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Why would the players volunteer to take a pay cut?

By Tom

The ongoing collective bargaining negotiations between the National Hockey League and the NHL Players Association has been on our DBJ Plus offseason agenda in a macro sense since mid-May.  While a host of issues face the negotiators – like safety, realignment , everything is secondary to the core economic question of how the revenue pie will get sliced.

A little over a month ago, the owners proposed their vision of a new labor agreement.  It reduced the player share of revenues from 57 percent to 46 percent…but also redefined “hockey related revenue” to make the player share even smaller.  The owners’ proposal also included a number of other provisions that would strengthen the ties between players and their teams – lengthening entry-level contracts, extending the number of years until a player is an unrestricted free agent, etc.

The players didn’t offer an immediate reaction, instead requesting more financial documents from the league.  The league handed over 76,000 pages, and the world waited to see how the NHLPA would respond.

Yesterday, the NHLPA offered their proposal.  Unlike the owners’ proposal, the PA’s proposal has not been leaked.  Fans are left to read tea leaves and work with whatever scraps are offered through media scrums.  One blogger, Tyler Dellow of MC79Hockey, has been especially astute in hockey/business matters and pieced together what little we know to arrive at this summary:

It seems to me that what the players are offering to do is effectively put a drag on their salaries for the next three years in order to fund the revenue sharing program and then, once league revenues have hit a point that the revenue sharing can basically be paid for by the league without the owners noticing the increased revenue sharing payments in their bottom line, they’ll pass the responsibility for funding it off to them.

The players are volunteering to take a de facto pay cut.  But it’s not just a cut, it’s the beginning of a revenue sharing program in the National Hockey League.

By “revenue sharing program,” we’re talking about providing direct assistance to support teams that are in financial straits.  Much like the Major League Baseball luxury tax that now-NHLPA director Don Fehr helped craft, this program appears to work along the Robin Hood philosophy of taking from the rich (teams) and giving to the poor (teams).  Fehr emphasized this philosophy with his post-negotiation comments yesterday:

We do believe that the proposal the players made today, once implemented, can produce a stable industry.

In essence, when you boil it all down, what we’re suggesting is that the players partner with the less financially stronger owners to help stabilize the owners and assist the less financially strong ownership groups.

What do we make of this?  Interpretations abound, but here are my thoughts:

1. The players do not want another lockout.  By offering salary/revenue concessions out of the gate, they have made that point abundantly clear.  I speculated that the NHLPA would likely propose a plan that was as harsh on the owners as the owners’ plan was harsh to the players simply to set the boundaries of the negotiation, but the PA didn’t do that.  In the process, they gave me more hope than I’ve had in a while that we might actually see the 2012-13 NHL season go off on time.

2. Fehr is a shrewd character, and the NHLPA proposal serves to fracture the owners along economic lines.  His quote says just that.  If the proposal actually accomplishes what Fehr suggests, it will make life interesting for the owners as they try to maintain a unified front with the players.

3. Lastly (and if you know me, you know I generally save the best for last), I’m guessing that the 76,000 pages that the NHL handed over to the players confirmed whatever materials had already been shared: That the NHL as a whole is not necessarily stable from an economic perspective.  Sure, there are some extremely profitable, economic powerhouse teams like Toronto and Philadelphia.  There also are teams that can only dream of the largess that the Toronto’s and Philly’s enjoy.  This, despite seven straight years of record revenues across the league.

Which teams are among the franchises that the NHLPA’s plan intends to help?  I don’t know and don’t think it responsible to hazard a guess without a lot more information.  At the same time, I recall Commissioner Bettman suggesting that the newly-reborn Winnipeg  Jets needed to sell 13,000 season tickets simply to get the league’s approval to play NHL hockey once again in Manitoba (Accomplished in 3 days – an impressive feat):

Selling 13,000 season tickets is the best message to send to the NHL’s Board of Governors. To be candid, this isn’t going to work very well unless this building is sold out every night.

Winnipeg’s MTS Centre holds 15,004 people for hockey…and they had average attendance of 15,004 (with an average ticket price of $82, no less!).  Good on Winnipeg.  But look at the attendance list more closely and use Bettman’s 13,000 season tickets/15,000 average attendance (“sold out”) thresholds to do your own math as to who’s healthy in a ticket sales-dependent league…and who’s not.

[Side note: While wins and losses undoubtedly have an impact on attendance, I'll suggest that the 2007-2009 recession dried up a healthy amount of personal and corporate discretionary income for entertainment across the country.  The NHL is not alone in this one; the National Football League, National Basketball Association and Major League Baseball all have been feeling the pinch on ticket sales over the past couple of years.]

If you take Fehr’s comments as not just posturing but rather representing a truth about the condition of the league and then combine them with the attendance data, you have a hard time not arriving at a harrowing picture of the state of a 30-team NHL.  The NHLPA’s proposal probably isn’t perfect, but it appears that the door has been opened to address some of the fundamental problems facing the league (and, from the NHLPA’s perspective, preserve NHL player jobs).

Let’s hope that both sides take advantage of this opportunity to get it right for the long haul.

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