Monday August 20th, 2012

NHLPA executive director Donald Fehr is against a very complex 50-50 revenue split between players and owners. (Dave Reginek/NHLI/Getty Images)

By Stu Hackel

As the two sides in the NHL's talks warily circle each other, dukes up, in the early rounds of this collective bargaining rematch, one proposed solution to a major economic stumbling block is the subject of a good deal of debate: that of the 50-50 revenue split between the owners and players.

Here's the thought behind this purported answer: The players currently get 57 percent of the NHL's revenue, and the owners have proposed they receive far less (anywhere from 43-46 percent depending on how things get calculated, but let's overlook that for a moment -- the idea is that the owners want to reduce the players' share substantially). So, the reasonable mind may conclude, why don't they just split the difference? Divide it 50-50, which is much like what the  players and owners in both the NFL and NBA settled on following the lockouts in those respective sports.

In fact, some believe that a 50-50 split is the reason the owners' proposal for the players' share came in as low as it did. This is a negotiation, after all. Your first offer isn't necessarily your final one. You want to leave room to negotiate.

Michael Grange of articulated this -- and a good number of fans who want the season to proceed are likely to agree -- in his piece last week, which suggested "five easy steps" that would "end CBA negotiations forever." It was his first point during which he wrote, "While I'm no fan of the owners' bully tactics (“We'll shut down the league, squeeze a few paydays out of you, and when you get desperate maybe you'll listen to reason”), I find it hard to get too bent out of shape when the owners are forking over more than half of their revenues to the players. Good on the players for scrapping for every last dime, but an even split of revenues from now until the end of time seems like common sense to me. Just do it -- and shut up about it."

The 50-50 split was also raised by a few reporters, Grange among them, during Donald Fehr's conference call last Friday afternoon. As Grange said on the call, "The common perception is, there's four bucks on the table, we're partners, you get two, I get two."

Fehr's responses to Grange and the others were very enlightening and, at times, also a bit confusing. Generally, he presented a cogent explanation of the NHLPA's perspective on the 50-50 split argument -- and why it is something of an oversimplification rooted in misunderstanding. Not coincidentally, Fehr's feelings represent part of the major gap both sides currently admit exists between them.

For one thing, while the NFL and NBA have gone to more of a 50-50 split in revenues -- and this is the industry standard the NHL owners wish to emulate -- the way in which those sports define the revenue they split differs from the NHL's definition. "The economic systems are different in the various sports," Fehr pointed out. "For example, the football number is not based on the same revenue definitions [as the NHL] even remotely."

As Fehr explained it, when we hockey fans and media have discussed a 50-50 revenue split, we're not talking about dividing the same revenue pool that the negotiators are discussing. What they are discussing is "Hockey Related Revenue (HRR)" which is not the total amount of revenue in the business. HRR is revenue from which a number of items have been subtracted. I elaborated on what HRR is, as defined by the current CBA, in a post earlier this month. Among what is removed from the total revenue are: money teams make from waiver claims on players; money the NHL makes from moving teams or granting expansion franchises; revenues that teams receive from operating other clubs, such as AHL affiliates; fines collected from players and teams; any money teams make through financial transactions, such as loans, interest income or investments; and the sale or leasing of real estate. All those categories of revenue don't count when determining HRR, which is the pool from which the players draw their percentage under this salary cap system. Additionally, the CBA excludes from HRR  “any costs, including fixed and variable costs, attributable to a revenue-generating activity” -- anything spent while accumulating HRR, including the salaries of employees whose duties contribute to the revenue activities.

You do have to wonder how some of those things are not considered non-hockey related, but that's the deal under which everyone has operated for the past seven years. What goes into -- and is left out of -- HRR has been disputed by the NHL and the union for quite some time now.

Unfortunately, Fehr declined to mention any of those subtracted items specifically on the conference call when Grange asked him what was excluded from HRR. He gave little detail other than to say, "It has to do with some cost cap limitations and things like that related to how revenue is raised and so on. We (the NHL and NHLPA) also don’t see eye-to-eye in all respects on how revenue is to be counted. But hopefully we’d like to work those things out."

But a main point Fehr made is that if one adds all the non-HRR back into the total revenue picture, the split between the owners and players is, in fact, roughly 50-50 right now.

On top of that, as I mentioned in that earlier Red Light post, the owners want to make changes to the current definition of HRR and take even more out of it -- what it costs to occupy their arenas and a percentage of their finance, support and general management expenses.

So this isn't as cut and dried as four bucks divided by two. And Fehr even disputed the idea that the players and owners should be considered partners. "If we are partners," he said, "do we have joint control? Do we get to have an equal say in how the marketing is done, how the promotion is done, where the money is invested, where the franchises are located? Do we have an equal say on when teams are sold, where the money goes, do we get part of that? Do we have an equal say in how the television arrangements are done? Do we have an equal say on anything? That’s what a partnership normally implies."

Grange responsed, "What you hear from the other side is, 'No, you don’t get all of that. But you don’t have to fund losses, and you're guaranteed a share of revenue and not profit.'"

To which Fehr plainly answered, "That’s what the owners wanted." Which is to say, this isn't really a partnership, now, is it?

So, there's nothing magical about a 50-50 divide as far as Fehr is concerned. "I am sure from the owners' standpoint, any number below 57 looks better than 57, and the farther you can get below 57, the better it looks," he stated when answering another question in the Friday briefing. "We all know that; that’s not an open question."

As for the NBA and NFL splits serving as the models for the NHL, Fehr sneered at that concept, offering, "As we made the point at the table, if in the NBA negotiations they had eliminated the cap or gone to 65 percent, I assure you the NHL owners would not be saying, 'Follow the basketball model.'"

Fehr's larger point, of course, is that the 57 percent the players currently receive is not fair market value for their services, a claim he makes because players pulled in far more than 57 percent of the revenues before the salary cap limited what they could make. "The normal way we value things in North American economic arrangements is we have a market value," he said. "And we know the players aggregate market value is more than 57 percent. But the owners didn’t want to pay that much." And in this negotiation, he added the players are "willing to live with that, if we can work out an agreement.

"There are no caps on what a general manager gets paid. There are no caps on a head coach, there are no caps on ticket prices, there are no caps on what a franchise sells for. There are no caps or limitations on anything except players’ salaries. So the fundamental question you have to ask if you’re going to go down that route is, 'How in the world did you ever get into that situation?' But the players have indicated, both the last time and this time, that in a maximum good faith effort to try and make an arrangement, they are willing to consider that."

It's abundantly clear that Fehr is no fan of the salary cap but, at least the way he portrays it, his constituents can live with it -- and why not? They've hardly suffered under the current CBA. As he is fond of saying, he works for them, so he's negotiating a deal under a cap system he's philosophically against, one he opposed at every turn when he represented the Major League Baseball players.

But he's also no fan of this 50-50 talk and, on that, he and his constituents agree.

Sadly for those of us who just wish there were easy answers to the differences between the NHL and NHLPA, this issue is more complicated than we hoped that it would be. Much of the CBA's economic structure is complicated, and everyone is starting to understand that, including the players who were so optimisitic about their "alternate proposal" prior to Gary Bettman's response to it last Wednesday. Fehr described his talks with players at an NHLPA regional meeting in Chicago as "sobered."

And the owners, who may have thought their opening proposal would prompt negotiations that would close the gaps between their numbers and what the players would want, have discovered that won’t be so easy, either.

Perhaps that's why when Fehr was asked Friday if he thought there would be a lockout, he deviated from his standard response of, "I'm out of the prediction business." This time, his answer was a bit more sympathetic: "I wish I knew the answer to that, too," he said. "I've got about 750 guys out there that would like to know the answer to that."

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