Friday, June 29, 2007

Salary Cap Shenanigans

Why was the 2004-05 NHL season lost? Who should get the blame? Was it Gary Bettman and the league or Goodenow and the union that was dealing in bad faith? Recent events might sharpen the hindsight.

So today this AP headline and story is flashed all over sports news:

NHL salary cap rises to $50.3 million for next season -- The NHL salary cap will rise to $50.3 million per team next season, an increase of $6.3 million from last season, the league and players' union announced Friday.

It's the second increase under the collective bargaining agreement that ended the yearlong lockout in 2005.

The key issue in the lockout that forced the cancellation of the 2004-05 season was the owners' insistence to include a salary cap and the players' association's unwillingness to accept it. The union finally gave in, and has had a financial windfall.

Teams don't have to spend up to the ceiling, but each club's payroll must be at least $34.3 million. The range from top to bottom is always $16 million...
The NHL team salary cap has progressed as follows:
$39 million for the 2005-06 season
$44 million for the 2006-07 season [12.82% increase from 05-06]
$50.3 million for the 2007-08 season [14.32% increase]
The 2004-05 season was cancelled after the league's last offer as specified in this letter from Commissioner Gary Bettman to Robert Goodenow, Executive Director of the NHL Player's Association, was rejected.
February 15, 2005

Mr. Robert Goodenow
Executive Director
National Hockey League
Players' Association
Toronto, Ontario

Dear Bob:
We attempted to reach out to you with yesterday's offer of a team maximum cap of $42.2MM ($40MM in salary and $2.2MM in benefits) which was not linked to League-wide revenues. As Bill told Ted, "de-linking" a maximum team salary cap from League revenues and total League-wide player compensation has always been problematic for us, especially since we cannot now quantify the damage to the League from the lockout. This presents the risk we will pay out more than we can afford. As you know, if all 30 teams were to spend to the maximum we proposed, and if the damage to our business is as we discussed at our meetings in New York, then the League would continue to lose money.

I know, as do you, that the "deal" we can make will only get worse for the players if we cancel the season -- whatever damage we have suffered to date will pale in comparison to the damage from a cancelled season and we will certainly not be able to afford what is presently on the table. Accordingly, I am making one final effort to reach out to make a deal that will let us play this season.

We are increasing our offer of yesterday by increasing the maximum individual team cap to $44.7MM ($42.5MM in salary and $2.2MM in benefits). This offer is not an invitation to begin negotiations -- it's too late for that. This is our last effort to make a deal that's fair to the players and one that the Clubs (hopefully) can afford. We have no more flexibility and there is no time for further negotiation.If this offer is acceptable, please let me know by 11:00 A.M. tomorrow, in advance of my scheduled press conference. Hopefully, the press conference will not be necessary.

Gary B. Bettman
After the $44.7 million offer was rejected by the union, Gary Bettman summarized the failed negotiations this way:
Bettman rejected the notion that a compromise was evident for both parties at a salary cap of $45 million-$46 million. He insisted that pushing his offer to $42.5 million on a salary cap stretched his teams' resources. Both sides pulled their last offer off the table.

"In one additional last-ditch effort to try to save the season, I gave an offer of another $2.5 million," Bettman said. "We were stretching to get there because we were projecting that under that deal, we would probably lose money for the next two years. ... When the union came back at $49 million, it was clear that there was no basis upon which we could make a deal."
Bettman said a salary cap of $42.5 million per year plus another $2.2 million in benefits would stretch teams so bad that they would "lose money for the next two years." And the union's $49 million offer was "no basis" for a deal. However, here it is two years latter and the league is getting very little TV revenue, but they announce the salary cap is getting bumped up by $6.3 million to $50.3 million per team. Where are the welfare checks for the teams going broke under a salary cap that is escalating on average 13.6% per year?

It seems very clear that Bettman's financial forecasting was wrong. The 2004-05 season did not have to be sacrificed like it was by Mr. Bettman.

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