Friday, April 2, 2004
Updated: April 5, 7:53 PM ET
Doomsday on the horizon
By Darren Rovell
Employees in the Calgary Flames' front office have been warned that their work week will be cut to three days and their salaries slashed by 40 percent. The Edmonton Oilers set up a program to help their staff find additional work or new jobs entirely once the team cuts back to a four-day work week. And the Toronto Maple Leafs have promised their personnel pay cuts of between 25 and 35 percent.
At a time when talk around the water coolers usually centers on the upcoming Stanley Cup playoffs, NHL teams also are bracing for the growing likelihood that there will be no hockey next season.
Barring a breakthrough in stalled negotiations for a new collective bargaining agreement, a work stoppage for the 2004-05 campaign would provide at least some teams financial relief, an ESPN.com survey of NHL clubs revealed. Officials with nine of 15 teams contacted by ESPN.com said the NHL's current economic structure is so flawed that their clubs would have a better chance to make ends meet if their players do not take the ice next season.
"It's not like we're looking not to play," said Doug Moss, president and chief executive officer of the Phoenix Coyotes. "But we clearly need a system that makes it possible to make money."
Despite moving into the new, 17,799-seat Glendale Arena in December, the Coyotes would be unable to turn a profit under the current CBA, even if they sold out every home game next season, Moss said.
The Coyotes, which reportedly have lost between $20 million and $25 million in recent seasons, are among the nine teams whose that would lose less money if next season was canceled than they would by having to ice a team for 82 games. High-ranking officials with the Flames, Oilers, Atlanta Thrashers, Carolina Hurricanes, Los Angeles Kings, New York Islanders, Pittsburgh Penguins and Washington Capitals predicted that expenses would surpass revenue next season under the league's current financial structure.
Half of the league's 30 teams responded to calls by ESPN.com for the survey. Three teams -- the Colorado Avalanche, Montreal Canadiens and the St. Louis Blues -- declined to comment.
Officials with the Tampa Bay Lightning did not respond to the survey, but team president Ron Campbell told the St. Petersburg Times in February that his club would lose less money if it didn't sell one ticket next season.
"The issue is not how we got here, it's what we have to do from here," Penguins president Ken Sawyer said. "We need to do whatever we can to achieve a new economic structure so that a team in a market the size of Pittsburgh can keep a team together without being fiscally irresponsible."
In a league-commissioned report released in February, former Securities and Exchange Commission chairman Arthur Levitt found that 19 of the 30 teams sustained losses for the 2002-03 season, and that NHL teams lost a combined $273 million a year ago.
Despite the Sept. 15 expiration of the current CBA, owners and players have spent little time at the negotiating table since October. Through the media, though, they have made their positions clear: The league's owners want to cap salaries and are willing to lock out the players to get it. The players have offered to take paycuts but refuse to limit salaries.
"I can't imagine any team being better off after a prolonged lockout," said Ted Saskin, senior vice president of business affairs for the NHL Players' Association. "We believe that the teams have understated overall revenues and overstated the expenses related to player costs."
The NHLPA has been able to examine the information provided by four teams for the NHL's Unified Report of Operations (URO) and found a $52 million discrepancy in reported hockey-related revenue, Saskin said.
In the event of a lockout, the only players that would have to be paid are those owed bonuses, such as Avalanche's Joe Sakic and Rob Blake, and the Maple Leafs' Owen Nolan, who has a "lockout protection clause" in his contract. Levitt's report revealed that player payroll accounted for 76 percent of team expenses -- significantly more than MLB, NBA and NFL payrolls, which range from 58 to 65 percent of team revenue.
"We feel like we have a good market here, but the current economic system doesn't work for us," Hurricanes general manager Jim Rutherford said.
Despite its Stanley Cup finals appearance two years ago, the Hurricanes' attendance is down 23 percent, to 12,000 fans per game, after the team's second losing season. If the team didn't play a game next season, Rutherford said it would have about $7 million in expenses that cover the lease on the RBC Center, payroll for the team's scouting department personnel and minor league players, and signing bonuses to drafted players. The team would lose another $13 million if it played next season with an equivalent player payroll, which is presently at about $36 million for this season.
"Perhaps from a financial perspective, it would be better off if we didn't play next year. But the damage to the fan base from our absence would be more far reaching," said Patrick LaForge, Edmonton's president and chief executive officer.
Flames president Ken King echoed LaForge, adding "I've never seen a labor disruption that has benefited any league."
The Kings tried to mitigate the toll labor strife would have on their fans, granting one fan access to the team's books last season. Philip Propper, an accountant, issued a report that put the team's losses at $108 million over seven seasons, from 1995 to 2002.
Since Ted Leonsis bought the Capitals for $85 million in 1999, the team reportedly has lost $110 million over the past five seasons. In an effort to cut costs and to ensure flexibility under a new financial climate, the team shaved its player payroll from $50 million at the start of the season to $42 million at season's end.
"The argument that there would be a significant loss of fan base from not having a season is exaggerated," Rutherford said. "In markets like Detroit, Toronto and Minnesota, fans would line up for miles to see that first game and I don't think it would affect us much either."
Not so fast, Saskin said.
The team officials who claim clubs would be better off not playing next season under the current financial structure are not taking into account the union's latest proposal, made to owners in October, Saskin said. In it, the players offered to scale back salaries by 5 percent, drop the maximum salary allowed to rookies and suggested a more expansive revenue-sharing program than the league's current distribution model.
"If a team like the Carolina Hurricanes took into account the proposal we made, they'd have a much better chance at improving their profitability," Saskin said.
Speaking to reporters in Washington, D.C., last month, NHL commissioner Gary Bettman said he remains hopeful that the two sides can avoid a work stoppage with an agreement that is "a rational and fair relationship between revenues and expenses." Meetings between the players union and ownership are scheduled for April and May.
"I view September of 2004 as an opportunity to go forward," he said. "I'm optimistic. At the right time, the union will want to reason together with us."
In the meantime, employees in the front offices of NHL teams might want to update their résumés -- just in case.
Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.email@example.com