CrashingTheGoalie

from The Globe and Mail:

All of which forecasts gloomy days ahead for NHL commissioner Gary Bettman, the man stuck in the middle. Despite repeated proclamations the league is in ruddy good health — merchandising revenues, for example, have increased sharply — much of the internal talk focuses on irritants. Richard Peddie, the president of Maple Leaf Sports and Entertainment, suggested the intricate revenue-redistribution formula isn’t addressing the central problem relating to overall revenue growth. “By taking some money from the Leafs and giving it to franchise X, it’s the classic deck chairs on the Titanic. You’re not solving the ship, you’re just moving it around,” Peddie said. Another part of the problem is that some teams build their business models around their revenue-sharing windfall and strive to keep their own revenues below the threshold where they will have to contribute. The Buffalo Sabres and Nashville Predators, like other teams who spend near the midpoint of the salary-cap range, are often singled out as examples. But other owners contend the larger issue is the ever-rising NHL salary-cap floor. “The cap was supposed to solve everyone’s problems, but all it’s done is prevent six or seven teams from spending $80-million,” said an ownership source who exchanged candour for anonymity. “Some folks are pretty upset: We sat out a whole year to get the cap, and some people are saying, ‘Well, why?’” As one long-time executive with an Eastern Conference team pointed out, the bottom of the NHL salary scale now exceeds the top-end figure from the first postlockout year ($39-million). In many cities, revenue growth and ticket sales haven’t kept up with the increase in salaries since the 2004-2005 lockout. “Some teams are pretty pissed off at the whole thing: We didn’t manage to get rid of salary arbitration, and some teams just can’t afford to pay their restricted free agents or arbitration-eligible players,” the executive said. There are teams, like the Los Angeles Kings, who will only achieve the salary floor because of hefty bonuses to rookie players that will count against the cap to start the year. And the Kings are far from the only ones who will have to work to get above the minimum threshold. “There are probably 10 to 12 teams that can’t afford a $40.7-million payroll,” added a source with extensive knowledge of league operations. Salary-cap questions are also at the centre of the debate over revenue sharing. Part of the problem, say the many critics of the system — the loudest voices of dissent are said to be in Montreal, Toronto, Vancouver and New York — is that teams spending at or near the cap this season will not be allowed to exceed the cap by 7.5 per cent for performance bonuses, as they have in past years. That’s because this is technically the final year of the league’s collective bargaining agreement — the NHL Players’ Association will decide by next May whether to reopen the pact. If they decline their option to do so, it will be extended through 2010. According to several sources, the average annual revenue-sharing payout is between $6-million and $12-million. The Maple Leafs, Montreal Canadiens and Vancouver Canucks are the top three Canadian contributors, which isn’t surprising since the teams ranked first, second and third in NHL ticket revenue last season. (Toronto was first, earning $1.9-million per game.) Along with being one of the main contributors to revenue sharing, the Maple Leafs are also expected to spend close to the cap this season. “We budgeted for the cap this year. Whether we spend it or not depends a lot on Mats Sundin,” Peddie said. “We budgeted for $56.7-million, but our revenue sharing was 12 million bucks. You add the 12 to [the cap], we’re really at 68 [million] so we haven’t benefited from it.” The Maple Leafs and other Canadian teams are casting an anxious eye toward another key metric that will affect the revenue picture: The Canadian dollar slumped to 84.69 cents this week — its lowest value in 18 months — and has lost nearly 10 per cent of its value in the last 14 days. Most Canadian NHL teams have financial positions that allow them to hedge against currency fluctuations, but the sudden drop in the value of the loonies will make U.S.-dollar contracts immediately more expensive. If the dollar falls even lower, as many experts predict, Canadian teams will be left in the unenviable position of paying U.S. dollar contracts out of a Canadian dollar revenue pool — the situation that led the Senators into de facto bankruptcy. A resurgent Canadian dollar over the past two seasons has led to a windfall for the six Canadian teams, who accounted for about a third of the league’s $2.6-billion revenue. But as the dollar falls, those same teams are also facing growing uncertainty amid the international financial and credit meltdown. As Senators’ owner Eugene Melnyk told a news conference in Sweden this past week, “It’s a little nerve-racking in what has happened in the global financial markets in the last couple of weeks. We need to see what that’s going to do to attendance numbers across the league and how that will affect the cap. That’s the key.” If economic conditions worsen, the owners would likely receive a large portion of the salary money held in escrow under the terms of the CBA. To this point in the agreement, the bulk of the funds have been redistributed to the players each season. To do so would surely irk the players’ union — to this point the bulk of the funds has been redistributed to players — which will vote next spring on whether to exercise its option to re-open the contract. The players’ union will vote next spring on whether to exercise its option to reopen the CBA, and owners in several NHL cities are ardently, if quietly, hoping the union decides to do so — although it seems unlikely at this point — because it would also provide the opportunity to revisit revenue sharing. The detailed revenue-sharing figures are closely guarded and are not widely disseminated in NHL circles. For the 2007-08 regular season, the Canadiens spent $11.5-million on “player compensation cost redistribution,” the somewhat unwieldy term used in the CBA. The Vancouver Canucks paid out $10-million, the Calgary Flames roughly $6-million and the Ottawa Senators $1-million. The Edmonton Oilers contributed $800,000, although team officials declined to discuss specifics. “Revenue sharing, at the time you write the cheque, is painful — and we’ve written some big ones in the last two, three years,” said Oilers president Pat LaForge. “I see it as a compliment to our business. We’ve come from the red to being in the black and we need to look at it as a point of pride. The CBA has been good for us, the [Canadian] dollar has been good to us, the fans have been good to us. Some sharing is required.” Indeed, it’s a bit unseemly for Canadian teams — especially in places like Ottawa, Calgary and Edmonton — to complain about the unfairness of revenue sharing, given they benefited from a league-wide currency adjustment plan in the 1990s. “It’s not 15 teams that get the benefit of the rewards. It’s a temporary measure. Hopefully, it’ll go away,” LaForge said. With files from Matthew Sekeres and Eric Duhatschek

October 11, 2008

So these are the spoils of victory.

Weak franchises teetering on the brink. Strong franchises unhappily pouring good money after bad. A salary management system in which payrolls increase even for teams that have barely benefited from the revenue streams that push the numbers ever higher. Some extremely grumpy owners at both ends of the spectrum.

Think maybe Gary Bettman would like to take a mulligan right now, and start all over?

In 2004-05, the NHL’s owners played chicken with their players and the union that represented them and won, unequivocally.

Bettman couldn’t manage to save his great asset, Ted Saskin, from his own shenanigans, but other than that he couldn’t really have asked for more – a blank page on which to redefine the NHL’s business model according to his employers’ wishes. The union might still be smart enough to hide a few poison pills in a new collective agreement, but any real leverage the players enjoyed evaporated the minute they demonstrated they didn’t have the stomach for the fight.

“Cost certainty” had been Bettman’s mantra during the lockout – and along the way, the commissioner had also suggested, perhaps disingenuously, that he was fighting the battle for ticket affordability and to protect the interests of small-market Canadian franchises. He even got a standing ovation in Edmonton on the last point, though the real emotion in the air was anti-”greedy” player, and certainly anti-union.

What the crowd in Alberta couldn’t have imagined was that four years later, their home team would be helping to prop up the Nashville Predators and Florida Panthers and similar shinny basket cases, or that the six Canadian franchises in total would dump $50-million last season into hockey’s black hole.

In return for all of their trouble, for an entire lost season, the owners wound up with a salary cap-and-floor system fixed to a percentage of revenues, the kind of arrangement that can work beautifully in a league where the bulk of the money is shared equally, where league-wide television and sponsorship deals are the No. 1 economic engine (the NFL, for instance, though that’s less true now than it once was). But that kind of system is a whole lot more problematic in a league like the NHL, where there are wide revenue discrepancies among franchises.

Limited revenue sharing was added to the mix to try and balance the haves and have-nots, though the NHL has been loath to provide details as to how it actually works. Certainly the redistribution of wealth was sold as a temporary fix to help needy teams get back on their feet (like the old Canadian Assistance Program), when in fact it now looks very much like a permanent welfare roll.

The weak franchises have to hit targets to qualify, and there’s a time limit – but what’s going to happen when you start disconnecting them from life support?

Perhaps the owners couldn’t have anticipated the soaring Canadian dollar, which – as the teams on this side of the border bounced back instantly from the work stoppage – pushed league revenues and therefore player salaries higher, to the point where many teams struggle (and fail) to reach profitability even while paying the minimum.

What they absolutely should have anticipated was that teams that had failed to sell hockey in non-traditional markets under the old system would continue to fail under the new system.

That’s because the issue was never competitive imbalance, as Bettman maintained over and over again. Under previous contracts, which gave teams control over players’ most productive years, free spending franchises like the New York Rangers missed the playoffs for long stretches, the wealthy Maple Leafs continued to wander the desert and low revenue teams competed for the Stanley Cup.

The issue was that markets that were products of greed-driven expansion simply weren’t going to embrace the product. And since Bettman had promised the owners still more expansion (you can find the projected revenue as a line item in the presentation Boots Del Biaggio was making to potential investors in Nashville), there would be no real restructuring, no letting nature take its course through bankruptcy or measured contraction, lest it shake the house of cards.

The Canadian dollar appears to be sinking now (perhaps not back to where it once was, but enough to tamp down salary inflation), which is good news for Phoenix, not such good news for Edmonton or Ottawa. There’s every possibility that, coupled with the larger economic downturn, the cap will be pushed lower for next year.

It can adjust. But what’s broken about the NHL, this system can’t fix.