Cool moves

The last NHL labor deal set the Preds on the right track. This summer’s negotiations will be key to keeping them there. [From our April magazine]

It couldn’t have happened at a worse time.

The 2003-’04 season produced the Nashville Predators’ first trip to the playoffs after years of grittily grinding it out and earning a reputation as a tough team to play. The upstarts had snuck in, needing the last day of the regular season to lock up a No. 8 seed, but they gave Detroit all it could handle before being bounced in six games.

Off the ice, the story was different: After the team’s late-’90s honeymoon glow had worn off, attendance had declined at Fifth and Broadway, hitting a rock-bottom average of 13,157 fans in that first playoff year.

There were even bigger problems looming around the league. The National Hockey League was about to become the first North American professional league to lose an entire season due to a work stoppage.

But on the other side, the league would emerge stronger and more competitive. The 2005 collective-bargaining agreement set out to create a more perfect meritocracy that called for savvy management to combine with spending that was more smart than big. It was a system tailored to the Predators and it set the stage for a locally led investment group’s 2007 purchase of the team. Since then, the franchise has become the embodiment of a small-market team that can compete regularly with the NHL’s big spenders north of the border and in major metropolitan centers — and could play a key role in the upcoming negotiations for a new collective-bargaining agreement.

 

Stemming the losses

Prior to 2004, the NHL was the only league with no salary cap, revenue sharing or luxury tax. The league and its owners went into negotiations arguing for “cost certainty.” While the players’ union said that was little more than euphemism for a salary cap — and it was right — the owners brought out the hard sale to make their point.

The league hired former Securities and Exchange Commission Chairman Arthur Levitt to help it justify the need for salary controls. In the 2002-’03 season, teams spent 76 percent of their revenues on players’ salaries — easily the highest figure of the four major professional sports — and collectively lost more than $270 million.

Traditionally, the NHL has relied heavily on attendance revenues, whereas its Big 4 cohorts lean more on TV money. But with a work stoppage all but certain, crowds had steadily shrunk across the league in the seasons leading up to 2004.

The NHL Players Association unequivocally rejected any notion of a salary cap and kept trotting out a carbon copy of baseball’s luxury tax and revenue sharing system. Saying that that would never get salary costs under control, management held firm and eventually won. Commissioner Gary Bettman and league Vice President Bill Daly got the union to agree to a salary cap — and floor — along with a league-wide salary rollback and revenue sharing tied to cap spending.

It was a comprehensive victory, evidenced by where the protagonists are today: Bettman and Daly still lead the NHL; NHLPA chief and anti-cap hardliner Bob Goodenow resigned shortly after the CBA was signed.

 

No more excuses

The NHL’s operating framework created by the 2005 CBA is beautiful in its simplicity.

The cap is set by the league’s bean counters based on league revenues, the floor set $16 million below that. A portion of player salary is held in escrow and then redistributed at season’s end to ensure the athletes get their guaranteed 57 percent of league revenue. The top 10 revenue-producing teams pay into a fund split between the bottom 15, but to qualify for a full share of those funds, teams must spend to the midpoint of the cap.

All of these factors have contributed to the success of the Predators.

“One of the fundamental premises of the system is to put all the teams on a more level playing surface,” Daly told Nashville Post. “For a team like Nashville to compete with a moderate salary level against team with an $80 or $90 million payroll, it was difficult.”

Daly said it’s not an exaggeration to classify what happened as a result of that CBA has a total sea change in the way the NHL operated. Going from the most wide open system to one of the most structured resulted in a league where parity creates razor-thin margins of error and hypertension-inducing playoff races lasting to the final game of the regular season.

More importantly, it’s eliminated excuses.

“You don’t have the built-in excuse that, if you operate in a small market, you can’t compete with big boys,” Daly said. “You’re on a more level playing field. It’s not entirely level, but it’s much more level. In Nashville, it’s an ownership and a management who were very prepared for that challenge.”

Bettman told Nashville Post that while every team, every market and every ownership situation is different, a local ownership group — and one that can rely on a fairly fixed figure for its players’ salaries — was key in Nashville.

“It was fortunate that there was a local group that was willing,” he said. “The fact is, in some communities it’s more important that there’s local representation [...] and I think Nashville is one of those places. David Freeman stepped up and Joel [Dobberpuhl] and Tom [Cigarran] and all the other owners have done a sensational job.”

So with the CBA set to expire in September, the question is: Now what?

 

‘Far from perfect’

Like most labor disputes in professional sports, the pending negotiations between the NHL and its players will see owners saying they need to shore up revenue and players arguing for a bigger piece of the pie.

Understandably, neither Bettman nor Daly would speak to the specifics of the pending CBA negotiations. All Daly would say was “the system is far from perfect and there are elements that need to be tweaked,” and that’s likely going to be the league’s position throughout the summer.

CBA negotiations in the NHL — more so than in other pro sports — don’t just involve owners and players. Bettman and Daly have to bring into line large-market teams — Toronto, for example — and small-market clubs such as the Predators. They were able to do that in 2005, leading to the big win for the owners’ side while also producing a more balanced and competitive league.

Western Kentucky economics professor Dennis Wilson agrees that the 2005 agreement was largely a boon to smaller-market teams. He points out Nashville currently has eight players with salaries of at least $3 million.

“I can’t imagine they’d have that many if they aren’t getting supplemented by the rest of the league,” he said.

Across the table from Bettman is new NHLPA executive Donald Fehr, once the powerful head of the baseball players’ union and a man not afraid to force the issue by way of a strike.

The expectation is that the key parts of the operational structure of the CBA — the cap and floor — will remain intact and largely unchanged. Tweaks will be made to the way players are counted against the cap, but by and large, that part of the system has worked for both management and labor.

The richest-to-poorest revenue sharing system among the league’s owners may also see some changes, especially with an ever-stronger Canadian dollar resulting in even smaller-market Canadian teams paying in to the system.

But Nashville and similarly situated teams won’t want a dramatic shift in that system. That’s especially the case for the Predators, who are negotiating new incentive terms with Metro — talks that may lead to a smaller transfer from city to team.

 

Playing the peacemaker

But the big battle will be how much of the league’s revenue the players will get. On that front, owners have to be encouraged by the two most recent professional sports work stoppages: Both the NFL and NBA came out of their impasses with revenue wins for ownership. NBA Commissioner David Stern’s hard line resulted in a 50/50 split in revenue and in the NFL, the players share also is close to half.

The experts’ consensus is that the NHL will come to the table seeking to rollback the players’ 57 percent share by five to seven points, but reports are that Fehr is not willing to budge yet.

“They all argue they don’t [pay attention to the NBA’s labor deal], but someone has set a precedent for them,” Wilson said. “The NBA is considerably different. They have much larger TV revenues and the NHL is almost exclusively reliant on local revenue generation. But when someone else has already agreed to a 50/50, I think it sets a precedent.”

The players have indicated they are willing to play hardball. When the league last December announced a realignment plan to be implemented this fall, the NHLPA’s approval was seen as a formality. But the players surprisingly rejected it — giving themselves a handy bargaining chip for the summer.

Bettman and Daly say the 2005 agreement created an environment where no fans began a season completely resigned that their team won’t be in the hunt for the Stanley Cup. But fans can be fickle and nothing can shatter public goodwill like a fight over a few percentage points between billionaires and millionaires.

This dynamic also could put the Predators in a potentially interesting role. Wilson said that, ideally, there will again be an atmosphere of give and take between the league’s small and large markets as they set out a negotiating strategy. Clubs such as Nashville may be the impetus for a compromise that preserves their financial benefits under the current CBA.

“The small markets — Columbus, Nashville, the Florida teams — may say, ‘Let’s come together with some system that would work with us and make Detroit, Toronto and New York more money,’” Wilson said. “If I was strategically advising the Preds [...] I’d say, ‘Look at what’s best for us but [we] don’t want to get into splitting factions.’ If I’m Toronto, my vested interest is we should go the route of baseball” with no salary cap and a luxury tax.

Wilson fears the coalition of large- and small-market teams that won the day in 2005 may fracture this time around because that CBA was so successful in generating higher revenues and better competitive balance.

“Is the NHL going to have the large markets and small markets stay together? That’s the million-dollar question.”

And one that could be key to maintaining the Predators' competitive edge in the next decade.