NHL CBA Issues – Splitting The Revenue Pie – My Solution

One of the biggest, if not THE biggest, issues facing the NHL and the NHLPA in this summer’s CBA negotiations is what percentage split should be in place for revenues.  To look to the future, you must remember the past, so first a little bit of background.

(NOTE:  Please reference a recent Puck Daddy article by a contributor known as The Player.  I referenced this article to get some of my information about what the players and owners are looking for, as well as an understanding of where the players are coming from. There are also many points listed below that are a direct reference to the article.  It is a good read on its own, and well worth checking out.  It also supports my stance on revenue sharing among the teams.)

THE PAST

Before the lockout that cancelled the 2004-05 season, upwards of 75% of league revenues were spent on player salaries (allegedly).  The owners argued, rightly so, that this figure was too high and prohibitive to running a successful business.  The owners wanted “cost certainty” in the format of a salary cap, that would create “linkage” between revenues and player costs, which would reach a maximum percentage league-wide.  The players were adamant that they would not accept a salary cap and it was the owners who needed to budget better to make their businesses more profitable.

Eventually the owners got their way, and the salary cap was instituted with the players to receive a maximum of 54% of league revenues.  Since that time, with player-option boosts, the percentage rose to its current 57%. In order to get down to that percentage,  the players took a one time “rollback” in each players salary, basically hitting the reset button.

According to the article referenced above, since the year before the lockout, revenues across the league have risen by more than 50%, to more than $3.3 Billion while player salaries have increased by 15%, taking into account the 24% rollback.

THE OWNER’S SIDE

The owners argue now that the 57% share the players currently receive is simply too high.  The other salary cap leagues do not have such a player -tilted shift.  The NFL earmarks about 46% of revenues to players while the NBA is almost 50-50.

The owners look around at themselves and see teams still losing money. They are the ones who assume the risks, have to account for other expenses such as travel, front office and in some cases arenas and debts incurred in order to provide state of the art places for the players to play.

It is alleged that the owners are aiming for a 50-50 split, although their first negotiating mark this past week was apparently 46% to the players ( keeping in mind the strategy of negotiation to meet somewhere in the middle).

THE PLAYER’S SIDE

The players see that revenues are constantly increasing and that they are the reason there is a product to see, and they should be compensated accordingly.  They don’t like to see teams struggling, but also think the owners should be helping each other in terms of revenue sharing (which I covered last week).  The players are of the opinion that they provided a means for a bailout last time and shouldn’t have to do it again while some teams are lining their pockets at the expense of their “partners” around the ownership table.

THE SOLUTION?

There probably isn’t a very easy fix, and this issue is likely to be the biggest stumbling block in the quick resolution of the CBA.  If the split is going to be in the area of 50-50,  which I think is a reasonable middle ground, that would amount to the players taking another instant 12.5% pay cut.  I don’t think that is an option, otherwise Sidney Crosby won’t have his $8.7 M cap hit and will have to change his number (and his birthday) but I digress.

Perhaps the solution this time around is the gradual reduction of the percentage over a number of years. I would propose that they start with the current 57% split in year one,since that is what everyone has been operating with since July 1st.  In year 2, drop it by 1.5% to 55.5%.  Year 3 would be 54%, and in year 4 and 5 you could drop it by 2% to 52 and 50% respectively. At the end of 5 years, the owners get to the point they want and the players shouldn’t really notice the difference on their bottom line.

The way league wide revenues have been increasing, the players shouldn’t have to take any pay cuts in this scenario. They just won’t rise as quite as quickly as they have been in recent years.  Here is a quick chart outlining how my proposed scenario could play out.

***This chart takes into account a straight-line increase in NHL revenue based on the average increase in revenues since the last lockout.

This would be a big concession for the players, to give up 7% share of revenues.  However, even they can see that there are teams in trouble, and the cost of doing business for the owners, and the risks they take, deserve more of the share.  There is also the perception, true or not, that the players are responsible for the constant increase in ticket prices.  Although I don’t expect that trend to stop even if the player share goes down (it is supply and demand after all), this would be a PR coup for the NHLPA.  They show once again that they are willing to bend (but not break) to the needs of the owners (their “partners”).  This is a way that the players can concede the 7% over 5 years without taking money out of their own pockets.  All this while demonstrating that the owners also have to shoulder some of their own burden for the situation they have put themselves in.

I still firmly believe that if the players concede on this revenue split issue, they will demand a simpler, more transparent, more comprehensive revenue sharing process among the team’s to ensure all teams have a chance to succeed (something I discussed last week HERE and HERE).  This will be especially important in the transition phase as they scale down from 57% share to 50%.  Even with 50%, the smaller market teams are going to struggle to meet any cap floor that is set during the CBA negotiations, since many of them are currently paying well over the 57% of their own revenues towards salaries.

I understand that this is a simple, undetailed solution, and by no means are all factors taken into account.  The numbers are very rough and very rounded for simplicity’s sake, but I think it is a reasonable framework where both sides can save face and work towards the goal of making 30 profitable teams in the long run.

The best deal is often one where neither side is happy, and I think this is the case.  The players will not like giving up a percentage share, while the owners will not like waiting 5 years to get that share down to 50%.  Both sides give up something, but will end up wining in the end.