Friday, November 30, 2012

How To Fix The Lockout In Five Minutes

I recently had the chance to debate the NHL Lockout in a class for graduate school. I found myself referencing the article I wrote for Hockey Prospectus a while ago, and then I thought that honestly, what I wrote back then continues to shape the current lockout. I believe the picture is startlingly clear. This lockout is not a difficult problem, it's not a necessary problem. Both sides are looking to score a major win. That's why this is taking so long to resolve. If they were truly interested in playing, I believe the solution to this lockout would take five minutes tops to draw out.

Let's first compare this to the 2004-05 NHL lockout, which was one of necessity. The league needed to implement some kind of salary cap system to control the skyrocketing salaries of the large market teams. The NHL said as much, that that lockout was one to make sure hockey could even continue to exist as a business. For the large part, the public bought it, and yes, Bob Goodenow's stall tactics cost us a season, but, in the end, the deal they agreed to was by and large a major win for both sides.

Think about that for a second. The players love to tell you that they took major concessions back in 2004-05, and that those concessions hurt them so much that they shouldn't have to give anything this time around. I think you'd be hard pressed to find a player who hasn't enjoyed life under the current deal, as hockey players are still being paid at all-time highs, thanks to revenues that continue to increase, and a system that ties the cap to revenues. 

The only downside for the players in 2004-05 was missing an entire season (salary they'll never regain). I think they're making that same mistake again. I don't buy the talk about the 24% rollback being reason why the players are broke, in shambles, etc. A lot of them were out of contract in the 2004 offseason anyway (remember all the huge free agent deals that were signed when the lockout ended?).

I've had the pleasure to study at Temple University under Dr. Aubrey Kent, who has written a recent article for the Montreal Gazette that spells it out clearer than I ever could.

I've had several discussions with Dr. Kent about this topic because it's something that we both are quite passionate about. We both agree that once again, revenue sharing is the key. This lockout is not about players vs. owners, it's about big owners vs. small owners (or at least, it should be).

Think about this: let's pretend that the players agree to a 47% share with no modifications to the current revenue sharing system, salary cap system, or anything else. For the first season under this deal, sure, the cap (and floor) will come down to reflect that new number. But as revenues keep increasing, the cap is going to keep increasing. Eventually, it will get higher than the $70.2 million than it is now. But the real issue is that the floor will keep increasing as well! This is problematic because the big market teams (the ones that spend to the cap) are the same teams who are driving revenue growth in the first place. This forces the small market teams to spend to a floor that is increasing by no fault of their own.

Sure, owners have 53% of the money under this scenario, but without better revenue sharing, what owners have that money? Not the owners who need it to meet the floor requirement. This is how unhealthy franchises are formed, and this is why we have lockouts. As Dr. Kent says, "The cap goes up as a result of revenue growth - but revenue is driven disproportionately by the top teams. So when the floor is dragged up, other teams get put in a money losing situation."

This is what claims the NHL to say the system isn't working. This is why Gary Bettman imposes a gag order on owners, by the way. There are some that want to play now because the system works great for them, and there are others that need a new system to survive (Then there's Jeremy Jacobs, who appears to be driving the lockout but theoretically should love the current system). 

Negotiations are all about leverage, and if each owner got to speak their mind, the NHL would appear less united than they'd like. This is the NHL's problem, and it's easily solvable:

- Improve revenue sharing. This is so mind-blowingly simple. When Gary Bettman called revenue sharing a "distraction" a few months ago, I couldn't believe it. The NHL shared about $150 million of a $3.3 billion revenue stream, and it continues to restrict shares to the teams that need it most (see my HP article). This is the single biggest reason why we are where we are. 4.5% of revenue sharing is not enough. Baseball shares about 30%, the NFL shares nearly everything. Get rid of the restrictions and start sharing more money to the teams that need it the most.

Now you might be thinking, if the NHL revolutionizes revenue sharing, won't Jeremy Jacobs and other big market owners have a massive problem with that? If the league truly prioritized that in the public, wouldn't we see owner factions developing? Probably. So let's compensate the big market teams:

- Allow trading of cap space. What's the inherent advantage of a big market team? The ability to spend more money. So, under this system, let's allow them to do so (with the understanding that bringing in more stars = more revenue = more sharing). This will allow teams to keep their big-market advantage on the ice, and allow for the possibility to make more off of it. It also doesn't tinker with unhealthy adjustments to the floor/ceiling system. It keeps the overall money spent on salaries the same, it just allows the teams who can do so to actually do so. So, yes, the big market teams are going to share more money, but they also might make more with a better lineup, allowing for their net profit to be equal in the end.

Do I think that both sides would agree to a provision like this? Probably not, because again, they seem to be out for blood, rather than be truly interested in an agreement. I pitched this idea to Dr. Kent and he told me it would never work because it "makes too much sense." That's a great way to put it. The two sides aren't interested in a deal that makes sense, they're interested in a deal that's a major win for their side.

I think like a realist though. I want hockey to be healthy and I want it to thrive. That's not going to change with a five-year deal that only modifies player contracting rights and the players' share. You can change that however you want, it's not going to affect the financial health of the game and all 30 franchises. The only thing that will is better revenue sharing.

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