The Hockey News - Money & Power
The threat of a 2020 NHL lockout looms. Which topics will be the most contentious in the next CBA talks?
players and owners get around to negotiating a new collective bargaining agreement, they will tweak the system and balance the accounts or shred the stacks of paper and start over because their partnership has completely dissolved.
The current pact was agreed to in 2013 after a 119-day lockout. It expires in 2022, but the NHL and NHL Players’ Association can terminate it next September, which could lead to a work stoppage in 2020 until a new CBA is agreed upon.
The players think they gave up a lot in coming to terms in the last couple rounds of collective bargaining. They agreed to hard salary cap and a 24-percent rollback on salaries in 2004. Nine years later, the players eventually surrendered more ground, allowing a cut from a 57-percent share of hockey-related revenues (HRR) to an even 50-50 split.
The players feel they’ve given back more than $1 billion in salary and believe it is time for the pendulum to swing their way. There is no support for concession bargaining again, but they also have no real desire to see NHL arenas go dark for the third time in less than 20 years. “As everyone knows, the players made significant concessions to the owners in the last two CBA negotiations, and it is against that backdrop that they will consider the appropriate approach to the upcoming talks,” said NHLPA executive director Don Fehr.
The NHL is on solid business ground. Revenues have increased significantly, from $400
million when commissioner Gary Bettman took over in 1993 to $4.43 billion in 201617. Franchise values are up, and the league will receive a staggering $650 million from Seattle to become the 32nd team in 2021-22. Bettman thought so much of the rosy balance sheets that last season he offered the NHLPA labor peace until 2022 in exchange for going to the 2018 and 2022 Winter Olympics, throwing in a couple more revenue-generating World Cup of Hockey tournaments.
The offer was rejected by the NHLPA. The NHL declined to comment on CBA talks for this story, but you have to think the league is happy with the status quo. Why offer the Olympics as a carrot, why interrupt the season and risk injury to star players, for labor peace unless things are going your way?
Despite its impressive run of annual increased revenues, the NHL is definitely the poor cousin when compared to the three other North American professional leagues, the NFL, NBA and MLB.
The NFL is the most popular league overall, and a reflection of that is how revenues have jumped from $4.28 billion in 2001 to $13.68 billion last year.
The players’ share is capped at 48.5 percent and unlike the NBA, NHL and MLB, contracts are not guaranteed in pro football. The NFL’s CBA runs through the 2020 season, at which point it looks as though a work stoppage is inevitable.
The NBA is the closest to the NHL when it comes to revenue and the split between the league and players. The NBA generated $7.37 billion in 2016-17, and the players’ share is in the 49- to 51-percent range. The salary cap was $94.1 million, but salaries are high compared to the NHL because teams have 12 to 15 players on the payroll, with the top six to eight players getting most of the money.
Major League Baseball, meanwhile, generated more than $10 billion in revenues in 2017 and is the only one of the major pro leagues to not have a salary cap. Instead, baseball uses extensive revenue sharing along with a luxury tax. The payroll threshold was $197 million last season, and there is a 20-percent tax rate for exceeding that amount. Teams also face an additional 12 percent on any payroll exceeding $217 million, and an additional 42.5 percent beyond $237 million.
One of the reasons the NHL ranks fourth of four in revenues is the television contract for each league. The NHL has a $5.2-billion pact with Rogers in Canada that expires in 2026, and its $2-billion deal with NBC expires in 2021.
The NBA has a $24-billion deal that ends in 2025, while the NFL’s $27-billion deal is up in 2022. The MLB television revenues are the biggest piece of the revenue pie, and it’s expected that monies from various media platforms will skyrocket in the net few years.
One of the major factors in the broad discrepancy in tele-
vision monies is about eyeballs. The NBA is on ABC, TNT and ESPN, while the NFL has Fox, CBS, NBC and ESPN as its broadcast partners. When the NHL signed its deal with NBC, the pact was heralded as “the most significant” U.S. mediarights partnership in league history, but Bettman will be on the hot seat to expand the television footprint when he seeks new partners in the near future.
Another revenue-growth area for the NHL is gambling. A survey commissioned by the American Gaming Association estimated the four major pro league could bring in a combined $4.2 billion annually in gambling revenue. This came after the U.S. Supreme Court last spring lifted the federal law prohibiting sports betting outside Nevada, enabling individual states to legalize sports gambling and setting the stage for new alliances between casinos and major sports operators, with payoffs for both parties. The NHL was quick to sign a deal with MGM Resorts International as its first official sports betting partner.
When CBA talks between players and owners do start, the focus will be on how to slice up the multi-billion-dollar business, and the negotiations will be hockey’s version of the classic owner vs. worker struggle, albeit with higher stakes.
The salary cap is here to stay. It controls costs and, combined with other provisions in the collective agreement, helps restrict player movement. Another thing the cap does is prohibit teams from spending their way out of mistakes. The CBA protects owners from themselves. There are issues both sides want to address. For players, escrow payments are the main sore point and are tied in with hockey-related revenues. Olympic participation, disciplining players for on-ice infractions and drug testing are other irritants. For owners, it is all about controlling costs, and term lengths for contracts will again be front and center. Here’s a breakdown of the key issues:
During the regular season, part of each player’s salary is deducted and set aside to ensure the league receives 50 percent of revenues. If at the end of the season, the league has less than 50 percent, it takes the necessary amount from the escrow pool before giving back the remainder to players, which is then taxed. The escrow percentage varies four times during the season, and the final total is set after the season based on revenue figures. NHLers were still waiting for the final escrow amount for the 2017-18 season in late October.
Escrow has been a doubledigit hit in the past few years, including the 2015-16 season when players received 86.2 percent of their salary. The rollback for the first part of the 2018-19 season was 11.5 percent.
Players thought other costs – such as pensions and health – were co-covered in the split, but they weren’t. Players want that addressed. Longterm care is a concern given how concussions are a major health issue. Tied to all this are hockey-related revenues, such as the $450 for two seats 20 rows behind the net to see the Montreal Canadiens at the Bell Centre and the $16.50 for a pint of beer at Scotiabank Arena, the home of the Toronto Maple Leafs.
The players don’t trust the NHL when it comes to reporting HRR. To combat that, the NHLPA is active in conducting audits of teams every season. Because of the salary cap, players are business partners without a vote because they don’t know what the owners are doing in defining HRR; what they are reporting and what they may be hiding.
The players got no part of the $500-million expansion fee for the Vegas Golden Knights in 2017, for example, and the same applies for the $650-million price tag for Seattle. Say the NHL puts a second team in the Toronto area. How much will the league demand for an expansion fee in hockey’s hottest market? $1 billion?
>NHLPA WANTS: A more streamlined, quicker system to deal with escrow; long-term health costs to be shared with the NHL.
>NHL WANTS: Would like to keep status quo.
In 2012, NHL deputy commissioner Bill Day said contract length was “the hill we will die on.” The NHL never got the fiveyear maximum length it desired and Daly is still with us, in the same job. Think of contract length as part of your stock portfolio. In this instance, a team’s top three or four players get long-term deals. Long-term stocks are supposed to return dividends, and in hockey that translates into wins.
The onus is on the player not to underprice himself. Winnipeg Jets star Mark Scheifele signed an eight-year deal worth $49 million, and he will make a cap-friendly $6.125 million per season through 2023-24.
The NHL still wants the fiveyear max term. That way, owners make fewer mistakes paying out big bucks to a player who could decline in the last few years of his deal. Will John Tavares be an $11-million player at 34 when his pact ends?
Short-term contracts – two to three years – provide teams with the opportunity to assess whether the player is performing and whether to go to the five-year max on the next pact.
Some NHLers take two-year “bridge contracts” after their entry-level three-year contracts end, knowing they are gambling on their financial future. Winnipeg’s Josh Morrissey agreed to a two-year deal in September worth a bargain $3.15 million per season, and if his performance curve continues on its current trajectory, he will cash in huge on his next deal in 2020.
Last but no means least are signing bonuses providing lockout protection for the players. At one point this season, 78 players had agreed to terms that will see them collect $252 million in signing bonuses for 2020-21 to protect against potential lost wages. Tavares, for
example, has an $11.1-million signing bonus for 2020-21.
>NHLPA WANTS: Basically status quo, eight years for teams to re-sign its own players and seven years for other players.
>NHL WANTS: Five-year max deals and elimination of bonuses for lockout protection.
NHL owners and players are not on the same page when it comes to international hockey, especially Olympic participation. Minus NHL players, the 2018 Pyeongchang Olympics did not have same buzz as the 2014 Sochi Olympics or the 2010 Vancouver Olympics. Without the NHL, the 2018 tournament showcased a second-rate brand of hockey.
Players want to wear their countries’ colors at the Games and want a say in this rather than to be told by Bettman that they can’t go, as happened last season. The NHL only seems keen on Olympic participation if the Games are in North America, although that could change for the 2022 Winter Games in Beijing. The NHL will play pre-season games for a third straight year in China next fall.
As for future World Cups, the NHL and NHLPA favor continuing this revenue-generating venture, but the NHL does not want a World Cup in 2020 if there is a chance of a lockout. To have a 2020 World Cup, both sides would have to agree not to reopen the CBA.
As for the Olympics, again, it comes down to money. If the NHL can establish relationships with significant companies in China that puts money into the owners’ pockets, Olympic participation will probably happen. The NHL, NHLPA and the International Ice Hockey Federation have discussed Olympic participation, but no decision has been made, and one is not expected in the near future.
>NHLPA WANTS: Olympic participation along with future World Cups.
>NHL WANTS: World Cups, and will use Olympic participation as a carrot for concessions in other areas.
The fact Bettman has a say on appeals of on-ice discipline gnaws at the players, who don’t see him as an impartial judge. They won the right to take Bettman’s decisions to a third-party arbitrator in the last CBA, so this issue should be a moot point.
Another area that could come up for discussion is the CBA’s personal conduct policy that allows for suspensions for things such as domestic abuse. The topic was thrust into the spotlight when Austin Watson of the Nashville Predators was suspended for 27 games in September for domestic abuse. A third-party arbitrator later reduced the suspension to 18 games. A second instance when the NHL and domestic abuse came into focus was when Slava Voynov applied for reinstatement in late October. He had his contract terminated by the Los Angeles Kings in September 2015 after he pleaded no contest to a misdemeanor charge of corporal injury to his spouse stemming from an arrest on domestic violence charges. After two months in prison, he returned to his native Russia voluntarily rather than face a potential deportation hearing with U.S. Immigration.
The NHL and NHLPA are satisfied with the way off-ice conduct has been covered off in the CBA. Whether the rise of the #MeToo movement, the stand against sexual assault and sexual harassment, will have an impact remains to be seen.
With improvements in testing procedures, players are worried about environmental contamination, and the feeling is there should be a minimum standard as a threshold for suspensions for substance abuse.
Consider the case of Vegas defenseman Nate Schmidt. He was suspended for 20 games in September for violating the NHL’s performance-enhancing drug policy. Schmidt said he only takes supplements given to him by the Knights and has never tested positive before. “It was utterly shocking to be informed that I tested positive for a microscopic amount of a tainted substance,” said Schmidt at the time. “Not only did I not intentionally take a banned substance, I could not have received any performanceenhancement benefit from the trace amount that inadvertently got into my system at a level that was far too small to have any effect.”
At his appeal hearing, Schmidt said an expert in environmental contamination who testified on his behalf likened the amount of the banned substance to a pinch of salt in an Olympic-sized swimming pool.
There are a number of different ways an illegal substance can find its way into an athlete’s blood system. Food safety is a major concern, especially given how chemicals are used in the production of food, including steroids and pesticides.
The NHL will counter by saying a miniscule measurement of a banned substance is proof a player was caught in the final stages of the illegal substance washing out of his system. This is not a deal-breaker by any means, but improved scientific measures will have to be addressed. Testing procedures are evolving every day. The International Olympic Committee announced in November it will retest samples of athletes from the 2012 London Olympics using scientific methods that did not exist at the time.
Then there is marijuana use in light of how cannabis has been legalized in Canada. For its part, the NHL and NHLPA plan no changes to their joint drug-testing policy, under which players are not punished for positive marijuana tests. But cannabis is on the World AntiDoping Agency’s list of banned substances, and WADA is in charge of testing athletes for the Olympics.
WHAT HAPPENS NEXT
The NHL and NHLPA are talking to their constituents about their bargaining wish lists. No timetable has been set for negotiations to start, and if nothing gets resolved by September 2019, the hockey world will be watching to see if either side opts out of the current CBA in 2020-21. The NHL has the first right of refusal, with the NHLPA following a few weeks later if it comes to that. If the NHL and NHLPA announce a 2020 World Cup, that’s a sign neither side will use its reopener clause.
The NHL is a billion-dollar industry, and another lockout or strike will impact the little guy, fans of the game who work in restaurants and bars near arenas along with at factories that service the sport. So what happens? Do players and owners go toe-to-toe when the league is on solid financial ground, when the NHL is a year away from expanding its footprint to Seattle, when the league hopes to cash in on a new television strategy in the U.S. and when gambling monies will be just starting to roll in? The stakes are high.