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Lockout Talk: Trying to understand Hockey Related Revenue

By Tom

If you’re like me, you’re just a tinge perturbed at being denied the hockey that should be coming this time of year.  And you’re also curious as to why a deal – a new collective bargaining agreement between the National Hockey League and the NHL Players Association – can’t get done.

While there are a number of issues on the table (contract lengths, free agency eligibility and more), the crux of the matter is money.  That’s no big surprise.  Like the U.S. tax code, however, it’s not just a matter of taking the cash out of the shoebox at the end of the garage sale and splitting it as all parties agreed.  No, it’s complicated…and the complication starts with a thing called Hockey Related Revenue, or HRR.  For it is HRR that gets split between the owners and the players.

But what exactly IS Hockey Related Revenue? That’s what we’re going to try to figure out, and on a perfect day as the players and owners are finally sitting down to talk about everything BUT HRR and matters economic.  

WHAT IS HOCKEY RELATED REVENUE?

The precise definition of HRR comes from the current collective bargaining agreement, a copy of which is available in PDF form here.  Specifically, you can turn to Article 50 (page 160 of 475)  for the section on HRR.  That section is around 25 pages long and full of lawyer-ese, so I’m going to try (in my non-legal interpretation) to offer a condensed version for your review.

For the purposes of a definition, let’s go with revenue “…relating to or deriving from, relating to or arising directly or indirectly out of the playing of NHL hockey games or NHL-related events in which current NHL Players participate or in which current NHL Players’ names and likenesses are used…”  There’s more nuance than that which I’m presenting, but this is the heart of the matter – money from NHL-related games and events that capitalize on the players involvement.

The expired CBA also gives us a “non-exhaustive” list of items that are contemplated in HRR:

1. NHL regular season and gate receipts

2. Pre-season games

3. Special games

4. NHL national, international and national digital broadcasts

5. NHL Networks

6. Local cable television broadcasts

7. Local over-the-air television broadcasts

8. Local pay-per-view, satellite and other broadcasts

9. Local radio broadcasts

10. Club internet

11. Publications

12. In-arena novelty sales

13. Non-arena novelty sales

14. Concessions

15. Luxury boxes/suites

16. Club/premium seats

17. Fixed signage and arena sponsorships

18. Temporary signage and club sponsorships

19. Dasher boards

20. Parking

21. Other events – What seems to be a catch-all for events that fit the spirit of the definition but aren’t specifically itemized above

Here are a couple good overviews of HRR:

CBC Hockey Night in Canada: Making sense of hockey-related revenue

Sports Illustrated: What is Hockey Related Revenue?

WHAT CHANGES IN HRR ARE IN THE MIX?

Now that we understand the basic definition, let’s see how the two sides look at HRR in the context of this negotiation.  The NHLPA’s stance is pretty easy to understand:

“Our preference is to keep the same definition of (hockey-related revenue),” Fehr said.

Gotcha.  Thanks, Don.  This is in keeping with Fehr’s past statements that the NHLPA would be happy to continue playing under the expired CBA.

Let’s go to the owners, then.  For a rundown of their proposed changes, let’s go to Hockey Night in Canada’s Elliotte Friedman:

1) In the existing CBA, teams can deduct the cost of doing business from HRR. But there are limits. For example, deductions from preseason games or “special games” such as European openers, “shall not in the aggregate exceed fifteen (15) per cent per League Year on a League-wide basis” of the revenues. You can find all of the examples, if you wish, in Article 50 of the current document. The NHL is arguing that costs far exceed these caps.

2) One area of HRR the NHL cannot deduct ANY costs from is luxury suite sales (e.g., paying people to sell them). Everything must be thrown into the pot. Mistake, oversight, whatever – the league would like a re-do.

3) Lightning owner Jeff Vinik spent $35 million US last summer to upgrade The Tampa Bay Times Forum. Meanwhile, Rangers owner Jim Dolan committed an estimated $977 million to a massive renovation of the Madison Square Garden. (Say what you want about Dolan, but doing that without public funding is extremely impressive.) As it stands, teams receive no financial credit for that. The league would like that changed. The model is probably the latest NFL CBA, which allows the league the option of taking 1.5 per cent from the NFLPA’s 47 per cent share to build new stadiums. Larger revenues from newer buildings, the reasoning goes, benefits the players, too.

4) When players on one-way deals like Wade Redden or Jeff Finger are sent to the minors, their salaries no longer count. Not only is the NHL trying to eliminate this loophole from the salary-cap portion of the discussion, it is trying to make those contracts tied to HRR, too.

WHY IS THIS IMPORTANT?

As I understand it, there is $3.3 billion in HRR on the table right now.  In the expired CBA, the players received 57 percent of it – and the owners got 43 percent.

The owners’ recent proposal (most recent, I think, but it’s possible that another proposal slipped by me) suggests a sliding revenue split over the course of the agreement.  The players would get 51.6 percent, the owners 48.4 percent…and, by the time the agreement expires, it would be 50-50.

Here’s the catch: It would include the four HRR adjustments that Friedman mentions.  That 50-50, under a revised HRR formula, drops to an uneven 54-46 owner’s advantage through the lens of the expired HRR formula.  Both sides acknowledge this to be the case.

If you’re keeping score under the expired HRR formula, we’re looking at a 19 percent drop in real dollars (pulling 11 percent off to reflect the 57 percent to 46 percent share adjustment).  A 19 percent pay cut…when the league touts years of record revenues?

My friends, I think we’ve cut to the heart of the matter.

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  1. By NHL Lockout Suffers From Creativity | The Blog on October 3, 2012 at 12:18 am

    [...] lockout is how HHR or Hockey-Related-Revenue is divided among the owners and players. This website (http://fanmonster.com/?p=3585) tells us what the old CBA (Collective Bargaining Agreement) defines as HHR. In this article it [...]