The New CBA: To Sign or not to sign a player...that is the question

Kent Wilson
August 11 2011 09:12AM

 

(Only a few entries left in the Blog-off. Today, Mr.Bader talks about the business side of things)

By Byron Bader**

A debate raging around the league is whether or not you should be signing players now that a new CBA could be in the works after this season or if you should wait it out until everything is settled. I’d see no point in not signing the players for several reasons.

Owners are thinking that they might not want to sign players right now so that if a new CBA is reached, where they’re getting a significant increase in the profits than the 43 ish % that they’re currently receiving, they don’t want to be handcuffed into these huge contracts. But the thing is things won’t change that drastically. The NHLPA has gotten increasingly smarter and better at playing hardball with the league ever since the2004-05 lockout. The players realize now more than ever that they hold a lot of clout because they cannot easily be replaced like employees can in other industries. These are the best hockey players in the world, hands down! I mean the owners can threaten to pull a plot out of an awful Keanu Reeves movie and replace the whole NHL roster with the minor league players. They could and they would see their ticket sales drop tremendously. There’s a reason why AHL rinks aren’t packed to the rafters. They’re great players, don’t get me wrong, but they’re not NHL players ... yet. They’re not the world’s best. The amount of power the NHLPA has in the negotiations is incredible because of their best and brightest stars, essentially the league’s top 5%.

Fans aren’t paying just for a great game of hockey; they want to see the players they read about every day, such as Crosby, Iginla, Ovechkin, Stamkos, etc. The owners might get a little more of a cut if they really play their cards right, an extra 5% maybe, but it might come at the cost of cancelling another season. Is that worth it? Players are still going to want the majority of league revenue because they are the product that drives the entire business; that will always be the case. Also, there are so many “elite” leagues in Europe that will pay any money to pry any NHL caliber player out of the NHL and into their league to give them some credibility. So unlike the olden days where great hockey players just wanted to play hockey for their favorite team and they didn’t care about the money, now every one of them, mostly through their agent, has become a firm negotiator because they know the stock they hold in the NHL’s future. It will never be a situation where the owners get exactly what they want; nowadays it’s a case of the owners having to meet the players at least 70% of the way. They can wait it out as long as they want, cancel a season or two, but eventually the owners will be caving more so than the players.

Furthermore, although contracts are set and owners can’t weasel their way out of one single contract, that’s not to say that league-wide contracts can’t be altered. For instance, when the last CBA was signed in July of 2005, all players agreed to a 24% pay-cut across the board, on salaries that they were already making. So if it actually does come down to a situation where the American debt-crisis cripples the United States, which will ultimately affect Canada’s economy as well, there are loopholes to reduce contracts if the boundaries of the crisis stretch as far as professional sports. It’s also important to note that inflation very rarely ever goes down, especially in extremely developed nations like Canada and the United States. You might see inflation stand still for a few years or only increase slightly but it will never go down, that’s just how economics works. So you’ll never see a case where players start earning less than they would have previously, assuming their skills have remained the same or increased. It just won’t happen. Owners will never be in a situation where they can say “son of bee sting! I could have had that guy for $ 3 million instead of $ 5 million now that the economy is in the crapper, now I’m screwed.” Owners need not worry about that.

Third, owners can’t hold out on signing players because you don’t know what will happen in the future. It creates a problem of loyalty between the player and the team and this is especially the case for the higher caliber players. If there’s an asset out there that most every team wants, there will always be somebody who will sign them, regardless of the situation next year, because they want to have that individual once everything is worked out. You don’t want to be the owner who says “yeah we’re gonna give you your money but once we figure out how everything comes out with the new CBA”. You might like to but you can’t. The player will flip you the proverbial bird and walk to the next team that meets his demands and needs. So to keep your players happy, you have to be loyal to them, regardless of the circumstances of coming years. That means signing them as early as you can.

The fact is the league has done great since the lockout, in large part to the NHL’s award-winning marketing campaign that was set out days after the lockout ended and executed perfectly. Everybody feared that fans would walk away from the game after that … dead wrong! Attendance has increased significantly since the lockout in many arenas. Fans couldn’t wait to snatch up their tickets once the drought was finally over. People who love hockey weren’t going to abandon it when it came back in. It’s something we love and gives us something to do every winter night … “what do you want to do tonight? Let’s watch the game!” It’s something that we can’t wait to get to after working a long hard day at work. All hockey fans want to do after a long day is watch their favorite team. Also, human-beings, as a whole, are incredibly resilient and forgetful of things. While you may have been angered at the players or owners for holding out and cancelling an entire season at time, the common fan is so far removed from those individuals that they couldn’t possibly “take it personal.” They forget that Bryan McCabe said he didn’t want a salary cap because he didn’t want his wages limited because he wanted to be able to “provide for his family” when at the time of the comment he was making over $ 5 million a year, easily a hundred times the average North American’s annual income. You just want to see good hockey again. So I would say owners and teams have to go about their business, sign the players that will help the team in the long-run. For one, you don’t have to pay a player during a lockout so why not, although the ones with the best agents got a significant signing bonus this year to get a lot of that money early in case there is another lockout (e.g., Brad Richards and Christian Ehrhoff). But also you have to sign the players so that when the smoke eventually clears, which it will at some point … it has to, you want to be able to compete and not have to build up your team again.

**While I have a blog (with five entries total), I’ve never written anything to do with hockey. While I have a job, it has nothing to with hockey. But I thought I might as well give it a shot because what’s the worst that could happen … I write an awful article and you commentators bring me to tears, I suppose. I love hockey (never played competitively, just an observer) and everything about it interests me. Not just the game itself, but the business side as well (I’ve read over the main points of the CBA a few times, in my leisure, and haven’t fallen asleep yet). I have no idea why it’s so interesting but I can’t get enough. Hope you enjoyed my initial article and I look forward to your comments.

 

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Former Nations Overlord. Current Fn contributor and curmudgeon For questions, complaints, criticisms, etc contact Kent @ kent.wilson@gmail. Follow him on Twitter here.
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#1 JF
August 11 2011, 09:31AM
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If I can be honest... what I'm looking for in these articules is something that makes me think "hmmm I never looked at it like that before", or something that I feel scratches a bit deeper/more indepth then the ordinary fan commentary you can find all over the interwebs... this didn't do it for me.

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#2 Sincity1976
August 11 2011, 09:51AM
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I don't think you are giving the NHL ownership group enough credit on the leverage they do have. Sure, they do require stars to fill the seats. But we aren't dealing with Lawyers and Doctors with marketable skill sets who can simply jump ship and find another job if the one they are in doesn't meet their terms. The stars need the NHL as much as it needs them. If there is a lockout it turns into a breath holding contest with both sides turning blue.

As for signing players long term with a new pending CBA, it is a factor. Its not THE factor. But its one of many things that management and owners need to consider. Which may contribute, at least in part, to the difficulties in signing Bogosian, Doughty, etc; to Parise getting 1-season, to Stamkos not getting locked in long term; to Weber making it to arbitration and being lowballed by NSH; etc.

What if the cap goes down? What if there are changes to contract structure or cap allocation? What if new terms are introduced that allow teams to get out of a contract? What does that do to contracts already signed?

With half of the NHL teams on sale or recently sold. With the debacle in Phoenix. With the NYI not getting their stadium. With Atlanta moving ... again. With Florida bringing on bloated contracts like Campbell just to make the floor. With a third of the NHL struggling to even make it to the floor. There could be some controversial asks in next seasons CBA.

Paridy is a joke. Stability is a joke. The NHL wants to expand but has to clean up its own back yard first.

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#4 Kevin R
August 11 2011, 10:04AM
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You picked a good topic but the only thing I got out of the whole article is that both players & owners learned lessons from the last lockout & both have reasons to resign with little to bargain. I couldnt disagree with you more. There are many many hot issues. The fact one team had to be moved & the financial health of other franchises has to be a huge concern to players. There are teams that struggle to make the cap minimum & others including our Flames that actual payroll way exceeds the cap hit. In the last year we have seen the amortized front loaded contracts get so creative that it's a huge loop hole to circumvent the Cap & get us back to the days of pre lockout. The amount of marginal players whose actual salary is way lower than the cap hit becoming valuable commodities is a sign of the dysfunction of the CBA. The UFA & RFA rules need some revision just like the US tax act congress is struggling with. There are lots of contentious issues that can derail this CBA next year in a time when the US could be going through a double dip reccession. Good topic but you missed too many things.

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#6 Domebeers.com
August 11 2011, 10:46AM
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I like the fact that you are talking about the CBA ending, but I would have like to see a different angle. Like, are the Flames smart to hold the fort this season when looking ahead to the expiring CBA, or something like that. Or 'This is what I would like to see in the new CBA'. Or, 'These are the issues I see with the current CBA that I would like to see changed."

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#7 FireOnIce
August 11 2011, 11:09AM
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An interesting team to note when discussing the CBA are the Colorado Avalanche. They only have 6 players signed in 2012-2013 (and 8 RFAs) and of those 6, only 3 are signed beyond 12-13. They are also $2.8M under the cap floor.

It seems that Kroenke is of the "wait and see what happens" mindset, probably thinking that if he signs any players to a big contract, the new CBA might somehow turn those contracts against him in a negative fashion. Islanders are in a similar boat.

These two teams have so much in common it's actually quite scary - more than $2M from the cap floor, very small amount of players signed in 2012-2013 and beyond, and they're both terrible teams. Coincidence? Garth Snow and Stan Kroenke must be smoking the same crack and reaching the same mentally paranoid state.

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#9 mslepp
August 11 2011, 11:48AM
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I have a huge problem with the current CBA; not necessarily how it divvies out the cash though. Only that one of the "reasons" for the lockout was to keep season ticket prices in check. But, there's nothing in the CBA to actually moderate this.

So, the cap went way up year one (because it was set far too low) and as the cap goes up, so do season ticket prices around the league. This allows the owners to continue making the same amount of money (as a collective) which then triggers the increase in the cap (again) which is eventually followed by an increase in ticket prices. It's a never-ending bottomless pit for ST holders.

The Flames, thankfully, haven't raised their ticket prices in several years. Probably due to lack of demand (missing playoffs 2 seasons in a row). But, they can afford not to raise ticket prices because in the first THREE years after the lockout, they raised their prices by 35%.

As a ST holder, that's something that I'd love to see addressed.

There I go, burning one of my blog ideas in the comments section!

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#11 FireOnIce
August 11 2011, 12:12PM
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The whole supply/demand premise for ticket price setting is sort of BS. I currently live in Denver and they have done just god awfully the last couple seasons and ticket prices are still sky high.

They finished last and ticket prices for glass level seats were & still are ~$250. Granted cheap seats right next to the roof are $15, but when I go to games, there is usually a sparse population of people in the lower levels (in non-sponsor seating). Except for Red Wings games, or when Washington+Pittsburgh come to town. These people need to suckling at the legacy teet of Forsberg and Sakic and get with the times.

However, it makes sense that as the cap goes up and player salaries sky rocket (Shea Weber anyone?), ticket prices will also increase. How else do teams make money to pay for their bloated contracts? People can only drink so much beer at games, especially when people like me drink before.

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#13 Tach
August 11 2011, 01:34PM
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Kent,

I think you are pretty close on characterizing the market for NHL entertainment. The problem on the ticket pricing front is that both the players and the owners are in relatively small, well organized oligopolies (or local monopolies).

The fans, being more disparate and disorganized cannot effectively leverage their position to reduce ticket prices to competitive market levels.

Unless you think watching hockey is perfectly substitutable with other forms of entertainment. That might be the case in some markets, but I think it would not hold in Canadian markets. I think demand here is very inelastic.

That is why I find the pro sports labour fights so disheartening. It is essentially the capital and labour haggling over how to distribute the money they extort from fans.

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#14 RexLibris
August 11 2011, 01:34PM
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There are some reports that I've read that have said that should the NHL and PA not reach an agreement by the deadline (Sept 15, 2012) that there exists in the current CBA an agreement to grandfather in the current CBA while a new one is worked out as a way of preventing another work stoppage.

To Fire: I don't recall any mention in the media here about ticket prices being a focal point of the previous labour negotiations, but then I have noticed that the media and team in any given NHL or Canadian city promoted the facets of the labour negotiations that were deemed more important to that audience. That's why here the focus was put on financial stability and cost control so that small market teams could compete with the Detroits and New Yorks. While that angle of cost control wasn't mentioned as often in places like Toronto. So, ticket prices may have been brought up by Calgary media but it would not have been an issue in negotiations because frankly I don't think the PA gives a damn what the ticket prices are (except when their friends and family ask for seats).

Personally some changes I'd like to see in the next CBA are an increase in the number of contracts a team can hold to 52, a small increase in the number of games required before waiver-eligibility kicks in, a maximum-length of contract term, a lowering of the cap-floor, and a change that could see CHL prospects who have played a certain number of games in the W, Q, or OHL be eligible to play in the AHL in order to better tailor theirevelopment to their needs. I'd also like some addressment to compensatory picks for prospects who don't sign (call it the Erixon rule). Instead of a mid 2nd rounder, how about a mid 2nd rounder and a mid 4th rounder. Not much, but it wouldn't be fair to other teams if they got punished for someone else's draft pick no-show.

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#15 Vintage Flame
August 11 2011, 01:52PM
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"Owners are thinking that they might not want to sign players right now so that if a new CBA is reached, where they’re getting a significant increase in the profits than the 43 ish % that they’re currently receiving, they don’t want to be handcuffed into these huge contracts."

I don't agree with your comment here. We are still seeing players signed to ridiculously long terms. See Laich & Leino [6 yrs], Bryzgalov [9 yrs], Erhoff [10yrs], Richards [9 yrs]... and the list goes on with a ton in the 5 year term.

I also strongly disagree with your notion that the lock-out benefited the players over the owners. Not sure where you get this idea but look at it this way. An NHL player has one job, to play hockey. If he is locked out or on strike, his wallet is being damaged a hell of a lot more than the owners. People or corporations that own sports franchises aren't in it to "make" money. Many owners actually lose money owning sports teams. Where they "make money" is in the ventures and companies they own that gave them the cash to buy said sports team in the first place.

As for the quality of leagues in Europe. I have to disagree there as well. The pro leagues in Europe don't even hold a candle to the NHL. Even the KHL, that started throwing bags of money to lure over NHL players is a joke of a league and has become a place where NHL careers go to die. Any player choosing the KHL over the NHL isn't doing it for the love of mother country or quality of the league, they are doing it for money, and usually come to regret it when they find all the strings attached to their large paychecks.. Yes I mean the Russian mob.

If there was another lock out, I have little doubt that NHL owners would take a serious look at replacement players this time around. It would drive home a distinct message to the players as to who OWNS the teams, and who PLAYS for the teams. What would be the fans reaction? The fans want to see hockey games and not listen to a bunch of millionaires fighting with billionaires about millions of dollars! [See NFL dispute] Fans will turn on players quickly and if the owners can provide a product despite what the public will view as whining players, they will come off as the good guys.

It sounds to me that at the end of your article that teams, or owners rather, should have a CBA-be-damned attitude when it comes to signing players to contracts. Yet I fail to see any concrete evidence in the article or in the league that Owners have been saying that, "We would like to sign so-and-so for this long but we want to see how the new CBA pans out." To the contrary, they are signing these long absurd contracts and by-passing the CBA by front loading them and by the last few years, the player is basically making cab fair to go home. Good thing for Patrick Kane, he just beats up the cabbie so he saves some money there... Ohh HAD to say it!

Interesting topic for sure Byron.. Would have liked to have seen it from a different angle though. Good job.

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#16 Vintage Flame
August 11 2011, 01:54PM
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@RexLibris

"There are some reports that I've read that have said that should the NHL and PA not reach an agreement by the deadline (Sept 15, 2012) that there exists in the current CBA an agreement to grandfather in the current CBA while a new one is worked out as a way of preventing another work stoppage."

I've heard that as well Rex..

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#17 RexLibris
August 11 2011, 03:04PM
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I think the Swedish Eite League, can be good for development and procurement and in some cases offers a comparable level of talent to the AHL. Which would also put them on a competitive par with my Oilers some nights and the Islanders on most.

If I had to pick a possible point of weakness or division amongst the owners I would say that the proverbial battle lines will be redrawn this time around with the Canadian teams and some American teams all wanting more or less the status quo while teams like Nashville, Dallas, Colorado, Columbus, and the Floridas will want some changes to ensure their owners can continue to afford to operate. Last time around it was the Canadian teams (and many small-market US teams I've mentioned) crying for change. Funny that Colorado and Dallas, who were poster boys for running up salaries and poaching talent from smaller teams are now in the opposite position. I think the league will try to lower the mandatory operating costs (ie: cap floor) in order to, at the very least, divest themselves of the Phoenix franchise and find an owner who can afford to operate there.

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#18 mslepp
August 11 2011, 03:09PM
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@Kent Wilson

"That was an utterly false premise propagated by some during the lock-out. Ticket prices are moderated by supply and demand in each market - teams charge what the market can bear."

haha, c'mon Kent. It's not always so black and white. Maybe it was my poorly worded statement, but the NHL (Gary Bettman) did promise that the return of the NHL from the lockout would mean lower ticket prices and that's what I was trying to address.

So are you completely dismissing my comment or just addressing the one statement? Do you believe there is no correlation between ticket prices and the salary cap? Am I wrong to be critical of the rise of my season ticket prices? I'm not being facetious here, I'm just curious what you think about that.

And, maybe Bettman was directing that to the the US. But, it seems to me that there is correlation between the major, revenue-generating markets, and the salary cap. It's not that interest has suddenly picked up in the US, outside of Chicago.

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#19 Shutout
August 11 2011, 03:13PM
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I think that the biggest debate in the next CBA is going to center around revenue and how to share it. While the current system needs to be tweeked in terms of loopholes like long term average deals for the most part it is working the way the NHL wanted when it shut down the league. The players are not getting anything more than their percentage, and if player A is getting more than it comes out of player B's pocket.

The problem is that the floor is now higher than the cap ceiling coming out of the lockout. There are a half a dozen teams that have no chance of breaking even without a salary cap floor. And these teams are now being asked to lose millions just to hit this number. The system works well for the teams that are at the top third in earning revenue.

For a team like Calgary that is a small loss or breakeven without making the playoffs, the system is wonderful. But with the current economy for every Toronto, Montreal, Calgary, NY Rangers, Boston, or Chicago there is a Florida, NY Islanders, Dallas, Nashville, Tampa Bay, or Phoenix. Cities where hockey is a fringe entertainment and owners have to dump millions in to sustain.

The next CBA either needs to address contraction, or needs to improve revenue sharing because the problem is the owners dealing with each other, more than it is owners dealing with the players.

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#20 RexLibris
August 11 2011, 04:03PM
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Agreed.

My biggest concern is that the owners will have been lulled into a sense of comfort and that Mr. Fehr is going to try and take them to the cleaners.

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#21 Kevin R
August 11 2011, 06:53PM
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Shutout wrote:

I think that the biggest debate in the next CBA is going to center around revenue and how to share it. While the current system needs to be tweeked in terms of loopholes like long term average deals for the most part it is working the way the NHL wanted when it shut down the league. The players are not getting anything more than their percentage, and if player A is getting more than it comes out of player B's pocket.

The problem is that the floor is now higher than the cap ceiling coming out of the lockout. There are a half a dozen teams that have no chance of breaking even without a salary cap floor. And these teams are now being asked to lose millions just to hit this number. The system works well for the teams that are at the top third in earning revenue.

For a team like Calgary that is a small loss or breakeven without making the playoffs, the system is wonderful. But with the current economy for every Toronto, Montreal, Calgary, NY Rangers, Boston, or Chicago there is a Florida, NY Islanders, Dallas, Nashville, Tampa Bay, or Phoenix. Cities where hockey is a fringe entertainment and owners have to dump millions in to sustain.

The next CBA either needs to address contraction, or needs to improve revenue sharing because the problem is the owners dealing with each other, more than it is owners dealing with the players.

Totally agree & I think we are going to see a split in the owners on some issues. I would be utterly amazed if there arent rules set up to address the type of bonus/front loading contracts like Erhoff & Richards to manipulate cap hits. Fehr & the PA will fight any such changes cause it's the best of both worlds for the top 5% franchise players that is trickling down to the likes Erhoff & look at Stajans contract. When has that kid ever deserved 4.5mill paid out to him in a year. The next CBA is anything but a walk in the park and cant imagine a grandfather of the existing by some of the have nots in the league. Maybe thats the solution, contraction, and make sure the teams left have the ability to spend up to 90% of the cap & sprinkle some ground rules like no more than 120% of the cap hit can be paid in actual dollars to a player in both combined salary & bonus in a single year.

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#22 Sincity1976
August 11 2011, 08:26PM
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@Kevin R

I think the simple and fair solution is to apply the cap hit for the value of the contract in that specific season.

I am not sure how that would work for existing contracts. They would likely have to grandfather them in to avoid putting some teams over the cap, and awarding other teams for previously front loaded contracts.

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