NHL CBA: Sharing is Caring
While announcing that the NHL owners had turned down the NHLPA’s CBA proposal, Gary Bettman said the following:
“I think it’s fair to say that we value the proposal and what it means in terms of its economics differently than the players’ association does,” said Bettman. “I think there still are a number of issues where we’re looking at the world differently. I’m not sure that there has yet been a recognition of the economics in our world — and I mean the greater world and the sports industry, taking into account what recently happened with the NFL and the NBA.”
Bettman, of course, is referring to the NFL’s and NBA’s recently-negotiated CBAs, both of which reduced the players’ share of revenues. The NFL reduced the players’ share of all league revenues from 60% to 48%; the NBA reduced the players’ share of basketball-related income (BRI) from 57% to 51.5%. Looking at these and keeping in mind the NHL’s first proposal included an almost 20% reduction in players’ share of HRR from 57% to 46%, it’s easy to understand why he would reference them. The owners want to pay less in players costs and keep more of their revenues. Fair enough.
But the reduction in players’ share of revenues is only one component in the NFL’s and NBA’s CBAs. Conveniently, Bettman seems to ignore that both CBAs also address the economic reality of their respective leagues. That is, in both the NFL and NBA, there is an increasingly-widening gap between large-revenue teams and low-revenue teams, and their respective CBAs address this by transferring money from large-revenue teams to assist low-revenue teams – or revenue sharing.
It’s no secret that one of the biggest, fundamental issues facing the NHL these days is that several NHL markets are having trouble generating enough revenue to keep up with rising player costs. Because the players’ share is linked to league revenues, as long as league revenues are rising, the players’ share (i.e. the salary cap) will rise along with it. Under the current CBA, annual league revenues have risen to $3.3 billion; alongside it, the players’ share – 57% – have also increased to $1.89 billion.
In the NHL however, the rise in league revenues is driven mainly by large-revenue teams like the Leafs, Rangers, Habs, Canucks, Wings, Bruins, Blackhawks and Flyers. These teams can easily afford an increase in player costs. On the other hand, teams on the opposite end of the revenue spectrum – teams like the Blue Jackets, Coyotes, Predators and Panthers – whose revenue growth can’t keep pace with those of the big boys’, quite simply can’t.
If this sounds familiar, it’s because it is. The NFL went through the same song and dance during their CBA negotiations last year. I won’t go into a lot of detail here, but Blogging the Boys had covered the subject very well here, here and here. Teams like the Cowboys, Redskins and the Patriots generate much higher revenues than teams like the Jaguars and the Vikings. To address this gap, the NFL shares about 75% of its $9.5 billion annual revenue, including all of its broadcast TV and radio revenue, all NFL licensing and merchandising, and a portion of local ticket revenues, equally among its 32 teams. They also have a supplementary revenue sharing (SRS) pool that intends to subsidize the low-revenue teams and further close the gap between haves and have-nots. With revenue sharing, all 32 teams are on relatively-equal footing financially, are able to sign top talent, and can field competitive teams. Regardless of your thoughts on parity, you can’t argue its role in the NFL’s overall success.
Even the NBA has acknowledged the need for its large-revenue teams to share with the low-revenue ones. During their CBA negotiations last year, they agreed to an expanded revenue sharing program. Previously-funded exclusively by luxury tax revenues, the expanded program now includes a contribution from all teams based on their total revenues and it’s expected to triple the amount of money being shared. (Now if they can only rid itself of the soft cap and the numerous cap exceptions they have.)
For their part, the NHL proposed to reduce the players’ share of HRR to 46% – to $1.518 billion – to help their low-revenue teams. But while this may help in the short-term, it doesn’t address the league’s fundamental revenue gap issue. Large-revenue teams will inevitably drive revenue growth, and in a few years, players costs will be back to where it is now. Assuming the annual average revenue growth remains constant at 7.1%, league revenues will reach $4.1 billion around the 2015/2016 season, which means, by then, the players’ share will be back to $1.89 billion. Without more meaningful revenue sharing – by that, I mean more meaningful than the current 4.5% of HRR under the current CBA – the gap between have and have-not teams will likely be wider than they’ve ever been and the same teams in trouble now will be in trouble again later.
In the NHLPA’s proposal, not only did they concede the hard cap and a lower share of HRR, they also proposed to put the potential money saved in players costs towards a more meaningful revenue sharing program. By proposing this, IMHO the NHLPA recognizes the NHL’s economic reality. I’m not sure the NHL does.