in_LA]

piston said:

I have to disagree with you, my friend. I'm Mike Illitch and your Jarome Iginla. Jarome, I say, I see that Calgary is paying you $5mm a year right now. They cannot afford anymore because they are right at the salary cap. Jarome, I am going to offer you $1 in salary and $10 mm in promotional opportunities. And, by the way, our broadcasting job is open for when you retire. I just don't see it possible to cap salaries when revenues are so disparate.

In addition, it is easy for you to say that you don't care if the rich teams are now going to make obscene profits. Goodenow does not have that luxury if he wants to keep his job. He is charged with getting a fixed amount of all hockey related revenues from the owners to his constituency. Set a salary cap low enough to save the weakest team, and a whole pot of revenues now escapes the players and ends up in the hands of a few owners.

Also, the basketball example doesn't work for a couple of reasons. Basketball has a large TV contract which equalizes the revenues. Moreover, one star player makes far more of an impact in basketball than he does in hockey.

Phil

You are right Phil in that Mike Illitch can always say that he is going to pay promotional/under the table/bonus money to any player. An important distinction is that:
1. He can be fined if his actions are deemed to be outside the normal acceptable forms of consideration.
2. It is still a minor obstacle for the owners to overcome as opposed to simply showering players with dollars.
3. Some former players have very successful broabcasting careers and some like Statsny and Lafleur do not. There is no guarantee like a guaranteed contract.

All owners are different. The billionaires are in it for the publicity and glory.
Millionaires are out to make a profit.
For some it's a labor of love.
Broadcasting conglomorates have a different agenda than locally owned franchises.
No body wants to lose money, but I'm sure Paul Allen won't be put on a food line because one of his franchises overspent for a player.

Basketball has huge shared revenue streams which is precisely why a cap is more important in the NHL than in the NBA where financial ruin is not just around the corner for a team that overspends and loses a few thousand season ticket holders.

A possible solution to shared revenue stream is allowing the visiting team a portion of the home teams gate.

I don't pretent to be smart enough to have the solution to the problem, but I know that a lot of teams are in trouble and a three team league of Toronto, Detroit and the Rangers isn't the answer and neither is expansion to Santa Fe and Port aux Basques.

[MC Habber]

Skilly, I think you may be underestimating the economic impact of the NHL, though I think piston is exaggerating considerably. No NHL hockey will not only mean the direct loss of jobs that you mentioned, it will also hurt retail sales of NHL-branded merchandise, sports lotteries, and sports tv and radio shows and channels, among other things. I'm not sure what effect it would have on interest in junior hockey. Possibly the biggest reason for the Canadian government to be concerned about a long work stoppage is the money they collect in taxes on player salaries.

[Forum Ghost]

rhabdo said:

I thought they made it to the third round.

Oops. My mistake.

I meant to type third round.

[BadCompany]

Here is a 1999 Report on the impact of NHL hockey in Canada.

www.ic.gc.ca/cmb/welcomeic.nsf/vRTF/PublicationNHL/$file/Nhl-eng.pdf

Some highlights:

1. The stakeholder in question recognizes the problem, but believes that the solution is in the
hands of other stakeholders.

· This was the response provided by the Government of British Columbia, by the Cities of Toronto and Vancouver, and by the NHLPA.

2. The stakeholder in question believes that it has contributed its fair share, and will continue to do so, but is not in a position to offer any additional direct contributions.

· This was the response provided by the Government of Alberta, the cities of Edmonton and Calgary, and the National Hockey League.

3. The stakeholder in question believes that this problem warrants action, and will make a contribution to its resolution provided all stakeholders contribute to a solution.

· This was the response provided by the federal government, the Government of Ontario, the city of Kanata and the Regional Municipality of Ottawa- Carleton.

4. The stakeholder in question does not wish to participate in a shared solution, but may choose
to act on its own.

· This was the response provided by the Government of Quebec.


(c) Economic Significance:

(i) Employment: Approximately 11,000 Canadians are employed in full and part time positions – either directly or indirectly – as a result of NHL teams.

(ii) Local Investment: Municipalities benefit from the investment of NHL teams; it was noted, for example, that the six Canadian teams have generated approximately $1 billion in infrastructure investment over the last decade.

(iii) Public Revenues: It is estimated that the activities of the six NHL teams generate over $200 million annually in taxes paid to or collected on behalf of different levels of government, e.g. income, property and entertainment taxes.

(iv) Other Impacts: A number of municipal representatives noted that the impact of a team on the reputation – both national and international – of cities is substantial, and that teams can be seen to provide a degree of international prestige to their home towns.

The six Canadian teams are a significant source of economic activity. According to the NHL, they directly provide 8,600 full and part-time jobs, as well as another 3,000 jobs in related industries. They directly pay wages and benefits that totaled more than $300 million in 1997, as well as accounting for another $100 million in wages and benefits in related industries.

A closer look at the economic impact of NHL teams was provided by an independent study conducted in 1994 by the Government of Alberta’s Professional Sport Policy Committee. That study concluded that the Calgary Flames and Edmonton Oilers together generated direct and indirect benefits totaling in excess of $117 million a year to the local economies. The Committee concluded: “By considerable amounts, the two NHL franchises have a large economic impact within the province.”<br>
The tax revenues that these teams provide are also considerable. According to the NHL, in 1997 the six Canadian teams paid or collected $211 million in direct taxes to all levels of government.

Player salaries alone generate significant government revenues by virtue of being taxed in Canada. According to the NHL, the Government of Canada receives approximately $130 million a year from income taxes and payroll taxes on league and team employees, primarily the players.

Similarly, the total amount collected in sales taxes by the six Canadian teams during the 1996-97 season was approximately $35-40 million. It should also be noted that NHL hockey is not classified as “Canadian entertainment” because of the league’s international component, and as a result, the two Ontario teams are required to collect and pay a 10% provincial entertainment tax on ticket sales.

[BadCompany]

It was the above report, I believe, that led to the Canadian Government offering a $20 million subsidy to the six Canadian NHL teams that led to such an outcry and forced the government to reverse its position an recind the offer 24 hours later.

I think each NHL team would have recieved $2-3 million a year from the government, and the idea was shot down. Governments pay out a lot more than that to less economically productive industries/slash companies, with no public outcry, but what are you going to do?

The Canadian Government won't get involved. They got burnt the last time, and there is nothing in it for them this time. They watch polls too much to actually care about running the country, and regardless of whether its actually the "right" thing to do, they won't step in unless there is public pressure to do so. And based on the 1999 fiasco, there won't be any public pressure.

[M. Beaux-Eaux]

Fascinating find, BC.

So the NHL's economic impact is significant, especially the lower down the government ladder one goes (federal-provincial-municipal). Not as dramatic perhaps as piston suggested, but of considerable import nonetheless.

Government has historically maintained an arms-length attitude. However, there has never been a work stoppage of the duration predicted for the up-coming one. Intervention in the case of a prolonged loss of revenue is not inconceivable.

Another aspect to keep an eye on.

[BadCompany]

I don't know. I have little faith in the government doing "the right thing" regardless of the economic impact. We've seen them bungle things before, riding poll numbers.

Take the helicopter thing. Public perception was that they were a waste of money, and even though every other factor said that not only was it a good deal economically, but that were an absolute necessity. In the end, the government took the path of least resistance, caved in to the polls, and cancelled the helicopter deal. Ended up costing the taxpayers hundreds of millions more, and its become a safety hazard that is literally getting people killed.

Ditto for the NHL payout they offered last time around. I think it was for $20 million, which, as far as governments go, is nothing. They paid out ten times that amount in the sponsorship scandal. It would have resulted in what, a little over $3 million per team? A $3 million handout to save the hundreds of millions in tax revenue that is brought in because of having NHL hockey in Canada? They didn't even TRY to defend that position, and caved, like I said, a day later.

The second the government pokes its head into the labour negotiations, there will be a public outcry. The government does not need to get involved, nor will they, in my opinion.

[M. Beaux-Eaux]

BadCompany said:

I don't know. I have little faith in the government doing "the right thing" regardless of the economic impact. We've seen them bungle things before, riding poll numbers.

Take the helicopter thing. Public perception was that they were a waste of money, and even though every other factor said that not only was it a good deal economically, but that were an absolute necessity. In the end, the government took the path of least resistance, caved in to the polls, and cancelled the helicopter deal. Ended up costing the taxpayers hundreds of millions more, and its become a safety hazard that is literally getting people killed.

Ditto for the NHL payout they offered last time around. I think it was for $20 million, which, as far as governments go, is nothing. They paid out ten times that amount in the sponsorship scandal. It would have resulted in what, a little over $3 million per team? A $3 million handout to save the hundreds of millions in tax revenue that is brought in because of having NHL hockey in Canada? They didn't even TRY to defend that position, and caved, like I said, a day later.

The second the government pokes its head into the labour negotiations, there will be a public outcry. The government does not need to get involved, nor will they, in my opinion.

You may well be right and it wouldn't surprise me (not that you're right , but that the GOC would follow the same path).

However, there is an election coming up (St-Jean Baptiste Day revellers beware) on June 25th. What will the mood of the canadian people be vis-à-vis their expectations from Government? What will the new goverment's attitude be toward "doing the right thing"?

Stay tuned, I guess.

[Boston_Habs]

I think the recent CBA in baseball will be the comp that both players and owners will use as a framework. Both the NHL and MLB have many of the same dynamics: a huge disparity between rich and poor teams, poor national TV ratings, and a large concentration of local sources of revenue (stadium, local radio and TV).

Many say that the last CBA in baseball didn't go far enough to protect the smaller market franchises, but these were the basics of the deal:

1) Luxury Tax
No salary cap, but payrolls exceeding a certain threshold are taxed with the income going to a central fund to support the weaker franchises. The problem in baseball is that the threshold was set very high; $115mm in 2003. I don't have the MLB payroll figures handy but I would bet there are no more than 3-5 teams with a payroll above $120mm.

2) Revenue Sharing
Each team contributes 34% of local revenues into a pool that is shared evenly among all 30 teams. Again, the question is how high should the contribution rate be? Many in baseball wanted 50% of local revenues to be shared.

I think this is where the NHL will end up. I think you need a luxury tax that kicks in on the top 30-35% of payrolls, and revenue sharing in the 40-50% range.

If teams STILL can't make any money under that scenario then you have contraction. As Piston argued, the point is not to protect the weakest franchises but to protect the average to slightly below average franchise.

[M. Beaux-Eaux]

Pay attention Mr. Bettman
Owners want 'cost certainty' to keep a competitive balance but Al Strachan asks why?

By AL STRACHAN -- Toronto Sun

COMPETITIVE imbalance? What competitive imbalance?

If you listen to National Hockey League commissioner Gary Bettman explain why he intends to lock out the players on Sept. 15, that's one of his primary reasons.

Under the existing system, he insists, there is a competitive imbalance caused by rich teams being able to buy high-priced players who are unavailable to poorer teams.

For three years now, Bettman has been making that point.

But the facts just don't support his case.

- slam.canoe.ca/Slam040525/col_strachan-sun.html

[Habs_fan_in_LA]

There are three things which seem obvious and therefore are not likely to be accepted.

1. A soft salary cap. Call it cost certainty or whatever you wish. It simply states that if the Rangers buy Holik and spend $20,000,000 over the cap, they pay a matching amount to a pool to be shared by all teams to restore balance. Illitch can still sell pizza and buy players, he just has to pay for them.

2. Taxes. Municipal, Federal and Provincial governments must buy into a program that stops them from killing the goose that is laying the golden eggs. Sports are different than a GM plant in St. Therese. Sports scores are in the newspapers daily. Unit sales of Firebirds and Camaros are not. Hockey is a cultural icon of Canada. It's true in Toronto, Montreal and Vancouver. It's more true in Calgary, Edmonton and Ottawa. It's true in Winnipeg and Quebec City too. If the voters don't support policies that save franchises like the Expo's, the city shouldn't have a team. Although Montreal doesn't support the Expo's, I believe the city will be affected by their departure. Fans from Burlington and Boston won't be making even infrequent treks to Montreal and hotel occupancy will be affected.

3. Shared revenue is essential to the health of any competitive league. If there is no TV revenue to share, then a portion of the gate must be shared by visiting teams. Even peewee leagues have formulas to ensure competitive play. (practice limits, drafting rules and tryout agreements) We watch the Olympics on TV, but who would watch a dual meet between USA and Namibia? The gymnastics competition would be very onesided.

Mr. Bettman and Mr. Goodenow: I magnanamously make myself available to assist you in settling the dispute for a fee of $5,000 per hour plus expenses. Every cent I'm paid over $4,000 per hour, I will share with the good members of HabsRUS who are only too eager to give me their sage advice. Revenues will be shared in proportion to the number of posts each person has contributed with a cap at 1,000 posts to ensure that the smaller posters receive adequate proportional compensation. If Piston will personally assist me, I will give him an additional expense check outside the aforementioned formula which is not subject to the HabsRUS revenue sharing formula, and all the pizza he can eat. If the government agrees to lower the taxes levied on the teams I will contribute a share of the revenue directly to the political parties involved in poroprtion to the number of seats they hold.

Each team may contribute an additional amount to me personally to lobby their interests. These sums will not be subject to the sharing formulas.

[Skilly]

Habs_fan_in_LA said:

I don't pretent to be smart enough to have the solution to the problem, but I know that a lot of teams are in trouble and a three team league of Toronto, Detroit and the Rangers isn't the answer and neither is expansion to Santa Fe and Port aux Basques.

I wouldn't knock the Port Aux Basques Mariners. They are essentially folded now (I think) but in their hey-day that had a few ex-NHLers play for them (remember Mario Roberge, Serge Roberge, and Bill Riley)

They could give some NHL teams a run for their money .... and if not they would sure as hell lay the beating on them!