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Warren K. Zola

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The Unique Nature of the Business of Hockey

Posted: 08/29/2012 12:37 pm

Lurking in the shadows of sports news in the summer of 2012 -- behind the Olympics, the Penn State scandal, and the saga of Dwight Howard -- is hockey's labor dispute. While labor disagreements in the NBA and NFL were front page stories last summer, until recently the ongoing negotiations between the NHL and NHLPA have received less attention here in the United States than trampoline coverage at the Olympics.

With hockey facing yet another potential labor stoppage, many casual fans are wondering what makes the business of hockey so unique? The answer to that question is complex, steeped in history, and unfortunately for the players, explains why there is a high probability that a lockout will occur. Eight years after the cancelled 2004-05 NHL season it appears we are once again headed for empty ice rinks this winter.

To quote David Byrne and The Talking Heads "You may ask yourself, well, how did we get here?"

The Current Negotiations

The existing collective bargaining agreement (CBA) between the NHL and NHLPA was signed in July, 2005, the result of a lockout. The clock is ticking on a new agreement, as the current CBA expires on September 15, 2012. As is the case in every sports labor dispute, the conflict centers on compensation and free agency. Unlike the NBA and NFL disputes where discussions focused on the distribution of revenue from a thriving league, the NHL's impasse is based on the need to generate greater revenue in order to keep the league fully operational.

NHL players currently receive 57 percent of hockey related revenue (HRR) under the existing CBA. Like other professional sports, this money is paid to the players via guaranteed salary in the form of a salary cap. The NHL owners are proposing a roll back to 43 percent of HRR, which reflects a reduction in player salary of 24 percent. If accepted, this arrangement would transfer approximately $450 million a year from the players to the owners over the duration of a new CBA.

In addition to a substantial reduction in player salary, the current labor negotiations are focused on imposing further restrictions on individual contract rights such as free agency, salary arbitration, bonuses, and contract lengths. For example, free agency for players now starts after seven years of tenure--the owners are proposing it not start until ten years while the players are seeking to hold the line at the current level (at age 27 or seven continuous years of service).

Finally, the NHLPA has proposed increased revenue sharing among the member teams--the NHL currently has the most limited revenue sharing formula in the major United States professional leagues. This tactic may promote owners to debate amongst themselves rather than work together in solidarity against the players. In order to debate the business rationale of each proposal, it is necessary to understand the unique nature of the industry and its participants shaping this negotiation.

NHLPA Leadership

The lead negotiators for this dispute are NHL Commissioner Gary Bettman and NHLPA Executive Director Donald Fehr. Bettman has managed the NHL since 1993 while Fehr took the reins of the NHLPA in December 2010, having guided the MLBPA for over 23 years.

The NHLPA's history provides a case study in "how not to run a union" since it was formed in 1957. The very first executive director of the NHLPA, Alan Eagleson, was appointed in 1967. All you need to know about Eagleson is that he was ousted from his post and subsequently served in jail for fraud and embezzlement.

Following Eagleson was Bob Goodenow who served as the NHLPA's executive director from 1991 to 2005. While Goodenow saw average salaries blossom from $271,000 to over $1.8 million during his tenure, the sport also endured a strike in 1992, a lockout in 1994-95, and another lockout in 2004-05. After the most recent CBA was reached following the 2004-05 lockout and the acceptance of a salary cap, it was clear that Goodenow had lost the full support of the players. Complaints focused on his iron fist management style, perceived close relationship with the NHL's owners and Commissioner Bettman, and lack of true engagement with the players.

Ted Saskin and Paul Kelly served three years each as executive director of the NHLPA. Saskin was sacked from this position for, among other things, covertly accessing player email accounts without their knowledge. Kelly's tenure was terminated following a power struggle involving Ian Penny (former General Counsel of the NHLPA) and Eric Lindros (former player and Ombudsman of the NHLPA). A coup led by Penny, Lindros, and others on the outside Board of Directors led to Kelly's unceremonious ousting, which left the NHLPA rudderless for a spell. It is worth noting that all of the involved parties, including Penny, Lindros and all members of the Board ultimately resigned from their positions with the NHLPA.

[Author's note: For more background on the firing of Kelly by the NHLPA Board read this article]

With Mr. Fehr now in the executive director role, the question remains whether his 23 years of experience in professional baseball can provide the necessary leadership to serve the NHLPA and the players that has been so desperately lacking?

Players

The instability of the NHLPA itself could be overcome, in theory, if the players were engaged and unified. Alas, there a number of reasons why the dynamics and business structure of professional hockey does not provide an ideal environment in which the players can mobilize and negotiate as well as other sports leagues. The diverse demographics of the league, coupled with the tremendously short average careers of players, provide the owners with a distinct advantage. Some of the unique characteristics include the following:

1. Approximately 54 percent of the players in the NHL hail from Canada, with another 23 percent or so coming from Europe, leaving somewhere in the neighborhood of 24 percent coming from the United States. This diversity leads to tremendous gaps in language, culture and education amongst the players; making collaborative efforts more challenging.

2. In addition to the "globalization" of the NHL, the development path to the league is also tremendously varied. The league's primary feeder system is not college but rather major junior hockey. Half of the NHL players come through the Canadian Hockey League (CHL) -- an organization comprised of three major junior leagues: the Ontario Hockey League, the Quebec Major Junior Hockey League, and the Western Hockey League.

Why does this matter? The players are trained, early in their careers, in a professional environment that offers them limited rights. They have advisors from their early teenage years who provide guidance, but don't always have the best, long-term interests of their clients at heart. While hockey may be the sport with the most team camaraderie, different experiences lead to different perspectives.

3. The average NHL career is tremendously short: over half of NHL players play in less than 100 games during their career and for approximately 5 percent of players, their first NHL game is also their last. In terms of longevity, less than 5 percent of NHL players suit up for more than 1,000 career games.

The corresponding impact on current negotiations is obvious: without a critical mass of veterans from the 2004-05 work stoppage to explain the history, provide perspective, and buttress the masses when the inevitable struggles manifest themselves, the NHLPA are at a clear disadvantage. On the other side of the table, virtually all of the owners along as well as Commissioner Bettman do have that experience to draw upon during this current negotiation.

4. While the 2011-12 season had over 300 former college hockey players appear in a game, an all-time high, this represents only 30 percent of the players having any sort of college education. Of those 300 individuals, less than 50 percent of them spent four years on campus or have college degrees. While college is by no means the ultimate barometer for intelligence, the skills taught on campus including the ability to question authority, think critically, plan strategically, and stand up for your beliefs, are unquestionably valuable to running a union.

Optimism

Despite the aforementioned obstacles, there is still hope for the NHL:

1. Most importantly, league revenues are at an all-time high, with over $3.1 billion coming in per year.

2. The key negotiators--Bettman and Fehr--possess a considerable amount of experience in collective bargaining. A potential work stoppage is not unchartered territory for either man -- Bettman has been involved in three lockouts while Fehr has overseen four strikes. Both are familiar with the pain of labor impasses and understand the impact that missing the start of the season could have on the league, especially with the lockout of 2004-05 still fresh in the minds of hockey fans. Talks between Bettman and Fehr continue to be cordial and respectful -- but stay tuned.

3. As mentioned earlier, while there is a small number of college hockey players in the NHL, there is even a smaller number of universities that actually serve as feeder programs to professional hockey. In fact there are only three colleges in the country--Boston College, Michigan State and Wisconsin--that had more than 20 former players suit up during the 2011-12 season. Thus, if these schools adequately train and prepare players for the demands of professional hockey including the business of the industry, there is hope that there may be a better educated workforce.

4. Hockey fans are loyal and have been through these problems in the past. So far, they have always come back to the best game on ice.

Conclusion

Historically, poor union leadership, disparate player backgrounds and experiences, and tremendously short careers have sent hockey players to the negotiating table at a considerable disadvantage to the owners. Will the NHLPA be able to change this trend or will the owners, once again, dictate the terms under which professional hockey is played?

Editor's note: This post has been modified since its original publication.

 

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