FanPost

Why the PA will lose

This is just straight logic, no emotional fan-centric BS. Aka the opposite of @walsha's twitter campaign. Prepare for a cursory overview of basic industrial relations, with some rambly extrapolations dotted throughout.

OVERVIEW
In any negotiation, the power of each side is based on their contributions and the inherent value of such to the other party. In a basic deal you have a good I want, and I have money you want - the relative value of each to us will determine at what level we accept, and at what levels we walk away.

[Aside: this leads to very practical advice for spending, "Buy things when you don't need them, and sell them when you don't have to". It prevents you from being forced into a desperate position on either end, and allows you to get the best deal or walk away pain-free.]

In normal labour relations, collective bargaining between management and workers is forced to a head because the workers are essential to management’s business output – they make the product/service that generates revenue for management. From the other side, management is essential for the workers because they have created the infrastructure of employment that allows the workers to earn a wage.

What power does each side have in the typical arrangement?

If the workers refuse to negotiate, their total impact will include: lost wages, lost employment, searching costs for new employment, lower starting salary at new employment (aggregated over lifetime of employment), and all associated expenses of the failed negotiations/strike of the original action (lawyers, fines, drained reserves, etc).

If management refuses to negotiate, their total impact will include: lost output, lost revenue, searching costs for new labour force, training costs for new workers, lower starting quality of new output (aggregated over catch-up period), and all associated expenses of the failed negotiations/lockout of the original action (lawyers, fines, drained reserves, etc).

The economic impact of each side is significant enough to both that the disputed factor – say a salary adjustment S(x) – is eventually overshadowed by the costs of the action.
$M > S + S(w) … and … $W > S - S(m)
Impact of lockout to management is more than proposed increase by workers, and impact of strike to workers is more than proposed decrease by management.

There is some number S(a) that will allow both sides to be comfortable in agreement – it is not optimal for either, but acceptable. Because of this, both sides will have an impetus to meet at the negotiating table and hammer out a deal before the economic damage to both sides reaches a point of devastation. The power of each side is determined by how much less this impact is for them is relative to the other – i.e. the side that is most desperate will have less power, because the delay hurts them more than the opposition.

The interesting part is when one or both sides believe that this desperation will change or switch over time - S(x,t) -, and how each side treats those different periods of the negotiation. Disasters occur when one or both sides misread (or ignore) their own or the other’s position, and drive one or both parties to ruin.

RELATION TO NHL
So how does this connect to the current (and any past/future) labour disagreement in the NHL?

Well, the power is all on the owner’s side.

The reasons are:
a) For the majority of owners this is not their primary business interest, so the negative effects of a lockout have very little impact to their lives.
b) For the players this is their primary source of income. In addition, because of the timeline of pro sports and the compressed earning period, each year is magnified in importance on the players’ side – if you are only going to play 6 years and earn an average of $2m per year, every year lost is devastating to your lifetime income.

Philip Anschutz, Jeremy Jacobs, Ed Snider – these guys all manage billion-dollar companies, and financially could care less if the NHL played any time in the next 4 years. How does that compare with the position of Josh Gorges, David Steckel, Andrew Ference, etc.? And when you factor in the owners who are losing large amounts of money when the NHL operates, every year off would be like cost-savings to them.

In general, the owners can afford to hold out as long as they want to get the best overall deal in their minds. The players cannot afford to do the same thing, and as this is their only option in the world to capitalize on their hockey skills, they will have to accept a deal eventually – and it will more likely be sooner than later.

Because of this, in broad strokes, I cannot see the players winning out in the labour war. In fact, because of the nature of professional sports to continually devolve into an arms-race, I would advise the PA to capitulate immediately on any/every monetary discussion point. Salaries are the easiest bean to recover, as evidenced by the GMs continually tripping over themselves to offer as much money for as long as possible to secure the best talent available. This has happened without fail from the start of the current agreement through to the massive contracts handed out to 20-22 year old players over the past few weeks. Looking wider, no salaries in any pro sport have trended downwards in the past 3 decades.
The only negotiations that the PA needs to "win" on are any terms that could be considered onerous or restrictive (i.e. reverting to 10yr/30 year old UFA status, non-guaranteed contracts, keeping contract terms public, etc). Beyond that, there is no worry as you will soon get your money back.

THE X-FACTORS
Having said all that, the game-changers in the negotiations are the differing viewpoints within each constituency. As stated above, the majority of owners do not have the NHL as their primary business interest – but what about places where it is significant for other reasons?

If you consider Toronto – the wealthiest of all teams and largest earner – their tolerance for a lost season of revenue is much, much lower than that of, say, Anaheim. How loud is there voice for a quick resolution to the lockout?
In addition, MLSE was in the past, very focused on driving revenue. Obviously the OTPP & TD Bank had other interests, but Richard Peddie did an excellent job growing the value of MLSE, with the Leafs as the centerpiece. With labour unrest a recurring specter, was that possibly a factor in the old ownership considering when to sell? As a bank or pension fund, you might have seen the growth of the business plateau, and regular interruptions of your $100m cheques are not appreciated. With new ownership just dropping billions for the club, I can’t imagine they would be any more amenable to postponing their takeover kickoff plans by a year while their major showpiece sits idle.

So you have the ultra-Haves with internal anxieties about the length of any lockout whenever their needs conflict in places with the needs of the group. Baseball is the showpiece of this destabilizing effect, as the needs/demands of teams like the Yankees, Red Sox, Cubs, and Dodgers long overwhelmed any combined efforts by the owners to stand united, simply because they were individually so important. Fehr has cleverly tried to leverage this in his original alternative proposal to the league, but I don’t think the disparity or power of the ultra-Haves vs the rest of the teams is large enough in the NHL to succeed.

The second X-factor is the degree to which the owners’ power weakens as the season starts. For the players, there is no change in impact – zero salary is zero salary. But the owners will start to feel the impact of their position – lucrative TV deals (or networks) without content don’t only threaten with lost revenue, but the potential souring (or devaluing) of all current & future relationships. If I’m NBC and I just signed a long-term deal with the NHL, I would like them to eventually start playing games; I’m sure as hell calling Gary and reminding him a few times. Some teams have struggled to finally get decent local TV deals, so skipping out on another season will not endear them to the stations. How many of these teams will find their tone changing?
The next major change in the owners’ impact will be if the Winter Classic gets cancelled. This is a huge event for the league, and far beyond any monetary results on the ground, it is about building national brand recognition and "sporting event" status in the minds of the American sporting viewer. The loss of this is a major hit to the NHL, so there should be an uptick in discussions leading up to Jan 1 if there is still no deal done.

These points illustrate the downside of the owners’ high level of power – even though they can wait out the players, they have to be more aware of long-term impact of their decisions. A player who is going to retire in 3 years doesn’t really care about the long-term state, but an owner hoping to stick around for a few more decades does. They just have to make sure that what they are holding out for is more valuable long-term than what they are losing.

Gary Bettman is another wild card in these negotiations. While the owners can afford to have near-infinite patience as a consequence of their other primary business interests, Gary cannot because he does not. It can easily happen that a majority vote of people making individually optimized decisions result in an overall suboptimal outcome. The NHL is Gary’s only focus, and as such has been proceeding according to his broad plans. In his duties as the mouthpiece of the NHL owners, he may see those plans begin to fall apart, perhaps irreparably in some cases (what happens to the popularity of the Winter Classic if it gets cancelled for a year?). Are there positions or strategies that GB hopes to advise, but are rejected by the owners because of individual reasons?

The affect of any of the above on negotiations will serve only to give the PA a flutter of hesitation on their decision to come to terms. Every perceived hiccup will only provide false hope that if the players hold out, then they can bring the owners to their knees. I cannot see this happening, and it will only lengthen the delay and increase the economic damage for both sides.

I am very pro-labour, and wish the players could get (or keep) more of what they want, but I just don’t see it happening in this scenario. Just sign the "bad" deal now, and watch how quickly the teams fall over themselves to hand you barrels of cash.

Cheers,
@sir_jamez

PensionPlanPuppets.com is a fan community that allows members to post their own thoughts and opinions on the Toronto Maple Leafs and hockey in general. These views and thoughts may not be shared by the editor of PensionPlanPuppets.com.

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