Wednesday, 17 October 2012

NHL Offer and its Implications

I played my first hockey game of the season Monday night, and Tuesday wake up to find out the NHL has made a proposal to secure an entire 82 game season that would kick off in 2 weeks time - serendipity at its finest. I had posts prepared to rip the owners about the negative effects of the lockout and how greed has overshadowed the core values of the game (which is still very relevant), but can instead focus on something that has been missing from the NHL for quite some time - optimism. My initial reaction to the proposal was that I did not want to get my hopes up, but the more I think about it and the more information that becomes available, I see no reason why we shouldn't see hockey played at its highest level this year. Below I have a "Col's Notes" version of the proposal and the implications of each section.

A full version of the proposal can be found here, and an explanation of the proposal here.

1. Term
 • Six-year Agreement with mutual option for a seventh year.

This part is self explanatory; I hope the NHLPA comes back with an offer of closer to 10 years, or at least hope that this CBA will solve enough core issues to avoid ANOTHER lockout in 6 or 7 years. If they use common sense, they will have this current CBA expire at the end of the season and not in September, so that negotiations are forced to commence earlier.

2. HRR Accounting:
• Current HRR Accounting subject to mutual clarification of existing interpretations and settlements.

HRR stands for Hockey Related Revenue. While there are several things that fall under this definition, they key aspect here is that the NHL is willing to keep the same definition of HRR that was in the most recent CBA. This was a major sticking point early on in negotiations, as the owners were trying to change the definition to make it more beneficial for themselves. Assuming there isn't any fine print, the NHLPA should be happy with this change.

3. Applicable Players' Share:
• For each of the six (6) years of the CBA (and any additional one-year option) the Players' Share shall be Fifty (50) percent of Actual HRR.

This will be the biggest obstacle for the players to overcome. In the previous CBA, players owned 57% of HRR and have not wanted to budge far from that. However, this is a significantly better offer than the NHL's previous 2 proposals which saw the players earning 43% and 46%. Because the number keeps rising, I can see the PA trying to wiggle a few more % out of the NHL, but you really cannot get more fair than a 50/50 split. If it is good enough for the NBA and NFL, it's good enough for the NHL.

4. Payroll Range (Salary Cap): 
2012/13 Payroll Range
Lower Limit = $43.9 Million
Midpoint = $51.9 Million
Upper Limit = $59.9 Million

That is the proposed cap for next year. According to CapGeek there are 16 teams (over half the league) that are already above this cap. Because of this, the NHL is allowing one "transition year" that lets teams spend to the previously established 70.2M. What does this mean? Plenty of player movement during the season and into next offseason while teams try to get their books in order - which in turn will create even more parity in the league. The NHLPA will always want a higher cap because it means they can demand more from owners, but the number is a calculation based on league revenues amongst other things. Anyway, the 59.9M next year is a false cap, and if league revenues grow by next season, as will the cap. The move to a lower number was inevitable as once the cap ceiling gets into the 70M+ range it loses its purpose because only a select few owners can afford spend into that much on player salaries and we'll find ourselves back in 2003. Although it would give the Leafs a much better chance to make the playoffs...

5. Cap Accounting:
 • Payroll Lower Limit must be satisfied without performance bonuses.

Meaning cheap teams cannot tag on bonuses just to reach the cap floor - forces them to spend more money and try to stay competitive

 • All years of existing SPCs with terms in excess of five (5) years will be accounted for and charged against a team's Cap (at full AAV) regardless of whether or where the Player is playing. In the event any such contract is traded during its term, the related Cap charge will travel with the Player, but only for the year(s) in which the Player remains active and is being paid under his NHL SPC. If, at some subsequent point in time the Player retires or ceases to play and/or receive pay under his NHL SPC, the Cap charge will automatically revert (at full AAV) to the Club that initially entered into the contract for the balance of its term.

SPC stands for "Standard Player Contract", which is just a normal NHL contract. This is one of my favorite amendments to the previous CBA because it tackles a core problem that led us to this current lockout - ridiculously long contracts that have created loopholes for teams to gain a competitive advantage. For example, under this new scenario Ilya Kovalchuk's cap hit will count against the Devils until 2025, whether he is hurt, retired or still playing at at 42. If they trade him before that, they get relief of his salary but if he retires from his new team before the contract is over, then the cap hit goes right back on the Devils' shoulders until 2025. I love this unapologetic approach by the NHL. Yes, they should have been proactive and realized these loopholes at first, but it eliminates the possibility of it continuing and punishes those who tried to cheat the system. Owners and GM's alike need to have foresight about the state of the industry before signing players to these ridiculous contracts, and this will definitely prevent such events in the future. This also applies to players in the AHL or other professional leagues earning over $105,000 that NHL teams have tried to stash in the minors or overseas (players like Wade Redden, Cristobal Huet). Yet another way for the NHL to eliminate cap circumvention. While many fans of large market teams may have a problem with this, it is a proposal made by the owners that only screws over owners, there should be no reason for complaint.

To provide teams with some relief, the NHL has proposed a scenario where teams can trade cap space along with a player, with restrictions. A team can choose to retain either $3M of a player's salary or 50% of said salary, whichever number is less - for the remainder of their contract. They will also be obligated to cover that salary for the remainder of the contract. A team may do this for a maximum of 2 players, and a maximum of $5M of retained salary for any one season. In real terms, this makes it easier for teams to dump undesirable contracts if they are willing to take some of the hit themselves. For example, if the Maple Leafs want to use this tactic to trade Mike Komisarek, they can tell teams they are willing to retain half of his cap hit (2.25M). This opens up opportunities for less profitable teams to target overpaid (yet still effective) players to help their team without having to take on their albatross contracts. It also allows the team that signed the overpriced player to get an asset for someone they once thought un-tradeable while freeing up some cap space to spend more wisely elsewhere.

6. System Changes:
• Entry Level System commitment will be limited to two (2) years (covering two full seasons) for all Players who sign their first SPC between the ages of 18 and 24 (i.e., where the first year of the SPC only covers a partial season, SPC must be for three (3) years).

At first, the NHL wanted to extend entry level deals to 5 years, but now they decided to shorten them by 1 year. Both scenarios are attempting to reach the same goal of prolonging the time when skilled, young players get a chance to sign enormous 2nd contracts (like we saw from Hall, Eberle, Skinner and Seguin this past offseason). Players will have less time to prove themselves, likely resulting in the re-emergence of the 2nd contract - a short term, low salary "prove yourself" contract that still allows players to be RFAs once their contracts are up.

• Maintenance of existing Salary Arbitration System subject to: (i) total mutuality of rights with regard to election as between Player and Club, and (ii) eligibility for election moved to five years of professional experience (from the current four years).

Salary arbitration extended for one more year - gives players less power but not a huge issue, and one I see the NHLPA accepting it if the NHL bends on other issues, and also considering the NHL wanted to remove arbitration completely. 

• Group 3 UFA eligibility for Players who are 28 or who have eight (8) Accrued Seasons (continues to allow for early UFA eligibility -- age 26).

I see no reason fro the players to reject this - it only tags on one more year of experience before someone can become a UFA, and it is before players are in their prime. It will still result in young stars like Parise, Staal, and Suter leaving their respective teams, and mean big pay days and freedom for the players at a young age.

• Maximum contract length of five (5) years.

The PA will want to extend this number for job security reasons. You have to remember that the PA exists to protect the 3rd and 4th liners that do not know where their next pay check is coming from, and those that job descriptions call for fighting. Job security is HUGE for these players and if the superstars of the league can only earn 5 year contracts, it is likely they will be resigned to 1 or 2 year deals at maximum. That being said, I still think 5 years is long enough. If you want to retain a player beyond that, there is plenty of time to negotiate an extension. It also makes it easier for GMs to monitor their future cap, eliminates ridiculous contract length and prevents GMs from paying for potential (like Rick Dipeitro and the Hall, Eberle and Seguin contracts I eluded to earlier).
Another clause limits the amount of variability of a contract from year to year. Currently, a player's salary can reduce by a maximum 50% each year, allowing GMs to front load contracts and pay players some $10M in the first couple of years, while only paying them 1M in the last few so that players won't leave much money on the table if they want to retired. Well, instead of 50%, they have changed the number to 5% and have included bonuses. This means that the deal Shea Weber signed this offseason, which sees him earning $13M in bonuses alone for the first 4 years, would have to be stretched out throughout his deal, enticing him to finish out his contract to see that he actually gets all of that money (he will be 41 at the end of his deal).

7. Revenue Sharing:
• At least one-half of the total Revenue Sharing Pool (50%) will be raised from the Top 10 Revenue Grossing Clubs in a manner to be determined by the NHL.
• The distribution of the Revenue Sharing Pool will be determined on an annual basis by a Revenue Sharing Committee on which the NHLPA will have representation and input.
• For each of the first two years of the CBA, no Club will receive less in total Revenue Sharing than it received in 2011/12.
• Current "Disqualification" criteria in CBA (for Clubs in Top Half of League revenues and Clubs in large media markets) will be removed.

Revenue sharing in this league inevitable when half the teams are losing money (because the NHL continues to try to grow the game in places that never see snow). The NHLPA has been calling for more revenue sharing, and to the best of my knowledge this does just that. It even allows previous teams like Anaheim, NY Islanders and NJ Devils to get some revenue sharing that they were denied in the past because they were in a "big market area". This will allow more teams to spend competitively and retain players, something that the NHLPA wants to see. The fact that the NHL is willing to start a Revenue Sharing Committee with NHLPA representation shows that they are willing to work with the players to try and get this right.

8. Supplemental and Commissioner Discipline:
• Introduction of additional procedural safeguards, including ultimate appeal right to a "neutral" third-party arbitrator with a "clearly erroneous" standard of review.

Not really sure what this means to be honest, moving on.

9. No "Rollback":
• The NHL is not proposing that current SPCs be reduced, re-written or rolled back. Instead, the NHL's proposal retains all current Players' SPCs at their current face value for the duration of their terms, subject to the operation of the escrow mechanism in the same manner as it worked under the expired CBA.

Basically, the NHL is saying "look, we know you don't want to take a pay cut on contracts you just signed, so we will give you all that money we promised you, but it will take longer than expected". This escrow "mechanism" is what the players will have to evaluate, but it sounds a lot better than rolling back everyone's salary to fit under the proposed cap.

10. Players' Share "Make Whole" Provision:
I won't post the exact wording of this segment, as it's a lot of numbers, fractions and confusion. This basically outlines the type of mechanism that would be used to make up for salary that will be lost next season. If HRR is reduced from 57% to 50%, players league wide will be losing approximately 12% of their salaries next season and beyond until league revenues increase to the point where the actual number that represents 57% of this year is equal to 50% at some point in the future. This "Make Whole" provision looks to still pay the players this portion that they will be losing, just over time. Along with the 50/50 split, this is what I see as the biggest point of contention during negotiations. The wording is very confusing, and it seems that the players will be paying into a pot or "share" that will then be distributed around proportionally to fulfill these contracts. I can't be certain, but it looks like a loophole the league has created to get out of this portion of player contracts. Look for Fehr and his team to come back with a different proposal to this segment of the deal.

All in all, I can't see the NHLPA turning down a deal that sees players still able to earn their entire 82 game pay check this year, especially while the pressure of the public is entirely on them. Make no mistake, the timing and tight deadlines of this deal were not an accident on the part of the NHL, and it is an interesting strategy to finally get the public on their side. I do like a lot of what they are proposing here, and do not see the players getting a much better deal than this even if the lockout is stretched out to next summer. With some amendments see no reason why we shouldn't be watching the NHL on November 2.