The hidden third party in the NHL-NHLPA talks.
The Levitt Report. This fifty-eight page report was the primary reason why we had the last lockout. It is the reason why the NHL lost the 2004-2005 season. This report, and the actions taken by both the NHL and the NHLPA caused the Stanley Cup to have a ‘SEASON NOT PLAYED’ etched permanently into its side. When I read the details of the owners first proposal to the players’ union my first thought was “How quaint. The owners want to bring back indentured servitude.” It appeared that the owners had completely forgotten the ghosts of the past.
The report was set up to determine what was wrong with the NHL. The answer was candid. “The current relationship between League-wide player costs and League-wide revenues is inconsistent with reasonable and sound business practices. Player costs of $1.494 billion or 75% of revenues substantially exceed such relationships in both the NBA and the NFL as those relationships are set forth in their collective bargaining agreements.” The owners had a valid excuse to bar the gates and hold out for money. Well done chaps, you won hard concessions from the players’ union. You knocked it down from 75 to 57 percent. All you had to do was a wipe an entire season from the history books.
I started looking at the teams. As a black-n-gold bleeding member of Bruins Nation, I took a look at us first. The Bruins were comfortably in the top ten last year. The Bruins appear to be running in the black and are a profitable franchise. In fact, the average revenue of the top ten teams averaged around 150 million. OK, so the owners are out for cash and they’re willing to go for blood to get it. The league’s top three profitable teams are the Toronto Maple Leafs, ($521 million net worth, earning $81.8 million last season.) The New York Rangers, ($507 million, $41.4 million), and the Montreal Canadiens, ($445 million valuation, $47.7 million.). The top three teams posted a better profit than the rest of the league combined. (Boston placed fifth at $325 million, $2.7 million.) Alright, the B’s are safe. They’re not an economic powerhouse, but they’re safe. So what is going on to cause the owners to scream bloody blue murder?
The average NHL team is worth nearly fifty percent (47%) more than it was before the lockout of the 2004-05 season. Alright, so what is the problem. The main problem is that the league’s salary cap, set at 57% is too high for some teams to be profitable . As a result, the National Hockey League will have to consider this when the owners and the NHLPA hammer out a new collective bargaining agreement(CBA) to replace the current deal that expires on September 15th. The NHL must move much closer to the percentages of other professional sports (48% NFL, 50% NBA).
Three years ago NHL commissioner Gary Bettman told Mike Ozanian of Forbes.com not a single NHL team was worth less than $200 million. But money-losing teams are being sold for much less. In February Terrence Pegula bought the Buffalo Sabres, (The Sabres had filed for bankruptcy protection in 2003, when the Levitt report was written(they had suffered a loss of 5.6 million last year.)) for $165 million. The St. Louis Blues and Carolina Hurricanes, (two more struggling teams) sale value is also below $200 million. There is also the case of the New Jersey Devils, who sank in value to $181 million( a loss of 17%). The Devils could find themselves on the road to bankruptcy (like the Sabres and the Senators in 2003).
OK. The third party emerges. It’s not that teams like Toronto, Vancouver, and Boston are the aggressors here. It’s the teams that due to bad location, bad planning, or just bad ideas are in the red and sinking. The league is suffering and there could be another work stoppage. (To borrow from baseball, three strikes and you should be out Gary.) Why? First, some teams revenues are so low they can’t cover their expenses. Second, those the high profit franchises have little desire to help dig their brothers out of the hole.
In reality, this whole mess is an owner versus owner problem more than it is an owner versus player one. There are thirty teams in the NHL. Last season, eighteen of those teams lost money before paying off loans or writing down their assets (sixteen the year before that). So why are the owners drawing a line in the sand this early? The owners believe it will be easier to get the two or three hundred million out of the players than the the owners of the highly profitable franchises.
However, this isn’t really all that accurate. If we take the owners first draft as fiat,(cut the players’ share to forty-six per cent) half the teams would still be losing money. The bottom ten teams average about $70 million in revenue. There is no way one of the bottom ten teams could make a profit without having a salary cap in the range of $39.4 million. That would mean the players would need to take a hit all the way down to thirty-seven percent. To make the lowest valued team profitable(Phoenix Coyotes, valued at $134 million, net loss of 24.4 million), the players would have to shave their percentage all the way down to twenty-five. Fat chance that will happen.
The players are unhappy. Can’t say that I blame them. They’re being forced to take a hit to save the league. In essence to save the league’s owners from themselves. So, when the players and NHLPA chairman Fehr put forth their counter proposal, they’ll be fighting two opponents. One they see in the open, and the second lurking to correct their past mistakes. Those past mistakes led to a suspended season in ’94-’95, and no season in ’04-’05. The league may not survive in its current incarnation if there is yet another lockout on Bettman’s watch.