April 4, 2012
As Easy As CBA
Divide And Conquer

by Ryan Schwepfinger

While the hockey world is preparing for the Stanley Cup Playoffs, one impending date may loom larger than the hoisting of the Cup. That date is September 15, 2012, when the Collective Bargaining Agreement will expire. The current CBA has governed a period of unquestionable growth for the NHL, but it is clear that changes will happen, with most speculation centered on the players' share of hockey-related revenue (HRR).

The current CBA called for 54% of HRR to go to the players in 2005-06, with several levels of escalation, culminating with 57% to the players should HRR exceed $2.7 billion, a level the NHL is well clear of. Revenues are projected to hit $3.2 billion this year, and with boons such as the recently signed U.S. media rights deal with NBC, that growth is not expected to slow.

The players will frown upon any decrease of their share, citing the concessions they made in 2005, when each player accepted a 24% salary rollback (decreasing their share from what was estimated to be as high as 75%). The owners will point to the precedent set by the new NFL (47%) and NBA (51.2%) agreements, which is the most apparent argument for reform. However, a more logical business reason is the continued non-viability of several small-market franchises. The payroll range midpoint is directly calculated based on HRR from the previous season and the players' share percentage. The upper and lower limits are $8 million above and below this midpoint, respectively. Small-market teams cannot keep up under the current system if the floor continues to increase, which it will if revenues continue to grow.

Under the current 57% system, if the $3.2 billion projection is accurate, next year's cap would increase to about $69 million, with a floor of $53 million. Only nine teams have $53 million of player contracts on their NHL roster signed for next season, meaning 21 would be below the floor on July 1. Assuming that each club would add $5 million of cap hits from within (by promoting prospects on currently-signed entry-level deals to the NHL) that would push one more team above the floor, meaning 20 teams would be below it on July 1, with six needing to add at least $10 million in 2012-13 cap hits to become cap-compliant.

Why is this a problem? What we saw last July 1 from the Panthers would become a summer regularity for multiple teams. Rebuilding plans would be altered due to forced, imprudent spending. Players would have the leverage, because they know that teams would have to spend. Contracts like the one Florida gave to Ed Jovanovski would become the norm: no veteran would have an incentive to take a one- or two-year offer when he could insist on a longer deal, knowing that some team would cave to get over the floor. The more teams in this "forced-spend" scenario, the stronger this effect becomes, and the more illogical the contracts get.

Lowering the players' share to 52 percent next season, assuming HRR of $3.2 billion, would keep the cap around $64 million, and the floor around $48 million. If we again assume $5 million of cap hits added from within, now only 13 teams would be under the floor on July 1, with only two needing to spend at least $10 million. One is Nashville, which has Ryan Suter (UFA) and Shea Weber (RFA) expiring. The other is Colorado, which has Matt Duchene, Erik Johnson, Ryan O'Reilly, and Peter Mueller all entering RFA, among others. These are two teams who will be eager to spend at least $10 million to retain these players—their own. This is a desired competitive situation, one much more viable for these franchises than the outside spending spree of the Panthers.

Another reason that small market teams are currently being squeezed is the ineffectiveness of the NHL's revenue sharing. The current model does not work for several reasons. First of all, it prohibits teams in markets over 2.5 million households from receiving revenue sharing, assuming that teams such as the Ducks, Stars, and Islanders do not need help because of enhanced local media rights opportunities.

These three teams are currently in the bottom 12 of team payrolls, with Dallas ranking 28th and the Islanders last. They cannot receive revenue sharing under the current CBA, outside of possible escrow overage distribution.

Secondly, starting in 2007-08, the CBA began to restrict the shares of certain teams, providing full shares to only those bottom-15 revenue teams who show revenue growth numerically greater than the league's, while maintaining attendance of at least 13,125 per game (that number jumped to 14,000 in 2008-09). The attendance provision alone would have limited the shares of Columbus, Atlanta/Winnipeg, Phoenix, and the already-excluded Islanders last year, with the revenue provision surely damaging teams such as Carolina and Florida.

The logic was that poor-performing teams had two years of no restrictions to receive maximum shares, which if spent wisely, should have boosted them above these target numbers. It is unrealistic to expect teams such as Columbus and Phoenix to show revenue growth in excess of the extreme league-wide growth of the past few years, and in fact those are two teams confirmed to have lost money over that time. Poor revenue sharing surely partially contributed to the demise of the Thrashers as well.

It is incredibly counterintuitive to restrict or eliminate the shares of the teams who need it most, and that will be changed in the next CBA, as will the players' share of HRR. I do agree that, from a player's perspective, it seems unfair to decrease the players' share if the league's revenues continue to increase this dramatically. However, if that share is too high, or if the system of revenue sharing among teams is broken, small market teams are in a constraint that forces them to pay salaries they increasingly cannot afford, without receiving adequate help from their large market brethren. Something has to give, and it is likely that both the players' share and team-to-team revenue sharing will be high on the agenda. These issues will shape the give-and-take that will define the financial system of the NHL for years to come.

Oilers get insult, Rangers get injury

Fans were familiarized with the American Hockey League's "clear day" rule last week when Magnus Paajarvi was deemed ineligible for recall. In order for any player to be named to an AHL playoff roster, he must be on the AHL roster at the NHL trade deadline. To ensure Paajarvi could play in the playoffs for the Oklahoma City Barons, Edmonton sent him down on February 27 before the 3 pm deadline, and recalled him immediately after 3 pm. Of course, this counted as one of their four CBA-permitted post-deadline recalls, and his recall last week was rejected after the Oilers had also recalled Linus Omark, Teemu Hartikainen, and Chris VandeVelde in the interim.

Oddly, the Oilers would have saved themselves this embarrassment had Paajarvi been injured. The CBA states that injured players who are waiver-exempt cannot be sent down. Thus, the Oilers could not have sent Paajarvi down on 2/27 had he been hurt. This happened to the New York Rangers this year, who had been carrying Chad Kolarik on their NHL injured reserve all season after he tore his ACL in preseason. Despite being close to healthy, he was not off IR on 2/27, and thus not allowed to be sent down and named to the Connecticut Whale clear day roster. The same situation stopped Eric Tangradi and Nick Johnson from participating in Wilkes-Barre/Scranton's playoffs last season.

The "Sidney Crosby loophole"

A yet-to-be-exploited loophole exists in the CBA that Pittsburgh could have theoretically utilized this season. It combines two well-known rules: cap relief granted for players on long-term injured reserve and lack of salary cap in the playoffs.

Had Pittsburgh chosen, they could have cautiously held Sidney Crosby on LTIR through the end of the regular season, loaded up at the trade deadline using the cap relief that would have provided, and waited to activate him until day one of the playoffs. The regular season relief would have been enough to afford a deadline acquisition of Rick Nash without giving up any roster players.

This loophole, while interesting, is not realistic. It would really only work if the team using it acquires players who are impending free agents, and it would require sacrificing a large amount of draft picks/prospects for a one-time chance at the Cup, probably enough to dissuade any team from considering it (unless a general manager was on an extremely hot seat). However, teams can utilize this main idea in smaller ways, such as Vancouver's plans to call up Steven Reinprecht in the playoffs, while activating Keith Ballard and Aaron Volpatti from LTIR.