Is the NHL headed for another work stoppage? - Sports Illustrated

Is the NHL headed for another work stoppage?

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Donald Fehr and the NHLPA aren't likely to agree that more salary cuts are needed to keep the NHL in the black. (Kirby Lee-US PRESSWIRE)


By Stu Hackel

Is the NHL headed for a contentious player-owner showdown in the upcoming CBA negotiations? That's what Forbes Magazine expects to happen, judging by the main essay that accompanies its annual survey of NHL franchise values. Forbes recommends that the owners press the players for a larger share of league revenues, the same major issue that forced the just-concluded NBA lockout.

For a sport that lost the entire 2004-05 season to an owners' lockout, this is hardly cheerful news for hockey fans, especially because the NHL has made some significant gains both on and off the ice during the last six years.

However, Forbes may not be looking at the entire picture of the league's business.

First, it should be said that Forbes does terrific work crunching numbers to provide a general picture of the hockey world's often murky finances. Its valuations are regularly cited in the media. They're also discounted by the teams themselves when asked for comment by the media, although no club has ever offered to contrast the Forbes' reports with figures of its own. Regardless, Forbes' research has become an important public window through which we can look into the league's rather private business. It may not be wholly accurate, but it's a very good and essential point of reference.

So let's get to the meat: Franchise values -- what Forbes believes NHL clubs are worth -- are at an all-time high, writes Michael Ozanian in the main essay. The average club is worth $240 million, five percent more than last year. That rise has been driven by the new sponsorships and  new NHL-NBC TV deal.

"The average NHL team is worth 47 percent more than it was before the lockout that cancelled the 2004-05 season," he writes.

However, Ozanian estimates that player costs -- which include salaries, even for minor leaguers who don't count against the cap, and other expenditures like insurance  -- increased 11 percent league-wide in the last year. That, he says, cut into the teams' operating revenue and caused losses for the majority of NHL franchises.

“Last season 18 of the league’s 30 teams lost money even before they had to pay bank loans or write down assets, compared with 16 the prior year,” he writes.

And the consequences of that could mean trouble next fall: “The league’s salary cap, set at 57 percent of revenue, is too high for some teams to be profitable,” Ozanian writes.

“As a result, expect the National Hockey League to undergo a cantankerous labor negotiations when the owners and players union begin to hammer our a new collective bargaining agreement to replace the current six-year deal that expires in September.

"The NHL must move much closer to the 48 percent model the NFL agreed to before this season or the 50-50 revenue split National Basketball Association’s owners and players recently agreed to.”

It's rather unlikely the NHLPA will agree with that solution to the problem.

For one thing, the players will likely see a 47 percent post-lockout rise in team values as proof that the current deal is working very well for ownership. And a five percent rise this year, in rather hard economic times, would be seen as further proof.

In a video that accompanies the story, Ozanian points out the severe divide between high- and low-revenue NHL clubs. But, apart from changing the split under current deal, he does not consider other remedies for teams that are losing money.

Increased revenue sharing would be chief among them. The league does have some forms of it, but it does not account for much. Sources have put that figure at only five percent of total revenue, which is well behind the other major league sports.

Under current NHL revenue sharing rules, clubs in bigger TV markets (more than 2.5 million TV households) cannot receive any assistance from the league whatsoever, nor can any of the top 15 revenue-earning teams. So if Forbes' figures are correct, at least seven teams that lost money last year do not qualify for any revenue sharing money under the current CBA. They include the Islanders, Devils, Ducks, Kings, Sharks and Stars, who are in big TV markets that make them ineligible. And the Wild, who supposedly lost money but are not in the bottom 15 revenue producing teams, can't get any help either.

So one thing that needs to be fixed before looking at the split of revenue between the players and owners is the way the owners themselves divide up their record-breaking revenue.

In fact, NHL Deputy Commissioner Bill Daly said last year that he expected that TV market restriction to change in the next CBA. That would be a step in the right direction.

Additionally, the union has long questioned the amount of revenue that teams claim to make, saying it is below the actual figure. The disagreement has in the past often revolved around income that teams might derive from sources they have labeled as "non-hockey revenue," and have included parking, concessions and other related business from which they received revenue but were not included in the hockey team's  bottom lines.

Larry Brooks of The New York Post reported last month that, for the first time, the NHLPA is formally contesting the league's revenue figures, examining the books of at least two clubs -- and probably more -- for unreported income. In addition, the NHLPA contends that the $25 million that the city of Glendale gives the Phoenix Coyotes should be counted as hockey-related revenue, which the league does not do.

So rather than taking any calls for renewed friction between the players and owners, wouldn't it be better for the hockey industry to dial into a serious examination of other ways to fix its problems?

Fans of the NHL don't want to live through a repeat of either the shortened season of 1994-95 (similar to what the NBA will experience for 2011-12) or the lost season of a decade later.

In each of those lockouts, the NHL claimed that the settlement would fix its broken business. That certainly wasn't true in 1995, after which salaries skyrocketed as owners could not control their spending. The league claimed by 2004 that 75 percent of revenue went to player contracts. The institution of a salary cap, accompanied by a 24 percent pay slash was designed to achieve cost certainty for the owners and allow the business to grow. It has.

If the owners proceed the way Ozanian suggests and follow their NBA brethren in seeking a greater percentage of revenue, will the players accept yet another round of pay cuts? I wouldn't want to bet on that. And if there is a second work stoppage within such a short period, how damaging would it be for the business? Would NBC, who has made a sizable and important investment in the NHL, be happy losing programming to a work stoppage?

Yes, players salaries have gone up, but so have league revenues and team values. In fact, this system isn't broken. It may need some important tweaks, but in the largest sense, it seems to be working as it was designed to do.