My second blog post on the NHL lockout

Unlike many of you, I’ve been trying to mostly ignore the NHL lockout. As you may remember, way back in August I predicted they wouldn’t settle this before the start of the regular season and suggested it was likely to settle in October and we wouldn’t see hockey until the end of October. Nothing that’s been said or done since then has changed that for me one bit, and in fact, it all lines up with what I expected to happen a lot more than I wish it did. 

So I see no reason to put a lot of time or energy into worrying over the NHL negotiations or the season (or the league, for that matter) until we get a lot closer to them solving this and putting hockey back on the ice and playing some NHL games. Instead, I’ve been watching the SF Giants more, and even a few football games, and, like, having a life. 

I’ve been asked by a few people what fans can do to influence this and help encourage the NHL to settle this dispute. The answer: basically, nothing. Both sides know that when this is solved, the fans will be there, so the fans don’t have much, if any, leverage. Now, if everyone could agree to stop talking about the NHL — don’t blog about it, don’t tweet about it, don’t retweet other tweets, don’t post in hockey forums, don’t read writers talking about the NHL — if fans could generate absolute “we don’t care any more” silence about the league and the lockout, it might get some of the owners nervous and push them. Of course, it’d scare the living crap out of the people paid to write about hockey (or more correctly, paid TO BE READ writing about hockey), and so not only won’t they not go to radio silence on these issues, the silence would likely freak them out and get them even noisier. Not what I’d be looking forward to… But the best thing fans can do is sit back, relax, and let this all work itself out without wasting a lot of time or energy on it. Go enjoy something else until the owners and players work it out. There’s some damn good baseball going on this year, and at least where I live, fall is just swinging into play, and the outside world has been fun and enjoyable. Try it. You might surprise yourself. Life is too short wasting it on this, unless your livelihood depends on writing about it (and/or generating page views over it).

A big reason I saw no purpose in writing about it is because I couldn’t without putting a bunch of work into studying the financial numbers, and to be blunt, I’d rather cut off my hands with a cold chisel and force feed them to iguanas than do the kind of number crunching needed to have a decent financial discussion here on my blog. 

But fortunately (or unfortunately), someone else has done that work for me over at the web site. I can’t decide if I want to thank them or hurt them. I’ll settle for thank. For now. If you look at the numbers they’ve generated, it helps answer some of the questions that are being asked about this lockout, such as “didn’t the owners win the last lockout? and why didn’t it solve all of their problems?” and “The NHL claims to be making lots more money? How can they still need to take it away from the players?”

If you read the three part article, they’ve done a good job of breaking down both costs/expenses and revenues for the league and why we’ve gotten to this point again. For those of you who would rather poke out your eyes than try to deal with the financial details, here’s a very quick summary:

The league is making a LOT more money than it was before the last lockout. It is also spending more money to make that money (which is expected). Most importantly, that new revenue is not evenly distributed: the richest teams have gotten a whole lot richer, the poor teams have struggled to keep up with increased expenses, and the teams in the middle are more or less where they were before — in the middle. 

At the end of part three is an interesting chart where he breaks down revenue (relative size of the dot) and profitability (color of the dot): 

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  • The yellow dots (money makers) are NY Rangers, Toronto, Chicago, Montreal.
  • The green dots (money losers) are Detroit, St. Louis, Carolina, Buffalo, Phoenix, Anaheim, Washington. 

I’m going to right up front flag Detroit as a special cast, because as you can see, their revenue is high, but it’s a team that has been consciously spending at very high levels because it’s been at a peak of a serious winning cycle, and they have an owner that can afford it and is willing to fund losses to keep the team winning. With the retirement of Nick Lidstrom, that cycle is ending, and I wouldn’t be at all surprised if they cut back spending over the next couple of years and perhaps finally go into a rebuilding cycle vs. a reload cycle through free agency. 

In the blue dots, the biggest dots belong to Philadelphia and Boston, which should surprise absolutely nobody. And both of those teams have been spending more heavily recently but not to the degree detroit has. 

This more or less defines the battle lines WITHIN the ownership groups.

There are seven teams with really good revenues that are profitable (or have chosen to spend it now): NY Rangers, Toronto, Chicago, Montreal, Boston, Philadelphia, Detroit.

There are six teams that are losing money and who’s revenue streams make it a challenge for those teams to stop losing: St. Louis, Carolina, Buffalo, Phoenix, Anaheim, Washington. 

If you go back and look at the state of the league prior to the last lockout, it was generally believed that there were 11 or twelve teams that would have qualified for that “green dot” status. So it can be argued that the league really is in a much better shape than it was prior to the last lockout, so the CBA that’s just expired did help the league and a number of teams. It’s just that there are still a number of teams struggling. 

Two big factors in this was the way revenue sharing was structured in the last deal (time limited in many situations, for instance) and that the salary cap floor was tied to the salary cap limit by a pure number and not a percentage. That meant that the floor grew dollar for dollar as revenues grew, even if those revenues didn’t go to the teams at the bottom of the revenue pile. 

So what’s happened since the last CBA is fairly simple: league revenues have gone up a lot. league expenses have also gone up a lot. A number of teams that struggled before the last lockout are now doing okay, but aren’t necessarily thriving, and some teams are simply unable to dig out of the revenue hole and are still struggling.

This is because revenues are not spread evenly among the teams: the richest teams got even more rich, and the poor teams had to fight just to stay competitive. 

A second factor here: as the teams figured out how to — let’s use the word finesse — the new CBA, they were able to issue contracts or find loopholes they could use to their own advantage. The ultra-long contracts with the low cap hit is the poster child of this. 

And so that’s how we got to this point. Basically:

  • The rich teams have no incentive to keep costs down, as long as they can stay under the salary cap (in a legal way if not in reality). 
  • The poor teams are forced to pay market rates for talent, even if they can’t afford it. Those market rates are set by the rich teams.
  • The rich teams don’t care if what they do hurts the poor teams. In fact, if it makes the poor teams uncompetitive, that’s good, because that’s fewer teams fighting for the playoff spots with those rich teams. Of course, that’s not what the rich teams will say in public….

And this is why we never had a chance for the lockout to end before the season started.

Let me explain.

Stop thinking of this as “players vs. league”. It’s not. 

“the league” is 30 owners, each with their own agenda. Broadly speaking, there are three groups:

  • The seven rich teams.
  • The six poor teams (five, actually, since Phoenix is run by the league office itself).
  • The 17 teams “in the middle”, which align to each other, or to either the rich or poorer teams as it benefits them. But since they aren’t really hurting, it tends to be easier to align with the powerful group (the rich teams) than the weaker group. 

The league’s solution to the problem of those six poor teams is to take it out of the player’s share. This serves the purpose of the rich teams because they don’t actually have to give any of their profits up. In fact, they’d make even bigger profits. 

The player’s solution is revenue sharing: having a chunk of the money that currently goes to the richer teams and re-allocate it to help out the poorer teams. 

  • If you think about the NHL as “the league”, then that kind of solution makes sense; after all, it’s based on the NFL model. 
  • If you think about the NHL as “30 franchise owners”, well, if you were the franchise owner of a Subway restaurant in Times Square and making good money, how would you react to being told to give up some of that money to prop up a Subway franchise in Cody Wyoming? 

Exactly. And there’s just as much enthusiasm for that kind of revenue sharing in the offices of the Rangers or Leafs as there would be in the owner’s office of that Times Square Subway. 

So we have impasse. And that impasse won’t break until one side or the other starts hurting enough to make concessions. 

The players have to hold out long enough for the rich owners to say “okay, we’ll throw some money into the pool to end this, but you have to make it worth it with other concessions”. The key here are those “blue dot” teams, and when the lack of gate revenues are going to hurt enough for them to switch from backing the rich teams to joining the poor teams and say “let’s cut a deal” — a simplified way to look at this is that the poor team needs to swing over enough owners to take over the majority position within the ownership group. 

Or the owners hold out until the journeyman players (who have shorter careers with lower-pay contracts) start sweating out losing too much income and align together to force the union to move to get games (and paychecks) flowing again.

This entire lockout is designed to make it hurt enough that players accept the pay cut; in return, the players are trying to make it hurt enough that the different owner fractions realign and force the rich owners to agree to revenue sharing. 

In both cases, there’s zero incentive for anyone to change positions or force a deal until the revenue and paychecks aren’t happening and the lack of money hitting the bank starts to hurt. So there never was any reason to think this would get solved until real games get canceled and real tickets get refunded and real paychecks don’t show up — and then it’s a matter of which side is willing to take the pain longer before deciding to cut a deal.

And so it’s going to take a while. And the fan’s ability to influence any of this is, well, zero

And that’s why I’m going to watch baseball and football and go outside and play until they settle it. And why you should, too. They will, and then we can watch hockey. Until then, our only leverage as fans is to try to pretend we don’t care, and hope that makes them nervous. And the only way to do that is to be quiet. And now, having wasted 2000 words breaking my own recommendation to shut up, I’m going back outside into the fall sun… Join me. 

(my private agenda: this is to me a fairly clear-cut situation where revenue sharing is the “right” answer, as long as player expenses are comparable to other pro sports. And overall, hockey’s are. But I also don’t see that the rich teams will go their easily, or without a “pound of flesh” out of the players. And this is a massive oversimplification of a very complicated situation, where I’m only trying to cover the basic financial issue; the real CBA has dozens of issues, but this is the one that’s driving the lockout, and which has to be solved before there’s a hope of a new agreement. And it won’t be easy, or quick. The only saving grace: both sides are being cordial and professional, and that only helps keep the anger out of the negotiations, which should make the agreement easier — someday.)