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The NHL/NHLPA Contract Negotiations Simplified

PenaltykillAs many of you know I get my hockey news from Sirius/XM’s ‘NHL Home Ice’ channel.  My reliance on ‘NHL Home Ice’ for my hockey news is based on their overall better-than-average coverage compared to anything I can find locally (or even nationally for that matter).  During the weeks leading up to the lockout the airwaves were filled with speculation on which side was the obstructor in negotiations, what the differences between the two sides were and how easy it should be to just sit down and figure it all out.

I have been, however, disappointed in their coverage of the Collective Bargaining Agreement negotiations.  Most of the discussion has been of the variety you’d expect between typical fans and not the media.  Although they talk about the core issues, the never talk about what those core issues mean to the business of hockey.  For example we know that a core issue is revenue sharing and helping out struggling teams, but they never talk about what teams are struggling and how exactly revenue sharing works.

Last week, and I apologize for not remembering who, a guest on one of the programs went on a rant about exactly what the issues are, what the state of the game REALLY is and what each side (union versus owners) is trying to protect.  The rant was so honest and so concise that it threw the show’s hosts off guard.  It was also so well received that portions of the interview were replayed over the next few days.  The interviewee works for one of the sports websites and is also an ex-NHL head coach.  His rant inspired me to start digging, and here’s what I’ve found.

First please keep in mind I’m not a lawyer, a union rep or any kind of financial or business insider, so take my opinion for what it is.

According to forbes.com, of the 30 NHL teams only 12 are making money.  And of the teams making money not all are necessarily the teams that perform well on the ice.  Case in point, while ranking just 16th in overall revenue ($96MM) the Edmonton Oilers are the 5th most profitable team ($17+MM). The Oilers are more profitable than the Detroit Red Wings and the Chicago Blackhawks.  The NHL is a league where 60% of their franchises are losing money.

The players currently get 57% of revenue.  The owners proposed dropping that share to 46%.  Like the NBA and NFL, speculation is that a 50/50 split between players and owners would be fair.  Last year the NHL pulled in $3.3 billion.  If everything remained the same and the revenue split went from 57/43 to 50/50 the shift in revenue from the players to the owners is $230 million.  Divide that between the 30 teams and it comes out to an average of about $7.6 million.  If each team kept an additional $7.6 million we go from a league with 12 profitable teams to a league with 24 profitable teams.  Of the remaining 6 teams losing money, 4 of them lose less than $1 million per season.

If you’re the owners that makes the best business sense possible for ensuring the health of your business.  However I realize it’s not that simple.  In the NHL, as opposed to other sports, most of each team’s revenue is generated by each team individually, meaning it’s revenue is from ticket sales, local TV deals and related local income.  The league itself doesn’t make a whole lot of money.  Everyone was excited that the NHL inked a television rights deal with NBC for $1 billion over 10 years.  That sounds great until you really look at the numbers.  Do you know how much money the NFL will generate in revenue under their new 9-year TV contract starting in 2013?  The NFL will make $3.1 billion EACH year.  If you do the math the NHL’s TV contract comes out to approximately $3.3 million per franchise per year.  In the NFL that number is just under $97 million PER FRANCHISE PER YEAR!

The union thinks the burden for helping struggling franchises should be shouldered by the owners and not the players.  My understanding is that they’ve proposed some kind of revenue sharing scenario.  Confused about just what revenue sharing means I went to the interwebs and did some research.  In baseball, and I’ll use baseball as the example since NHL Union Executive Donald Fehr ran the baseball players union when they implemented revenue sharing, 31% of each teams revenues are put into a bucket.  That bucket of revenue is then distributed evenly among all the teams.  It doesn’t take a genius to see that teams making a lot of money are subsidizing teams that aren’t.  Why baseball owners agreed to this is beyond me, but at the time the New York Yankees had just (bought) won 4 out of 5 World Series Championships.  The thinking was that by distributing revenue smaller market teams would now have the money to increase player payroll and become more competitive.

The problem with applying this formula to the NHL is that financial health is not tied to competition.  In the NHL teams that missed the playoffs but are healthy financially are Toronto, Montreal, Edmonton, Colorado, Ottawa and Calgary.  Teams that made the playoffs but lost money are Pittsburgh, St. Louis, Los Angeles, Phoenix, Nashville, San Jose, New Jersey, Florida and Washington.  The other problem with revenue sharing is that teams may take their new found revenue and pocket it as profit.  We know the stories - pro sports are littered with profitable losing teams.  These owners have no financial incentive to produce a winning product.

As a fan I’m starting to get fatigued over the start/stop nature of the NHL.  The union wants a 4 year deal which, in my opinion, is insane.  As a fan I want stability.  I’m also not happy that, as a season ticket holder, I have to put my schedule in jeopardy because I can’t accurately plan around the hockey season.  But with the San Francisco Bulls spinning up operations this year at least I have some outlet for pro hockey.

Until the NHL is back up and running I’m finished with all the static around the CBA negotiations.  Being a fan isn’t supposed to be this much work…

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