Wednesday, August 15, 2012

CBA Wars I: A New Hope

Well, now we have it.

Or rather, them. The NHL Players Association submitted its proposal for a new collective bargaining agreement to the league yesterday. Both sides now have proposals on the table. Each seems to reflect a certain mind set. The owners’ proposal appears to be a large dose of “more of the same.” More reductions in player share of revenues, more reductions in player freedom of movement (tighter rules on arbitration, free agency, length of contract). On the other hand, the players’ proposal appears far more nuanced.

First, there is the matter of the salary cap itself. The concept that was anathema to the players in 2004 appears now accepted by the players as the basic structural framework for the agreement. At first blush this would seem to be a major concession, especially if the players are apparently agreeing to forgo anywhere from $400 to $800 million in compensation under the agreement, depending on the rate at which the league grows over the life of the agreement.

But then things get interesting. Having set aside the argument over the concept of a salary cap itself and accepting a lower share of revenue over the first three years of the deal as proposed (the fourth year is an option year in which the players’ share of hockey relate revenue reverts to 57 percent), the players target what is perhaps the most important underlying issue in these talks – haves and have nots among the 30 NHL franchises.

As NHL Players Association leader Donald Fehr put it, “In essence, when you boil it all down, what were suggesting is that the players partner with the financially stronger owners to stabilize the industry and assist the less financially strong ownership groups.” It is a clever way of saying that the players are, well, “players” in providing assistance to the struggling franchises in the league. Ponying up perhaps half a billion dollars in forgone compensation gives the comment credibility.

And with that, the league would share as much as $250 million in revenue with financially struggling clubs. That’s the big “numbers” takeaway on the revenue sharing side, but there are other tweaks that have the effect of leveling the playing field financially between haves and have nots. As reported by Larry Brooks of the New York Post such things might include allowing clubs to use cap space as a trading asset. Clubs would be able to go above or below the salary cap by as much as $4 million. Brooks also reported that the proposal includes a provision to limit non-player spending by clubs.

Of course, we do not have access to the language of the proposal, but based on what folks have reported (the accuracy of which is not guaranteed), two things strike us about it. First, what has leaked out about the proposal appears to focus very much on the financial health of individual franchises. The aim here is to prop up the struggling clubs via expanded revenue sharing and other tools such as trading cap space or the granting of extra draft picks to those struggling clubs that then can be traded or sold. What we worry about here is whether there is a dark side to this. Will clubs having these additional tools end up using them with a vengeance to the detriment of competitive balance on the ice? Do, say, the New York Islanders trade cap space or sell draft picks so that they have a lower payroll and fewer draft picks, and thus less margin for error in trying to develop a team? Does the NHL create a permanent underclass by these means? This is mitigated by the relatively short life of the agreement (three years with an option for a fourth), and in that respect it is more a “pause” to allow struggling teams to get a financial foothold before the agreement needs to be renegotiated.

The second thing we took away from the players’ proposal is that with each side now having offered their opening proposals, two very different worldviews are at work and unexpected ones at that. The owners’ proposal, as noted, looks like a lot more of the same – reduced player compensation, reduced player freedom of movement. And it doesn’t address the underlying problem – disparity in hockey related revenue – among the 30 clubs. The proposal has the look of “fighting the last war” about it.

The players’ proposal is less a response to the owners’ proposal and more of an independent, stand-alone plan. It accepts a basic salary cap framework that creates at least the fa├žade of partnership (we’re on the same page) but then attacks the problem from essentially the owners’ rear – the problem of haves and have nots among the clubs. And, it employs tools not contemplated or not fully developed in earlier agreements.

After round one, we suspect the players will own something of a tactical advantage. Their plan has the look of being “fresher” in approach, and they are certainly making more use of social media to bleed out elements of the package. It speaks to something of a PR advantage for their side.

However, if fans are optimistic about an early resolution to the matter, they entertain such optimism at their peril. The owners have a much deeper reserve of strategic assets to deploy, namely “money.” If the players are more nimble in their tactics, the owners can apply a siege mentality to the matter, weather the delay in the start to the season (or forgo it altogether), and grind the players down to their terms. It worked in 2005. This could still be a very bumpy ride.