One month out: The NHL labor talks and how the Preds may benefit

Players' union tables 'intriguing' proposal; commissioner cites significant gaps

The National Hockey League's collective-bargaining agreement, in place since the end of the 2004-05 season-stealing lockout, is set to expire Sept. 15. The owners, through Commissioner Gary Bettman, have made it clear they intend to again lock out the players if no agreement is reached before that date. The parties have been busily shaping proposals and counterproposals. Here, we take a lot at the progress that has been made and how the Nashville Predators could be affected. (For our April magazine story on this topic, click here.)

There are five broad issues generally considered to be contentious between management and labor:

  • The players' share of revenue: Currently it's at 57 percent, the growth of the salary cap of the league tied to league revenues, which have grown by an average of 7 percent annually during the life of the deal. Not surprisingly, the owners would like the players' share to decrease.
  • The salary floor: The NHL was bold in implementing a bottom limit on salary spending. Originally designed to be set at 55 percent of the salary cap, it is now simply $16 million less than the upper limit.
  • Contract protections: Unlike the NFL, NHL contracts are guaranteed. The way the NHL calculates salary cap hits — essentially dividing the entire salary in the contract by the total number of years, thus giving a player an equal cap hit in each year of his deal — has led to some creative contracts. For example, the offer-sheet the Nashville Predators matched for captain Shea Weber is for 14 years. Weber's salary in Year One is just $1 million, though through bonuses, he'll make $14 million in his first year. Nevertheless, because of the contract's structure, his cap hit will be $7.85 million. In any case, owners will likely be looking for a limit on the length of contracts, mostly to protect themselves.
  • The escrow system: This is perhaps the most esoteric part of the CBA. Because the players are guaranteed 57 percent of revenues and because much of the league's revenues are not known until season's end, the players' union holds back a certain portion of paychecks and once revenues and the owners' and players' shares are calculated, that money is distributed to the players ahead of the next season. It's essentially like estimating income taxes. Players took a big hit once revenues grew slowly during the recession and noticed bigger bites from their paychecks.
  • Revenue sharing: This is tied to the escrow system, as most revenue-sharing payments come from the same escrow account. The NHL's system is relatively paltry — in part because the league generates most of its dollars from ticket sales as opposed to TV deals like the rest of the Big Four leagues. Of course, smaller market teams would like to see a boost in the system; big revenue teams would not.

 
The owners' first shot

The league presented its initial proposal to the union on July 13. While some analysts declared it an act of war, it is more correctly characterized as a standard opening salvo in a labor negotiation.

The proposal called for a cut in the players' revenue share from 57 percent to 46 percent, a 10-year waiting period before free agency (currently seven years), a limit on contract length to five years, a standard entry-level deal of five years (it is currently three) and an end to salary arbitration.

American sports fans are used to opening offers in labor negotiations being drastic. Each side offers a proposal widely advantageous to them and through a process — lengthy, short, difficult or easy — the two sides meet somewhere in the middle. It's standard operating procedure for labor to categorically reject management's opening offer and for management to do likewise.

 
The players respond

Led by long-time Major League Baseball Players' Association chief Donald Fehr, the NHLPA made its opening offer Tuesday, turning the standard way of doing things on its head.

By most metrics, the proposal — it's important to remember the details of these proposals are not made public in a traditional sense; all details come from carefully calculated leaks — is a surprisingly fair one. The players have offered to increase their share of revenue at a capped rate each season. In the four-year deal, their share will increase by 2 percent in year one, 4 percent in year two and 6 percent in year three.

The fourth year of the deal would be exercised at the players' option and will take revenue back to the original 57 percent. In addition, if the league's revenues grow by more than 10 percent in any given season, the players will get their full share of the excess.

In addition, the players have tabled an idea seemingly ripped from the carbon-credit market: Teams will be able to trade salary cap space, allowing them to go over the ceiling by $4 million or below the floor by $4 million. In addition, the players are offering extra draft picks for low-revenue teams (MLB's newest CBA has a similar scheme), picks that could then be traded for cap room.

But the real masterstroke is agreeing to increased revenue sharing — to the tune of $250 million or more, according to Fehr.

Rather than dismiss the proposal out of hand, Bettman called the idea "intriguing" and promised to take it to the owners Wednesday.

 
The takeaway

After Bettman and his team cancelled the 2004-05 season, they were able to secure "cost certainty" for the league's owners through a salary cap, something the NHLPA had strongly opposed for decades. Bettman was able to forge an alliance between large- and small-market teams, a tough ask when the cap between haves and have-nots is as wide as it is in the NHL.

With the NHLPA proposal, Fehr has attacked that large/small alliance. While the idea to cap the players' share appeals to both the fattest cats and the cheapest skates, the increased revenue-sharing plan is an olive branch extended directly to the small-market, low-revenue teams such as the Preds. Fehr is banking on the fact that there are more votes for increased revenue sharing than there are for keeping that part of the CBA the same, and he's probably right.

He's also taken a strong early lead in the public-relations battle. The players, led by Bob Goodenow, had a series of PR missteps in 2004. Notably, Predators' players rep Scott Walker all but endorsed contraction of teams (including the one he was then playing for) during negotiations. Bettman convinced fans — wrongly, it turns out — that a salary cap would result in lower ticket prices.

By skipping the step of tabling a ridiculous deal, Fehr and the players emerge as reasonable and position themselves as sacrificing for the good of the game, as Toronto lawyer Tyler Dellow writes:

It seems to me that what the players are offering to do is effectively put a drag on their salaries for the next three years in order to fund the revenue sharing program and then, once league revenues have hit a point that the revenue sharing can basically be paid for by the league without the owners noticing the increased revenue sharing payments in their bottom line, they’ll pass the responsibility for funding it off to them.

It’s probably worth noting at this point that the players are likely going to get back or pay very little in escrow this year. This seems to have been a real sticking point for them, which I’ve never really understood but it does seem to matter to them. Salary growth has declined significantly in the past few years. Fehr can say to the players “Look, your contracts will be worth about their face value if we do this and then we can hand the responsibility for paying revenue sharing over to the owners.”

It’s an interesting idea in that it will force the owners to show their hand and what they’re really on about. If their real issue is finding a way to make terrible markets viable, this does sound like a way of doing so. The players fund the fix in the short term and, in the medium term, growth in the game funds the fix.

The players' proposal does have some sticking points. First, it's unlikely the owners will agree to just a four-year deal, though Fehr could sell them on the short length by saying the landscape of the league will have changed so much because of the proposal that a renegotiation will be necessary. The idea of trading cap space — and for trading draft picks and players for straight cash, which was once commonplace but is prohibited under the existing CBA — is intriguing, but may have unintended or unspoken consequences. Rich teams may be inclined to poach cap space from poorer teams and poorer teams may see the opportunity to short the salary cap as nothing more than a bottom-line, rather than hockey, decision.

 
What does it mean for the Predators?

While the franchise is more stable than it ever has been, the Predators are still firmly in the have-not camp. Never would any serious analyst place Nashville in the group of teams with Toronto, Montreal or the New York Rangers, though it is encouraging they are rarely mentioned alongside struggling teams like Phoenix. Thus, the idea of increased revenue sharing is appealing.

However, Nashville is one of the NHL's success stories of the past few seasons — a team, managed smartly, that benefitted from a restructured NHL and became highly competitive. It also has an ownership group that says it is committed to taking the team to the next level may be loathe to alter the system that has allowed them to be competitive.

Nonetheless, it's unlikely the Predators' ownership would be opposed in any fashion to increased payment. Plus, a new transactional wrinkle — the moving of cap space — provides General Manager David Poile another tool to build the team. Before the CBA ended the practice, Poile was a master at trading for pending free agents with no intention of signing them and reaping the benefit of compensatory draft picks, for example. It was this tool that gave him the draft pick he used to acquire Weber.

An ancillary part of CBA negotiations relates to NHL players taking part in the Winter Olympics. This, too, has implications for Nashville. With top league sponsor Bridgestone headquartered nearby and with its name on the side of the arena, Nashville is widely considered as a destination for an upcoming NHL All-Star game. If the league was to agree to allow a lengthy mid-season break for its players to play in Sochi in 2014, Nashville could expect an All-Star Game in the 2014-15 season. If not, that game could come in the middle of the 2013-14 season.

 
What's next

It's compelling that Bettman was so willing to take the proposal to the owners right away. The clock is ticking — training camps are scheduled to start around the same time as the CBA expires in mid-September — and a decision on whether to cancel pre-season games, or even early regular-season games (slated to begin Oct. 11) would need to be made relatively quickly. The fact that none of these steps have been taken, coupled with the commissioner's initial praise — soft as it may have been — is an encouraging sign that few meaningful games will be lost.

However, speaking to the media Wednesday, Bettman was far less effusive after discussing the proposal with owners. He said the players' proposal does not adequately address contractual issues — essentially, they did not offer to put a brake on long-term deals — and didn't address many of management's other concerns. He said the sides have different world views and are still far apart and cited recent deals in the NBA and NFL — both of which had a more even split of revenues between players and ownership.

In any event, it's unlikely the NHL would keep its players locked-out after Jan. 1. The New Year's outdoor Winter Classic game is the first real occasion of the NHL season and marks the point at which greenbacks (and loonies) roll in. Owners won't mind too much if games are lost between October and December, but losing that big-ticket event — scheduled for 100,000-plus seater Michigan Stadium — will be hard to stomach.

Tuesday night, prospects of a full season — or something close to it — seemed high; after Bettman's comments Wednesday, some of that optimism is erased. Still, though, the rapidity with which negotiations are progressing is encouraging. If nothing else, the fact both sides are still willing to have discussions points to a resolution, even if it isn't in time to start the season by Oct. 11.