Fixing the NHL crisis in five easy steps

August 16, 2012, 3:54 PM

The fans are always the victims in any sports labour dispute, although suckers might be a better description. Recent history has shown that when owners and players fight over how to share your hard-earned money, the consequences of their take-ball-and-go-home negotiating tactics are minimal. Robbed of our testosterone-flavoured methadone, when the games come back, so do we, marching right over the cliff with our credit cards in hand. It sucks to be a sucker, but short of a mass migration to knitting or board games, it appears it will ever be thus.

Which is why we’re proposing an NHL collective bargaining agreement to end all further labour stoppages, one that those without a vested interest — other than, you know, funding the whole venture with your money and passion — deem fair to both sides and which will actually contribute to the overall health of the game and the fan experience, rather than simply be whatever happens when the billionaires and millionaires go into sudden-death overtime.

Goals:

– A league that’s robust — I never want the NHL’s news agenda driven by disasters like the Phoenix Coyotes again.

– A league in which the top players earn something approximating what they’re worth.

– A league in which franchises operating in markets that are passionate about hockey can match their fans’ passion by investing to build winners. Nashville and Columbus are welcome in my NHL, but not if carrying them means Toronto or Boston or an inspired ownership in Edmonton can’t spend as much as it wants to build teams and be attractive to stars.

Sound good?

Here we go — how to end CBA negotiations forever in five easy steps. Gary Bettman and Don Fehr have been cc’ed.

1. Just get to a 50-50 revenue split and be done with it:

It’s easy to look back at the 2004–05 lockout and have sympathy for the players, who essentially took a two-hander to the mouth in the form of a 24 percent wage cut, a hard salary cap and a year’s earnings lost. You can almost hear Bettman snarling, “Hope you find some of your teeth in that pool of blood, Meat.” But consider where the owners were starting from: Player salaries were eating up 75 percent of league revenues; Alexei Yashin was making $8.4 million; Jason Allison was making $8 million. The top 25 players in the league were earning $218 million, and this when the Canadian dollar — the currency in which a disproportionate amount of league revenues is generated — was sagging along at 75 cents on the U.S. dollar. Mats Sundin’s $9 million salary cost the Leafs $12 million Canadian.

The rollback was a drastic step, but seven years later it’s hard to make the case it was unnecessary. And guess what, the players are still raking in 57 percent of revenues. While I’m no fan of the owners’ bully tactics (“We’ll shut down the league, squeeze a few paydays out of you, and when you get desperate maybe you’ll listen to reason”), I find it hard to get too bent out of shape when the owners are forking over more than half of their revenues to the players. Good on the players for scrapping for every last dime, but an even split of revenues from now until the end of time seems like common sense to me. Just do it — and shut up about it.

2. Contract two teams; move two others to Canada:

Perhaps the biggest challenge facing NHL owners is that they are in business with some real dog-and-pony shows. On one hand you have Maple Leaf Sports and Entertainment, which — on-ice performance aside — is perhaps the most sophisticated sports ownership group on the planet. According to Forbes, the Leafs’ 2010–11 operating income of $81.8 million nearly matched the next two most lucrative operations — the Rangers and Canadiens — combined. (And if you’re looking for a staggering figure, the other 27 teams combined for $44.4 million in operating losses.)

On the other hand you have the New York Islanders, who could hold a rat rodeo in the bowels of the decrepit Nassau Coliseum and have taken John Tavares hostage. Phoenix is Phoenix. Columbus is a joke, and Florida can barely draw Canadians during March Break. But what if we chopped two teams and moved two more? More revenue for the league and the players to share, and less bad news for the rest of us. No-brainer.

Lopping off two teams (and before you say that’s crazy, I talked to one former NHL governor who wished it was six) makes the league six percent smaller, but as the former governor told me, “You know that revenues wouldn’t drop by six percent.” Right away, each remaining team’s share of revenues would increase as they would only have to divide by 28 instead of 30; it would also mean two fewer clubs on the receiving end of revenue-sharing cheques. Lopping off the Islanders and Panthers would cut league revenues by $144 million (based on 2010–11 figures compiled by Forbes) but would increase the average earned per team from $103 million to $105 million.

Similarly, moving the next two weak sisters to Canada would add significantly to the league’s coffers. If Phoenix and Columbus come north (with the Blue Jackets sliding over to the Eastern Conference to balance them out), with one team in southern Ontario and another in Quebec City, it seems reasonable that they could generate a combined $214 million in revenues, which is the league average. That would bump overall league revenues up by $64 million.

Do the math — the new-look NHL would spin about $3.01 billion in revenue, or an average of $112 million per team, a 4.4 percent increase. Keep in mind that we’ve rolled salaries back to 50 percent of revenues. The two measures together put an additional $7.525 million into each owner’s pocket. Common sense — priceless.

3. Limit player contracts to four years:

Let’s face it, deals that run for a decade or more are simply dumb because the teams are on the hook for all the risk. For starters, contracts can’t be insured against injury for more than seven years, and the danger of performance drop-off is massive. I’m also of the belief that over time these deals will be bad for the players themselves. Sure, it’s nice for Ilya Kovalchuk or Shea Weber to know that money will be rolling in until 2025 or ’26, but what are the odds they won’t otherwise be unhappy with their situation over the life of their deals? Weber is getting huge chunks of money up front, but at age 33, in his prime, he’ll be earning $6 million (barring a rollback), or less than James Wisniewski will make this year. Human nature suggests that might rankle. Guys like raises. They like incentives. They need a sense of urgency. Something makes me think that as more players get halfway through their decade-plus deals, it’ll be a huge challenge to keep complacency and staleness at bay.

Sportsnet image

No 10-year deals in Grange’s NHL.

The flip side is that it sucks for fans, too. Oh sure, Penguins fans can clutch their Sidney Crosby blankies at night for the foreseeable future, but 29 other cities (er, make that 27) are robbed of the possibility that Crosby might come on the market again. Would the Montreal Canadiens not pull out all the stops to have “The Kid” dress for his favourite childhood team? Wouldn’t the NHL benefit if Crosby could find his way to Los Angeles, Chicago or New York? Do the Leafs not deserve the opportunity to be snubbed in free agency by the best player in the game?

Limiting contract length helps everyone and hurts no one. The majority of NHL players never sign long-term deals, so they don’t really care. The players who do end up with deals longer than three or four years have often already made some decent money in their careers, but are forgoing the flexibility and earning power longer-term for apparent security (what or where will the New Jersey Devils be in 2020, Kovy?). The NBA has reduced contract lengths from a maximum of six years to five and benefited from having their stars featured in the off-season news cycle that accompanies the possibility of franchise-altering player movement. Meanwhile, the majority of NHL stars hibernate in summer, tied up in arranged marriages earning less than their market rate. The NHL loses out, and so do its fans.

4. Meaningful revenue sharing, Part I:

The problem with revenue sharing, I’ll acknowledge, is that it just seems like something the NDP would come up with on a bad day. It’s hard — no, make that impossible — to get teary-eyed about the Dolan family (who own Madison Square Garden) sharing revenues. But then again, if I invested $1 billion to upgrade the building my teams played in, I can’t see myself being thrilled at the notion of sharing the additional revenue generated with putzers like Charles Wang, who owns the Islanders. Don’t get me wrong, there’s room in life for some legislated sharing, but the essence of sports is competition — earning your rewards. Which is why the first aspect of my revenue-sharing model will reward the teams that invest in winning.

In my NHL, fully 10 percent of league revenues will be set aside as prize money for the most fiercely fought post-season in all of sports: the Stanley Cup Playoffs (Bob McCown has floated a similar idea, it turns out). In a 28-team league, 16 teams will make the playoffs, where they will play for a pot worth — extrapolated from 2011–12 revenues — $301 million. Qualifying for the post-season nets teams $9.4 million, split between players and ownership. The eight teams that advance collect another $9.4 million, getting to the conference finals earns organizations another $9.4 million, and moving on to the Stanley Cup final a further $9.4 million. The Cup finalists would then compete for a winner-take-all $19-million pot. A player on a Stanley Cup–winning team would earn about $1.2 million in bonus money over the course of the post-season. The Stanley Cup–winning owner would earn $28.3 million. The losing owner would get $18.8 million, his players sharing the same amount. Not bad.

It might even be enough for some of the laggards of the league to commit to winning, as organizations that are well run and have an eye on the prize are rewarded for investing in the on-ice product above all. As it should be.

5. Meaningful revenue sharing, Part II:

At the moment, NHL revenue sharing is a bit of a joke, with the 10 highest-earning teams dispensing approximately six percent of league revenues — about $192 million — to the bottom 15 franchises, provided those clubs meet certain preconditions, including not having a market with more than 2.5 million TV homes. The contribution of any given team is capped at about $10 million, based on regular-season revenues (it’s adjusted for the playoffs), meaning the Montreal Canadiens, for example, shared just six percent of their revenues with the league’s bottom feeders. By way of comparison, when the NBA’s new CBA is fully implemented, teams like the Los Angeles Lakers will be writing cheques of $50 million or more to the league.

Sportsnet image

Even frustrated fans can’t sink Habs’ value.

While we’ve already set aside 10 percent of revenues for the Stanley Cup tournament — call it revenue earning rather than revenue sharing — it’s probably wise to make sure the weakest teams are still kept from the poverty line. No one wants to hear that Phoenix, or any other team, is the league’s basket-case-of-the-moment ever again.

My plan will do this in two easy steps.

First, scrap the hard cap in favour of a luxury tax system.

In 2003–04, the NHL’s 10 highest-spending teams paid out $634 million in salaries. Adjusted for inflation, that would have been about $791 million last season. Given that league revenues have exploded since the lockout — by about $1 billion — does it not seem reasonable that the 10 highest-spending teams would foot a cumulative wage bill of $1 billion? That would still reflect a wage growth that lagged behind revenue growth.

So, let’s do this: Every dollar a team spends over a certain threshold is funnelled back to clubs spending below the threshold.

Since we’ve already set aside 10 percent of revenues for the Stanley Cup tournament, we’re left with about $2.71 billion to splash around, or about $1.35 billion to spend on salaries (based on our 50-50 split of revenues). Divide that by 28 teams and we get an average salary figure of $48.4 million.

Every dollar spent over that amount is taxed at a rate of 100 percent. If the top 10 teams spent to their inflation-adjusted, pre-lockout levels, it’d generate a tax bill of $307 million to share among the 10 lowest-revenue clubs. The difference from the current system is that it’s voluntary — always a much preferable way to pay tax. And if teams are worried that the likes of the Red Wings or Flyers would load up too much without an upper limit, slap on a punitive three-for-one tax on payrolls above $75 million.

Would that luxury tax system guarantee profitability? Yes. If you extrapolate from the $26 million in operating costs the league trotted out in the Levitt Report to justify the 2003–04 lockout, the rule of thumb for an NHL team today (arena costs, minor league operations, executive salaries) is $32.4 million.

With the current actual salary floor of $54 million (for 2012–13), that puts the break-even point for most teams in the $86-million range. Since we’ve lopped off or relocated the lowest-revenue teams in the league, all the remaining teams would have a chance to be profitable under the above set of circumstances as they all have revenues of $80 million or so. A luxury-tax cheque would put some money in their pockets, and a couple of playoff appearance cheques would flow straight to the bottom line.

At the other end of the table? Fans in Vancouver or Chicago or New York or Montreal could spend top dollar on tickets with the expectation that ownership could invest in teams to win, something that’s missing now. Major League Baseball has thrived in an era where iconic franchises have been empowered to behave accordingly; the NHL can learn from that. The Habs and the Leafs should be hockey’s version of the Red Sox and the Yankees, shouldn’t they?

The cornerstone franchises remain profitable but not artificially so, as they are now with their hands tied by a hard cap. Instead, their key to growth — and growth in revenues league-wide — would be winning and winning big.

As for the players? Sure they would give up some jobs and take a short-term pay cut, but they could fashion careers knowing that they can make their fortune as stars for winning teams — or at least teams with added incentive to win. A healthy league with more teams in better markets would increase revenues overall, allowing the players to participate in a bigger business. Every team in the league would be profitable or close to it even with the salary floor in place; there would be a lot of money in the system.

Meanwhile, the fans would get a league that works. And with a dream CBA operating as a rolling 10-year agreement — with the penalty for opening negotiations including a 10-percent rollback in ticket prices — there’d be reason for both sides to think twice before putting another season in peril.

My deal would be win-win for players and owners, and the biggest win of all? An end to fans being played for suckers.

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