Tuesday, October 23, 2012
Deal revolves around solving 'make whole'
By Pierre LeBrun
The key to finding a breakthrough in the NHL’s labor impasse revolves around the formula both sides can agree on to help honor existing player contracts.
Otherwise known as the "make whole" mechanism in the NHL’s offer from last Tuesday and the NHLPA’s No. 3 option Thursday, with both sides officially putting 50/50 on the table as a revenue split, the make-whole proposition holds the best possible chance at finding resolution.
If I’m a player, I’m asking leadership at the NHLPA to give this the best shot possible. And if I’m an owner, I do the same to the NHL’s lead negotiators.
The NHL is inviting the make-whole conversation to happen.
"We made clear at our meeting on Thursday that if the terms of the 'make whole' is something they wanted us to negotiate over or address, we’re more than happy to do it," NHL deputy commissioner Bill Daly told ESPN.com in a phone interview Tuesday.
"We are willing to meet and discuss that and anything else without preconditions and have been since last week," NHLPA executive director Donald Fehr told ESPN.com in a phone interview Tuesday. "We’re more than happy to do that, but one side does not get to define the agenda."
The fly in the ointment right now, and it might be what has delayed both sides to get back into the room to discuss this yet, is the NHLPA’s understanding that the NHL’s willingness to bend on "make whole" is contingent on the players accepting the rest of the league’s offer from last week.
Daly, however, told ESPN.com there is some wiggle room on the rest of the framework.
"We told them while there was only limited flexibility, the offer was not presented as a 'take it or leave it,'" Daly said. "We are willing to talk about it. But if their position is every other element of our offer is unacceptable -- which they suggested to us at the meeting on Thursday (and I think Don is on the record of stating), -- I'm not sure there is much to talk about currently."
Fehr reiterated to ESPN.com on Tuesday that he believes the league in that meeting Thursday told the NHLPA there isn't much wiggle room on the rest of the deal, apart from "make whole," other than "minor and insubstantial" tweaks.
Not helping things is the growing distrust between the two sides, the controversy over the league’s 48-hour window allowing GMs to talk to players being the latest example. It’s the kind of thing that doesn't inspire either side to believe anything the other side is saying.
Having said that, all rhetoric aside, I believe the ability of both sides to figure out "make whole" is paramount to having any chance of ending this lockout.
To recap, the league's version of "make whole" from last Tuesday’s offer: Via deferred payments, it comes out of the players' share down the road. The league will say these are fairly modest payments made over time that come off the top of the players' share. The NHLPA simply sees it as players paying back players.
The NHLPA's version of "make whole": the owners pay to protect existing player contracts, as explained by Fehr in a letter to players Friday:
• A reduction to 50% from 57% of HRR [hockey-related revenue] 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%.
Bottom line, at least $600 million would come out of the owners’ pockets to make the players whole under the NHLPA’s proposal.
So, as you can see, both "make whole" solutions are vastly different. But there’s a middle ground to be had.
My belief is the NHL is willing to play ball here, willing to have its owners fork up some money in a revised "make whole" formula that might help satisfy players.
With time running out to salvage an 82-game season, one has to presume the NHLPA will try to investigate whatever flexibility there is in this area. Or one would hope.
The other mechanism that's out there is the "phase-in" formula, in which the players’ share of hockey-related revenue starts high enough in order to mitigate the escrow impact in the first year or two and eventually gets to a 50-50 split.
For example, if you started the players at 53 or 54 percent of HRR in Year 1 (down from 57 percent in the last CBA) and got down to 50-50 by Year 3, that’s a formula that might work.
Asked about the "phase-in" as an option, Daly didn't rule it out as an option instead of the "make whole" proposition, although my sense is that "make whole" appeals more to the league.
"They’re really almost one in the same thing," said Daly. "The phase-in is what allows players to receive more value under their contracts in the early years. The 'make whole' is a substitute for a phase-in."
"Make whole" or "phase-in," there’s a way to get this done if both sides are willing to hash it out.
"We have had the discussion [with the NHLPA] that if the 'make whole' is of particular concern to them, and they have a contrary or alternative proposal, we’re happy to discuss it with them," Daly said.