NHL’s “Opening Salvo” in CBA Negotiations.

The NHL’s long-awaited initial proposal to the NHLPA was met with overwhelming initial criticism from bloggers and pundits. Here’s a look at the key points, and my take on where things might go from here.

After a couple of weeks of formal CBA meetings between the NHL and NHLPA, the former finally made its long-awaited initial proposal.

Nothing in it was unexpected, or shouldn’t have been to anyone paying attention to CBA issues over the past couple of years.

The league proposed the following:

– a reduction in the players share of hockey-related revenue from the current 57 percent down to 46 percent;

– increasing the eligibility for unrestricted free agent (UFA) status from seven to ten years;

– imposing a term limit on contracts to five years;

– elimination of signing bonuses;

– extending the term of entry level contracts from three to five years, and

– elimination of salary arbitration.

The New York Post also reported the definition of HRR would be “redefined” to ensure the players get a smaller share of their already reduced gross revenue. It would also lower the current cap ceiling from $8 million over the midpoint down to $4 million, while keeping the cap floor at $8 million below the midpoint.

Interestingly, the league hasn’t sought the elimination of “no-trade/no-movement” clauses or of guaranteed contracts, which some observers felt they would pursue. Whether those end up on the table at some point in negotiations remains to be seen.

As of this writing (July 14th), the NHLPA has yet to formally respond or make its counter-offer, though that is likely coming very soon.

Those in the punditry and blogging communities who’ve reviewed the league’s proposal have reacted negatively, though its generated an interesting response regarding its portent, with some downplaying the seriousness of the proposal, while others consider it “a declaration of war” against the PA.

If the league refuses to move away from this initial offer by mid-September, when the current CBA expires, then we can certainly expect another lockout.

The owners want to increase the eligibility age for UFA status in part because they don’t like investing in long-term deals for players in the mid-twenties, but also because the lower eligibility age had an unexpected adverse impact upon the free agent market.

When the current CBA was implemented, the expectation was the lower UFA eligibility age would flood the free agent market with younger talent. Instead, most teams opted to re-sign their best players to lengthy new contracts prior to their eligibility age, resulting in a significant lack of free agent talent, leading to second-tier talent being paid first-tier dollars.

By raising the age by three years, they could be counting on an increase in the numbers of free agent talent, as well as reducing the overpayment of lesser lights.

That, however, would display a stunning lack of knowledge of NHL history, since teams often overspent on second-tier talent in the previous CBA when the eligibility age was 31. True, the last CBA also didn’t have a salary cap, but it’s obvious a salary cap is no detriment for teams willing to blow up their budgets by overspending on free agents.

If the owners, a number of whom weren’t involved in the NHL during the previous CBA, honestly believe a higher eligibility age for unrestricted free agents will result in a deeper talent pool and less overspending, they’re fooling themselves.

Increasing the UFA eligibility, however, ties in more neatly with the owners’ desire to increase the term on entry-level deals.

They see this as a means to address the problem of “second contracts”, or “bridge deals”, the one sandwiched between the entry level contract and the eligibility for UFA status. A number of teams have taken to investing big money in players emerging from entry level deals, hoping to cash in on potential, rather than paying for a proven performer.

By lengthening the entry level deal, and increasing the eligibility for UFA status, teams can lock up their best players, in the prime of their careers, for two shorter, less expensive contracts over a ten year period, rather than paying out three increasing expensive contracts over the same period as they’ve done under this CBA.

During this CBA and the previous one, rookies were often left with the crappy end of the stick. The attitude was they hadn’t proven themselves at the NHL level, and therefore weren’t deserving of the big money contracts of their more experienced peers.

The Ottawa Senators overpayment of Alexandre Daigle led to the first cap on entry level contracts. The Boston Bruins exploited the lack of a cap on rookie bonuses clauses to ink Joe Thornton to an expensive contract, opening the floodgates to similar deals, and forcing a cap upon entry level bonuses in this CBA.

Imagine how more affordable it would be for a team to have the next Evgeni Malkin or Alexander Ovechkin being paid well below their true value for five years instead of three. Evidently, the owners have, but this gambit could create a bigger headache when trying to draft and retain the next Malkin and Ovechkin, courtesy of Russia’s Kontinental Hockey League.

Though the KHL hasn’t been the significant drain upon the NHL’s deep talent pool some observers originally believed it would be, its existence  has led to a reluctance in recent years by NHL  teams to draft promising Russian talent, fearful those players could bolt for the riches of the KHL following their current three-year entry level contracts.

It’s also resulting in some players deferring their NHL debuts in favor of bigger bucks in Russia, as the Washington Capitals discovered with top prospect Evgeny Kuznetsov. Not even the possibility of playing with the great Alexander Ovechkin could entice Kuznetsov to jump to the NHL.

The KHL’s critics will insist its existence won’t hurt the NHL’s talent pool.  The possibility, however, of earning bigger bucks in Russia, rather than playing for five years for considerably less under an NHL entry level deal,  might not only be attractive to more promising Russian players, but other budding stars elsewhere in Europe.

Restrictive, five-year entry-level contracts could become the best gift the KHL ever gets from the NHL.

Imposing term limits on contracts has generated a mixed reaction from pundits and bloggers. Some believe it’s necessary to close the current loophole, which has allowed for legal cap circumvention courtesy of heavily front-loaded, ridiculously long deals. Others, however, suggest it’s a necessary evil, allowing teams better odds to both retain their best players or add star talent for longer periods of time.

Regardless, the fact it is part of the league’s initial proposal seems to answer the question over how divisive this issue could be amongst the owners. Clearly, they want to put a stop to this practice, and that includes those owners who currently have players  on their rosters carrying those kind of contracts.

The same goes for the elimination of signings bonuses, another creative measure at legalized cap circumvention which is usually part of these front-loaded, long-term contract, as seen in the recent contracts the Minnesota Wild signed with Zach Parise and Ryan Suter.

Both loopholes are also shining examples of the long-running theme in NHL CBA negotiations: the owners (and their respective team managements) wanting to be saved from themselves.

The exploitation of the loopholes in the current CBA was done by the teams, not the players and their agents. Crafty general managers, aided by capologists and with the blessing of their team’s ownership, were the ones who almost immediately start probing  for any rule they can legally break to give themselves an advantage over their peers.

They may very well succeed in getting the current loopholes closed, but you can bet your ass some of them will be looking for new ones  before the ink is barely dry on the next agreement. Rest assured, they’ll find them.

As for elimination of arbitration, the league’s rationale will simply be that the overwhelming majority of cases never reach an arbiter, as the player and the team almost always reach agreement on a new contract prior to the arbitration date, rendering the process moot.

The PA, however, will argue arbitration remains a viable leverage option for the player, for while neither side enjoys the process, the mere threat of it is usually enough for both sides to reach an amicable agreement on a new contract.

That leaves the part of this proposal which is the only true show-stopper for the PA: lowering the players share of hockey-related revenue to 46 percent, and redefining what constitutes that revenue.

None of the other parts of this proposal, singly or as a whole, appear significant stumbling blocks toward a new CBA. Lowering the players share, however, is another matter.

The league knows that part is anathema for the players. This proposal is in part its way of testing the PA’s reaction, especially that of new executive director Donald Fehr, as well as the players resolve. League negotiators are leading with the extreme number, likely in hopes the anticipated “50-50” split most observers feel is their true objective will seem more palatable and therefore acceptable to the players.

Rest assured, however, reducing the players share of revenue is the primary goal for the team owners. Everything else is mere tinkering. The PA is likely to counter by seeking a more enhanced system of revenue sharing, something which the league never mentioned in its offer, which tells us all we need to know about what the team owners and the league’s negotiators feel about that topic.

As we await the NHLPA’s counter-proposal, it appears both sides are finally laying the groundwork for both the “real negotiations”, as well as their prospective PR campaigns to win the hearts and minds of NHL fans.

11 Comments

  1. Very good analysis, Lyle!

    The revenue sharing angle is what I think Fehr will use to place a wedge between big market owners and small market owners. The divide and conquer strategy.

  2. Agreed Grizzledbear.
    I think that if the league simply requires all contracts to pay the same dollar value per year of the contract (and no signing bonuses with a cap on performance bonuses) they could solve to front-loaded contract issue. I, personally, do not have any issue with long term contracts but do hate the front loaded deals.

  3. 1) Thanks for bringing up the Red Elephant in the room, The KHL. Most dismiss it as a possible competitor for NHL level talent, but if the owners get their way(and recently when have they not?)we will see a bigger exodus of talent to play there and far fewer Russians, Euros and maybe even some North Americans staying here.
    2) I believe we might even see the KHL go ahead with their plan to expand beyond the old USSR into Eastern Europe, Germany and possibly Scandinavia. Economic issues might favour such an expansion and the NHL’s new salary restrictions might make it easier for the KHL to improve its talent level.

  4. 1) Question: When compared to the Owners first proposal in 2004, how did the final CBA look? I recall that they got everything they wanted with regard to all the big (real) issues
    2) Why should we expect the NHL will suddenly become diplomatic and give in in any meaningful way? I think bettman has a number he will demand and its probbaly not far from the 46% they proposed.
    3) Additonally we don’t know how the NHL will supposedly try to reduce the amount of ” hockey related revenue” used to formulate the %. Larry Brooks alluded to the fact that the owners will want to reduce that without saying how/where
    4) As for the revenue sharing argument, its a valid point but again I’m fairly sure the owners won’t/can’t be split unlike the players who in the past have shown they can be divided

  5. The NHLPA did get one victory in the 04/05 stand off and that was getting a cap floor in addition to the cap ceiling the owners wanted. Without having a cap floor, we could have seen some really low payrolls by some teams in the league.

  6. I don’t understand the point about lowering the cap maximum while keeping the cap floor… that only benefits rich teams while those with less revenue still need to spend to the floor. and with the proposals with even more handcuffs as more and more loopholes are going to be closed… totally shortsighted thinking by the owners.

    and shortening the max contract length is a stupidity in itself. franchise players should be locked up long term to give the fans some sense of “belonging” and identification figure.

    I’d rather see a general rule that in contracts with more than 5 years, the salary decrease cannot be bigger than 10% of the previous year and can only decrease for 5 years. that should limit some of those crappy deals the Owners threw themselves in.

  7. This is long so please feel free to skip if you want to, I won’t be insulted.

    The league proposed the following:

    [1] – a reduction in the players share of hockey-related revenue from the current 57 percent down to 46 percent;

    [2] – increasing the eligibility for unrestricted free agent (UFA) status from seven to ten years;

    [3] – imposing a term limit on contracts to five years;

    [4] – elimination of signing bonuses;

    [5] – extending the term of entry level contracts from three to five years, and

    [6] – elimination of salary arbitration.

    I numbered the league’s demands so I can more easily chime in.

    [1] – They want 50/50, but they opened with something ridiculous because that’s how it’s done. I’d like to see the elimination of escrow, a cap of the players’ share at 55% with the potential to be reduced to 50% (capped) if revenue declines in the same way the players received an increase from the original 54% as revenues rose. I’d also like to see the cap changed from a ceiling of 8% above the median to 5% and a floor of 15% from 8%. I know this goes against parity, but a simple fix like this should bring second and third tier player salaries back down to earth. I don’t think a rollback will be necessary with these small adjustments, but some teams might need another one-time penalty-free buyout to get under the new cap. This should also help financially struggling teams without ownership creating a working revenue sharing system.

    [2] – This is just plain nuts and is better discussed in [5].

    [3] – 5 years? Players and teams should be able to agree to life contracts, however there should be an age limit at 40 for any contract longer than 2 years. While many players who receive life contracts (generally franchise players) will likely play until about 40, most players do not play past 40, so an age limit on long term contracts makes sense for everyone. Further, the 35 year old rule of being stuck with salary cap if a player signed after turning 35 retires should be eliminated in conjunction capping multi-year contracts after 35 to 2 years or until the player reaches 40. So if Doan wants to sign a 5 year deal right now he can, but not anything longer. However Semin would be capped at 12 years.

    [4] – I like signing bonuses, aka the cap hit equals the average of the contract. The Kovalchuk contract ruling did a great job limiting the loophole some call cap circumvention by using an age cut off as well as instituting clear rules as to how the salary drop off can be instituted in the later years of a life contract and what the minimum cap hit can be in the final years. My solution for [3] would simply eliminate the need for counting exact salary after 40 because there would be no super long contract that could extend past that age. Keeping the rule in place that salary cannot decrease by more than half the previous year allows for a reasonable distribution of the totality of the contract over it’s term. The fact is even owners who don’t like signing bonuses (Minnesota) still use them when they want to play the market, so leave them in place to keep things interesting. The big market teams cannot hand out super contracts every year, no team can (well, they can, but that would be stupid). As Holland said repeatedly a team can only have a couple of players on these type of contracts and that means only having a big press conference every 5-10 years depending on how players are staggered (based on age or contract status). Pittsburgh gave a 10 year contract to Crosby and would probably like to do the same to Malkin. If they can in the next CBA that will be it until those contracts expire and they can do so again with home talent or in the free agent market.

    [5] – I have no issue with extending entry level contracts to 5 years from 3, but I’d like to see free agency either remain as is or see RFA eliminated. The fact is the biggest hindrance to free agent player movement is not long contracts but rather the existence of RFA. Get rid of RFA and young players will move.

    [6] – With RFA in place arbitration gets players signed faster or signed period without holdouts. However, if RFA were to be eliminated then players would no longer require arbitration. On the other hand, I’d like teams to be able to take expiring 5 year entry level players to arbitration for 1 or 2 year contracts, thus allowing teams to keep kids for up to 7 years before they can test the market should a team chose to exercise this option.

    Those are my thoughts, though they are probably not worth anything. I think the give and take I suggest is fair to both sides, but even if it makes sense to other readers I doubt it will make sense to the NHL or PA. Thanks for reading.

  8. I know for a fact that many promising members of the group “future NHL players” will go play in Russia instead of waiting out the 5 year deals. They will likely leave as soon as they get a khl contract and forego later AHL and early NHL careers. Even Canadians and Americans will go. would you rather make 5 mil now and risk making it later? Or make 4.5 over 5 years and still risk making it later. It’s a sport. Jiri fisher and Pavel Bure and Sidney Crosby all well understand the prospect of not playing hockey for 20 years. What if you only get 1, and you get 70k in the AHL instead of 5 mil. 70k will send you to college but 5 mil will buy your next 20 years. The NHL needs to be more mindful of its ego or risk becoming the number 2 league.

  9. I wouldn’t suprised to see a deal between the NHLPA and the league that resembles what the NFL signed.

  10. Similar in that they will be both be legal documents that are several pages in length? Remind me again how the NFL CBA is anything remotely like the NHL CBA. No guaranteed contracts in the NFL, that whole franchise tag thing which nobody understands, and the fact that the average NFL career is about 10 years compared with 20 to the NHL. That statement can’t even begin to be described as comparing apples to oranges, its like apples to brussel sprouts.

    • If we are talking average length of career as opposed to total, wouldn’t 15 be more accurate to the NHL?