Causes of this labour stoppage, stalemate, and the NHL's financial woes

Discussion in 'The Business of Hockey' started by MacDaddy TLC*, Mar 25, 2005.

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  1. To summarize, what is the reason the NHL is in the mess they are in? Here are some of my thoughts:

    The 1994-95 lockout: the League was on a high coming off a great Stanley Cup final where the Rangers ended a 50 year drought. Hockey was hot. The NBA was on the decline. Baseball had just cancelled their World series and fan backlash was tremendous---it took forever, a juiced ball and juiced Ball players to recover. The league had just signed a lucrative television deal with Fox and were on Network tv for the first time in decades. When the league finally returned to the ice most of the momentum was gone. They earned respectable ratings for Fox, but they were about 20% of what the NFL got. The numbers declined each year of the Fox deal and at the end, the league was unceremoniously dumped by the network.

    Salary Disclosure: Nobody knew what other players were making. Everyone assumed Gretzky or Lemieux were the highest paid player during the 80s when in fact it was Dave Taylor. (In 1988 McNall made Gretzky the highest paid player and in the years following upped the ante when Mario's salary briefly topped Wayne's) **Does anyone remember the year that Salary disclosure came into effect?**

    The 1990s expansion: The league grew too fast into non traditional markets in what was basically a greedy cash grab by the players and owners. The owners received millions in Expansion fees with a total disregard for the effects on the product. The players saw jobs being created and opportunities to stretch their careers and increase their earnings.


    Bettman vs Goodenow: No matter what they say, the two have a very adversarial relationship and do not like each other personally or professionally. This is in stark contrast to he Aieglar and Eagleson relationship which was too friendly. During the Eaglson years, he sold to the players concessions to the owners in exchange for improvements to the pension. Short term pain for long term gain. What the players later found out, thanks to Carl Brewer and company is that those gains were not there. The trust between the players and the league was broken and the effects are still being felt today.

    The 1995 CBA: The owners apparently were the winners in the 1994-95 lockout....or so they were led to believe. The reality is that they went into the lockout with the goal of a salary cap and being led by the father of the NBA salary cap, came out empty handed. Instead, they got a system that Eric Duhatschek in his Calgary Sun column said:
    "By getting a deal without a salary cap/luxury tax, the players effectively put the onus on owners to run their businesses efficiently. Some will try, but others... will not be able to change the spending habits of a lifetime. All it takes is a handful of free-spending teams and all the contracts you couldn't comprehend before... will appear almost logical in two years."

    Apparently acting responsibly was beyond the capabilities of the NHL owners and Genral Managers. The entry level Salary cap instituted to prevent deals like the one given to Alexandre Daigle in 1993 by the Ottawa Senators failed miserbaly. It didn't take long for teams to find loopholes to get around the cap. This was clearly demonstrated by the Boston Bruins in 1997 when they signed first overall pick Joe Thornton to the maximum, but included bonuses that could help him earn 2.4 million. To make matters worse, the Bruins gave their 2nd choice, eigth overall Sergei Samsonov a similar deal. In the end, the teams that got antsy about the season being cancelled and got the ball rolling to get a deal done without a salary cap caused for a deal that didn't serve to protect them from themselves.

    Salary escalators: There were too many problems with the 1995 CBA that made it too easy for the owners to spend like drunken sailors on shore leave.
    The main escalator of salaries is the qualifying offers of Restricted Free Agents. To retain the rights, the teams were required to give the players a 15% pay raise irregardless of performance. (** Is there a different rate than 115% for players making over a certain amount?**)
    Another excalator for owners was the expansion. By adding 9 new teams from 1991 to 2000, the league created nearly 33% more jobs for the players. This was off set minimally by the political changes in Europe and the availability of players from the broken Soviet Union and the Czech Republic and Slovakia. Unfortunately for the league this meant that highly skilled players were at a premium and greatly affected the supply and demand. It was a seller's market and the players took full advantage of the owner's desperation.
    Arbitration became a factor in the 1990s. Prior to salary disclosure, arbitration was hardly a tool. An agent couldn't make solid comparisons to assist a client in salary arbitration because he couldn't say how much comparable players to his client were earning and say his client was worth the same. Once disclosure was introduced the players had a great weapon at their disposal.
    Finally, Unrestricted Free agency played a huge role in the players' salaries growing. By setting the Unrestricted Free agency age at 31, the league has limited the number of players available each season. (**What is the average age of an NHL player**) This aided in making the supply and demand problem a crisis. With limited talent available, teams offered contracts that were more lucrative than the players worth. The average salary increased from $560 000 in 1993-94 to $1.79 million in 2002-03.

    Extending the CBA: Twice during the term of the Collective agreement reached in 1995, the league and players association decided to extend the term of the deal. This, despite the fact that salaries were spirally out of control. The reason being that the teams didn't want to jeopardize their expansion fees or lose their exposure at the 1998 and 2002 olympic games that they hoped would help them regain a lucrative television contract from a network in the United States. League revenues in 1993-94 were $732 million and player costs were $414 million. Salaries ate up 57% of revenues, which was in line with the NFL, NBA, and MLB. During the Collective agreement revenues increased by 173%. You would think this would be good news until you look at the escalating player costs. Salaried increased by 261% and in 2002-03, 75% of revenues went to salaries.


    The system was broke, yet twice the league decided to not attempt to fix it and created problems that today have the league on the brink of extinction.
     
  2. I forgot to mention, I am looking for feedback as to some further problems. Later I hope to post a solutions thread.
     
  3. svetovy poharu

    svetovy poharu Registered User

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    Mac asked:
    **Does anyone remember the year that Salary disclosure came into effect?**

    That's a great question, I wish I knew the answer. I know that Goodenow was responsible for the salary disclosure. He took over the NHLPA (was it in '90 or '91?). I somehow remember the Hockey News being the first to publish the players salaries but I just can't recall the year. May have been in 1991, and perhaps they listed the salaries from the 89-90 season. Or was it later? Memory block is preventing me from knowing for sure.

    Maybe someone knows the year when they first started publishing player salaries?
     
  4. I found the answer to the salary disclosure question. It was voted into effect in 1989. At the time only Mario and Wayne earned over a million a year. Within 2 years of salary disclosure, 16 players were in the millionaire's club and one year later that more than doubled to 33.

    Does anyone have a link that they can provide for me that charts the average salary? I have numbers for 1970, 1980, 1990, 1994, 2003, and 2004. I would like to fill in some of the blanks and maybe have a chart for every five years. Thanks in advance.

    Also, I am looking for details of the television contracts the league signed with Fox in 1994 and ABC/ESPN in 1998 or 99.
     
  5. shveik

    shveik Registered User

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    Good post. I would like to add that IMO a lot of the spending was fuelled by the expectation of NHL becoming one of the top sports in the US "any day now". That and the recent economy bubble is what drove some teams to spend beyond their means. Some of the more responsible teams were drawn deeper and deeper into the spending by arbitration rules and 110% qualifying level.
     
  6. Weary

    Weary Registered User

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    Here's a link that doesn't have too many details --but maybe enough for your purposes.
     
  7. LordHelmet

    LordHelmet Registered User

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    IMO, these are the two biggest contributors to the rise in salaries. The lack of a salary cap had nothing to do with it. Between the expansion fees and TV contracts, the owners collected gobs of revenue in the 90's. Instead of allocating this windfall responsibly, Bettman allowed the owners to spend it like trailer-park lottery winners.

    An intelligent businessman and real leader would have seen to it that the extra money be used more responsibly. He knew that all of this revenue was a one-time deal, and he should have seen to it that it wasn't distributed all at once. He should have put it in a shared fund where it could gather interest and then distributed it out evenly over a 10 year period. Additionally, a large portion should have been dedicated to growing the fan base.

    This approach would have kept the money out of the owners' hands and would have prevented them from going nuts with player salaries. The league would still have a big chunk of money gathering interest, and the marketing would have paid off with more fans.
     
  8. Sotnos

    Sotnos Registered User

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    Just a few comments (left your stuff in bold, followed with input in regular print):


    The 1994-95 lockout:
    Agreed. It'd be pretty difficult to argue that it helped in any way, that's for sure.

    Salary Disclosure:
    Not having salary disclosure gives the owners too much power IMO, or at least it did in the old days. Full salary disclosure seems to be the norm in pro sports nowadays anyway, I can't see that turning around. (I understand your point about it being a contributing factor to the problems we're having now, and you're probably right about that)

    The 1990s expansion:
    Definitely a greedy cash grab, but I don't agree that the expansion was only offset "minimally" by the influx of Eastern European players. However, that's an old dead horse that's been beaten to death, so I won't get into it further.

    (** Is there a different rate than 115% for players making over a certain amount?**)
    As far as I know, the 115% raise is only for players making under the league average. I think that's right, not completely sure.

    Arbitration became a factor in the 1990s.
    That's a big part of the problem with salary escalation IMO.

    Extending the CBA:
    It's my understanding that the 1998 extension was primarily due to the fact that the owners wanted the money from the 1999 expansions. They weren't going to get that cash if they got into a messy labor dispute. Obviously they were just putting off the inevitable.

    Anyway, interesting stuff Mac. Can't wait to see your solutions thread, though it'll probably involve getting rid of 10 teams south of the border. ;)
     
  9. I should have stated that these were contributors to the salary escalation, not problems.

    Prior to preparing the report (the original post was my rough notes) I was very pro owner. The owner's behaved irresponsibly and the players were not going to say no to ridiculous raises (although Wayne Gretzky told Bruce McNall it was too much and accepted less in 1988) I do believe that Al Eagleson's reign led to a lot of the animosity and is still a factor. The players were held down for so long that they will fight to hold onto all the gains they made the last 15-16 years. Unfortunately for the players, the revenues are not there. The owners need to be protected from themselves. The answer is linkage, but their needs to be financial data that is trustworthy. There is no trust between the players and the owners for good reason. It is too easy to fudge the numbers. An independent auditor needs to be assigned to allow for proper financial reporting. Linkage in the NBA worked to the players benefit. Maybe the players will suffer initially, but hopefully the game can rebound.
     
  10. Jaded-Fan

    Jaded-Fan Registered User

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    With all due respect to Santana and his dictum that those who are ignorant of history are condemned to repeat it, does how we got to where we are serve much of a purpose now? I think that even the most ardent of pro-owner supporters would agree that the owners deserve the lion's share of the blame for a system spiraling out of control. Does it matter now? If the labor situation is not addressed properly everyone, owners, fans, and players, suffer so we are in the same boat and should in fact put blinders on toward the past as far as the blame game goes, and instead look forward toward what would work best to save the game and allow it to truly grow. I think that most here agree that would fall mostly in line with what the owners have been proposing, in fact most here I would bet dimes to dollars would prefer going even farther than what the owners have offered and keeping revenues and players' salaries linked.

    The problem is that the players I believe have things like this thread on the mind, ie, looking back and blaming the owners which when coupled with a certain amount of greed, (ie, I have grown used to being rich as the Pope, let me justify to myself why this should continue and ignore the financial realities of hockey) has I think led us to where we are.
     
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