The Wait and See Game
So where's the loophole?
Or perhaps more accurately, what is the loophole? Or loopholes, perhaps?
The primary lesson of hockey business history over the past 20 years is that agents, the one stakeholder not represented in periodic CBA negotiations, are the ones who define how an NHL labour agreement works. Moreover, they tend to be experts in finding holes, or turning small loopholes into giant gaps that allow the natural inclination of NHL owners to compete with one another to drive up player salaries in a way usually not contemplated when the CBA was originally written.
In the last CBA, one major loophole was that it allowed for these massive, long-term, back-diving contracts that, while only useful to a small number of players, were inflationary, put smaller market teams in a difficult situation and flaunted the spirit of the salary cap system.
Well, based on what we know, with more of the precise details of the new CBA that ended the 113-day lockout on Sunday expected to be released today, those kinds of contracts won't be available now, or at least not to the same extent. No contract can be longer than eight years, and the lowest salary can't be less than 50 per cent of the highest salary. None of this $10 million in the first year and $1 million in the last year stuff.
Beyond that, Don Fehr negotiated the players into a massive giveback that will amount to $3 billion or more over the course of this agreement. His indefatiguable hagiographers want the world to ignore that basic math and credit The Donald with a win here based on some pension improvements, increased minimum salaries and the fact the players didn't collapse in these negotiatons.
Well, those victories are definitely worth something. But nothing close to $3 billion, or even the $822 million lost in player salaries during the lockout. It sure sounds like Ilya Kovalchuk doesn't feel like the union won.
Some are claiming the NHL "caved" on the last day by allowing the salary cap in the second year of the new CBA to be $64.3 million instead of $60 million, but anyone with even a rudimentary understanding of this cap system know that all the players really did was expose themselves to sharply increased escrow payments.
The ceiling can be anything you want it to be. But in the final accounting, the players collectively get a maximum 50 per cent of the total take. Anything more than that goes back to the NHL in escrow payments.
By the time the players begin to truly understand this deal, of course, the beauty of it for Fehr is that he'll be long gone. He'll even pen his own biography, undoubtedly explaining how he defeated Gary Bettman (once again excluding the $3 billion, of course, or pinning the responsiblity on someone else).
Right now, it looks like Fehr might want to make his exit before the big squeeze on the middle class of his membership in anticipation of the cap decreasing from $70.2 milliion to $64.3 million begins to have its effect next summer. Or before the first big escrow payments are withheld next season. If those payments hit 20 per cent - they were less than 1 per cent last season - union members may want to know why the Fehr Bros. didn't fight for a cap on escrow rather than a defined benefit pension plan.
The only way Fehr ends up looking like a genius here is if there's either a new loophole in this CBA, or one or two old ones left over from the last CBA that weren't closed.
Hard to see what they might be. But the agents will find them if they're there and use them as pressure points. Geez, who would've thought that teams would start giving players gigantic, long-term contracts after only the second year of their entry level deals, but that's what was happening last summer.
So we'll see. There are lots of new rules, from teams being allowed to keep salary in trades to the new "cap benefit recapture" clause to the revised manner in which the cap floor will be calculated that might provide new openings. There are new rules on re-entry waivers and such, as well.
We might even see new loopholes indentified and exploited over the next week or so as quality restricted free agents like P.K. Subban, Jamie Benn and Michael del Zotto negotiate new contracts with their teams. Those players have leverage, but they won't have the leverage of offer sheets.
The final analysis of this new CBA, of course, won't be readily available for at least five years, or maybe longer. If the game grows, the players still will continue to do very well, although not as well as they would have if Fehr hadn't whittled their share down to 50 per cent from 57 per cent. That $300 million in bogus "make whole" payments? That'll evaporate before the ink is dry on this CBA.
Growth of league revenues will determine the average player salary down the road, and if growth is robust, you could see players become much wealthier over the course of this agreement.
But too many, it seems, are just assuming that the steady growth that was evident over the past seven years will simply continue at the same pace.
That ignores a few things.
First, damage has been done to the product, although its hard to say how much.
Second, much of the growth in recent years was fuelled by the improvement of the Canadian dollar in comparison to the U.S. greenback. With Canadian NHL teams generating so much of the league's revenue this made an enormous difference. Nobody knows where the U.S. economy is headed, and the Canadian dollar may stay strong. But it seems extremely unlikely that the same currency dynamics of the past seven years will be repeated.
Finally, new NHL initiatives like the Winter Classic bolstered league coffers. So what similar initiatives are out there that might do the same? The tainted World Cup?
Sure, growth may happen, and new Canadian TV contracts in 2014 will help. But it's no slam dunk league revenues will simply continue growing, particularly if this lockout ends up doing serious damage in markets where the NHL was already ailing.
At this point, the players really need to cheer for loopholes. Big, whopping ones. We'll see if they emerge.