An in-depth look at that NHL’s offer to the NHLPA

The NHL made an offer that showed significant process in the CBA negotiations.

Well yesterday sure was exciting, wasn’t it? At around 1pm, the news broke that the NHL had taken the first step towards actual negotiations, and offered the players a 50/50 split of hockey-related revenues (side note: that’s not total revenues, HRR is a CBA term that is defined within the CBA). But it’s not just about the 50/50 split, which is a big step, but there are other areas that are important. Let’s break those down:

The 50/50 Split

This is the easiest to breakdown, as it’s the main talking point of the negotiations. The players currently rake in 57% of HRR. The initial offer from the offers took that to 43%, and the counter proposal from the players took it to 52% (over a few years). The NHL made a final counter that took them to 47%. A 50/50 split is fair for both sides.

That said, it’ll be surprising if the players accept a 7% cut right off the bat, even if their contracts are guaranteed (more on that next). I’d expect the owners to make counter offer that gets the split to 50/50 over a few years, but makes that first year around 52% or a little higher.

Guaranteed Contracts with Escrow

This is the big part, and the big concession on the owner’s. Initially, that 47% cut for the players included a rollback in salaries for the players. This time, there is no rollback. The players will indeed “earn less” under this deal, but the owners have guaranteed that the full amount of their current deals will be paid back over time via an escrow account. This gives both sides what they are looking for. The owners get the salaries lower, and the players don’t take a pay cut.

Per Bob McKenzie, guaranteeing these contracts, coupled with the 7% reduction in the NHLPA’s take, means that the players will lose roughly 11% of their salaries to escrow. This doesn’t necessarily affect the gap, but it does affect the dollars they make.

So what does this and the 50/50 split mean? Basically, in terms of dollars, the players make the same, but it’s spread out with deferred payments. As for the cap, it will come down roughly 7% to about $65.3 million (using the $70.2 million figure from June).

Another interesting aspect that helps guarantee these contracts: Clubs will be able to spend up to $70 million in the first year of the deal to help honor these contracts, and those in the AHL (more below).

Update (9:05am): The cap for the first year of the deal would be $59.9 million, with teams allowed to spend up to $70 million as a transition year. Also, salary cap space is tradeable in this proposal.

Unrestricted Free Agency

Currently, players reach UFA status at 27 years old or seven years of service in the NHL, whichever comes first. The owners moved this to 28 years old or eight years. It’s not a major move, but it does help bring salaries down by cutting down a year of free agency.

Entry Level Contracts, Arbitration

Entry level deals have been reduced from three years to two years in this proposal. The thinking here is that clubs want to get away from draft busts quicker, and have no problem with second contracts. This I believe, as general managers across the league have locked up their key youngsters after their ELCs have expired. However, these are still large contracts.

Arbitration has a slight change, much like the ELCs. Currently players get arbitration rights after their fourth year in the league, the owners have proposed five.

When you combine these two together, players are out of ELCs one year earlier, and one year away from arbitration. That buys the owners two years in talent evaluation. Add in an extra year until free agency, and the owners have more cost certainty.

These little bits on their own aren’t big, but they add up to a big change when combined.

Revenue Sharing at $200 million

This is a point that is very important to both sides. Remember that less than half of the NHL franchises make money. This is in part due to player salaries, addressed above, but this also has to do with revenue sharing. The current revenue sharing provisions are a joke. The Islanders, who have lost about the same amount of money as Lehman Brothers (exaggeration), do not qualify for revenue sharing.

I don’t know the details of the new revenue sharing provisions (if someone has them, please share), but I’d assume that clubs that pull in $200 million or more in revenue must contribute a percentage of their revenues to a general fund which gets dispersed, based on team need, to the clubs that are not making money at the moment.

Update: (9:05am): Looks like Pierre LeBrun has some more details. The current proposal calls for $200 million in revenue sharing, with the top ten earning teams contributing 50% of that (about $10 million per team), and the bottom 20 contributing the other half (about $5 million per team). The distribution amount would vary from year to year.

AHL Contracts

This is an interesting point that the owners tried to get into the 2004-2005 negotiations. It states that one-way deals signed by NHL players will count against the cap, even if they are placed in the AHL. This is the Wade Redden clause, as it means his salary would count against the cap. More on Redden and this provision tomorrow, but it’s worth noting again that the owners tried this last time and it didn’t wind up in the CBA.

Contract Length

The final point is contract length. The owners, in their proposal, limited contract length to five years. This is a bit of an interesting point, as these long-term contracts actually keep costs down and give owners cost certainty with star players. After all, think of how much someone like Marian Hossa could make much more than $5.275 million if he were to hit free agency at 27 and again at 32 years of age. I’d expect that this, much like the AHL provision above, is a talking point for the owners that they will use to get a concession on the NHLPA’s behalf.

There’s also a clause in this part that restricts salary movement on a year-by-year basis by more than 5% in the contract. More or less, if there is a $5 million per year average salary, then the salary difference can not go up or down by more than 5% (250,000). This is an attempt to limit the cap circumvention contracts.

Update (9:05am): Another interesting provision here is that existing contracts over five years in length would count against the cap, whether the player is playing or not. That means that deals for Roberto Luongo, Marian Hossa, and –to hit closer to home– Brad Richards, would remain on the books for the duration of the deal.

Let’s get this out there: The NHLPA will not accept this deal as is. There are way too many points that do not meet their needs and way too many points that have room for negotiation.

The good aspects of this offer are that it shows a willingness by the NHL to move off of their ridiculous demand of a 7% pay cut right off the bat, something the players were never going to take. This is a structure that the NHLPA can work and negotiate from. With the NHL’s ultimatum that this is offer has a ten-day expiration period, expect the next ten days to have some serious negotiations.

The ball is now in the NHLPA’s court. They won’t reject this deal outright, as the NHL has swung the PR battle in their favor by showing a willingness to negotiate. This is some serious progress, and will only remain progress if the NHLPA shows a willingness to negotiate as well.

21 Responses to “An in-depth look at that NHL’s offer to the NHLPA”

  1. SalMerc says:

    Bettman has made himself look like he is bending over backwards for the sake of the season, but in reality, he is making a 7% concession by the players look like he is trying to be fair. In reality, he has used the lockout to put strain on the players, stalled negotiations and now has come to a point where he could have been weeks ago. BUT, if he did that, he would have looked soft, so now he comes down off his original rediculous demands, moves closer to the middle, and is made himself look like he is doing this for the good of the game. The players lose 7% and also lose some time on the RFA. I want hockey, but I fel Bettman played the NHLPA perfectly and may ultimately still get all he wanted.

    • Dave says:

      @SalMerc, It’s all about media spin. The 50/50 deal has always been spun as the fair deal, and now that it’s on the table, it makes Bettman and the owners look good.

      • SalMerc says:

        @Dave, Spin Spin Spin – Yet still no NHL hockey. In the end the rich get richer and the fans get the shaft!

  2. Kris says:

    Do you know if the AHL clause covers players that go to play overseas? When the Hawks were in cap trouble they loaned him to one of the European leagues so that they didnt have to pay a backup goalie 5 million or take his cap hit.

    In my opinion solving the cap circumvention is important, but feel they did not get it right. Limiting the player to a 5% drop isnt going to work, as already seen from this summers contracts. Give them no salary and all signing bonus. The idea of averaging contracts was a good idea, as a players age went up and skill went down, his salary declined.

    I dont like the idea of limiting contract length. If you draft a player that you want to make a career player for your organization and he wants to be one there should be no rule saying that it cant happen.

    Heres how I would solve the problem. Either do away with the average for the cap hit. Make the players cap hit, his salary + signing bonus + any performance bonus, that player is scheduled to make from July 1st to June 31st. This way if a player has a declining contract (as they should in older age), his cap hit gets lowered each year.

    The other option is to keep the average, but put a guidelines on how many years are averaged together. For instance, any player signs a contract under 5 years gets his contract averaged as it has been. Any contract over 5 years gets the first half of the contract averaged and that is the cap hit until it is over, same for the second half. If a contract is an odd number of years then decide which half that year gets applied to.

    This allows teams to make players lifers, but gets rid of the salary cap circumvention.

    • Dave says:

      @Kris, Interesting solution to the cap circumvention contracts. But how would you handle the contracts already signed that were legal under the old CBA?

      • Kris says:

        @Dave, In a perfect word, just change the cap hits, however I doubt that would fly. I would say due to the amount of contracts that are longer then 5 years they have to be grandfathered in. I do like the idea that the cap hit stays if the player retires, even if hes traded before hand it goes back to the team that signed the contract.

        • Dave says:

          @Kris, I’d have to assume this clause is something that both sides will negotiate out of the deal.

          To your point of playing overseas, this clause affects that as well.

  3. Walt says:

    Is this offer fair, maybe, but at least the players are paid what they signed for!

    At 50-50, the players take a hit, but the owners win with the ELC, even if it’s 2 years Vs 3 years, although the players earn more a year sooner. The owners also win with the unrestricted free agents going from 27 to 28 years of age.

    There is wiggle room with this offer, and the minor issues could be worked out if everyone wants to. Personally, I’m in favor of including bonuses as a part of the “Cap Hit”, so that the smaller markets get a fair shot at keeping their players that they developed.

    It’s refreshing to see some movement on the part of the owners, and lets see if the players make a reasonable counter offer.

    In closing, Buttman is still a scum bag, and will always be so!!!!!

    • Dave says:

      @Walt, Bonuses are part of the cap hit right now. It’s why Brad Richards is a $6.67 million cap hit, even though his salary is $4 million this year ($8 million signing bonus).

  4. Kris says:

    @Dave, also tweek the over 35 clause in the expired CBA. Make it regardless of age of signing contract, cap hit stays if player gets injured. This way the grandfathered cap circumvented contracts, cannot say well the player is injured, he cant play to get around the keeping the cap hits.
    They should also give the Devils draft pick back(hard for a Ranger fan to say), since the Suter/Parise/Weber contracts are just as bad as the Kovalchuk contract that they were penalized for. The Devils are the only team punished for a cap circumvention contract, when other teams cleary have done the same

    • Dave says:

      @Kris, I don’t know how I feel about that injury aspect. I like seeing cap relief for injured players.

      As for punishment, do you think the Rangers should get punished for the Richards contract?

      • Kris says:

        @Dave, My issue with the injury aspect is if a player signs a contract after the age of 35 years old there is no cap relief. So why allow cap relief to a 38 year old who signed his conract at 30?

        As for Richards, while I am a fan of what he brings to the table, I am not a fan of his contract. I dont like the idea of having a 39 year old with a 6.6 cap hit. Was Lidstrom worth it for Detroit, yes, will Richards we will see.

        His contract is as bad as the other cap circumvention contracts. His conract drops off 6 million and stays at 1 million for 3 years. Thats 95% of the contract paid in years 1-6 and 5% paid in the last 1/3 of the contract. I just dont think its right that only the Devils were fined when many teams have signed these deals.

  5. Chuck A says:

    Any prognostications from you pros on when/if this deal gets done?

    • Dave says:

      @Chuck A, a deal will get done. I think they can save the season. This proposal is something the players can negotiate from.

      • Chuck A says:

        @Dave, Thanks – my wife is growling for some hockey! If now I can only swing her away from the Sabres…

  6. Mikeyyy says:

    To me Bettman is still at fault regardless of the offer.

    He could have done this weeks earlier.

    The players will agree to a 50/50 split.

    Now it’s a game of I want this. But you really want that. Lets compromise on the small points.

  7. SalMerc says:

    I wonder what the backstory is to why Bettman came and made this offer. Was it owner-pressure or TV money pressure?

    • MBN says:

      @SalMerc, Same question here. All morning I have been thinking about what would have caused Bettmen to come back with this, seemingly out of the blue??

      • SalMerc says:

        @MBN, We know it isn’t because of the fans, as the NHL rarely considers them (us). It surely has to do with money. Somebody did some homework to show Bettman that if he does this, we can all get that and if you do it by this date, we all can cash out at the end. Sorry, but I am a skeptic.

  8. Rickyrants13 says:

    50/50 The players that went over seas Should be packing their bags and comming home. The only thing that should happen when they meet is signing the contract. This is on the players now