Potential Problem Areas in Next NHL CBA.

As the NHL and NHLPA move closer toward a new collective bargaining agreement, we’re starting to get a good idea of what the finished product could contain.

Regardless of how long it takes to reach an agreement, it’s apparent the NHL owners will get a deal that, at first glance, is in their favor.

Here’s what it could contain: A CBA likely between seven-ten years in length. A 50-50 division of hockey-related revenue. A “make whole” provision of deferred escrow payments likely around $300 million. A five-year term limit on player contracts, with up to seven years for re-signing potential unrestricted free agents. No amnesty buyouts or limitations on escrow early in the CBA.

It remains to be seen, of course, how such a CBA will play out over the course of its lifetime, but some potential problem areas are already apparent.

The most glaring is there’s little to suggest this new CBA will sufficiently address the lot of struggling clubs in non-traditional hockey markets.

NHL Commissioner Gary Bettman, toward the end of his press conference last Thursday, suggested his main concern was to get the right deal to ensure more franchises wouldn’t be in jeopardy,  a stark deviation from the rosy picture he’d been painting over the course of the previous CBA.

Sportsnet’s John Shannon claimed he’d been told 18 NHL teams lost money last season, a number not far off from what the league claimed during the season-killing lockout of 2004-05.

Forbes.com recently estimated thirteen clubs lost money, though their system for arriving at those numbers is not without its critics.

Regardless, it appears the league’s solution for this problem is to once again reduce the players share of revenue. Under the previous CBA, the players share was reduced from what the league claimed was 76 percent down to 57 percent, as well as introducing a three-tier salary cap.

At the time of the implementation of the previous CBA, the league claimed it would “level the playing surface” and help those supposedly struggling clubs.

A system of revenue sharing was also introduced, but it proved quite complex and largely ineffective, with only a tiny percentage of overall revenue going into it ($150 million, or 4.5 percent of the league’s $3.3 billion in revenue).

Meanwhile, the gap between big market, money-making teams and those money-losing franchises widened.

Now, the NHL once again believes another reduction of the players share of hockey-related revenue, from 57% to a 50-50 split, will address the problem.

Furthermore, the league has expressed little interest in improving its revenue-sharing system. Indeed, it’s been the NHLPA pushing for a more robust revenue-sharing system.

The league offered $200 million and ending restrictions on clubs in big markets, like Anaheim, Dallas and New York (Islanders). It also suggested half of that $200 million would come from a revenue-sharing pool funded by the top ten revenue grossing clubs, and the rest funded by “league and playoff-generated revenue”.

The PA, meanwhile, has countered the money being cut from the players share of hockey-related revenue should go toward revenue-sharing.

If the goal for the NHL is to ensure a deal to aid struggling clubs while ensuring others don’t fall into that category, a better solution might be for the top revenue-makers to share more with those clubs at the bottom end of the scale.

Critics argue it’s simply wasting money, that successful teams shouldn’t prop up weaker ones, that revenue sharing won’t turn poorly run teams into better ones, and the league would be better off relocating or contracting its struggling franchises.

That’s as may be, but this is a situation of the league’s making, and if Bettman truly wants to aid those franchises, a more robust system of revenue sharing is required.

Given the limited number of destinations, relocation won’t fully address the problem.

Provided the Canadian dollar remains close to part with the American greenback in the coming years, Quebec City and Southern Ontario are prime destinations for relocated franchises.

Seattle appears a possibility once a new arena is constructed, though the prospective owner of said arena has his sights firmly set on attracting an NBA franchise, giving secondary consideration to the NHL.

Kansas City has an arena, but so far that’s only been used by owners in existing markets – hello there, Pittsburgh Penguins and NY Islanders (before their eventual move to Brooklyn) – in efforts to extract concessions on new arenas in their respective cities.

Portland has also been suggested, but the NHL’s contentious labor history could scare off potential buyers.

Given the league’s determination to keep struggling franchises in their respective markets, relocation doesn’t appear an option of choice until all others have been exhausted.

As for contraction, that’s out of the question. Indeed, there’s already speculation of expansion in 2015-16 by two clubs, bringing the total to 32, or eight teams per conference under their anticipated realignment.

If relocation won’t fully address the issue of struggling franchises, and contraction isn’t in the cards, a significantly improved revenue-sharing system seem the most viable solution.

But if the league’s proposed system of revenue-sharing is what ultimately ends up in the new CBA, it won’t sufficiently address the problem of money-losing franchises, potentially laying the foundation for yet another future NHL labor standoff.

Term limits on contracts combined with a five-percent variance on salaries could pose another problem.

Though understandable as a means of preventing clubs from signing star players to “cheat contracts” (lengthy, heavily front-loaded deals) for a lower cap hit, term limits could have the unintended consequence of producing teams lacking depth throughout their roster.

As per Ken Campbell of The Hockey News:

” The league had better watch what it wishes for here. There’s a good chance what you’ll begin to see instead of 10-year contracts worth $70 million are five-year contracts worth $70 million, or seven-year deals worth $70 million. The same amount of money the owners are putting out now would just be crammed into fewer years, which will create a system where superstars are highly paid and the rest make minimum wage. It would effectively wipe out the middle class in the NHL.

And despite the notion that players will not honor the final years of front-loaded deals, we have no real evidence that’s actually going to be the case. Daniel Alfredsson, for example, was prepared to play this season for $1 million, an amount that will be even less during a truncated season.”

In other words, the result could be clubs with most of their payroll invested in a handful of stars, leaving little room for depth throughout their roster.

That situation exists under the current system, but those heavily front-loaded, longer-term contracts create more cap space for teams to bolster or maintain their depth throughout their roster. Term limits and a five percent variance on salaries, however, will simply eat up more cap space, leaving less money for depth elsewhere in the roster.

The result could be teams carrying fewer stars but more depth throughout their rosters employing a defensive system to neutralize teams which are top heavy with star players but lacking roster depth. That would exacerbate a problem which crept back into the NHL product during the final years of the recent CBA.

Another possible problem is young talent forsaking the NHL for more money in the Kontinental Hockey League.

When the NHL implemented its cap on entry level contracts in the previous CBA (term limits based upon age, plus a cap on base salary and bonuses), there was no rival league which could offer promising young talent better terms.

Today, the KHL has  become a viable alternative for fading stars and those unable to cut it at the NHL level. Granted, that league  isn’t without its problems, as it remains primarily funded by Russian oil oligarchs, but it shows no signs of collapse.

While it may be unable to poach away prime NHL stars, it could increasingly become a serious alternative for rising talent to earn bigger bucks than they would under NHL entry level rules.

It’s not inconceivable a future eighteen-year-old Alexander Ovechkin or Evgeni Malkin could bypass the NHL for the first three, four, or five years of his professional career because he could make far more money in the KHL.

Xenophobes would argue, “So what, let ‘em stay overseas, the NHL doesn’t need them”, but if the NHL is supposed to be the stage for the world’s best talent, its product would suffer if some rising European stars decided to put off their NHL debuts to make more money in Russia.

Finally, the length of the new CBA (a ten-year deal, with an “opt-out” clause for the NHLPA by year eight) could also create difficulties.

A longer CBA will certainly mollify fans and sponsors weary of the league’s labor strife, but potential problems arising under such a lengthy deal could fester into issues which set the stage for labor standoff upon its expiration.

Unless the two sides can agree to review the CBA at various times in order to address potentially contentious issues before they mushroom, a longer CBA could create as many problems as the league believes it could resolve.

6 Comments

  1. OK can someone explain to me why the league is against a one time buy out of a dud that won’t affect the cap…i have a theory thats its that jerk jacobs trying to stop the habs from dumping gomez for free…..

    • Sorry Mike you are pointing the finger at the wrong guy.
      The NHL wants buyouts that are not counted against the cap.
      it is Fehr and the NHLPA that will not allow it as they want a different buyout system.
      btw fehr also wants any contract sent to the minors of 90k or more counted against the cap too so that overpaid bums can no longer be sent down as a way to clear cap space.

  2. I can’t believe these owners, the ones doing the negotiating, can be so short sighted and greedy. I maintain that a large part of revenue growth comes from interest being generated in non-hockey areas. A lot of these money losing teams are in areas where hockey isn’t normally played; Canada and the large US metropolitan areas are mostly saturated. Growth and revenue has to come mostly from those places where hockey interest is growing.
    I am in Blue Jacket country and here, many high schools are starting to play organized hockey. Before the Jackets, we had two or three teams; now there are nine or ten and many others considering teams. Playing pee wees and then into high school and then college and finally sitting in a seat in an arena watching games and buying team merchandise is what causes revenue growth, not some fat cat sitting on his can in an arena in a traditional hockey market. Montreal, Boston, New York, Philly, Detroit etc. can’t sell more merchandise or more tickets because they are already full; growth will come from those areas needing help now, if these boneheads will only think a little bit!

  3. WRT the 5 year term limit- I have seen this same argument (that there will be no money for the middle class) before. It may be true but there is another possibility. Teams will not be willing to pay $10M or $12M to one or two players precisely because they do need to field a team. There weren’t as many teams willing to bid extreme money for Kovalchuk as many had thought there would be. Rather than drive down the money available for the middle class it may drive the money paid to the high end players (except for a handful of extreme talent). From the league perspective these back loaded contracts result in teams paying more than the salary cap – potential forever and represent a competitve advantage for the richer teams

  4. i don’t see the revenue (or lack of) issue going away anytime soon when the NHL continues to prop up financial sinkholes like Phoenix. the problem in a lot of non traditional markets is not just getting people to fill the building but getting them to pay enough to keep the franchise profitable, at this point it’s cheaper to fly down the coast (or to Phoenix) for a couple of games than to stay in Vancouver and go to a couple of games. i understand the concept of supply and demand but why should the top teams continually have to support clear financial disasters. these teams that are losing money because their own fans won’t support them have to face facts and question the long term viability in their current locations. this is a problem created by the NHL not the players. the owners are going to have to take some accountability for their part in driving up costs, for Leipold to offer massive contracts to Suter & Parise then cry poverty goes well beyond hypocritical and into the area of fraud if their contracts are reduced by so much as a dime, no one forced him to sign those contracts and he bragged afterwards about signing the top two free agents.

  5. Again, another misrepresentation of the leagues intentions in the CBA. First, yes, the league wants to correct the loopholes that were missed in the last one, and it is hard to find fault with wanting to guarantee that there will be no more of those ridiculous contracts we all agree on. So Term Length and Variation is important, extremely important. Also, the biggest issue the NHLPA will lose on in the court of public opinion is CBA length….no one wants a short one, and to most in the public, 10 years has to be at least the minimum.

    As far as the intentions of helping problem franchises, the league never said it was looking to find a way to guarantee them success, but to create a level playing field allowing them to be competitive. With no ridiculous bonus monies, and term length and variance, do you think Nashville would have lost Suter? No probably not. That is the intent. If the club is still mismanaged it will fail and rightfully so.

    Revenue sharing is something that will never fly in the NHL and shouldn’t. On a level playing field if some make more money, that is their prerogative. The Leafs and Rangers shouldn’t be relied on to support the bulk of the league. And the league doesn’t think that dropping to a 50/50 share will fix the problem, but it will alleviate it a bit. Remember 8 years ago the players were making 73% of revenue and pundits weren’t screaming in outrage then.

    For those who love to compare leagues, those leagues are having their own troubles. What about the T-Wolves, the Sac Kings, Pacers, Grizzlies and Hornets are all in very steep trouble financially. In fact the NBA has had the most turnover as far as franchises folding and relocating the last 6 years of any league, yet have the highest average player salary. The NFL has the Lions, Jaguars, Bills, Raiders, Buccaneers and Rams all quietly losing money and looking at relocating (LA). And MLB has 9 of its 30 teams in violation of its “Debt Services” clause, with the Dodgers and Mets both with debt payments more than 10 times annual earnings. If you take “TV DEALS” out of the equation, the NHL is actually the healthiest league of all of them as most income is gate generated.

    The fact is the league is doing very well given its competition and if the new CBA creates a flood of players playing in other leagues, so be it……some of us Canadians aren’t so narcissistic to think that the bottom half of NHL players couldn’t be replaced in a heartbeat, and even the superstars fade quickly from memory.