Midweek Lockout Musings

Mike Ehrmann

Why the owners should be mad at other owners and the players should be mad at other players.

This isn't an article. It's more of a collection of thoughts from the last few days that I shared earlier on twitter (@b1rky). I had some positive responses, so this is a more elaborate version.

The Players

Last week we saw the PA respond to the NHL's new offer with three different options. James Mirtle of the Globe & Mail and Tyler Dellow of mc79hockey have done yeoman's work breaking down how each of these proposals would work out financially for both sides. I want to follow up on some different issues I see regarding the PA.

1) Let's start with the issue of existing contract value. Ilya Kovalchuk recently spoke with Russia Today about the lockout:

Basically, I don't rule out staying in Russia in the case of a reduction of our salaries in the NHL," the player stressed. "I just don't understand why they needed to sign such contracts? Or they were just hoping to cut the percentage later? I believe that the contracts must be respected and this is a fundamental question. There's no way the head of the [NHL Players'] Association and the hockey players will agree on the wage reduction."

OK...huge misconception here about the amount of money the players will actually be giving up if they had agreed to the NHL's deal. This is not the rollback on salaries we saw in 2005. That was a permanent reduction in the value of all contracts by 24%, meaning a player on a 4 year, $16 million dollar deal only wound up earning ~$12 million dollars. This time around, assuming a 12% reduction in year one and a 6-8% reduction in year two (5% annual growth in league revenue) Kovalchuk would lose roughly $2 million off of his 17 year, $100 million dollar contract. That's a 2% reduction in value of his contract. By year three, he's back to earning the full value of his deal. I'm not going to suggest Kovalchuk is just being greedy; I just don't think he has any grasp of how the NHL's proposal affects him. Look at the contracts for Crosby, Toews, Weber, etc. The guys with the $100 million dollar deals are giving up a tiny portion of the value of their existing contracts. Even players not on massive contracts make out OK. John-Michael Liles just signed a new four year contract. He'd be giving up $850k out of a $15.5 million dollar contract if the league grows revenues at 5%. If they grow at a greater rate, he relinquishes even less. In effect, those players on long term contracts aren't really hurt by the NHL's proposal, which really makes me chuckle when the PA trots out players like Crosby and Shane Doan and Jonathan Toews to gripe about the NHL's offer. The players really impacted by the NHL's offer were those players on short term contracts, who would likely lose 10% or more off the value of their deals. Interesting that we haven't heard from them yet.

2) Also interesting? The third PA proposal from last week. I think it further indicates of who is calling the shots in the union. The basic premise of the 3rd proposal was an immediate 50/50 revenue split between the NHL and the NHLPA, with the caveat that the NHL had to honor the full value of all existing contracts. The immediate response from fans and media alike, at least on twitter, was positive. But after a week or so to really think this proposal over, this seems like a terrible offer for the vast majority of the players and I'm surprised it was even made in the first place.

Take, for example, the case of Joffrey Lupul. He would have been entering his final year of a four year, $17 million dollar contract. Going by the PA's third proposal, he would have earned $4.25 million this year and then been eligible for free agency in July. But this is where he really got screwed over by his PA brethren: all new contracts under the CBA would be at the 50/50 split, meaning Lupul would almost certainly have lost potential earnings on a new deal. In fact, every current free agent or soon to be free agent is hurt by this offer (about 90+ players) as compared to the PA's other two proposals. Those with contracts through 2013-2014 may never be impacted at all (by the end of 2013-2014, the players' revenue share, even at 50/50, should exceed the $1.89 billion they earned last season). In simpler terms, it's far from shared sacrifice.

So, the question becomes, who's interest is the NHLPA looking out for here? Where did this offer come from? Sure seems like the small group of players on lucrative, long-term contracts are doing a disproportionate amount of the decision making.

The Owners

3) I don't want to insinuate that the players are solely to blame for this impasse. There are some significant issues with how the league has approached these negotiations that really make me scratch my head. For example, why is it that three of the teams with the greatest number of existing long-term contracts have ownership representation on the negotiating committee? Look at the future financial commitments of the Boston Bruins (here), Philadelphia Flyers (here), and the Washington Capitals (here). Is it coincidence that Jeremy Jacobs, Ed Snider, and Ted Leonsis are among the owners pushing for an immediate reduction in salary and were in Toronto to meet with the PA last week? And that Toronto, Vancouver, Montreal, and the Rangers, the teams with the most to lose due to a lost season, did not have a representative in the room? (I'd put Brian Burke's participation so far under "ambiguous". It's obvious that Burke has personal goals to achieve beyond making/saving teams money. How much direction he takes from MLSE at this time is unknown) Maybe it's just me, but the make-up of the negotiating committee seems a little flawed. Are they negotiating for the league as a whole, or for their own interests?

Something to keep in mind: the amount of money the players want to keep from existing contracts is something around $300 million over the first three years. Over those three years, the league will generate about $11 billion in total revenue with just 5% growth. The two sides have figured out how to divide 97.3% of those revenues, but they can't decide on the last 2.7%. Incredible. Nobody makes any money during a lost season. It may be time to wonder if the wrong people are in the room.

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