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.