Naylor: Key to ending lockout is helping small market teams

Dave Naylor
9/19/2012 9:46:30 AM
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It's widely recognized that the circumstances and issues surrounding the current NHL lockout are much different than those that caused the National Hockey League's shutdown in 2004.
Back then, it was all about owners trying to institute a salary cap and this time, it's all about how the owners and players should split up the league's swelling revenues.

Back then it was ideological.

This time it's about 'fairness' - a word both sides use liberally.

Yet the most important dynamic in the economics of hockey remains the very same as it was eight years ago: the enormous disparity between the NHL's wealthiest teams and its not-so-wealthy.
And it is that dynamic which is again responsible for the NHL going dark.

First, here's a short review of recent history.
Eight years ago, a collection of teams in big American markets - and Toronto - were driving up the NHL's salary scale and creating a ripple effect across the league that made it difficult for smaller market teams to remain economically viable.

The NHL was so bent on curbing runaway salaries that it sacrificed an entire season to get a salary cap, one that – at the league's demand – was tied to overall league revenues.

In other words, the league guaranteed itself that salaries could only increase in relation to overall league revenues - which certainly sounded like a fool-proof idea at the time.

The cap leveled the playing field across the National Hockey League and allowed teams such as the Toronto Maple Leafs, Detroit Red Wings, Philadelphia Flyers, Boston Bruins and New York Rangers to pocket millions of dollars by slashing their payrolls to get under the cap - which began at $39 million in 2005-06.
Suddenly swimming in money they used to spend on player salaries, the big market teams agreed to direct a portion of their substantial savings towards revenue sharing that subsidized their competitors in weaker markets.
So with all those good ideas put into action, how did we get back to the very same spot eight years later?

You can start with the impact of a strong Canadian dollar.

When the last lockout began in 2004, the Canadian dollar was worth about 77 cents U.S. and had hovered in the low 60s just a year earlier.
By 2007, however, a little more than two years into the new collective agreement, the Loonie had soared past parity, where it remains to this very day.

The impact of six strong Canadian franchises all taking in dollars for par has had a dramatic impact on league revenues in the post-lockout era.  Replacing the low-revenue Atlanta Thrashers last season with the re-born Winnipeg Jets only added to this dynamic.
Over the same period, the NHL has improved its lot in many of its key American markets such as Los Angeles, Boston, Chicago, Pittsburgh and Washington with revenue growth in those cities outpacing that in the NHL's weaker American markets.

All of these factors boosted overall league revenues. And as revenues have climbed, so has the salary cap, which was set at $70.2 million for the 2012-13 season with a floor - or minimum - of $54.2 million.

So where does that leave the dozen or so U.S. teams where growth hasn't kept up with that in Canada or the stronger U.S. markets?

Well, that's where the NHL's need to fix the current system comes in.

The NHL says many of its teams are losing money, which can only mean those teams don't take in enough to pay their players and that there isn't enough revenue sharing in the system to make up for the shortfalls.
So, just as the lockout the last time around was about the NHL trying to cut costs for the wealthiest teams so they would subsidize the league's weaker sisters, it is about that very same thing again.
And just as it did in 2004, the NHL is asking its players to reduce their share of league revenues in order to accomplish that.
And this is where the players are digging in.

The NHL and its wealthier franchises certainly have a responsibility to support those teams in weaker markets, especially since those teams were born of the league's own vision for expanding the game.
The players, meanwhile, have also benefited from that vision by virtue of there being so many more teams and thus jobs to employ them.
There are two groups of people that have done very well in the NHL's current economic system over the past seven seasons. There's the players, whose average salary is now at $2.4 million. And there's the upper tier of NHL owners who've pocketed tens of millions of dollars that otherwise would have gone to players.

The key to ending this lockout is determining how much each of those two groups is willing to contribute to the cause of teams that can't make it on their own.

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