The NHL Cannot Avoid Revenue Sharing.

The big market NHL team owners may be resistant to improved revenue-sharing, but it may be the best way to level the playing surface for all 30 NHL teams.

As most NHL fans now know, the league tabled its initial CBA proposal to the NHLPA in mid-July, seeking to reduce the players share of hockey-related revenue (HRR) from the current 57 percent to between 43-46 percent.

The PA has yet to make its counter-proposal, but when they do, it is widely expected to be centred around an improved system of revenue sharing, perhaps a luxury tax system similar to that PA director Donald Fehr hammered out with Major League Baseball when he headed up the MLB players union.

The league has also suggested an improved system of revenue-sharing in its proposal. It remains to be seen, however, if that’s indicative of a willingness by the league to implement a significantly better system than the one currently in place (which is quite complex and reportedly sees the richer clubs sharing only a rumored seven percent of their combined revenue with their weak cousins), or mere window-dressing to score PR points.

Reaction to the league’s initial proposal has been overwhelmingly negative, with a number of pundits (including several who were firmly in the league’s corner during the last lockout) criticizing it as little more than a hardline attempt to squeeze the players for more money. A growing number have begun espousing the need for a better system of revenue sharing.

If the league is serious about its efforts to improve the profitability of all its franchises, slashing the players share of HRR is not an effective long-term solution. One need only look at the current CBA to see the folly in that notion.

Under the current agreement, the players share of HRR was reduced from what the league claimed was 75 percent (it was rumored to actually be 67 percent) down to 54 percent, capping it at 57 percent as league revenue increased. Revenue-sharing was pretty much an after-thought and useless in providing substantial assistance to franchises which needed it.

The result was smaller market clubs had a couple of seasons where they could competitively spend with their bigger market peers, but as revenue rose sharply over the course of the current CBA, so did the salary cap, making it increasingly difficult for teams which couldn’t afford to keep pace with the cap ceiling to at least keep up with the rising cap floor.

Uncoupling salaries from revenue, thus ensuring the former doesn’t increase with the latter, would be one way to address that, and  it’s surprising the league didn’t pursue that option with their initial proposal.

It could still try to go that route, but to do so would be an acknowledgement by the league its cost certainty system, heralded seven years ago as the answer for all its financial woes, was significantly flawed, which its leaders will never do.

After years of the league front office publicly stating there was nothing wrong with its cap system, to separate salaries from revenue would not only be an embarrassing admission of error, but could ensure another significantly lengthy work stoppage, which could alienate fans and turn the punditry against it.

While the league certainly appears to be trying once again to squeeze the players, a number of the team owners, and those among the league’s brain trust, could be reluctant to shut down operations for a prolonged period again.

Critics doubt an improved system of revenue-sharing will help matters, pointing out it’ll allow big market teams to dominate free agency, scooping up the top talent while leaving little for other teams, plus it won’t turn poorly-run teams into playoff contenders.

Big market teams are always going to spend as much as they can, cap system or not. It’s their money, and they feel they have the right to spend it as they please. The current salary cap system couldn’t prevent them from finding and exploiting loopholes to sign top talent to expensive, long-term, cap-friendly contracts.

This summer’s signings by the Minnesota Wild of Zach Parise and Ryan Suter, however, also demonstrated that the current system is not a guarantee the big market teams will always land the best available free agent talent.

A luxury tax system would allow free-spending teams to spend over the salary cap, but would tax them a certain percentage for doing so, with that money then shared among the struggling markets, thus aiding them in keeping pace with a rising salary cap.

It’s certainly true that sending more money to struggling clubs which are poorly managed won’t make them better teams. The current CBA proved you can’t legislate against stupidity. An incompetent GM is going to make bad signings or trades, regardless of the market where he works.

Teams like the Nashville Predators, which have for the most part been well-managed for years, should have the opportunity to avail themselves of a system which can allow them to remain competitive as they build up their market to the point where ultimately they require less, or no, assistance.

Another argument against revenue-sharing akin to that in MLB, or the NFL, is the NHL doesn’t enjoy the lucrative revenue streams of pro baseball or football, especially their television deals, and thus there wouldn’t be enough dollars generated to making revenue sharing worthwhile.

Perhaps that was true eight years ago, when the league’s revenue was around $2 billion, but NHL revenue made its largest increases in league history over the past seven seasons, to where 2011-12 revenue was a record-high $3.3 billion, and projects further growth in the near future.

At the same time, the Phoenix Coyotes – barring a miracle – appear a certainty to be relocated, the New Jersey Devils are rumored on the brink of bankruptcy, the NY Islanders could be moved once their current arena lease expires in 2015, while the Florida Panthers and Tampa Bay Lightning struggle to recover from years of mismanagement by previous ownership.

Squeezing the players for a significant reduction in their share of HRR and a significant roll-back in their salaries didn’t address the problem of struggling franchises. It certainly didn’t help the Atlanta Thrashers, which were moved to Winnipeg a year ago. Doubling down on that tactic sets the stage for more teams to relocate, or worse, fold.

A better system of revenue-sharing appears the best course of action if the league wants to avoid the relocation of more franchises or contraction.

Of course, the team owners will still attempt to pressure the players into more givebacks, which will likely result in a 50-50 split in revenue, but to make that more palatable for the players, the league must work with the PA to hammer out a significantly improved system of revenue-sharing.

Otherwise, they’ll be merely kicking the can down the road, ignoring the problem in hopes it’ll go away on its own.

For a sports league which has crowed about expanding revenues for several years now, that would be a incredibly stupid way of conducting business.

4 Comments

  1. Great insight into the broad topic of revenue sharing.

    As a fan of one of the larger market teams, your observation about revenue sharing not helping the “poorly run” teams is, in my opinion, the real issue. This is similar to the debate in political circles about “giving a hand up” versus “giving a handout.”

    While I won’t pretend to know what’s in the minds of the more financially stable owners, I’d have to imagine that they’d support making the competent, well-run, smaller-market teams be more competitive since that only helps the game grow overall. What they are likely to be choking on is giving money to an organization that lacks solid hockey smarts and is critically deficient in basic business intelligence and abilities.

  2. “This summer’s signings by the Minnesota Wild of Zach Parise and Ryan Suter, however, also demonstrated that the current system is not a guarantee the big market teams will always land the best available free agent talent.”

    Parise and Sutter only signed with the Wild because they grew up in Minnesota and Wisconsin. Otherwise they would of never considered playing for them and they would of landed in a big market. The Parise/Suter sweepstake was only an exception to the rule if you ask me. Had they signed with the Columbus Blue Jackets, I would of agreed with you but they signed with their hometown team.

    • Sure, joining the Wild was an attractive option for Parise and Suter, but if the Wild weren’t able to offer up the contracts it did, that pair would’ve signed elsewhere. Money still talks.