Labor war looming in the NHL?
At some point this season, the focus will shift from Sheriff Shanny's frontier justice to the boardrooms in New York and Toronto, where hockey's next financial puzzle will take shape.
We know some of you already have stopped reading. But you can't ignore the fact that the collective bargaining agreement enters its seventh and final season, expiring Sept. 15, 2012, at midnight ET.
Hockey fans can only hope Sept. 16 comes and goes without a lockout triggered.
On the surface, judging from recent conversations, we sense the desire to get a deal done -- both the NHL and the NHL Players' Association want to avoid a work stoppage. That sentiment really derives from the fact that the industry, in which the players get a piece of the pie, has expanded nearly 50 percent since the current CBA began in 2005 ($2.1 billion in revenues in 2005-06 to $3 billion today).
Neither side truly wants to slow down that kind of business momentum. Having said that, there are serious issues to be resolved on both sides, and there could be enough push-back on some of these key issues to threaten at least the start of camps next season.
It's expected CBA talks won't begin until after the All-Star break, NHLPA executive director Don Fehr told ESPN.com in early September. That will give Fehr time to continue to meet with players on all 30 teams on the fall tour he's already begun. He needs to hear from the players firsthand to get a feel for which issues they're really willing to fight for and, just as importantly, to educate them on what all the issues are.
Oh yeah. Fehr. You've heard that name before. The longtime baseball union head enters his first round of hockey labor talks. The players have a veteran union boss protecting their interests, and because of that, they likely won't get bullied into massive givebacks -- especially considering the overall feeling of concessions they made last time with the advent of the NHL's first salary cap.
Right now, neither Fehr nor NHL commissioner Gary Bettman is making any waves in the public domain on the CBA front. It's still too early.
"Since the CBA doesn't expire until after this season and the players' association has said it will not be ready to focus on collective bargaining until after the All-Star Game, at this time, we would prefer to devote our energies and attention to opening another terrific season,'' Bettman told ESPN.com on Monday.
A look at what should be some key points of contention when those talks do begin:
• The piece of the pie: The NFL's recent labor deal saw players clawed back to 47 percent of the revenue. And there are those who believe the NBA players will be backed up close to, and perhaps to less than, 50 percent as well once that labor deal is eventually done. The NHL is paying close attention while trying not to outwardly drool. In the current deal, the players will get 57 percent of the pie this year. The league, one would guess, will cite the NFL and NBA as examples to try to lower that percentage. The players in turn will fight mighty hard against it. After all, they gave up the big one six years ago in the salary cap. Either way, the percentage of the pie is likely where the biggest battle will ensue. The lower the percentage to the players, the lower the salary cap will be -- hence lower salaries.
• Salary rollback: Last time around, the players accepted a 24 percent salary rollback on existing contracts. The league might fight for this again as a measure to enact its other scale-back mechanisms. The players, of course, will have a lot to say in that. But what's telling is how some players' agents are banking on it by the way they've chased front-loaded contracts over the past two years to ensure they get as much money as possible before this CBA expires. For example, Brad Richards will get $20 million of his new deal before the CBA expires in September. Christian Ehrhoff will earn $15 million in the first 12 months of his deal. The list goes on. The fact that the players and agents have pushed so hard to get their money up front in recent contract suggests they know what might be coming.
• Flatter contracts: Speaking of those front-loaded deals, those have angered some middle- to small-market clubs that feel they're at a competitive disadvantage because they can't shell out that kind of cash up front. We believe the league will try to address this in the next CBA by trying to institute some form of "flat contract" concept, in which the salary is more or less spread evenly across a contract, at least within a more reasonable range in any case. This will nullify front-loaded deals but also put an end to those "cheat deals" such as the contracts signed by Roberto Luongo and Marian Hossa, in which the final years on the deals are pennies in order to bring down the yearly cap hit. The players in turn were not expected to actually play out those final seasons. The "flat contract" concept would take care of these loopholes. But again, the players have a big say in this. They enjoy the benefits of front-loaded contracts for obvious reasons -- such as cash in their pockets right now.
• Cash over cap: In addition to some teams' ire over front-loaded deals and "cheat deals," some of those middle- to small-markets clubs are on the war path when it comes to "cash over cap." Wade Redden is earning $6.5 million in the AHL and Cristobal Huet is making $5.625 million in Europe, and does not count against the salary caps of the Rangers and Blackhawks, respectively.
Many NHL teams want the hammer to come down on the "cash over cap'' problem. In other words, the salary cap is too soft, some teams believe. And though big-market teams enjoy having that competitive advantage, we suppose the league will try to convince them that "hardening" the cap remains in their interest, since it will improve their bottom line by shelling out less money to players. Either way, this is where some of the internal debate among owners will be fascinating to follow. Bettman's challenge here is to find a solution that appeases the majority. Some big clubs might not want to lose that competitive advantage over middle- and small-market clubs.
The "cash over cap'' loophole is three-fold: (1) being able to assign contracts off the cap by sending players to minors or Europe; (2) using the long-term injury reserve system to its fullest; (3) front-loading contracts or cheat deals to manipulate the yearly cap hit. It's estimated, for example, that the Philadelphia Flyers have used all three loopholes to put themselves $40 million to $50 million "cash over cap'' over the past six years. There's a big group of teams that want to minimize that advantage, and tighten the cap and the system. Again, just why would the players want to tighten the cap? The softer the better for them.
• Revenue sharing: One of Fehr's legacies in baseball, where he was union chief before coming over to hockey, was his role in getting owners to agree to meaningful revenue sharing. It's almost a slam dunk that Fehr will push for this again in these CBA talks. The NHL feels pretty good about its current revenue-sharing system, citing its being three times what the NBA's is. But Fehr likely will say it falls way short of baseball and will push for NHL owners to share more of their revenues. As it currently stands, the bottom 15 teams in the NHL qualify for revenue sharing. For this season, revenue shares will vary from about $18 million to $19 million at the top to as little as $1 million at the bottom. This issue has the potential to be eminently contentious, given how Fehr believes more meaningful revenue sharing helped stabilize baseball. The theory is that more revenue sharing puts more money in the pockets of smaller-market teams, who in turn spend some of that money on players.
• Second contract: This has become a big issue among GMs. The trend over this current CBA has seen young players jump from entry-level, three-year deals to monster, lucrative second contracts. GMs with whom we've spoken say the genesis of the issue has liberalized unrestricted free agency. Under the terms of this CBA, players can be UFA at 27 years old, or even younger if they've had seven years of service. For example, Jeff Skinner would qualify for UFA status at the age of 25 because he was an 18-year-old NHL rookie. What's transpired over the course of this CBA is that the cost of buying potential UFA seasons from the players when negotiating long-term deals out of their entry-level contracts has skyrocketed because those UFA years are clearly valuable. Hence, Drew Doughty goes from entry level to $7 million a year. Voila. The answer, some GMs will tell you, is to bring the UFA age back to 29 or 30 years old. This would make the second contract less expensive to settle if UFA years aren't involved. If you're the players, this is a total no-go. Why the heck would they give up the ground they gained last time around in liberalizing free agency? It helped drive up salaries. This would be a huge giveback.
• Fixed system: Not surprisingly, most clubs are unhappy with how the cap has jumped over seven years from $39 million in 2005-06 to $64.3 million this season. Some clubs are struggling just to get to the payroll floor ($48.3 million this season), never mind keep pace with the cap. Too many clubs insist they're losing money. They want the system fixed again. Yes, there are flaws in the system that have to contributed to this, of course. But a major factor was the Canadian dollar. On its own, the rise of the Canadian dollar during the term of this CBA had a completely unforeseen, inflationary impact on the salary cap. With six Canadian teams in the first six years of this CBA accounting for 25 percent to 30 percent of total league-wide revenues, you can see how a Canadian dollar at par -- over the past year mostly above the U.S. dollar -- would wreak havoc with the NHL system. Now with a seventh Canadian team in Winnipeg, where every game is sold out to oblivion, the issue is exacerbated. Obviously the currency issue will be discussed in the next CBA talks. The players won't complain about the Canadian dollar, that's for sure. By having the Canadian dollar help push the salary cap up, the average player salary has grown from $1.5 million the first year of this system to $2.3 million today.
• Escrow issue: Of course, the players don't always get 100 percent of their negotiated contracts because of the dreaded escrow. This is the most pressing issue for the NHLPA entering these talks. Players want to earn 100 percent of the contracts they sign; they're tired of losing some of the money to escrow. The league, we believe, will be willing to play ball here because it will be a key bargaining chip for it. But somehow, in the end, some form of device still has to exist to ensure players don't earn more than their agreed share of the revenue pie.
• NHL discipline: The union wants a bigger say in how suspensions are handed out. But more paramount is the fact that Bettman is the arbitrator for any kind of suspension appeal, a fact the union can't reconcile with what it feels is proper justice. The NHLPA will be trying to change that in the next CBA.
• Going for gold: And, of course, there's the Olympics, in which participation is a CBA-negotiated item. The league and its owners don't really want to go, but the growing feeling is that they've resigned themselves to the fact that they'll have to. The players wholeheartedly want to go to Sochi 2014, but they don't view this as a giveback from owners in CBA talks. Like most fans, they view it as the right thing to do for the game.
Having fun yet?
Be ready for more. The CBA is a topic that will gather much media attention as the months roll along toward Sept. 15. Will Fehr and Bettman avoid a labor war? That's our sense right now. But things can change with one meeting.
Pierre LeBrun covers the NHL for ESPN.com.
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