NHLPA executive director Donald Fehr's unedited letter sent to players on Friday, Oct. 19, 2012:
Here is a brief summary of the three core-economic proposals we made [Thursday]. Each has the players’ share declining over the life of the agreement. Each of the proposals has substantial cost reductions -- lower player salaries -- that would be realized by the owners. However, we maintained our position that given the concessions made by the players in the last agreement, and the 7 years of record revenue which followed, there is no reason for the absolute amount of the players’ share to be reduced.
Under the owners’ most recent proposal -- a 12.3% reduction in the players’ share -- compensation is reduced by about $1.65 Billion over the 6 year agreement they propose, if HRR grows at only 5%. (The owners say that future growth will only average 5%, even though that is well below the 7.2% average since the last lockout, much less the 10.2% and 9.6% of the last two seasons.) At 7.2% growth, the share falls by about nearly $1.80 Billion over that period. We have proposed a 5 year agreement. The NHL proposals over 5 years would reduce the players share by $1.34 Billion at 5% and $1.43 Billion at 7.2%.
We gave them three alternative proposals.
Option 1: This is a revision of a previous proposal. We would see a fixed player share the first three years of 1.92 Billion, 1.98 Billion and then 2.06 Billion. After that, the players share is frozen until revenues reached $4.12 Billion (that is, when 2.06 Billion is 50% of HRR). After revenues reach $4.12 Billion, the players share is 50% of HRR (plus a small increment if yearly growth exceeds the predicted 5% -- 57% of revenue above 5% and 61% of revenue above 7.2%).
Here is what this looks like at 5% growth:
At 7.2 % growth, salaries fall by more than $1.1 Billion.
Option 2: Option 2 is similar in its effects. Simply, the players share will grow each year by 24.7% of any HRR increase (down from the current 57%). If HRR growth is at the 5% rate the owners predict, then the players share falls to 50% in year 5. At 7.2% the share falls faster. (After revenues reach 4.216 Billion, the players would also receive the same small increment of yearly growth as in Option 1.)
At 5% growth, this proposal produces:
And if HRR grows at the historical rate of 7.2 %:
Option 3: This idea proceeds from an entirely different approach. We take two principles of this negotiation: the owners stated desire to reduce the players share to 50% of HRR, and the Players position that there is no reason to go backwards. This proposal bases that second principle on existing player contracts, not the players’ share. Here is how it works:
• A reduction to 50% from 57% of HRR is a 12.3% cut (that is, 7/57), but the loss in an individual player’s salary would be about 13%. (This is because benefit costs do not fall and these come off the top.)
• The owners honor all existing player contracts. We do this by dividing an existing contract, on a yearly basis, into two separate parts: the 13% and the remaining 87%. The 13% is paid to the player in any event, and it is not counted in the players share and is also off the cap.
• The remaining 87% of existing contracts, plus all new contracts, go into the players’ share (plus all benefits). Thus constructed, the players share will become 50% of HRR, immediately.
• This means that an individual player under an existing contract would receive the 13% segregated, plus a normal payment, subject to escrow, of 87% of his salary. A player with a new contract would have 100% of his salary subject to the 50/50 split. However, since the 13% of existing contracts are off the cap, this should create more cap space, which will be important as the cap will be squeezed.
• Over time, the existing contracts expire, and the share will fall towards 50%. Below is a chart showing the anticipated savings, but these could be greater if there are a significant number of buyouts.
At the owners’ predicted 5% rate of growth:
Our hope was that the owners would find one of these three approaches worthy of serious discussion, but the owners rejected these ideas in less than 15 minutes, and further advised the players that their last offer was, in essence, a take it or leave it offer, subject to “tweaks only”. That proposal contains, as you know, an immediate reduction in the share to 50%, a 2012-13 cap with a 51.9M mid-point, and, among other things, player contracting provisions including a change in the ELS, a reduction in salary arbitration eligibility, no UFA status until after 8 years or at age 28, no contract longer than 5 years, no contract may have a year to year variability of greater than 5%, and all money paid under NHL contracts to players playing in the minors or in Europe counts against the team cap (except for the first $105,000 per player).
Last, there is the “make whole” provision of their last offer. In short, player compensation which is below the players share total of last season would be “deferred” and paid out over time, except that the players share in subsequent years would be reduced by the amount of all such “make whole” payments. In other words, players’ salaries in later years are reduced to make these "make whole” payments. Players bear all of the “make whole” costs. At the end of yesterday’s meeting, Gary did say that the players were prepared to agree to all of the other parts of their offer (subject, perhaps, to “tweaks”) then I could call him about this issue.
Please call if you have questions or comments.