Employees

There’s an idea floating around that the NHLPA has lost its grasp on exactly what its constituents are. It works something like this: owners are owners, employees are employees, and the latter have no right to be dictating to the former what share of company revenue they deserve.

I suspect it’s an idea born of frustration with the NHL lockout, and an apples-to-oranges comparison between employment as a professional hockey player and employment in a more blue-collar job. In that sense it’s understandable. It’s wrong, but it’s understandable.

A Brief Look At The History of Hockey-Related Revenue

In a September interview – right before explaining that the NHL is the ranch that allows the player-cattle to feed – Detroit executive Jim Devellano explained why there’s a salary cap in the first place:

Each owner / team has a decision as to how they want to pay their players, as long as they are under the cap. Now Donald Fehr would have you believe by getting rid of the cap, the owners would make more money and that the sky is the limit, but trust me Scott, the owners would lose their asses. We’ve tried that. It doesn’t work. There is just too much cost involved in running and owning a team.

Devellano is right. He goes on to say that this is “very complicated and way too much for the average Joe to understand,” but there he’s wrong. It’s actually very simple. Even in a system with drags on player salary – items like an entry-level cap and restricted free agency – owners spent more money than they could afford. There are, as I see it, two reasons why they spent so stupidly:

1. Many weren’t treating teams like businesses. Owners, just like fans, like to win. Players were not treated like financial investments and paid commensurate to the value they brought to the business; instead, they were paid whatever it took to get them because a $10 million deficit fades but Stanley Cup rings are forever. Or something like that.

2. There were slight competitive imbalances. In 2003-04, the last year before the lockout, teams like New York and Detroit would each spend as much as three teams at the league’s bottom tier. While the Rangers were sort of funny (seven consecutive years without a playoff appearance, heading into the 2004-05 lockout), the overall effect on player salaries made it impossible for small market teams to compete. It also made it very, very difficult for them to ice any kind of team without bleeding red ink.

The NHL’s solution to both problems was the salary cap. Now, big-money teams are in a system where – barring an obscene waste of money on hockey operations staff – they can’t possibly lose money. They have cost certainty. No matter how much money they make, they’re only allowed to spend a percentage of it – based on league-wide hockey-related revenue – on players.

The NHL fought hard for this. “Cost certainty” was the buzzword in 2004-05: they wanted a salary cap, and they wanted it linked to revenue.

The Problem With The Ranch/Cattle, Employer/Employee Dynamic

The primary issue saying something like ‘the players are employees and have no right to bargain for a percentage of revenue’ is this: the NHL is not a regular workplace. There’s an artificial structure in place – a structure that includes not just the salary cap but also things like the entry draft and free agency. It’s a structure that in most businesses would be illegal.

Let’s go to the implicit apples-to-oranges comparison to show how crazy this is. Imagine a tradesman, fresh off completing his interprovincial exam in Edmonton. This is roughly analogous to the situation of a hockey player coming out of Europe/major junior/college hockey. Instead of going out and finding a job, all of the companies in his line of work have formed a league. He’s picked by a company in Whitehorse – they’ve been struggling lately, so they earned the right to pick first in the annual electrician’s draft, and they like his grades in school and his practical experience with PLC’s.

After eight years, or by age 26, if he doesn’t like Whitehorse he can sign as a free agent with a team in Alberta.

It’s ridiculous, but that’s just because the comparison is ridiculous. NHL teams have rights that other companies don’t get, and they only have them because of the existence of the NHLPA and collective bargaining.

If the NHLPA ceased to exist, owners would get some things that they would like. Guaranteed contracts would come to an end, for example. But they would also lose their ability to dictate the course of an NHL player’s career – and as a group, there would be no way to artificially cap salaries at a certain percentage of revenue.

That would mean a return to the old days – where any billionaire who wanted a Stanley Cup ring could spend as much money as he liked in his efforts to get one. That would lead to all sorts of problems – in the current climate, it would kill teams like Florida; in the climate of a decade ago it would re-kill Winnipeg.

But players make too much money…

There’s a reason players make too much money: people spend too much money on the NHL.

As long as individuals are willing to pay extremely high prices for tickets, the NHL will charge them. As long as companies are willing to fork over cash for a luxury box, teams will build arenas with a plethora of luxury boxes and charge the money. As long as governments are willing to subsidize big new arenas and then offer favourable rent agreements and even subsidies, NHL teams will suck that money up.

As we’ve seen, without a salary cap, rich men will spend all that money and more in a quest to win. The NHL is limited in terms of how hard that salary cap can be: once they reach a certain point, the NHLPA membership will decide they’re better off sacrificing guaranteed contracts and just taking the money these guys will spend in a free market system. The league’s interest is in pushing the cap as low as they can without bringing that about.

And if fans don’t like to see hockey players both treated and paid like rock stars, there’s an easy way around it: stop spending money on tickets and TV packages. Vote against governments that spend money subsidizing professional sports. The only way to bring down player wages in a substantive way is to bring down league revenues along with them.

I’m not advocating that, personally. While I find the economics of professional sport distasteful, I understand that the only reason leagues like the NHL make money is because as a society we’ve decided that the entertainment value we receive warrants it. In my estimation, even the renewed cry that the players make too much money is a symptom, because it’s spurred by a desire to get back to paying for high-level hockey.

Recently by Jonathan Willis

  • Dawn

    Another comparable I haven’t seen goes like this:

    Players are not “employees” in strictest sense. They are the product. Any retailer will tell you that his product costs in the neighbourhood of 50% of total revenue. Deviation from that incurs some risk. Of course, professional sports are a special case. There is an upper limit to ticket sales and a huge variation in quality and popularity of product.

    Technically, the employees are the staff (marketing, administration, medical, etc), and the players are the product.

  • as a trades person i can do many thing to compliment my hourly wage as an employee that would benefit the company other than just showing up and performing my said task.

    i can contribute ideas to safety programs, i can mentor new workers, i can encourage and promote the company i work for, i can wear aparell that is available for public sale, i can head hunt good workers. all these things can help increase the revenues my company strives for. i see no monetary benefit from doing so because i am an employee not a partner.

    the NHL system is flawed in that they have both agreed to a theory of partnership that exists differently to each of them.

    is is time to wipe away the term HRR? the NHL is culpable in letting it be defined this way. the NHLPA will run with it as long as they can.

  • oilabroad

    While I agree that this is not as simple as the example you give, its also not so different that we can’t use real world examples. If the players want a true partnership where they get a percentage of HRR, thats fine BUT know that if there are losses you will have to cough up; when a new rink needs to be built, your side needs to cough up, when you sign a deal with Nike, 50% also goes back to the owners side, if there are owners/players circumventing the salary cap with long term deals, you need to speak up as this is YOUR business as well…
    This is a not a partnership. If you do not like working for this particular union, then go to the union in Saskatchewan and be an electrician there, you have options.

      • Mumbai Max

        What we should be doing in the media and in the public is throwing our total support behind the owners. If public and media support did not put up with the players overwhelming sense of entitlement, this would never happen. As for public subsidization of hockey arenas. It is not a fluke that the only successful privately funded arenas are in Toronto and New York who both are very profitable. Here in Edmonton we complaining that Katz made 15 million last year which is less than a 10% return on his investment during boom times (can dollar + fan interest). Anyone who thinks that is a heathy organization should have their heads examined. If the owners where taking home the lions share then there would be no public money required. As for the argument that the owners do this to themselves… Hogwash, the players and agents leverage against each other, using comparables, and we fans demand that we keep or go after these players. Any owner or gm that does not is attacked. They are also competitive people all going after the same goal… a Stanley cup. For us to expect them to all play nice and responsible, is like asking the players to play in the Stanley cup finals all nice and by the rules boys , no need for a ref here, ya right! As for these players they have not showed me one logical argument for holding out this long. The truth is the media is scared to say anything to drastic less they loose access. Also funny how players can use comparables, but when the league does it (NFL, NBA) it’s un fair? Or we are disgusted by the owners first offer (47%of HR) but its ok for the ones who write the checks. Think about this, Shawn Horcoff is making more money than about half of the owners! Some would suggest that the owners should just say no to these ridiculous contracts… Well the CBA is really the only time (legally)when they can do this (police themselves)and they still get attacked.. crazy!

      • The do not want a free market system as long as they are a union. The very idea of a union demanding a free market is hilarious. Why do you think they formed a union in the first place?

        Not having limits on salary is a far cry from “free market”.

        What the players want is to keep all of the benefits they gained from having a union, while removing rights the owners hold in exchange.

        • smiliegirl15

          What he said.

          If the NHL were a free market, teams like Phoenix wouldn’t exist, Edmonton would of been gone a long time ago, player contracts wouldn’t be guaranteed, etc.

          The NHL would revert back to a 6 team league.

          The players don’t want a free market anymore than the owners do.

      • oilabroad

        I am not sure how that can be the point, that ship sailed 6 years ago. The point I took from the story was that players are not employees, they are the show and should be treated differently than an employee who is contracted out by a union. My point is that the differences are not as signficiant as you are making them out to be. if I invested in the business, and my guys are the highest paid contractors in town and they are pissing and moaning over the length of their lunch break, take your tools elsewhere as belonging to this union is a privilege. Unless you want to buy into the business where you have a true vested interest, I don’t believe you have any right to dictate how much money I as the owner gets to take home from my 200M investment and anyone who is seeing the players as the victims in this are either misguided or simply don’t understand how important it is to the health of the league to have franchises all making money.

        • I don’t see the players as victims here. This is collective bargaining: it is about leverage, not morality. There are no good guys or bad guys, just competing parties representing their own interests.

          When you say the NHLPA has no right to demand a fixed percentage of revenue, you’re imposing moral overtones on it. They have the right to ask for whatever they want, and the right to take whatever they can get. The owners have precisely the same right – they’re completely entitled to ask the players to work for $10.00/hour, and if they can knock the salary cap down to $20 million per team, power to them.

          The reality, though, is this: in a free market system, players consume huge chunks of revenue – because owners want to win. What we have now guarantees cost certainty – the owners are guaranteed a fixed percentage of revenue. They can crank up the pressure all they want, but at some point it’s in the players’ interests to dissolve the union and surrender the advantages it offers in favour of a free market system where they’ll all be paid much, much more. They won’t be guaranteed a penny, but there’s no chance they make less money as a group than they were guaranteed under the old arrangement.

  • Max Powers - Team HME Evans

    @JW

    How is it you know what a PLC is and that it applies to an electricians trade? Impressive. Even more impressive if you know what out stands for without looking it up…

    Just like to point out you apples to oranges scenario is flawed, a freshly graduated student wouldn’t have practical experience with PLC’s…. 😉

    • Somebody with a four-year apprenticeship fresh off completing his IP would :). A guy coming out of a two year technologist course – not an apprenticeship program – would not.

      As for how I know – I went to school for instrumentation before I decided to go into writing.

      • Max Powers - Team HME Evans

        Touche.

        Not my field of work but i work closely with them.

        You never said what PLC stood for, but since you’re an instrument guy I’ll give you benefit of the doubt…. Although spending years away from industry can make the mind go a bit limp.

        Fixing control valves just wasn’t your passion? You’re a great writer, glad you made the jump.

  • Dunnonuttin

    Great article Jonathan: it would be interesting to see what percentage of league revenues are spent on player salaries next year without a union to impose a cap on… my guess is it would be far more than 57%

    Having said that, I wonder what implication it would have for players making the league minimum? What would owners pay guys who are more easily replaceable, and also tend to have shorter careers?

  • McCreeper

    Lets not forget the so called “employees” goes farther than the 700 or so players who are currently out of work. This lockout is unnecessary because it takes jobs away and not just the most important “employees” jobs. I like the idea more that the fixed operation type employees are your lower trades people trying to make a living and the players are your oilfield consultant/contractor types. Yes they get better treatment but ultimately the show would still go on. They are all employed if the price of oil dictates the jobs much like the fans dictate. If oil went down to nothing then the big company’s up north are not pushed into paying. They just don’t. It’s not good business.

  • T__Bone88

    Would the players go for a compromise of lowering the maximum percentage of the cap a team can spend on a player ie. 20%-15% in exchange for arbitration rights, unlimited contract years and lower free agency. No team spends the maximum on a player and 15% of a $60 million salary cap is still $9 million. You could apply that to second contracts where coming out of ELC you can only get a maximum 7.5% of the cap ie. 4.5 million of a $60 million salary cap. The NBA imposed this maximum salary in their CBA with the 2nd contracts. With the 5% variance on the salary it would hinder how many long term contracts there are so no need for maximum 5 year contract length. If the NHL wanted to do maximum 5 year contracts they should impose that the resigning team gets an option of signing for 7 years which would allow sign and trades.

  • Legitimately, most of the people who graduated with BA’s the same time I did would have loved to be drafted instead of actually trying to find work.

    I see your point though. Truth be told the players entered what was deemed a “partnership” after the last agreement. That partnership was based on the shared goal of growing the game. While the game grew, however, the partnership eroded. The Salary Cap that formed the backbone of the partnership started to be circumvented (in spirit) by both owners and players. Wade Redden was playing AHL hockey and several players got lifetime contracts that paid 1 million during their 40’s.

    Now the idea of the NHL and NHLPA being in a partnership is a laughable idea, but the facts are that in a linked system what’s good for the goose is good for the gander. If the NHL thinks its good business to have X, Y, and Z and the players have already lost out on millions of dollars in lost wages then it’s probably a good bet to sign the deal and let the owners continue to spend money on them.

  • Is it bad that I seriously hope the NHL has done itself irrepairable damage through this moronic “mine is bigger than yours” contest we have named a “lockout”? I was completely on board during 2004, because I knew the game needed fixing; now, I realize there’s nothing to “fix” except the respective messes between the owners and players’ ears.

    I discovered something beautiful the other day: there’s tons of hockey out there beyond the NHL. I’m a student, and I get into CIS games for free; the last two I’ve been to have been some of the most exciting games I’ve seen in years. The best players won’t request a trade, I can snag seats right beside the glass, I meet the players in class and talk to them in the halls–and best of all, they will never lock out. I was the biggest NHL fan ever growing up, but this has killed the enjoyment for me. Seya NHL–I can get hockey somewhere else.

    • I hear ya man. I’ve been taking in the local AJHL team here and I must say, its a lot more fun watching a team that have won 8 in a row than lost 8 in a row. I just wish they would consistently put AHL and WHL games on TV. Sportsnet has like 6 channels, they could be putting on 6 games at a time if they want. And Y can’t the sportsnet Oiler and Flames channels be dedicated to the Barons and the Heat?????

      • DSF

        The production costs involved in broadcasting games, along with the lower ad revenue that would accrue due to much lower viewership of AHL games make that idea a non starter.

        I would imagine a Barons game on SN would draw maybe one quarter the viewership of an Oilers game and, unless it was against a Canadian rival, there would be no bump in viewership in the opposing teams city.

        • In case nobody else has noticed, there is no NHL on TV right now. I’m sure the AHL would produce more than nothing. They already broadcast AHL games, a contract agreement would likely just need to be in place and the streaming wouldn’t happen on the internet as it does now.