How does a hard cap increase team revenue?

[Tom_Benjamin]

The NHL currently has exclusive power over revenue sharing. They can share revenues any way they choose without any regard to the NHLPA. If the owners give in to a luxury tax, or make some other revenue sharing scheme part of the new CBA, it's an issue that must be forever more collectively bargained.

This is a really good point, probably a better reason for owners to reject a luxury tax than any I have heard before. It isn't really clear that the teams are really doing any revenue sharing at all. The national TV and sponsorship money is pooled. Merchandising is also pooled. There is the currency equalization plan. It may all turn out to be a wash.

For example, the Canadian teams would do better splitting the Canadian National TV package while letting the American teams split up theirs. That's money going from the Oilers to the Rangers. Similarly if Centre Ice subscriber money was split according to viewers in each territory, Canadian teams would get a bigger chunk of that revenue. I'll bet a team like Vancouver loses because merchandising revenue is pooled too.

In any case, I don't think there will ever be significant revenue sharing because the investments - franchise costs - reflect the different potential revenues in the different markets. Jim Dolan is not going to give a chunk of his equity to Tom Golisano. He doesn't figure Tom really needs the money. Hicks is not giving any money to McCaw and McCaw can't see one single reason to give Cal Nichols or Bill Wirtz a penny.

The luxury tax is an NHLPA showpiece. It sounds good to the fan who thinks this dispute is about competitive balance but the lower the amount, the more revenue sharing involved. If the tax is set at $40 million, we'd probably have five Canadian teams sending revenue south. Should the Ottawa fan be sending money to Ted Leonsis? That sounds crazy to me.

Tom

 

[hockeytown9321]

For example, the Canadian teams would do better splitting the Canadian National TV package while letting the American teams split up theirs. That's money going from the Oilers to the Rangers. Similarly if Centre Ice subscriber money was split according to viewers in each territory, Canadian teams would get a bigger chunk of that revenue. I'll bet a team like Vancouver loses because merchandising revenue is pooled too.

I might be wrong, but I think the CBC money only goes to Canadian teams.

 

[X0ssbar]

Re: NFL parity

Why in the world would hockey not want to be like the NFL? The most popular sport in America why? Because every team has a shot every year. There's a reason why football is now America's pastime and baseball isn't. There are only a handful of teams that have a chance each year in baseball. In football, you can only count out a handful of the teams at the start of the year.

Parity may breed mediocrity, but it also breeds a broad, loyal fan base - you tell me which you think the owners think is more important.

Maybe its an Ohio thing but I completely agree with this statement.

 

[hockeytown9321]

Re: NFL parity

Why in the world would hockey not want to be like the NFL? The most popular sport in America why? Because every team has a shot every year. There's a reason why football is now America's pastime and baseball isn't. There are only a handful of teams that have a chance each year in baseball. In football, you can only count out a handful of the teams at the start of the year.

Parity may breed mediocrity, but it also breeds a broad, loyal fan base - you tell me which you think the owners think is more important.

Footballs's popularity is also becuase of supply and demand. There are only 8 home games you can go to vs. 81 in baseball. Its also a lot easier to go to a football game on a Sunday afternoon than go to a baseball game on a weeknight.

Even though this goes agaisnt my argument for against a cap, football's parity also has to do with the fact its single elimination. Its alot easier to pull an upset.

But just because football has such a huge audience with parity doesn't mean hockey would. Hockey is a gate driven sport, football isn't. There has to be sustained, elite teams in hockey to draw casual fans. A cap prevents sustained success.

 

[me2]

The luxury tax is an NHLPA showpiece.

Tom

Luxury tax? What NHLPA luxury tax? 5% is so low it doesn't even rate.

 

[GabbyDugan]

I might be wrong, but I think the CBC money only goes to Canadian teams.

The "national" over-the-air and cable packages are divided 30 ways, while each team keeps its own local broadcast revenues. So TSN and HNIC revenues are pooled with the ESPN2 and NBC revenues (which might be nothing), and split 30 ways...

 

[Tom_Benjamin]

The "national" over-the-air and cable packages are divided 30 ways, while each team keeps its own local broadcast revenues. So TSN and HNIC revenues are pooled with the ESPN2 and NBC revenues (which might be nothing), and split 30 ways...

Yes. The Canadian package is about $60 million US a year.

Tom

 

[Vlad The Impaler]

So how come these teams aren't leading the parade of money losers? The teams that head the list are the ones who had not dumped the established stars

I don't know which teams you refer to when you say "these teams" nor am I privy to the situation of each team.

However, the money losers and the money winners do not interest me in the least. What interests me is to see less teams having their hand forced due to budget reasons while others aren't.

It's really cool if one owner is smarter and saves money. But I don't really give a **** about owners. What I want is to watch hockey and hear less about financial considerations due to a bunch of crybabies.

 

[Tom_Benjamin]

I don't know which teams you refer to when you say "these teams" nor am I privy to the situation of each team.

I'm saying the teams that are losing the big money have big payrolls and lousy teams. They get what they deserve. An Edmonton quality team for twice the money. An Edmonton quality team that is in decline. A money loser.

If they want to learn, fine. Their organizations will be the better for it, and wages for UFAs will come down. If not, they can keep on losing money. It doesn't affect competitive balance.

What interests me is to see less teams having their hand forced due to budget reasons while others aren't.

I think they are "forced" to build the proper way, the only way it works. Richer teams only have the ability to make stupid mistakes.

It's really cool if one owner is smarter and saves money. But I don't really give a **** about owners. What I want is to watch hockey and hear less about financial considerations due to a bunch of crybabies.

I agree. If I hear Kevin Lowe declare he has to dump another player because of money I will barf. I get so tired of Buffalo and Edmonton fan's whining. I used to get really tired of Ottawa fan's whining, but most of them have figured out that this system works really well for the small market teams.

Tom

 

[Tom_Benjamin]

Luxury tax? What NHLPA luxury tax? 5% is so low it doesn't even rate.

So negotiate a higher rate. It doesn't matter. The owners won't go for it. The NHLPA knew they would not go for it. The NHLPA will accept a luxury tax, parameters to be negotiated. The owners reject it out of hand. The NHLPA will accept it - offered it - because it looks good to fans who are looking for a compromise and because they knew it would be rejected.

The owners will reject any system that does not a) define revenues, and b) set a fixed cap on the player percentage of those revenues. They will accept any system - even the existing CBA as long as there is an escrow system to kick bak the overage to the teams - that includes it.

At least the owners will reject any system that excludes defined revenues until they cave in. Maybe they will surprise us and cave now just to save us the grief, but I doubt it. They cave when the playoff revenues - and most of the NHL profits - are about to be thrown out the window.

Tom

 

[ceber]

It is very easy to see why the players will not tie revenues to payrolls. Suppose we all agree that the player share should be 60% at current revenue levels. Suppose we all agree that the other fixed costs amount to 30% on $2 billion in revenue, and suppose we all agree a 10% annual profit is a good deal for the owners. (The amounts aren't important. They just illustrate the point.) The owners get $200 million, the players get $1.2 billion and all of the fixed costs amount to $600 million.

What happens if next year revenues go up to $2.2 billion? Fixed costs stay about the same. The owners get 40% of the incremental revenues instead of 10%. In a free market the players would get the vast majority of that extra $200 million and the owner still gets his fair return and still covers his other costs. In a market that artificially restricts what the players can get, the return gets fatter and fatter for the owners with every increase in revenues.

Why isn't this OK? Say instead of going up to 2.2, the revenues go down to 1.6 (bad year). The fixed costs stay the same, the players' salaries stay the same, so the owners take a hit of 200 million dollars. Why should the owners bear all the financial risk if they're not going to reap most of the financial reward? If the players want a bigger share of the financial rewards, shouldn't they take on some financial risk?

 

[me2]

So negotiate a higher rate. It doesn't matter. The owners won't go for it. The NHLPA knew they would not go for it. The NHLPA will accept a luxury tax, parameters to be negotiated.
Tom

Take the players offer from last year of $40m and luxury tax. Now up the tax rate from 5% to 100%. I'd be the NHL would wear that. Lets see how low before they reject that offer. 100%, I give it 5 seconds.

 

[me2]

I'm saying the teams that are losing the big money have big payrolls and lousy teams. They get what they deserve. An Edmonton quality team for twice the money. An Edmonton quality team that is in decline. A money loser.

If they want to learn, fine. Their organizations will be the better for it, and wages for UFAs will come down. If not, they can keep on losing money. It doesn't affect competitive balance.

Tom

There are a few fatal flaws in the argument put forward that teams should just copy the 20% of good managers. The problem is only 20% of managers are going to be in the top 20%. Thats bleeding obvious but it needs to be said, because some don't seem to get it. To listen to some of these arguments all you have to do is sack 80% of the managers and replace them with top 20% managers.

Where is this stockpile of top 20%ers hidden?

The problem for the NHL is the middle (the breakeven area) has shifted to 80%. Its unworkable. The NHL can not run successfully when 80% of the managers are not being successful.

In business 20% are elites, 20% are duds, the rest gravitate around the middle 50% breakeven point. The duds tend to get killed off through natural causes in the real world. In the hockey world they just **** in the drinkwater and screw it up for everyone. So unless they kick the high spending and poorly managed teams out of the NHL it won't solve the problems because the drinking water is still going to taste like ****.

 

[Tom_Benjamin]

Why isn't this OK? Say instead of going up to 2.2, the revenues go down to 1.6 (bad year). The fixed costs stay the same, the players' salaries stay the same, so the owners take a hit of 200 million dollars.

That's right. This is the price they pay for allowing revenues to fall to $1.6 million. Revenues haven't ever fallen although they may next year if they lose $100 million on US TV. But if they do, the owners would do the only thing they could do. Player salaries would not stay the same. They would slash spending and player salaries would fall, both in absolute terms and in percentage terms.

Why should the owners bear all the financial risk if they're not going to reap most of the financial reward? If the players want a bigger share of the financial rewards, shouldn't they take on some financial risk?

We assumed for the sake of argument that 10% of revenues was a fair return. (That leaves the teams now worth collectively about $2 billion.) That's what they are getting for investing the money and carrying the risk. The players are employees. They don't carry any of the risk. If you think that is not a fair return, rework the numbers. The point will remain exactly the same. The point is that a fair split at $2 billion will not stay a fair split as revenues increase.

The point is that if revenues go to $2.2 billion, the player share is still 60%, and the owner's share has increased to 14% of revenues. If the revenues go to $2.4 billion the following year, and the owner's share is 18%. At $2.6 billion, the owners are raking in 24% less three years inflation in the other fixed costs. The other fixed costs aren't tied to revenues so they take a smaller and smaller percentage of the pie as revenues go up. The owners think they deserve 100% of the slack.

How is that reasonable? The player share should increase as revenues increase. It should - and surely will - fall if revenues ever drop. Even if you can define revenues, you can't set a player share fairly. Wherever you set it, subsequent increases in revenue increase the owner's share at the expense of the players. How is that fair?

The players - correctly in my view - assume the owners can control player costs if they want to (as they obviously are this year) and if left to their own devices they will shell out the appropriate share of the incremental revenue to the players. If 75% is the right amount, so be it. It might be. That still leaves $500 million to cover hotel rooms, insurance and profit. If revenues fall and as a result, that percentage falls to 55% or even 50%, fair ball.

Player salaries should obviously be a percentage of revenues, and there should obviously be a relationship, but why should it be a fixed percentage? How does a fixed percentage make any sense at all? I'd sure like to hear someone defend that.

Tom

 

[Vlad The Impaler]

The players - correctly in my view - assume the owners can control player costs if they want to (as they obviously are this year) and if left to their own devices they will shell out the appropriate share of the incremental revenue to the players. If 75% is the right amount, so be it. It might be. That still leaves $500 million to cover hotel rooms, insurance and profit. If revenues fall and as a result, that percentage falls to 55% or even 50%, fair ball.

The players are indeed correct, but it does not solve the problem. Owners can control costs, but not at a similar level for each 30 of them. Without that, it causes problems that snowball across the league.

I look forward to you distorting this post, like you expertly did last time around.

 

[me2]

We assumed for the sake of argument that 10% of revenues was a fair return. (That leaves the teams now worth collectively about $2 billion.) That's what they are getting for investing the money and carrying the risk. The players are employees. They don't carry any of the risk. If you think that is not a fair return, rework the numbers. The point will remain exactly the same. The point is that a fair split at $2 billion will not stay a fair split as revenues increase.

The point is that if revenues go to $2.2 billion, the player share is still 60%, and the owner's share has increased to 14% of revenues. If the revenues go to $2.4 billion the following year, and the owner's share is 18%. At $2.6 billion, the owners are raking in 24% less three years inflation in the other fixed costs. The other fixed costs aren't tied to revenues so they take a smaller and smaller percentage of the pie as revenues go up. The owners think they deserve 100% of the slack.

How is that reasonable? The player share should increase as revenues increase. It should - and surely will - fall if revenues ever drop. Even if you can define revenues, you can't set a player share fairly. Wherever you set it, subsequent increases in revenue increase the owner's share at the expense of the players. How is that fair?

Tom

You are expecting revenues to outstrip inflation. That is fairly big call considering ticket prices are pretty much maxed out accross the league and TV contracts are looking poor.

Anyway lets consider your thoughts a little more deeply....

If you want to play that game that NHL clubs profit more than players from increases in income then make the players an offer that automatically adjusts as profit increases. The NHL can offer this profit sharing arrangement by paying the players paid from profit and not based on gross income. Give the players get 75-80% of the amount remaining from (total income - total expenses (player salaries not included). This way when the amount goes up to $2.6b the players share goes up in exactly the same proportion to the owners.

The owners would love it. They can't lose money because general expenses are unlikely to ever outweight total income. Have a bad year, then the players have a bad year. Want to buy a team, then overpay for it, and don't worry about costs because interest on the loan is deductable from gross income and gets factored in BEFORE the players get paid. All overpaying does in lower player salaries, their loss. It would be nearly impossible for the owners to lose money. You can't lose if you are an owner. Its 3 banana good

You should run it past the NHLPA. The players wouldn't agree to it in a pink fit. If they had to choose between being paid via the gross revenue or the profit, they would take the gross revenue every time. Its a relatively fixed and stable source that won't change much, isn't affected by owners fiddling loans or shifting money around.


That shoots your argument about the unfairness of profit increases down in flames because its the players that wouldn't accept it and not the owners who would love it.

 

[ceber]

That's right. This is the price they pay for allowing revenues to fall to $1.6 million. Revenues haven't ever fallen although they may next year if they lose $100 million on US TV. But if they do, the owners would do the only thing they could do. Player salaries would not stay the same. They would slash spending and player salaries would fall, both in absolute terms and in percentage terms.

Well, apparently that's really hard to do. I don't understand why that hasn't already happened with these teams that are losing so much money. They should be cutting salaries already, right? Not because revenue is going down, but because they're losing money.

We assumed for the sake of argument that 10% of revenues was a fair return. (That leaves the teams now worth collectively about $2 billion.) That's what they are getting for investing the money and carrying the risk. The players are employees. They don't carry any of the risk. If you think that is not a fair return, rework the numbers. The point will remain exactly the same. The point is that a fair split at $2 billion will not stay a fair split as revenues increase.

If I was an owner, which I'm not, I'd argue that it shouldn't be a fair split. The players are employees. Their salaries are guaranteed at the start of the season. Those that risk the money should reap the reward. If the players don't like their cut, stop being an employee and become an owner.

The player share should increase as revenues increase. It should - and surely will - fall if revenues ever drop. Even if you can define revenues, you can't set a player share fairly. Wherever you set it, subsequent increases in revenue increase the owner's share at the expense of the players. How is that fair?

I'd still argue that fairness doesn't come into it when the owners put up all the money.

The players - correctly in my view - assume the owners can control player costs if they want to (as they obviously are this year) and if left to their own devices they will shell out the appropriate share of the incremental revenue to the players. If 75% is the right amount, so be it. It might be. That still leaves $500 million to cover hotel rooms, insurance and profit. If revenues fall and as a result, that percentage falls to 55% or even 50%, fair ball.

THN:"According to numbers compiled by The Hockey News, the average NHL salary in 2004-05, for the 591 players under contract through early September, is $1.86 million (the figures were taken from the NHLPA's website, nhlpa.com). That's up from $1.81 million last season, an increase of about 2.7 per cent.

Meantime, as a group, the 200-plus restricted and unrestricted free agents who signed new deals during the off-season saw an average raise of more than 10 per cent."

Player salaries should obviously be a percentage of revenues, and there should obviously be a relationship, but why should it be a fixed percentage? How does a fixed percentage make any sense at all?

I don't think it does, and I don't think it would be a fixed percentage. Do any of the other professional leagues with "cost certainty" measures have a fixed percentage? I thought they all had yearly negotiations that determined the amount. Could be wrong, though.

Disclosure: I'm about 50-50 when it comes to ownership vs. players, but I like to challenge my opinion often, and this is part of how I do it. I'm not trying to start a fight with you or anything.

 

[Tom_Benjamin]

Well, apparently that's really hard to do. I don't understand why that hasn't already happened with these teams that are losing so much money. They should be cutting salaries already, right? Not because revenue is going down, but because they're losing money.

Unless they are really not losing the money they claim to be losing. Lots of teams cut salaries. The Canucks claimed $37 million in losses a few years back when the payroll was $40 million. They cut back to $25 million in payroll and were breaking even. Now they admit they are making money again with a payroll at $45 million.

If I was an owner, which I'm not, I'd argue that it shouldn't be a fair split. The players are employees. Their salaries are guaranteed at the start of the season. Those that risk the money should reap the reward. If the players don't like their cut, stop being an employee and become an owner.

I think this is exactly what the owners are saying. They are locking out the players to get an unfair split of the future revenue streams. What's fair? How do we know? More to the point, how do the players know?

THN:"According to numbers compiled by The Hockey News, the average NHL salary in 2004-05, for the 591 players under contract through early September, is $1.86 million (the figures were taken from the NHLPA's website, nhlpa.com). That's up from $1.81 million last season, an increase of about 2.7 per cent.

No, it's not. THN is comparing apples (the average of 591 players now under contract) to an orange (the number that was negotiated at the end of last season, an average that included the other 500 or so players who played in the NHL). Those other players will make far less than the players already signed.

I don't think it does, and I don't think it would be a fixed percentage. Do any of the other professional leagues with "cost certainty" measures have a fixed percentage? I thought they all had yearly negotiations that determined the amount. Could be wrong, though.

As far as I am aware, the 55% share to the players in the NBA has been the same since the CBA was negotiated. Same in the NFL. This is the entire point in this dispute. The owners want to get a fixed percentage for the players. The players think that percentage should fluctuate with revenues. The players think that absent an artificial ceiling, the market will set the appropriate split.

Tom

 

[Tom_Benjamin]

The players are indeed correct, but it does not solve the problem.

I don't understand how you define this problem. What problem precisely are you trying to solve?

I look forward to you distorting this post, like you expertly did last time around.

If I distorted something you wrote, please point it out.

Tom

 

[Vlad The Impaler]

I don't understand how you define this problem. What problem precisely are you trying to solve?

I don't think I can solve it, mind you. I don't think the NHL can even solve it completely. But my problem is, even assuming the owners can control cost, I don't like that there is no parity.

Suppose you and I are having a tie contest running for a year. We buy designer suits all the time in a bid to determine the best dresser and the coolest fashion guy. After a year, one of us is determined to be the winner.We decide to do the contest another year, out of some crazy misplaced vanity.

However, our wives smack some sense into us and show the finances. We're both financially strained because we're spending too much. There are debts and problems. We promise to the wives that we won't spend more than we can the following year. We each, individually, look at our financial obligations, whih are different. Our debts, mortages, salaries, the whole thing.

However, after doing that, it happens that you will be able to spend only $2,200 on suits this year while I will be able to spend $17,000.

This is pretty much what the NHL is facing right now. It's not the players fault and it's not easy to solve this puzzle either. In fact, it's downright impossible to *completely* solve the unfortunate situation.

Any free market is a wonderful thing. I really like this in our societies. However, it has some limitations in certain specific contexts. In a competitive league context, it does NOT make the product more attractive. It makes it less so to me. This is hardly a hockey problem as many leagues in many sports seem to be juggling with this issue to an extent or another.

If I distorted something you wrote, please point it out.

Ok, I'll dig it a bit later and quote it. It's not that I don't enjoy talking to you, though.

 

[Vlad The Impaler]

I agree. If I hear Kevin Lowe declare he has to dump another player because of money I will barf. I get so tired of Buffalo and Edmonton fan's whining. I used to get really tired of Ottawa fan's whining, but most of them have figured out that this system works really well for the small market teams.

That's the one.

 

[Tom_Benjamin]

I don't think I can solve it, mind you. I don't think the NHL can even solve it completely. But my problem is, even assuming the owners can control cost, I don't like that there is no parity.

I can't see how you can argue that the NHL does not have parity. It has revenue disparity and payroll disparity, but so what? Every team is capable of building a winner and becoming one of the have teams. The league should have haves and have nots. As long as everyone has a more or less equal chance to be a have, it's obviously fair.

If one or two teams don't have that chance - and it can't be more than that given Ottawa can do it - dump those teams. That's clearly the best solution.

The owners aren't willing to advance the argument that the league is not competitive. Three years ago, they were, but not any more. The NHL is more competitive than it has ever been.

At least this argument clearly defines our disagreement. You don't think the league is fair and I do.

This is pretty much what the NHL is facing right now. It's not the players fault and it's not easy to solve this puzzle either. In fact, it's downright impossible to *completely* solve the unfortunate situation.

This problem arises because of free agency. Before the Messersmith decision in 1976 there was no free agency in any sport. Even though there were wide revenue disparities and wide payroll disparities, no one worried about competitive balance. This is really remarkable considering who did most of the winning, but never mind that. It became possible for teams to buy rather than build winners.

The NHL CBA solves the real problem by restricting free agency for most of the player's career. It does leave a problem of perceptions. In my opinion, the owners have exploited that perception and are attempting to line their pockets with it.

Tom

 

[hockeytown9321]

Luxury tax? What NHLPA luxury tax? 5% is so low it doesn't even rate.

the luxury tax isn't 5%. the rollbak of salaries is 5%. The tax would be dollar for dollar over the soft cap, which was around $35-40 million.

 

[thinkwild]

You cant buy a winner. You have to grow your own man. This is a great thing. Everyteam always contending is only fair in a childrens playground kind of way.

 

[me2]

the luxury tax isn't 5%. the rollbak of salaries is 5%. The tax would be dollar for dollar over the soft cap, which was around $35-40 million.

My fault its actually a 10% luxury tax.

The Toronto Star reported that under the union's plan a tax of ten cents on the dollar would have kicked in when a team's payroll went above $40 million. The tax would have increased to 20 cents on the dollar when the team exceeded $50 million and then 30 cents on the dollar for anything over $60 million in payroll. The tax money would have then been distributed to smaller market teams, but no specific details were released about an exact distribution plan.

The league rejected the plan, saying it wouldn't do enough to curb spending. Some would argue that looking at the numbers, it's pretty easy to see why. A $50 million payroll would cost a team $1 million in taxes. A $60 million payroll would mean a tax bill of $3 million.