Following Up – CBA Issues – Revenue Sharing Among the Teams

On Sunday, I posted about why increased revenue sharing among the franchises is an important issue to the future of the CBA and the NHL in general, even though it isn’t something the players have control over. (if you didn’t read it, give it a look before going on with this post.)   One of our readers posting by the name “mackdav”, made a reasonable counter-arguement to many opinions in my article.  Before I move along to the next CBA issue, I would like to rebut the points made by mackdav by further explaining my reasoning on the issues he brings up.  I will restate his comment and illustrate my point of view before proceeding to the next point.

Frankly, I think revenue sharing has no place in the CBA.  Once the gross revenue split(s) between the players and teams are decided, what the owners decide to do between themselves with whats left in terms of revenue splitting is their business.

My Rebuttal – The NHL negotiated the Salary Cap based on the league becoming more of a partner with the NHLPA, and that includes where the money goes.  Smaller markets don’t stand a chance in the current system to compete for players unless they absolutely break the bank.  The Wild took a gigantic risk this week by writing almost $200M in contracts to two players.  If it doesn’t work out for them, the franchise might never recover.  And that is in a hockey-mad state that has already lost one team to franchise relocation. If revenues are not shared more evenly, markets like Winnipeg and Quebec City, which might not have the greatest corporate base, would never able to survive despite a rabid fan base.  If the players had no say in this matter, the “old boys club” in the Owners group that have the higher revenues wouldn’t change a thing, since they are laughing all the way to the bank.  Maybe the players putting their collective foot down about this issue would make the owners see the forest through the trees, which is apparently where their money grows.

Your arguments in terms of revenue don’t really hold up. On the one hand you say “the big teams make revenue off the back of the smaller teams”, but at the same time “nobody lines up to see the smaller teams play”.   You also say that the 30 teams are “required”, but beyond TV contractual nonsense I don’t see how you couldn’t run with 28 teams — or even 32 (which would be a nicer number playoffs-wise) — instead.

My Rebuttal – Thirty teams are required.  There are plenty of players to go around and I would have no problem adding teams to create a better number such as 32.  There is no way the NHLPA would allow the league to contract and the PA to lose 40+ jobs.  When I said that the high revenue teams make their revenue off the backs of the smaller market teams, it is true. Although rivalries are good and the league could get by playing a shorter schedule with fewer teams, neither is going to realistically happen.  You need two teams to play a game, and they still sell in the big markets no matter who is coming to town as the opponent.  Philly can’t play Pittsburgh fifteen times a year every year, you have to have some variety over an 82 game season.  People don’t line up to see them, especially in smaller markets, since star power of visitors is less because they can’t afford to bid on the big players, and they lose their stars to free agency.

The whole point of the cap was to ensure that the smaller teams have better access to big name/big skill players and have a better chance at overall success.  I think the wild-wild-west nature of the playoffs runs, where entry-into or failure-to-make the playoffs happens by hairs of points, plus the fact that there has not been much in terms of a dynastic hockey power, since the CBA marks this as overall a success.

My Rebuttal –  Basically, small market teams are a landing spot for salary cast-offs for other teams to dump their mistakes so they can pursue other avenues.  The salary cap has leveled the playing field on the ice, but the number of teams and free agency has contributed more to the parity than the Cap.  Like I said on Sunday, the cap as it stands now only serves to allow the rich teams a way to keep more money in their own pocket.  In these negotiations, the owners are expected to demand the players lower thier percentage take from total revenues to as low as 50% (it is 56% now), but no way the NHLPA will agree to that without better revenue sharing the other side.

On the other hand, franchises are always going to be unequal.  Not every franchise is going to be blessed with a history-steeped, hockey-mad, population dense area surrounding not only its arena but its city and region.  Frankly if the last thirty years can’t blow MLSE’s profitability out of the water, nothing ever will.  At the same time, Phoenix is putting a winning team on the ice but can’t make it at the box office.  New Jersey made it to the finals, but I read that their owner is having finding the proverbial nickels to rub together — which is a problem with the ownership, not the franchise, but still a problem for those in the front office.  In general, I read that there are potentially ten clubs that will lose less money if hockey is not played than they will if it is.  That’s a third of the league, and there’s no way you can consider that healthy long-term.

My Rebuttal – The Phoenix and New Jersey situations you refer to prove my point.  Phoenix is a relatively new franchise, only 15 years old or so.  They have muddled along in a non-traditional hockey market.  They could build a proper marketing program and develop new fans, but that takes either a) time or b) a deep run in the playoffs (or a combination of both).  Now, through the Salary CAP system, they see the Leafs making revenues in excess of $180M and putting it right in their pocket while the Coyotes are FORCED go spend more on salaries than they earn in revenue.  What owner is going to want to spend upwards of $100M for the keys to a franchise that is guaranteed to lose money for the foreseeable future. Because of forced spending, and the only way they can think about turning a profit in that city is to continue to overspend to reach an arbitrary floor that was established so that the owners of the rich teams could line their pockets.

According to Forbes magazine‘s valuation of the NHL franchise values (based on the 2010-11 season), the 30 NHL teams made a combined $126.5M in operating income, yet 18 of the 30 teams lost money.  The operating incomes of the top 2 teams (Toronto and Montreal) was $129.5M – more than what the total losses of the 18 teams in the red were (126.1M).

With all due respect to the fans of these franchises in trouble — at some point the league is going to have to decide if the costs of carrying weaker owners/markets/franchises is really worth it in the long run.  There are options — new owners, moving franchises to new markets, or outright revoking the franchises — but bleeding the rich to keep tilting at arenas in the f—ing desert is not a long term recipe for success.

My Rebuttal -Many of these owners in those troubled markets came on board with the promise of cost certainty from the existing owners. Basically what they got out of the cap was the realization that revenues increase, but only in select few markets.  While the lower revenue teams, whose revenues are not growing as exponentially as the Toronto and Montreals of the world, are left holding the bag, salaries rise faster than they can keep up with.  Market location has something to do with it, obviously, but at some point the “haves” need go realize that without the “have-nots” there is no league and that the league on the whole is stronger with 30 solid teams.  In order to keep pace, bubble teams have had to overspend to remain competitive and to reach a salary floor that is now higher than the original cap was, with little or no help from the teams that are the beneficiaries of the cap that they all fought so hard to get implemented.

In general, revenue sharing only makes sense if you think the league really needs the number of teams that it has, in the locations it currently has.  And I don’t.

My Rebuttal – That is a fair point, but the league can support 30 teams or even a couple more, and not all of them can be in Toronto.  Fewer teams means more possibility for dynasties, and less parity by virtue of the “Miami Heat Syndrome”. There is parity in the league now because of the imposition of the salary cap and floor, which works on the ice.  However, off the ice the rich are getting richer at the expense of the teams that were sold a bill of goods at the outset of the current CBA.  The rich teams allowed the smaller markets into their exclusive club of NHL owners with massive expansion fees, only to pull the rug right out from under them when they need help the most.

But the bottom line is where I started: franchise revenue sharing has no place in the CBA.  What the owners/league decides to do with their share of the revenues should be entirely up to them.

My Rebuttal – As long as the cap is in place (and it’s not going anywhere), it behooves the players to have a say in where the money goes.  As the gap between the “haves” and “have-nots” widens, the greater the risk of having more Coyotes situations on their hands, which is a nightmare for everyone.  I am not saying that all revenues should be split evenly, but the league would not exist without the smaller market teams and it’s time they were propped up a little, and the league as a whole can grow stronger together.  It is a long term goal that seems to be ignored by short-sighted billionaires.

Thanks to mackdav for his insightful comments and the dialogue he has opened on the issue.  It is tough to explain one side, and his comments are fair for the most part, even if I don’t share his opinions in every case.