Real value of revenue sharing lost in mudslinging

What's Mine Is Mine and What's Yours Is Mine, Too.

Bruce Dowbiggin
Calgary Herald
October 8, 2004

What if I told you that everything we've talked about so far in our little
collective bargaining agreement primer is unimportant, secondary, a
Welcome to Chapter 3 of Lockout 101: A Layman's Guide to the National Hockey
League's Labour Meltdown, where we discuss the agenda, but dare not speak
its name: revenue sharing.
The public and much of the media have gulped the NHL's Kool-Aid on salary
caps and payroll taxes as the only means to level hockey's uneven playing
surface. Guided by Gary Bettman, the original architect of salary-cap theory
in the 1970s, they want an "idiot-proof" cap as a means of stopping the
practice of NHL big fish swallowing NHL small fish (expecting Bettman to
recommend something other than a salary cap is a lot like asking Steve Jobs
to choose PC over Mac).
But there is strong evidence that if NHL owners shared more of their
revenues, the economic gap between rich and poor markets would shrink faster
than under either a salary cap or a luxury tax (and thus end the wholesale
poaching seen the past decade).
Before we look at that, let's first see where the two sides sit on the issue
of NHL revenue sharing, which -- at middle single digits percentage-wise --
is by far the lowest among the Big Four team sports.
Why The NHLPA Loves It: They should love it, but NHLPA director Bob Goodenow
is chronically incapable of articulating his best arguments (such as why
Bettman still draws his hefty $3 million salary during the lockout while
Goodenow and many NHL employees are getting zilch). So it's little surprise
he's missed a great chance to demonstrate why the NHLPA shouldn't be the one
asked to take a haircut in the new hockey economy.
According to several sports economists, if NHL owners (who split just nine
per cent of their revenues in 2002) shared anything like the 63 per cent of
revenues divvied up by NFL bosses in that same year, much of the economic
benefit of poaching stars would disappear and small markets would have a
better chance to retain their key players. The NHLPA would avoid all the
responsibility for cost savings under revenue sharing, yet no one at the PA
wants to talk seriously about it.
Why the NHL Hates It: Large-market owners say they pay more for their
franchises and have higher overheads and thus are under no obligation to
support their brethren in smaller markets. With the vast majority of NHL
revenues coming from gate, not TV money, these owners are loath to transfer
locally generated money to another city. Likewise, those owners who do a
good job of running their businesses are reluctant to prop up those who
couldn't sell ice cubes in the desert.
Revenue sharing also means very public disclosure of an owner's
profitability, and most NHL owners would rather stick their head in a really
old equipment bag than give up the truth about their situation.
Finally, owners have seen the polls that show up to 80 per cent of the
public think overpaid, greedy players are the problem. So why argue with the
public and reduce the bottom line?
So What's The Skinny? A fine recent book -- Red Line, Blue Line, Bottom Line
by former Herald journalist Marc Edge -- makes the point that increased
revenue sharing between NHL teams would help remove the bogeyman of the
free-spending, maverick owner who disrupts the salary grid.
"The more revenue owners share among themselves, the less they end up paying their players," writes Edge.
In his revealing argument, Edge shows that the NFL-- which shares TV, gate
and other revenues, mostly on a 60/40 basis -- has thelowest league average
salary, because with less to gain financially from signing one player, NFL
owners don't engage in frenzied bidding-up of players. With a trip to the
playoffs not that much more profitable than missing the postseason, one
free-agent receiver or running back simply doesn't mean that much to the
bottom line.
But a hockey owner can reap -- and keep -- a huge financial windfall by
adding players to take him to the Stanley Cup final. So individual players
have a much higher incremental value on the bottom line -- and thus their
value is bid up well past their real value. A mistake made much worse when
that contract is guaranteed.
Not something that would happen with real revenue sharing in the NHL. Is the
NFL exceptional? The NBA, which shared 34 per cent of its revenues in 2002,
discovered that "its effect tends to be more profit oriented," writes Edge.
In other words, more money goes to owners' pockets than players' wallets
under significant revenue sharing.
So Who's Right? It's typical of Gary "Wrong-Way" Bettman's regime atop the
NHL that the NHL would pass up a genuinely profitable scheme for one that
instead lets Bettman blast players for his many mistakes since 1995 and the
last CBA. And it's typical of Bob "The Sphinx" Goodenow to leave his best
arguments on the bench in favour of a "free-market-is-best" philosophy. Can
it be an issue if no one hears about it?
Conclusion: Unless the NHLPA makes this into a more high-profile issue, the
real value of revenue sharing will be lost in the NHL's noisy PR campaign
for a salary cap. And the new CBA will be as flawed as was the last one.