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August 15, 2004
By Katie Fairbank / The Dallas Morning News
When the National Hockey League's collective bargaining agreement expires Sept. 15, there's a good chance that team owners will lock out the players until a new contract is finalized.
The league and the NHL Players Association have been preparing for this faceoff for years.
Both sides girded for a prolonged work stoppage by amassing multimillion-dollar war chests to use as leverage in case labor talks fail.
The sticking point for both sides is player salaries. The league contends that 75 percent of total revenues in 2002-03 went to the guys on the ice, creating a loss of $273 million for team owners.
The players' union says those numbers are misleading and that the owners are out to create a salary cap. They propose a system that includes revenue sharing, a one-time 5 percent rollback in salaries, a luxury tax and some changes to the system.
So far, there's no middle ground. But if time does run out, both sides are prepared to withstand a lengthy break in play.
Owners began creating their $300 million strike fund five years ago.
To gather the money, the NHL created 30 separate accounts, and each team was required make deposits on designated dates until it had contributed $10 million. Owners will be able to use that money to pay bills if negotiations stall.
This spring, teams began cutting costs to assure they wouldn't run through their savings accounts. Several handed out pink slips, and about 75 workers were let go.
The Stars cut about a dozen jobs soon after the team lost in the first round of the playoffs.
"It was basically people that helped run the day-to-day operations of the team, such as ticketing and marketing," Stars spokesman Rob Scichili said.
The NHL is also preparing to cut expenses by reducing staff. More than half the league's employees, several hundred altogether, will lose their jobs if there is no collective bargaining agreement in place Sept. 20. The league says the move is "a layer of protection in case there is a season devoid of revenue."
Teams are streamlining their budgets in other ways, too.
The Stars scheduled training camp in Frisco instead of Colorado to cut travel expenses. Since teams will still hold training camps even if the season starts late, having it at the team's home rink makes scheduling and logistics easier, too.
And the Stars aren't renewing most contracts with seasonal employees, such as equipment managers and assistant trainers, until an agreement with the players is reached.
Other teams are waiting to do player negotiations, while a few, such as the Washington Capitals and Pittsburgh Penguins, are hacking player payrolls in case caps are put in place.
"We're one of the few teams out there that has a good number [of players] under contract," Scichili said of the Stars. "We have 18 players with NHL experience. If we had to field a team tomorrow, we could. We feel really good about it."
Preparing for the worst
The current contract is a result of talks back in 1994-95. Those negotiations hit a rough patch, and a 103-day lockout cut each team's schedule to 48 games. A six-year agreement was reached that ultimately was extended until this year.
The players have prepared for the deadline since then, and the union warned its members to expect a shutdown that could last as long as 24 months.
"The league made it very clear when they began putting together their $300 million lockout fund that their strategy was to use it as an economic leverage over the players," said Ted Saskin, the union's senior director. "Accordingly, players have been saving salaries over the last couple of years."
The players' association is saving as well, putting aside any excess revenues created from licensing such products as trading cards and video games.
"We won't make the amount public," Saskin said. "But it's substantial."
If there is a strike or lockout, the union's funds will be used to pay out stipends to the 700 players in the league. The amount hasn't been decided, but the payments will be the same for everybody.
That means that defenseman Jon Klemm, who signed a two-year deal for a total of $3 million with the Stars, would get the same payment each month as Stars winger Bill Guerin, who has a contract worth $45 million.
"Everybody in the union is treated on an equal basis," said Saskin, adding that the union will pay medical and insurance for everyone and that there's also a fund for "special circumstances on an individual basis."
Owners girding
Owners released a study in February of the league's finances by former Securities and Exchange Commission chief Arthur Levitt Jr. The report said that the league had $1.996 billion in operating revenues last season, of which 75 percent, or $1.494 billion, went to players' salaries.
That left the owners $502 million to pay the rest of their bills. They said that it wasn't enough and that they were in the hole by $273 million.
So if the owners need about $775 million to keep operations going for a normal season, the $300 million they saved for a work stoppage could be stretched pretty thin.
"It certainly won't cover all of it by any estimation," said David Carter, a principal of sports marketing firm Sports Business Group.
But furloughs, firings and leaner budgets by the teams could make the war chest funds go farther than in past years, especially since game expenses wouldn't be a concern.
Collecting war chests has been common practice by unions and companies for the last 100 years. It's considered a necessary tactic in negotiations.
"It means basically that you're protected. The main reason you do it is so that you're not over a barrel and forced to take the other side's final offer," said Neil Bernstein, a labor arbitrator and law professor at Washington University in St. Louis. "You can continue to pay your bills even though the place is shut down."
Comparatively, though, these hockey war chests are whoppers.
"Yeah, that's a lot of money. They're doing it to show they mean business and can go on for a long time," Bernstein said.
That's why the money worries Jim Boone, a cofounder of the NHL Fan's Association.
"If they sit out half a season, I don't care about how long they've saved that war chest. They're giving up a half a billion dollars in revenue," he said. "They have to work as hard as they can [toward a CBA agreement] no matter how much money they have stashed."
E-mail kfairbank@dallasnews.com
LEAGUE LABOR MODELS
NFL: This is the model the NHL would most like to put in place. The NFL has a hard salary cap, and teams are not allowed exceed it. Because contracts are not guaranteed, players can be cut to get the team under the cap. Bonus money must be paid, but salary can be terminated at any time. The NFL splits 40 percent of gate receipts equally and also splits $2.2 billion a season in television money. That helps make the salary cap work. Big-market teams don't complain because everyone makes money. A cap in the NHL would not be universally accepted because teams such as Detroit and Philadelphia believe they need to spend money to make money.
MLB: This is the model the NHL players have put forth. The baseball union might be the strongest in the world, and it has always protected its players. The league operates under a luxury tax in which owners are penalized for overspending. The theory is good, but the problem with MLB's $120.5 million ceiling is that only one team (the Yankees) is over. That ceiling is set to rise to $128 million next season and $136.5 million in 2006. Last season, New York paid a tax of $12 million on an overage of $67 million. It is hardly a system that slows spending. What's more, all contracts are guaranteed, and there is no buyout system.
NBA: This is the model that might work best for the NHL because basketball and hockey mirror each other in revenue-generating areas. In the NBA, players are guaranteed 48 percent of Basketball Related Income (BRI). Last season the cap was set at $43.8 million. However, it is a soft cap. Teams are allowed to skirt the cap by offering their own players exception contracts. That encourages teams to keep their own players but drives salaries higher. Teams that went over $61.1 million (including exceptions) in 2002-03 had to pay $1 for every $1 over that amount. In 2002-03, it cost Portland $44.9 million and the Mavericks $18.5 million.
PRESSURE POINTS
Tuesday: Next scheduled meeting between NHL and players association.
Aug. 30-Sept. 14: World Cup of Hockey. Two sides expected to see each other a good deal during this Olympic-style tournament in St. Paul, Montreal and Toronto.
Sept. 15: Collective bargaining agreement expires.
Sept. 20: Scheduled start of training camps. League will not open camps if an agreement is not in place.
Oct. 13: Scheduled start of regular season.
Jan. 1, 2005: If the season hasn't started, the league has to begin considering canceling it. In 1995, the drop-dead date was reported to be Jan. 13. The sides signed an agreement that day and started play Jan. 19.
Jan. 13, 2005: At this point, anything less than a 48-game schedule becomes unrealistic.
Sept. 15, 2005: A deal must be in place for owners to open training camps for the 2005-06 season.
Oct. 1, 2005: If a deal is not in place, the pressure point for the 2005-06 season again pushes ahead to Jan. 1. Then a second lost season would have to be considered.
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