The Hockey Project's CBA Solution

Pretty much every fan has an opinion on the Collective Bargaining Agreement (which I’ll just refer to as CBA, from now own) currently being negotiated by the league and player’s union. Well, that’s only partly true: there’s obviously not any negotiating happening. I thought that I would take the time to set down some of the thoughts that *I* have for what I believe to be a fair CBA for both sides. This is not an all-encompassing CBA, and doesn’t deal with insurance, rookie caps, dental coverage, etc, etc, etc, etc. I’m not an economist or lawyer, so it will definitely look amateurish compared to any attempts they would make, but here goes. Player salaries tied to league revenues - The league claims that the players are currently making about 75% of the dollars generated, and are offering to give them something more like the 50ish percent that players make in the NBA and NFL. I will offer 60%, which I believe to be generous in comparison to those sports. Implement a Luxury Tax system - Some would call this a salary cap, I suppose. It's certainly not a hard cap. The 60% of revenues going to the players will be split equally for each team. Using the NHL’s 2003 figures as an example: $2.1 billion X 60% = $1.26 billion / 30 = Luxury Tax Threshold of $42,000,000 per club. The money that a club is taxed will be placed in a special account for end of season use. It will be distributed to clubs that did not exceed the tax threshold. Implement a Minimum Payroll Amount - In order to ensure that some owners don’t simply use the Luxury Tax Threshold as a means to make extra profit, a minimum team payroll amount will be instituted. The Minimum Payroll will be 75% the value of the Luxury Tax Threshold. In the case of the 2003 season, this value would be $31.5 million. A club that is below the Minimum Payroll at season’s end will be “taxed” at a rate that equals the difference between their payroll and the 75% Minimum Payroll. To use a hypothetical example, if a club had a payroll of $25M, they would be $6.5 million dollars below the 75% minimum. They would be taxed on a per-dollar rate, meaning they would need to pay that money to the players on that club. Any money collected in this manner would be split equally among the players on that club. Escrow Account – I like Brian Burke’s suggestion for an escrow system, and suggest something similar. It would work like this: In order ensure that the revenue split remains at the determined level, 10% of each player’s salary will be withheld and deposited into an escrow account. After the season is over, salaries will be compared to the hockey-related revenues. If there is a surplus, then that amount will be returned to the owners, thus keeping the players at their 60% pay level. Some examples: 1. Revenues fall while salaries stay the same Hockey revenue: $1.90 billion 60% level: $1.14 billion Salaries: $1.26 billion In escrow: $126 million Surplus (Salaries minus 60% level): $120 million Escrow amount returned to players (Escrow minus Surplus): $6 million Escrow amount returned to owners (Escrow – Return to Players): $120 million The players ended up being paid more than the 60% level in the CBA. In this case, the players received “only” $6 million dollars from the escrow account, bringing their salaries back to that 60% level. 2. Revenues rise while salaries stay the same Hockey revenue: $2.3 billion 60% level: $1.38 billion Salaries: $1.26 billion In escrow: $126 million Surplus (Salaries minus 60% level): $-120 million Escrow amount returned to players (Escrow minus Surplus): $120 million Escrow amount returned to owners (Escrow – Return to Players): $6 million In this example, league revenues rose and the player’s salaries did not, making their pay fall below the 60% level. By returning $120 million to the players, their percentage goes back to the appropriate amount. 3. Revenues and salaries remain the same Hockey revenue: $2.10 billion 60% level: $1.26 billion Salaries: $1.26 billion In escrow: $126 million Surplus (Salaries minus 60% level): $0 Escrow amount returned to players (Escrow minus Surplus): $0 Escrow amount returned to owners (Escrow – Return to Players): $0 In this highly unlikely example, salaries were paid at a rate that was exactly equal to the income of the league. In this case, no credit or debit needs to be paid at all. 4. Salaries outpace league revenues Hockey revenue: $1.9 billion 60% level: $1.14 billion Salaries: $1.30 billion In escrow: $130 million Surplus (Salaries minus 60% level): $160 million Escrow amount returned to players (Escrow minus Surplus): $0 million Escrow amount returned to owners (Escrow – Return to Players): $130 million Escrow Deficit (Return to Owners minus Surplus): -$30 million In this example, salaries have risen to such an extent that there isn’t sufficient money in the escrow account to cover the over-payments to the players. In this case, an Escrow Shortage Tax will be triggered, paid for by all clubs that exceeded the luxury tax threshold. The amount paid for by each club will be determined by adding up the amount over the threshold by all of the clubs, and calculating how much of a percentage of that sum each team “contributed to”. As an example, taking all of the clubs that exceeded the threshold, let’s say the sum of threshold overages was $25 million dollars. From there, each club’s percentage of that overage is determined. So, if club A was only $2 million over, that is 8% of that $25 million. If club B was $12 million over, that is a 48% share. Applying this to example number 4, club A must pay 8% of the $30 million dollar shortage: $2.4 million, while club B must pay $14.4 million. All Escrow Shortage Tax money will be distributed to clubs that did not exceed the Luxury Tax Threshold. Tax Rates for Exceeding the Luxury Tax Threshold - There would be different tax rates charged to a club, based on which players they sign. In his letter to The Hockey News, Trevor Linden said that “To stay under cap limits, clubs are forced to get rid of popular players or to take a pass on signing players who could help the club improve. Fans take a back seat under salary cap systems, where accountants rule, players come and go and winning becomes secondary.” I agree with Linden’s assertion: teams shouldn’t have to pass up on signing players from within the system just because of salary cap issues. I would propose a sliding tax rate on signing veteran talent. Tax Rates on Veteran Free Agents – For the purposes of this discussion, a Veteran Free agent (VFA) is any player that has been with one club for three or more consecutive seasons. It is worthwhile to give teams the opportunity to sign long-term players. It helps with fan recognition and gives the players some stability in a very unstable profession. The scale would work as such: Re-signing VFA of 3 years – 70% Luxury Tax Rate Re-signing VFA of 4 years – 60% Luxury Tax Rate Re-signing VFA of 5 years – 50% Luxury Tax Rate Re-signing VFA of 6 years – 40% Luxury Tax Rate Re-signing VFA of 7 years – 30% Luxury Tax Rate Re-signing VFA of 8 years – 20% Luxury Tax Rate Re-signing VFA of 9 years – 10% Luxury Tax Rate Re-signing VFA of 10 years – 0% Luxury Tax Rate Using a 3-year VFA as an example, for each dollar over the Luxury Tax Threshold that player’s signing takes the club, the team pays 70 cents (a rate of 70%. Duh). This percentage drops for each successive year the player has been with that club, until the tax rate disappears for the signing of ten-year players. This system allows teams to re-sign veteran talent, and gain all of the advantages that comes from roster stability, while still allowing players to make more money, and not (as Linden claims) necessitate excess veteran player movement. Tax Rates on Non-Veteran Free Agents - Again, for the purpose of description, a Non-Veteran Free Agent (NVFA) is a player that has been signed that did play with that club the previous season. Any Threshold overages on signed NVFA players are taxed at a dollar-for-dollar rate of 100%. Signing Bonuses – Any overages caused by signing bonuses will be taxed at a rate of 100%. Teams are permitted to offer players a bonus at the time that the contract is signed, however some restrictions apply: 1) Signing bonuses may not exceed 25% of the value of the last year of the contract agreed upon. 2) Signing bonuses can be used once every three seasons. This prevents teams from circumventing the intended nature of this clause, by signing repeated one year contracts with players, with maximum value signing bonuses. Incentive Bonuses - Any overages will be taxed at a rate of 100%. Incentive Bonuses may not exceed 50% of the value of the final year of the contract, and can be implemented in any year of an agreed upon contract. Income Tax Equalization – Canadian clubs may offer money to a player that equalizes the difference between American and Canadian income tax rates. Any overages due to income tax rates will not be charged to the club as a Luxury Tax Threshold overage. Audit Violations – Attempting to “hide” money from the audit process is strictly forbidden, and will be dealt with harshly. First Offense - $5 million fine, and one first-round draft pick Second Offense - $10 million fine, and two first-round draft picks Third Offense - $15 million fine, and three first-round draft picks. In other words, no club will wish to risk the penalty imposed. Free Agency - As already exists in the past CBA, there will be two different classes of Free Agents: Restricted and Unrestricted. Restricted Free Agency (RFA) – Any player 27 years of age or younger, who’s contract has expired. An offer sheet made to an RFA may be matched by the original club. Unrestricted Free Agent (UFA) – Any player 28 years of age or older, who’s contract has expired, or a player 27 years of age or younger who has not been “qualified” by his club. Any offer sheet made to an UFA cannot be matched by the original club, which has no special negotiation rights as they would with an RFA. Qualifying Free Agents – In order to negotiate with Restricted Free Agents, a club must make an offer of at least X amount, based on the player’s age: 23 years old – 60% of the value of the last year of the player’s prior contract. 24 years old – 65% of the value of the last year of the player’s prior contract. 25 years old – 70% of the value of the last year of the player’s prior contract. 26 years old – 75% of the value of the last year of the player’s prior contract. 27 years old – 80% of the value of the last year of the player’s prior contract. Compensation for Signing Restricted Free Agents – None With the highly punitive amount of compensation used in the last CBA, there were very few attempts at signing RFAs. The owners felt that this would be a good deal for them, but all that it really did was drive up prices due to the low amount of supply compared to the club’s demand, especially with veteran players still being restricted. The players say they believe in the concept of the open market, while having almost no real risk of the market lowering their salaries. Let’s open it even more, then. Salary Arbitration – May be used by a RFA with Established Player status (minimum 3 years of NHL playing experience), or also by the player’s club, and not more than once in a three year period. The value of the contract cannot fall below the minimum qualifying offer, nor rise by an amount greater than 50% of the value of the final year of the previous contract. Notes I believe that revenue sharing should be a central part of the NHL’s plan for itself. Yes, the teams compete with each other in the standings, but also represent a whole that is the league. A league with 30 healthy teams is always better than one in which the clubs in large media markets financially dominate small market teams. It is not through wonderful business and hockey decisions that the New York Rangers make far more money than the Edmonton Oilers, for example. It is for the simple and sole reason that the Rangers play in New York. One team is punished, the other rewarded, and for reasons beyond the skills of the employees. It’s a little beyond the scope of what I’m doing in this write-up, but a certain percentages of revenues from television, ticket sales, programs, etc, etc,should be pooled and split amongst the clubs. The National Football League has been sharing gate receipts since the 1960s, to all of the team’s collective happiness. The NHL, in my opinion, needs to look at issues such as these. So… That is my 5 cents in the debate. You may agree with part of what I said or none of what I suggested, but I still found it fun to write. Thanks!