Breaking down the Latest NHL CBA Proposal One Step at a Time

As everyone in the hockey community knows by now, yesterday Gary Bettman unleashed the fury with a stunning public relations gambit to quickly squash the horrible PR generated less than 24 hours prior by the Frank Luntz focus group debacle. Yes, we all know this latest CBA proposal was swiftly released to sway the public back to the owner’s side, but that doesn’t diminish the fact that this is legitimately the first real, concrete, somewhat acceptable offer either side has managed to produce to this point. It’s a full-fledged offer and should, if the ego’s can be kept in check on both sides, work as a solid base for continued negotiations of a much more determined manner.

However, don’t get your hopes up for a prompt resolution to the lockout based on this alone, as the Players’ Association still has to comb it over, discuss it, and eventually present some modifications (hopefully minor) to the NHL. There is little to no chance of them accepting it outright as it’s currently constructed, that would be foolish on their part, even if the deal was perfect. They need to at least save face by requesting a few tweaks so that they got some of what they wanted and don’t look like complete pushovers.

But who knows what the PA will do at this point really. It’s completely possible that they come back with more substantial changes than we expect and if so the NHL was smart it getting this out there so quickly, as anything the PA does from this point on to slow down the proceedings will only make the NHL look good. For the NHL, it’s a win-win scenario. Either they get the public on their side and the lockout comes to an abrupt end or they still get the public on their side and the pressure (hatred?) lands squarely on the backs of the PA.

So while we’re stuck in a short holding pattern awaiting the PA’s response, let’s conduct our own evaluation of the latest proposal. On first glance there is a lot to like, but I’ll dive into it piece by piece as the NHL themselves laid it out on their own website. You can view the entire proposal here and with further explanation here. I’ll kick things off with the title of the proposal.

NHL PROPOSAL TO SAVE 82-GAME SEASON

Yes, they went there. It’s a brazen, in your face declaration, but quite frankly it’s true. Sure, it’s a PR title, but the fact is that if a deal isn’t reached quickly there is no chance of a full 82 game season (and maybe a full 82 game season isn’t wise to begin with at this point, but I won’t go there). In their own words, the NHL has presented a “substantially revised proposal” with the goal of getting this done ASAP and “saving” the season. Again, this is all PR stuff anyway, so let’s get into the actual details now.

1. Term:

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

Not much to say about this really as it basically matches the term of the previous CBA. I doubt there will be much of an issue around this point, though I’m sure fans would prefer a longer term as to avoid these issues from popping up so often. 10 years would be great.

2. HRR Accounting:

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

A big time conflict throughout these negotiations has been the HRR aspect, of which it appeared the owners wanted to make substantial changes while the players wanted a better understanding of how they were calculated. This new proposal suggests leaving everything as is and to “clarify mutually identified ambiguities in the CBA”. If the NHL is fine with keeping things the same, the players really shouldn’t have a problem with that either as they lived quite happily under the old terms. However, defining these ambiguities could be a point of contention between the two. The ball is completely in the PA’s court on this one, for if they still have a major issue with this it could get messy.

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.

A 50/50 share is perfect. Honestly, the fans don’t care how the millionaires split the money, but 50/50 always sounds good (and was obviously a key aspect of the deal from a PR perspective). Yes, the players will be giving up a lot, and sure, looking at it from the view of the players it’s basically taking away a nice piece of the pie, but this is a business just like any other. Some would even argue that the players getting 50 % is too much, as they’re not personally faced with any of the costs of doing business that the owners are. Sure, the players help to market the league via interviews, performance, etc., but the vast amount of grunt work is handled by the league, not the players. The owners aren’t just paying the players, they’re paying the managers, coaching staff, scouts, medical staff, trainers, sales and marketing personnel, maintenance crew, and  many more besides. The little people need to be taken care of as well and while the players would like to think the owners are corrupt, the truth is that most of them probably are not. Everyone wants a bigger piece of the pie but the fact remains that this is a business and only so much can be given to the players. 50% is a respectable number no matter how you look at it.

4. Payroll Range:

  • Payroll Range will be computed using existing methodology. . . . Payroll Range will be computed assuming HRR will remain flat year-over-year . . . .
  • 2012/13 Payroll Range
    • Lower Limit = $43.9 Million
    • Midpoint = $51.9 Million
    • Upper Limit = $59.9 Million
  • Appropriate “Transition Rules” to allow Clubs to exceed Upper Limit for the 2012/13 season only ( . . . pre-CBA Upper Limit of $70.2 Million).

The players may not like this, but with the one year option to exceed this limit available to clubs it’s hardly an issue at all. Look at it this way, the upper limit increased on average by approximately $3.6 million per year. Assuming similar growth (which is much more likely if this lockout ends quickly), it would only take 2-3 seasons for the players to be back to where they expected to be this season. Plus, the 12/13 season itself won’t count due to the exemption rule outlined above. 13/14 could very well be the only season where this lowering of the upper limit has any impact, so what’s one year in the grand scheme of things?

5. Cap Accounting:

  • Payroll Lower Limit must be satisfied without performance bonuses.
  • 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. . . . Cap charge will travel with the Player, but only for the year(s) in which the Player remains active . . . If, at some subsequent point in time the Player retires or ceases to play . . . Cap charge will automatically revert (at full AAV) to the Club that initially entered into the contract for the balance of its term.
  • Money paid to Players on NHL SPCs (one-ways and two-ways) in another professional league will not be counted against the Players’ Share, but all dollars paid in excess of $105,000 will be counted against the NHL Club’s Averaged Club Salary . . . .
  • In the context of Player Trades, participating Clubs will be permitted to allocate Cap charges and related salary payment obligations between them . . . Clubs may agree to retain . . . no more than the lesser of: (i) $3 million of a particular SPC’s Cap charge or (ii) 50 percent of the SPC’s AAV . . . salary obligations as between Clubs would be allocated on the same percentage basis as Cap charges are being allocated . . . A Club may not have more than two (2) contracts as to which Cap charges have been allocated between Clubs in a Player Trade, and no more than $5 million in allocated Cap charges in the aggregate in any one season.

Ok, here’s where things get messy. Forget the performance bonus thing, as if that didn’t already exist, well, shame on them. Basically the gist of this is to make teams pay for circumventing the previous CBA and prevent the ability to do so in the future (or at least make it more difficult). Cap hits will no longer go away after retirement, nor will they go away if the player is buried in the minors or shipped overseas. However, one quirk with the retirement piece is that only the team that originally signed the contract is hit with the Cap of the retired player. So say Roberto Luongo gets traded to Florida as has been rumoured. If he retires prior to his contract coming to an end, Vancouver would get the Cap hit back for the term remaining. I suppose this is punishment for teams signing long-term contracts they had planned to get out of early and I don’t have a problem with it. I don’t have a problem with the Cap hit counting for players sent to the AHL or overseas either, as teams need to be held accountable for the transactions they make. The players probably won’t be too thrilled about any of this, as more accountable management means less money being wildly thrown around, but this is definitely for the good of the league and I doubt you’d find many fans against it.

Moving on to trade implications, this gives teams leeway in handling financial constraints, while also improving the odds of trades occurring  as under the current system it’s very difficult to deal “bad” contracts without somehow sweetening the pot for the receiving team.  This could increase the complexity of deals, but also increase the frequency of trades. I don’t see the PA having much of a problem here other than maybe not liking the fact that they can be traded more easily, but then again, some players might like that (Luongo for instance).

6. System Changes:

  • Entry Level System commitment will be limited to two (2) years (covering two full seasons) . . . between the ages of 18 and 24 (. . . where the first year of the SPC only covers a partial season, SPC must be for three (3) years).
  • Maintenance of existing Salary Arbitration System subject to: . . . eligibility for election moved to five years of professional experience (from the current four years).
  • 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).
  • Maximum contract length of five (5) years.
  • Limit on year-to-year salary variability on multi-year SPCs — i.e., maximum increase or decrease in total compensation (salary and bonuses) year-over-year limited to 5% of the value of the first year of the contract . . . .
  • Re-Entry waivers will be eliminated . . . .
  • NHL Clubs who draft European Players obtain four (4) years of exclusive negotiating rights following selection in the Draft. If the four-year period expires, Player will be eligible to enter the League as a Free Agent . . . .

Lots of good stuff here. The slight change to the ELS might make it a little easier to attract European players, while also making it so players can get an increased payday sooner. Can’t see the players disliking this, but it’s probably done to help convince them to accept waiting a little longer for arbitration and free agency. That they definitely won’t like, but I can see the NHL making a further compromise here maybe, asking them to take 5 years arbitration in exchange for UFA at 27 or UFA at 28 in exchange for only 4 years to arbitration. Certainly room to negotiate here anyway. The point on waivers makes absolute sense if you can’t bury contracts and the 4 years of rights ti Euro players could increase the number of them being drafted.

However, the biggest problem with this proposal from the PA’s point of view is right here. They will definitely hate the 5 year max contract length as the players love being “set for life” by all these long-term deals they’ve been getting. I really don’t see them accepting anything close to this, but I also don’t see the NHL budging much on it either. That’s where I think a proposal such as the one I came up with in regards to a tiered system of contract length based on player age would be beneficial to both sides and work as a compromise. I would call for players 27 and under to be capped at an 8 year contract length, 28-29 at 7 years, 30-32 at 6 years, and 33+ at 5 years, or something similar to that effect. This makes it so you can’t lock “senior” players in to excessive contract lengths past the point of natural decline (which is usually somewhere around the mid-30’s). Sure the older players may not like it, but let’s face facts here, one way or another the NHL is getting rid of the tacked on useless years at the end of contracts and this would be a suitable compromise as opposed to going to straight up 5 years max for everyone.

As for the year-to-year salary variability changes, again, something the players won’t particularly like, but it’s going to be in there in some form no matter what, so maybe a compromise can be reached on the exact percentage (currently it’s up to 50% at times, so maybe the NHL can back off a bit to 10% or so).

7. Revenue Sharing:

  • NHL commits to Revenue Sharing Pool of $200 million for 2012/13 season . . . Amount will be adjusted . . . in proportion to Actual HRR results . . . .
  • At least one-half of the total Revenue Sharing Pool (50%) will be raised from the Top 10 Revenue Grossing Clubs . . . .
  • 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 . . . will be removed.
  • Existing performance and “reduction” standards and provisions relating to “non-performers” . . . will be eliminated . . . .

A key aspect for the PA throughout these negotiations has been to improve the revenue sharing system to further help teams in need and improve the financial stability of all teams. The new proposal from the NHL appears to address this issue in a number of ways and at the very least looks much better than the current system. A pool of $200 million is in line with the total combined loss by teams in the past and greater contribution from the higher earning clubs makes sense. Also, the provisions to eliminate and adjust the current criteria for revenue sharing is a definite improvement. The PA shouldn’t have any issues with this, though I’m sure there will be discussions on tweaking a few numbers here and there.

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 much to say about this other than it’s obviously something the players want and the owners are giving it, probably as a means to take elsewhere, but what can ya do?

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.

No rollback and the players rejoice! Oh, wait, technically it’s a rollback anyway when you go from a 57% share to a 50% share. Still, another of the PA’s main goals was to prevent a rollback and in the traditional sense the NHL has agreed to this. However, there is still the 7% reduction in the pie to consider and the players definitely don’t want to give that all up at once. The league has addressed these concerns via a “make whole” provision.

10. Players’ Share “Make Whole” Provision:

  • The League proposes to make Players “whole” for the absolute reduction in Players’ Share dollars (when compared to 2011/12) that is attributable to the economic terms of the new CBA (the “Share Reduction”). Using an assumed year-over-year growth rate of 5% for League-wide revenues, the new CBA could result in shortfalls from the current level of Players’ Share dollars ($1.883 Billion in 2011/12) of up to $149 million in Year 1 and up to $62 million in Year 2, for which Players will be “made whole.” . . . Any such “shortfalls” in Years 1 and 2 of the new CBA will be computed as a percentage reduction off of the Player’s stated contractual compensation, and will be repaid to the Player as a Deferred Compensation benefit spread over the remaining future years of the Player’s SPC . . . The objective would be to honor all existing SPCs by restoring their “value” on the basis of the now existing level of Players’ Share dollars.

This would see existing contracts retain some portion of that 7% via deferred payments over the life of the contract. It’s somewhat complex and you can read more about it at the previously provided links, but the point is that the NHL has considered honouring the value of existing contracts and at the very least this is another piece the PA can work with and negotiate a little more to their liking.

In conclusion, is the deal perfect? No, not exactly. It’s not at the point where it would be immediately accepted by the PA, but it has also come a long way from where we were. The current proposal addresses many of the issues put forth by the PA and there are real concessions here from the owners. Yes, they’re still expecting concessions from the players, but that’s the nature of how these things work. The fact remains that it looks like we now have a real foundation for negotiation and maybe, just maybe the two sides will be able to agree upon the modifications necessary to get this proposal pushed through and hockey back on the ice where it belongs.