Players' Salaries Threaten Smaller NHL Teams
IT'S ONE OF THOSE LINES drawn straight from the NHL Players' Book of Clichés. Professional sports is a business, they say. Holdouts, salary dumps, arbitration awards - things that dash the hopes of Canadian fans - all are driven by market forces beyond anyone's control, the players say, and no one should take it personally.
So as the Calgary Flames staggered to the end of yet another unprofitable season last April, Ken King decided to show his players exactly what kind of business it is. In a move once unthinkable for an NHL executive, the Flames president invited all 22 athletes to a boardroom at team headquarters, where he flicked on an overhead projector and bared the club's financial soul. "I showed them everything on our financial statement," King recalls. "Food and beverage money, broadcast revenue - every line." The picture wasn't pretty: nearly $7 million in losses; seven straight years without playoff revenue; no room for raises. "I got a really good sense that they understood it," says King. "I got a sense that they believed it."
Call it job insecurity - or perception of the obvious. But as a much-anticipated round of collective bargaining ensues this fall between the NHL's players and owners, HOCKEY's millionaires appear to have finally realized the salary bonanza has exceeded the league's ability to pay, and if there's another big spike, it could bring small-market teams crashing down around their ears. King's impromptu seminar was just one example. While players have long been conditioned to doubt financial information provided by the teams, most of the Flames took King at his word. Craig Conroy, an assistant captain who attended the meeting, described the presentation as "beneficial," saying it opened many players' eyes to the club's economic reality. "We weren't expecting anything like that," he told Maclean's. "It gave us a better understanding of where the team sat financially, and where the money goes."
Even the NHL Players Association, which has accused small-market teams in the past of exaggerating losses, has grown uncharacteristically friendly. In his first official meeting with the league several weeks ago, NHLPA head Bob Goodenow reportedly offered the owners a five-per-cent, across-the-board pay cut - the first rollback anyone can remember the association proposing. True, they still question the real threat to shaky franchises in both Canada and the U.S. - even after the league, in an unprecedented move, opened the books of four teams to union accountants. And in interviews last week, union officials admitted they hope to head off drastic measures designed to protect small-market teams, such as a salary cap. But, said Ted Saskin, senior director of the NHLPA, "the proposals we've been putting forth represent major concessions toward the owners. We're prepared to respond to what they say they need."
The players' spirit of détente is good news. Since 1995, when the players and owners resolved a lockout by signing the current collective bargaining agreement (CBA), Canadian fans have watched in dismay as their teams, other than Toronto, withered into poor sisters of the NHL family, due in large part to the free-agency and arbitration provisions of the current deal. Figures compiled by Forbes magazine suggest revenues for the Flames, the Edmonton Oilers, the Vancouver Canucks and the Ottawa Senators came in well below the league average of US$69 million in 2002 (Montreal's $75 million was more than offset by a huge local tax burden). By comparison, the league's two richest teams, the Detroit Red Wings and New York Rangers, raked in US$114 million and US$103 million, respectively.
Meanwhile, player salaries were more than doubling from their pre-1995 levels - to the current average of US$1.8 million - with the predictable result of a talent exodus from Canada. Edmonton traded star centre and captain Doug Weight. Calgary was forced to trade defenceman Derek Morris. Montreal did the same with winger Mark Recchi. Only Toronto, with its rich broadcast deals and seemingly limitless demand for seats, is capable of carrying more than a couple of bona fide stars, the ones who cost US$5 million or more apiece.
The bad news is that any relief will likely follow a long, acrimonious work stoppage - probably a lockout. The owners long ago identified a salary cap as their brass ring in the negotiations, and so far they've shown no inclination to back down. Even as Goodenow was making his startling offer last month, the league was reportedly demanding a per-team payroll limit of US$31 million - far below the current average of US$40 million. On cue, a report surfaced suggesting the NHL's 30 teams had lost some US$300 million last season, and owners began a round of sabre-rattling. In Montreal, the normally jovial George Gillett held court beneath the stands at a pre-game skate, saying anyone who doubts the losses is "naive as hell." "Notwithstanding the fact we're No. 1 in attendance, and we're No. 1 in advertising and promotion," the Canadiens owner said, "this team can't make it under the current economic structure."
The NHLPA, not surprisingly, remains dead set against any kind of cap, saying the players need a free market in which to shop themselves. "What we're not going to accept," says Saskin, "is some artificial construct that doesn't allow the marketplace to speak."
In the centre of this standoff are the few marquee players Canadian teams can afford. A few hours after Gillett spoke, Canadiens captain Saku Koivu sat staring down from the press box of the Bell Centre, where he was resting a sprained knee. Prior to the Canadiens' game against Toronto, Koivu had joined a ceremony honouring Hall-of-Fame centre Jean Béliveau. Comparisons between the two captains were hard to avoid: when he signed his first contract with Montreal 50 years ago, Béliveau's five-year, $100,000 deal was considered lavish. But it was nothing in real dollars next to the US$4.25 million Koivu will pull down this season. "Years and years ago, it was perfect for the owners and bad for us," said Koivu who, though wildly popular in Montreal, is no shoo-in for the Hall of Fame. "Now it's vice versa. We have to find a way to bring the pendulum back to the middle."
Then there are the stars who retired and worked their way into front office positions - possibly the most strident group of all. Last week, Wayne Gretzky, part owner of the Phoenix Coyotes, pointed to the recent bankruptcies of Ottawa and Buffalo as signs of an impending financial crisis. Without significant concessions from the players, warned the Great One, teams will begin shedding expensive players.
John Ferguson Sr., once an enforcer with the Montreal Canadiens who went on to become GM in New York and Winnipeg, echoed him. "Believe me, the high salaries can't continue," said Ferguson. "Whether it's young players coming in with signing bonuses or whatever, it's got to be straightened out. The whole state of hockey could be hurt by this." Finally, the ever-opinionated Phil Esposito argued that the owners needed a salary cap to control themselves. "I always felt there should have been a cost-spending threshold, or a cap," said Esposito, formerly the general manager and part-owner of the Tampa Bay Lightning. "But I also thought there should be a minimum, where you have to spend a certain amount."
Can anything short of a hard cap keep owners from breaking ranks? Or must Canadian teams watch from the sidelines as their big-market, U.S. counterparts drive up the cost of doing business by offering ever-more preposterous contracts to ever-less talented players? "All sports live and die by their dumbest owner," says Paul Swangard, the managing director of the University of Oregon's Warsaw Sports Marketing Center. "From a union perspective that's a good thing. If you find one guy who views his franchise as a trophy rather than a business, then you can tap into his desire." Currently, the league is rife with examples of ill-advised deals. In New York, the Rangers will pay Bobby Holik US$9 million this season to be a third-line checking centre, while Boston is paying Martin Lapointe, a grinding winger, US$5.5 million. In Dallas, Pierre Turgeon will make US$7.5 million despite scoring only 42 points last season.
Trouble is, says Swangard, the NHL simply lacks the revenue to pay all but the best players that kind of money. Under its five-year, US$600-million TV deal with ESPN and ABC, the league makes far less from broadcast rights than its counterparts in basketball and football. To make up the ground, NHL teams rely more heavily than other leagues on gate receipts. "The NHL tends to be the most expensive ticket for sports that have 80 or more games a season," says Swangard.
Without a billion-dollar broadcast deal to divide among its teams, the NHL doesn't have the kind of revenue-sharing that enriches small-market teams in, for instance, the National Football League. And big-city NHL teams with larger ticket and arena revenues have been reluctant to spread their wealth. "The result is a discrepancy between teams' individual revenues that has grown rather dramatically," says Saskin. So the NHLPA wants teams to do more revenue-sharing. "That," he adds, "is something that has to be addressed in a new agreement."
As well, the players association claims Vancouver, Calgary and Ottawa each stand to save more than $11 million over the course of the season thanks to the surging value of the Canadian dollar. "I can safely say that any Canadian team that was declaring a loss is in a profitable situation with the currency where it is," Saskin said. That said, a 76-cent loonie means teams will not be eligible for as much help from the Canadian Assistance Program, which handed out up to US$3 million per Canadian team (Montreal and Toronto don't qualify) last season to mitigate currency discrepancies.
Whether Canada's teams will be saved by a salary cap or redistributed revenues - or whether a protracted lockout will melt both sides' concern for small markets - remains an open question. But if public opinion plays any part, the athletes may be in for a shock: in recent months, fans have shown clear signs of impatience with the players and their leaders. When TSN.ca posted a recent story on the negotiations, responses flooded into the Web site, overwhelmingly supporting the owners' call for a salary cap. And a membership survey conducted last season by the 20,000-member NHL Fans Association found 81 per cent support for a salary cap. Jim Boone, co-founder of the Ottawa-based organization, links the crankiness to ticket prices. "A fan whose seat went from $50 per game to $100 over the last six years knows what's going on," he says. "He can easily tie the ticket prices to the salaries."
At least some of the players are sensing the mood swing. In Montreal, Koivu notes that modern fans are much more aware of the business side of the game. As a result, he says, a big-money player can feel especially miserable if he's performing below his pay grade. Conroy stresses the importance of making the playoffs in Calgary to ease the pressure on the club. Seven years without income from playoff home games, he notes, "really hurts any team."
While that newfound sensitivity to bottom-line issues is laudable, only the new CBA - the current one doesn't expire until Sept. 15, 2004 - will show whether the players are really prepared to help out. But after a decade of hearing teams threatening to leave - and countless nights listening to players dodge the subject - the new rhetoric sounds better than "it's a business."
Percentage increase of Major League Baseball, National Basketball Association, National Football League and National Hockey League average salaries (in US$ millions), 1993 to 2003.
OUT OF WHACK
Wayne Gretzky 1985-86; 215 points; CDN$800,000
Bobby Holik 2002-03; 35 points; US$9 million
Maclean's November 3, 2003