Wednesday, October 17, 2012

Uhh, Fellas? It's Always Been Players Paying Players

At least since the last lockout it's been players paying players anyhow.  Over on Puck Daddy they are reporting some negative reactions to the NHL's recent proposal for a new Collective Bargaining Agreement (CBA).  The NHL has proposed to make the current 2012-13 salaries good by deferring some of the payment until a future date.  This is how you manage a transition from 57% player share of Hockey Related Revenue (HRR) to a 50% share.  That difference would be paid out in the future when HRR has presumably grown enough to cover the amount.  The players are objecting to this salary money coming out of their 50% of HRR, and refer to it as players playing players, instead of the owners paying players.

Unfortunately for the players, its been players paying players since 2004.  Why?  Because they get a fixed percentage of HRR.  So when a free agent player backs a truck up to franchise to get all the money being showered on them (see e.g. Parise, Suter, Weber) their large share means that there is less of a fixed percentage available for the other players.

For example, Parise, Suter and Weber all had front loaded contracts that paid them lots of money up front.  Parise got a $10 million signing bonus (all numbers from, Suter got a $10 million signing bonus, and Weber got a $13 million signing bonus.  Assume HRR stays at $3.3 Billion for 2012-13 as it was for 2011-12.  That's $1.65 billion for all player salaries at 50% HRR.  However, because of the $33 million in bonuses already paid for these 3 players, you are really talking about $1.617 Billion available for all player salaries (including these players newly raised base salaries) in 2012-13.  Did the owners contribute an extra dime to pay these large bonuses?  Nope.  According to the CBA at the time, this money comes out of the players share of HRR, and it has since 2004.

When Crosby signed his previous 'below market value' contract (since replaced), he was actually leaving money around for other players.  It didn't make a bit of difference to the owners.  The players still got the same share of HRR.  When HRR goes up beyond expectations, the extra money is distributed to the players to meet the current percentage (50% in the future, 57% in the past).  If HRR does not go up as much as expected, the money is taken out of the escrow that the players pay a portion of their salary into (which they HATE with a passion) and distributed to the owners so that the percentages are according to the CBA.

Under a cap system, it is clearly in the players interest for HRR to go up.  It has covered the salary escalation since the 2004 lockout.  That reality will continue under the new CBA, assuming one is reached.  The NHL's proposal banks on HRR going up enough to cover salaries deferred from 2012-13 to cover the reduction from 57% to 50% of HRR.  But the money has ALWAYS come from the same place, the players share of HRR.

Stick tap to my buddy Bill for being willing to consume adult beverages with me while talking about this stuff.

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