Today is July 1, a day where Canadian hockey fans of sufficient devotion take time out of our holiday to watch NHL teams make horrifying mistakes signing free agents to huge contracts. Every once in a while, the signing is one we cheer for with all out hearts.
This year is different. The most different year in NHL history. Maybe for a lot of us, the most different year of our lives.
Anyway, you get the idea. 😳 The magnitude of what NHL/NHLPA are trying to pull off here in a tight time frame is absolutely unprecedented. Makes 04-05 lockout year seem like a walk in the park. It’s not only 19-20 RTP; it’s trying to navigate the messy long-term economic impact.— Bob McKenzie (@TSNBobMcKenzie) June 29, 2020
Today would normally be the start of a new fiscal year for the NHL, but the old year is still hanging there in suspended animation, not really resumed, and not ended. It seems on the surface that sorting out the process for a return to play (RTP), with Phase 3 rules and procedures for training camp and Phase 4 for the actual games themselves, is the most important thing, and yet for weeks it’s been understood this is tied to negotiations for a new CBA. Training camp is set to begin July 10, and this process is now taking so long, it seems a certainty that target date will be missed.
Why CBA first, then Return to Play?
CBA negotiations didn’t just start in March, when the NHL suspended their season. They began last fall when no one chose to opt out of the current contract, which now runs for two more years. It’s not necessary to sort this deal out now, but the NHL has shown they want to get that done, and that they do not want labour disruption.
With two lockouts in the past, one in the very recent past, the NHL sits is a position of strength in all CBA talks that can’t be overlooked. It’s not an equal partnership. The NHL chose to take two massive financial losses — with the first one in 2004-2005 the larger — in order to force the NHLPA down the path the NHL wanted to travel. With that point made, the NHLPA can negotiate, but usually hasn’t got much leverage to get what they want.
With a pandemic sweeping the world, and cases of COVID-19 surging in America while Canada watches what looks like the final, agonizingly slow decline of the virus’s hold on our nation, the NHLPA has a socially acceptable reason to refuse to play. Usually the biggest barrier to labour power in professional sports is fans themselves screaming about player greed if a strike should ever happen.
Now, the NHLPA is about to vote on RTP, and they can walk away from the playoffs at no real social cost if they don’t like the deal the NHL is bundling together. There is a financial cost, however.
The least charitable view of the NHL is that the league and the teams just want to force the players to return to play so they can make money because they’re all greedy, and they care about money more than lives. The NHL deserves its bad reputation, but this view misses the mark.
It’s not actually possible from outside the NHL itself to know for sure, but it looks like RTP might be so expensive an enterprise to put on that it will actually make the NHL’s losses more severe than if they had hit the cancel button when every other league in the world did back in April. The extra millions spent on testing, cleaning, contact tracing — all the things governments have been pouring money into for the general population — not to mention hotels, and other venues that will be used to try to make the hub city idea a reality, all without a single ticket sold is not a formula to slake greed. It’s a really fast way to lose a lot of cash.
Earlier in the spring, it was revealed that some of the TV contracts that pay a chunk of the NHL revenue for playoffs as well as the regular season have penalty clauses in them if those games don’t take place. The only financial benefit to the NHL in RTP is keeping those penalties from kicking in and destroying next year’s revenue. And I feel safe in assuming that the expenditure will outstrip the reward.
So this doesn’t make sense. The NHL barely has an incentive to do all of this, the NHLPA doesn’t have an obvious one, and why are they bothering? Why is the NHL giving the players any leverage at all in negotiating a CBA on top of that?
It is all about television.
Let’s flashback to February of 2019, when the NHL was ticking along, growing the game, expanding, and projecting rising revenues well into the future, with a steep climb on their optimistic line graphs.
I talked about Matthews deal as a hedge against that expected inflation, with a little help from Bob McKenzie:
[A] lot of star players had been going for the security and status of the longest allowed term. I was expecting Matthews to go along with [the usual 8-year deal] because while conventional wisdom says fitting in two contracts into your peak years gets you more money, there is real risk that you might not be in a perfect bargaining position when that second deal comes along. The idea, then, is that the long-term deal offers security and is a hedge against risk.
It is hedging that Matthews is doing. But he’s hedging against inflation. Bob McKenzie laid this out:
From Matthews perspective, he had zero problem going for an eight-year deal but in order to hedge against a rising salary cap, he would have had to get a number so big as to cripple the Leafs’ ability to keep their core together. He didn’t want that.
The smart money was betting hard on cap inflation back in the distant past of 18 months ago. The smart money was betting hard on cap inflation last summer when a host of RFAs followed up Mitch Marner’s epic contract with very short-term discounted deals, backloaded to make their next contracts automatically much larger.
The NHL would really like those bets to pay out; they don’t win if those players lose. Because shrinking the cap as we face a recession and an uncertain future where we can’t even guess when NHL teams will be selling tickets again is not good for anyone. Compliance buyouts and forced trades or a global contract devaluation, none of that is good for the players, the league or the teams. You can’t sell expansion franchises for massive dollars if every team is busy making new holes on their belts to tighten up. If the spectre of bankruptcy hovers over the teams that couldn’t even turn an operating profit last year, the NHL is in real trouble.
Returning to the ice is about the relevancy of the game of hockey in an entertainment market that risks leaving live sports behind, and it’s about the NBC television deal. Everything we believed about inflation and contracts up until March of this year was built on the certainty that the new NBC contract with the NHL was going to be huge. It would be the kickstart to increased revenue and bigger salary caps for years to come, and everyone had faith in that. The NHL already signed a good deal with Rogers in Canada, but we need to understand that when talking money and the future financial health of the NHL, nothing matters but the American revenue.
The NHL wants to deliver on its current obligations to NBC, and they want to ensure the future isn’t destroyed by NBC backing off on its bet that hockey will make them money on TV. The incentive for the NHL now, this summer as all sports try to return, to prove they can be the TV-only sport is massive.
One thing to add: It seems a lot of faith is being put into the $$$ windfall of the next U.S. TV contract and the amount of revenue Seattle is going to generate. I don't think it's misguided, necessarily. https://t.co/ycLLmChbak— Greg Wyshynski (@wyshynski) June 27, 2020
I don’t think that faith is well placed, necessarily.
The NHLPA made their agreement with RTP contingent on, at minimum, a memo of understanding on key elements of a new CBA because the only reason the players could possibly agree to play at all is if they get to use their right to say no as a bargaining chip, but also because they want a structure for the coming salary cap and escrow that they can live with.
In the coming days, when we have the memo of understanding, we’ll have details, but for now the NHL and the NHLPA are divvying up pain. They all know that even if their dreams come true on NBC, the financial hit they’re all about to take could be huge. There might be a lot of pain to be split up. And the players wanted the formula in writing before they go back to putting on the show that brings in all this money in the first place.
The players will vote on the whole package, all the rules on returning to play, all the new CBA contents they care about, and it’s an all or nothing vote, a bet on a view of the future they all can stomach.
And according to Insider Trading on Tuesday afternoon, the hub cities won’t be announced until that deal grinds through to completion. They’re all running out of time, and the players are getting restive without an answer to how RTP is supposed to work. The NHL can’t count on automatic agreement, and that might be exactly why this is now true (subject to change at a moment’s notice):
For the first time in more than a month, sounds like Vegas is no longer a frontrunner to host an #NHL hub city. Spike in COVID-19 numbers in Vegas appears to have put a damper on their bid.— Frank Seravalli (@frank_seravalli) June 30, 2020
As @TSNBobMcKenzie reported, very possible both hubs cities are in Canada 🇨🇦: TOR and EDM
My bet is that no matter what happens with NBC, and no matter how this vote goes, the divvying up of pain is not going to favour the players. Even this little bit of leverage didn’t give them that much power, but they weren’t ever going to get another shot at calling the shots. And for a player in his prime, the dwindling number of years he has to cash out on the hockey-playing machine he has been making of himself his entire life will weigh on his mind when he’s asked to vote on this combo deal of the century.