Friday July 20th, 2012

Shea Weber of the Predators in action against the Flyers The current NHL is really just a rough battle between "haves" like the Flyers and "have-not" teams like the Predators. (John Russell/NHLI via Getty Images)

By Stu Hackel

Much of the discussion surrounding the Flyers' offer sheet to Predators RFA Shea Weber centers on whether Nashville will match it -- and many believe they must and will -- but Philadelphia's stab at snaring the All-Star defenseman also tells us a great deal about the negotiations between the NHL's owners and players for a new Collective Bargaining Agreement.

Yes, the talks are between labor and management, but the Weber situation reveals that the basic issue confronting the two sides is actually the owners vs. themselves. It's their collective inability to figure out how to solve their business problems that have been created by their own record revenues. The solution in their opening proposal seeks to shift the burden of fixing them onto the players. and as long as this remains their course, the problems of inequity among the 30 franchises probably can't be solved.

The Weber offer sheet provides us with a textbook example. It involves two teams with very different economic profiles. The Flyers are considered to be one of the league's strongest franchises. In its annual valuation of NHL clubs last fall, Forbes ranked them eighth, with a worth of $290 million, revenues of $111 million and an operating income (earnings prior to interest, taxes, depreciation, amortization, that is, before the accountants work on the figures) of $3.2 million; the year prior (in which the Flyers went to the Stanley Cup Final and had 11 lucrative home playoff dates), they were ranked sixth, worth $301 million with revenues of $121 million and operating income of $13.3 million.

By contrast, the Predators ranked 25th in this year's valuations, worth $163 million with revenues of $82 million. Before taxes, etc., Forbes believed Nashville's operating income showed a loss of $7.5 million. In 2010, the Preds ranked 27th, worth $148 million (less than half the Flyers) with revenues of $74 million and again showing a loss of $5.5 million. (The league has always disputed these figures, but even if they are roughly true, they give you an idea of the disparity between these two clubs.)

Though the Preds have improved their financial picture in the last year or so with a new ownership group, the team still faces numerous challenges. It's clubs like the Predators that have not shared in the NHL's glowing business success, which brought in a record $3.3 billion league-wide last season. How many truly struggling teams are there? One former member of the NHL Board of Governors put the number at only six in a conversation with David Shoalts of The Globe and Mail. Forbes listed 18 teams that had a negative operating pre-tax income in 2010-11, and 16 the season before that, but as James Mirtle writes in this excellent Globe and Mail piece from Friday, "The bottom 10 teams have revenues so low they can’t cover their expenses."

Whatever the number, with $3.3 billion having come into the NHL's coffers, it's clear that the league is composed of haves and have-nots. Mirtle's calculations show that "The NHL as a makes money – and if revenues were 100 per cent shared among owners, they’d all be profitable." But, he adds, "those at the top have little intention of helping them do more than they already are." And the Weber offer sheet is one more case of a team doing well trying to pillage one that is not.

It's not that the Predators didn't expect that they might have to pay Weber a huge sum to retain him. They knew when they lost Ryan Suter to Minnesota ($98 million over 13 years with $25 million of that being bonus money during the next three years) what the market was going to be for a premier defenseman. It's the structure of the Flyers offer sheet that is potentially injurious to Nashville. The first four years of the deal that Weber has signed calls for only $1 million in salary and $13 million in bonuses -- and bonuses are typically paid in full on July 1 for the upcoming season. So the structure of the deal will force Nashville to fork over $27 million to Weber within the next year if the Preds match the offer. Had they been able to negotiate that deal themselves, they might have been able to structure it differently, working within their own financial parameters, not someone else's.

"To put that in perspective," wrote Frank Seravalli in The Philadelphia Daily News, "16.5 percent of Nashville's entire franchise net worth ($163 million as valued by Forbes magazine in 2011) would be paid out in less than a calendar year by the small-market team. Signing bonuses are guaranteed money, whether an impending lockout cancels next season or not. For a team with tight purse strings, paying a player for an iced season would be a death knell. One report on Thursday suggested Nashville's gate receipts revenue for all 45 home games last season was only $26 million."

Now, the Flyers have violated absolutely nothing in the current Collective Bargaining Agreement by signing Weber to this offer sheet. It is all perfectly legal. In fact, the players and NHLPA staff at the CBA talks in New York had no problem with the deal at all. Shane Doan, who is an unrestricted free agent himself, said (quoted in The New York Times) “Philadelphia’s trying to do everything it can under the current CBA. to get one of the finest defensemen in the world. We don’t mind the whole offer-sheet thing.” And NHLPA Executive Director Donald Fehr didn't seem to mind it either -- and why would he? It maximizes the earning power of his membership and gives players more choices about where they can play.

It's the owners who want to change things by slashing player salaries, forestalling their free agency eligibility, eliminating bonuses, and other measures that would restrict their movement. “You’ll have to ask them why they want to modify the system to prevent that kind of choice," Fehr told reporters after Thursday's bargaining session.

But Fehr knows the answer. It's roughly the same one he regularly gave reporters during the 1994 Major League Baseball strike when he served as executive director of that players union and the owners wanted to institute a salary cap rather than enact broader revenue sharing. The dispute, he said, was really about owners vs. owners and their collective lack of desire to share their wealth. Their solution was to just take more from the players. As players have already begun pointed out, that's what happened in the last NHL lockout, in 2004, and the result didn't bring about the economic nirvana that was promised.

We all hope we don't have to see Fehr making similar statements to the press in September. There's still lots of time and hard bargaining to be done. Regardless of whether Shea Weber plays his next NHL games in Flyers orange or stays in Predators yellow, the offer sheet that he signed this week crystallizes the issues the NHL faces.

Before you go, please read Adrian Dater's blog post on his friend Jessica Ghawi Redfield, a young hockey writer who was a victim of the shooting insanity in Colorado on Thursday night. COMMENTING GUIDELINES: We encourage engaging, diverse and meaningful commentary and hope you will join the discussion. We also encourage, but do not require, that you use your real name. Please keep comments on-topic and relevant to the original post. To foster healthy discussion, we will review all comments BEFORE they are posted. We expect a basic level of civility toward each other and the subjects of this blog. Disagreements are fine, but mutual respect is a must. Comments will not be approved if they contain profanity (including the use of abbreviations and punctuation marks instead of letters); any abusive language or personal attacks including insults, name-calling, threats, harassment, libel and slander; hateful, racist, sexist, religious or ethnically offensive language; or efforts to promote commercial products or solicitations of any kind, including links that drive traffic to your own website. Flagrant or repeat offenders run the risk of being banned from commenting.

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