ROOT CAUSE ANALYSIS: The NHL Lockout

Go ahead and fill in your blanks.

Here we are, 2 months into what should have been the 2012-13 NHL season, and there is still no ice laid in NHL arenas.

So how did we get here?

There are a few different things at play, but we’ll try to get to the root cause of it all.

First of all, it takes two to tango. I should know, I do one helluva tango. Placing blame entirely on one side or the other certainly simplifies things. However, this isn’t a no-fault situation.

On one side you have the players. They went out and hired Donald Fehr to be their advocate. You don’t hire Donald Fehr to walk into a room and play nice. The man’s a barracuda. On the other side, you have the owners. Their advocate for the past twenty years has been Gary Bettman. Another barracuda.

So each side threw a barracuda into a tank and is watching them fight it out. There was no way a CBA was going to get ironed out smoothly. Before we go any further, we need to make sure that point is established.

Now then…this is the third time in twenty years that the NHL has locked out players. let’s review:

1994: After a year of no CBA, the owners lock out the players. From a public relations standpoint, this is curious as the Stanley Cup had been won by the New York Rangers, giving them a champion in a major media market and raising the awareness of hockey across the United States. The main concern of both sides is small market teams, such as Hartford, Quebec and Winnipeg. The owners want to tie player salaries to revenue (a salary cap), while players want the owners to share revenue more evenly among teams. The lockout ends with the season being truncated from 84 games to 48 after large market teams broke ranks. New guidelines for rookies (a rookie salary cap, rookies signing two-way contracts) were instituted.

2004: Again, the owners wanted a salary cap, using the phrase “cost certainty” – giving the impression that people who could afford to own NHL teams could somehow not figure out how to project costs for doing business. (yes, my bias is showing. If you don’t agree, there’s no limit on blogs in the world) So the owners want the Cap, tying salaries to revenue. The players, once again, wanted revenue sharing to subsidize smaller market teams. For both the 1994 and 2004 lockouts, the two main combatants were Bettman and Bob Goodenow. At one point, the players offered to accept a $52 million salary cap, provided it was not tied to revenue. The owners countered with an offer of $40 million. Good-bye season. When the NHL resumed play for the 2005-06 season, the salary cap was 39%, 57% of revenue. Within three years, the cap number would surpass the players’ offer of $52 million, costing the owners billions, along with a salary floor that was $16 million under the cap. There was a revenue sharing plan in place that was contingent upon teams reaching benchmarks in attendance. The revenue sharing plan also had huge loopholes allowing for teams to bury revenues in subsidiary corporations.

2012: Salary cap, revenue sharing. Same as it ever was. The owners, after cashing in a season to get the salary cap they wanted in 2004, figured out the deal they made was a bad one. Their initial offer was for the players to go from 57% down to 43%. Of course, nobody in the world expected the players to take that offer, and they didn’t. However, as in any negotiation, you have a high and low point, and you hope to meet somewhere in the middle.

Now, let’s get to the cause of this lockout. For starters, both ownership and players have not been able to come up with a workable system of tying salaries to revenues. Most reports have the players and owners agreeing at this point to a 50/50 split in revenue, and salaries being tied to that number.

Next is revenue sharing. The players’ thinking here is that a rising tide raises all boats. The more money you can give to teams like the Coyotes and Panthers, the more competetive they can be, which will boost attendance, which will boost revenue. I’m not in the room, so I don’t know, but I’d imagine there is also discussion of moving those teams to markets where they could generate more revenue out of the box. After the huge success of moving the Atlanta Thrashers to Winnipeg, I’d have a very hard time believing relocation hasn’t been discussed. But that’s a topic for another day.

This time around, there are new wrinkles, and those wrinkles are major stumbling points. One is regulation of contract length, the other is “variance”, or the amount the highest and lowest paying years of a contract can differ.

As an outside observer, the idea of putting limits of this sort into a CBA tells me that the players are being asked to save the owners from themselves. You can blame the players and agents for some of these more (ahem) exotic contracts, such as Marian Hossa or Henrik Zetterberg, but it is only certain teams that are signing players to these types of contracts.

The plausibility drops even further when teams like the Minnesota Wild give identical contracts to Zach Parise and Ryan Suter before then turning his pockets inside out to claim small market. In fact, while it would be almost impossible to prove, there is certainly an argument to be made for the Wild negotiating in bad faith with these players, knowing they would fight for a rollback in salary.

So where is the root cause?

The players are in a unique position – they are not negotiating from an offensive position, as Fehr was always able to do when he was Executive Director for the Major League Baseball Players Association. He’s in the room knowing the players are coming away with less than when he walked in. It’s his job to minimize the damage to the players.

Bettman is across the table, knowing the owners are coming away with gains. However, his negotiation tactic is now as it was in 2004 – all or nothing. He wants a bigger piece of the revenue pie, he wants contract length regulated, he wants contract variance. He has not shown any willingness to budge on any of these, with the exception of the share of revenue, which (as I stated earlier) is at 50/50 instead of 57/43 in favor of the owners.

So while it takes two to tango, there is no doubt who is leading who around the floor, and who has the ability to end the dance.

 

 

 

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About the Author: Spent my formative years breathing in the rarified air of the second balcony at Chicago Stadium. Refined my flair for colorful euphemisms in the blue seats at Madison Square Garden. Now a curmudgeon in the 300 level in the United Center. My musings can also be found at Hockeenight.com...and yes, I muse.

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