Three trends from the upfront season Kroenke comfortable wearing 2nd hat From the Field of Risk Management Plaintiff seeks documents from FSG Demos key to Microsoft’s MLS deal People: Executive transactions Reinsdorf values people he knows, trusts Racetracks attract music festivals For the WNBA, time for a clutch 3 Super Bowl’s numerals: Still a classic
SBJ/Jan. 10-16, 2011/OpinionPrint All
The hiring of Fehr will give the NHLPA the ability to counterbalance the power that NHL Commissioner Gary Bettman has exerted within the league the last five years, as a result of the leadership void at the NHLPA.
Fehr, the former head of the Major League Baseball Players Association, was hired by the NHLPA in 2009 to oversee the search for Paul Kelly’s replacement. The players ultimately determined he was the man for the job. Initially reluctant, Fehr was persuaded and will take the job on his terms and conditions.
Certainly no one needs to be educated as to Fehr’s qualifications and experience. He is no stranger to collective-bargaining agreement negotiations or player issues. Some may question his hockey credentials, but Bettman came to the NHL from the NBA without any NHL experience. Being a hockey neophyte does not seem to have hampered his growth and progress as commissioner. Fehr may not have known every rule of play the day he took office, but he certainly knows the intricacies of negotiating a CBA that deals with all the issues facing players in professional sports.
So what can we expect from Don Fehr?
History tells us he will approach the labor negotiations (the current CBA expires in 2012) in a cool and dispassionate manner. Bob Goodenow was viewed as a fiery and hot-tempered leader. The public perception of Goodenow and Bettman was that they had a very personal and abrasive business relationship.
Watching baseball negotiations during Fehr’s MLBPA tenure, which included lockouts, strikes and a lost season, Fehr projected, for the most part, a calm demeanor. His press conferences and negotiation updates tended to be businesslike and factual even as a season was canceled and negotiations were failing. No one doubted the resolve of the MLBPA, and Fehr seemed to steer a steady course and held to the players’ public positions.
If we accept the proposition that the current NHL CBA is flawed and needs to be changed, what can we expect in 2012? Will there be a strike or lockout?
Fehr is familiar with the tools and tactics available to the NHLPA and NHL. The NHL used the lockout in 2004 and set the stage for the season to be canceled. Goodenow led a strike in 1992, three weeks before the playoffs. Both sides know these are legitimate and legal tools of labor negotiations, and both options are on the table for 2012.
If history is a predictor, we can anticipate that Fehr will be very active and directly involved in face-to-face negotiations with Bettman. The stakes for both sides are high. The NHL faces many serious issues, including franchise stability, contract flexibility, salary escrow, television contracts, player safety and revenue sharing. The hard cap of 2005 has not worked; the poor teams are still poor, and the rich teams are getting richer.
One thing does seem to be clear based on what we know about Fehr. If there is a strike or a lockout, it will not be a result or consequence of a lack of effort or commitment to serious negotiations. The NHLPA and Fehr will spend the time and effort necessary to determine whether the NHL wants a true partnership with the players or will seek a continuation of the current flawed deal. Negotiations will not be affected by the personal (or lack thereof) relationship between the parties.
Fehr knows he works for the players and Bettman works for the owners. The goal will be a mutually beneficial agreement that both sides can live with. Whatever deal they make in 2012 (or 2013) will be the result of a negotiation, not the capitulation of 2005.
If the 2012 season is lost, it will be nothing personal, just business.
Neil F. Abbott (firstname.lastname@example.org) has been a sports business lawyer in Boston for 28 years and has represented professional hockey players since 1981.
It’s the same for other teams around baseball. Sometimes they sign players to long-term contracts that turn out to be great deals for the team, less great for the player. Think about the Rays and the deal they got with Evan Longoria, who the Rays have under a six-year contract (2008-13), with the team having an option to extend the contract through 2016. Longoria hit .281, with 33 home runs and 130 RBIs in 2009, and .294, with 22 home runs and 104 RBIs in 2010. The guaranteed value of Longoria’s contract, however, is only $17.5 million, well below the market value for a player with his statistics.
Equally often, however, a team that signs a player to a long-term contract sees the player’s performance deteriorate either for lack of motivation, advancing age, injury, or simply that the player is not as talented as the team believed him to be. These risks increase with the length of the contract, and are particularly great for pitchers. After the 2007 season, for example, the Chicago Cubs signed Carlos Zambrano, who had excellent seasons in 2006 (16-7) and 2007 (18-13), to a five-year, $91.5 million contract. Zambrano performed well in 2008 (14-6), the first year of the contract, but won a total of 20 games in 2009 and 2010 combined, and the Cubs are contractually required to pay him almost $36 million for the 2011 and 2012 seasons, regardless of his performance. The point is clear. Long-term guaranteed contracts pose significant risks for both players and team owners, particularly the latter.
That’s why there’s a better way via a new type of long-term deal that could be a winning prospect for everybody.
Under this approach, the player’s salary for the first years of the contract would be determined at the time the contract was signed, and would be guaranteed during those years. The number of years of guaranteed salary would be up to the player and the team; it could be as few as one or two years or as many as five or six years, even more if the parties wished. At the end of the guaranteed period, the player and the team would negotiate the player’s salary on an annual basis for the remaining years of the contract term. If, in one or more of those years, they could not agree, the player’s salary would be determined by an arbitration in which the central criterion would be the player’s current market value, based on the salaries of comparable players. Salary arbitration is common in Major League Baseball, and could easily be adapted to this situation.
In order to protect the player from the risk of injury, which would sharply reduce his market value, he would be assured of a minimum salary for each year of the contract in which his salary was not guaranteed. The minimum salary, which protects the player in the event of an injury, might also be used to protect the team in the event that the player’s performance deteriorated so much in a non-salary guaranteed year that the team chose to release the player in order to make room on its roster for a player who might contribute more to the team. The team would be free to release the player, but would be required to compensate him in the minimum salary amount for each of the remaining non-salary guaranteed years of the contract.
The advantage of this approach is that it provides the stability of a long-term contract to both the player and the team, while at the same time removing many of the risks of a long-term contract by replacing early on estimates of the player’s performance and appropriate salary in the later years of the contract by a market-based determination of salary in those years. Teams that are protected against these risks may be more willing to enter into long-term contracts, which substantially further the interests of players.
Carl Pavano, who earned $7 million plus performance bonuses last year, had not signed with a team for the coming season at press time.
The type of contract envisioned here would clearly not be appealing to all players or all teams. The superstar players who have great bargaining power, like Alex Rodriguez, CC Sabathia or Johan Santana, can successfully insist on a fully guaranteed multiyear contract in which the entire risk of diminished performance and injury is borne by the team. Those players would presumably spurn a multiyear contract in which the salary was not guaranteed for all contract years.
This type of contract would also be rejected by those teams that would prefer knowing exactly how much a long-term contract was going to cost them, even if that amount risked being far above the value it received for that cost, rather than be subject to the cost uncertainty of salary negotiation and perhaps arbitration in the latter years of the contract.
For many players and teams, however, a multiyear contract with salary guaranteed for some of those years, a neutral, market-based mechanism for determining salaries in the remaining years if the parties cannot do so, and salary protection in the event of injury or release in a non-salary guaranteed year, may be a good idea.
Here’s a good test for this idea: Pavano, who won only nine games for the Yankees during his four-year, $40 million guaranteed contract, then won 14 games for the Indians and the Twins in 2009, earning $4.35 million. In 2010, he won 17 games for the Twins, earning $7 million (plus performance bonuses). If you were a major league general manager, and Pavano wanted a four-year guaranteed contract at a fixed salary with your team, would you rather:
• Say no because his future performance is too uncertain?
• Say yes because his performance the last two years shows that he has turned a corner?
• Or say yes to a guaranteed contract, but with the salary fixed only for the first year or two, and the salaries for the last two years based on his performance?
Stephen Goldberg (email@example.com) is a professor of law at Northwestern University and a former Major League Baseball salary arbitrator from 1982 to 2009.
On the heels of this came data from Hollywood.com that showed movie studios sold 1.35 billion tickets
in 2010, the lowest number since 1996, when 1.33 billion were sold. Movie attendance fell 5.4 percent from
2009, the largest drop since 2005. Simple lessons — people don’t have to leave their home and pay for entertainment. It must be compelling, enjoyable and offer value. All these elements are daily talking points in sports.
Brands always want to be part of mainstream cultural conversation, and the NHL achieved just that with HBO’s “24/7.” At two recent holiday parties — mixed crowd, couples and singles — the main topics of conversation were the creepiness of “Black Swan” and the excellence of “24/7.” People who couldn’t care less about hockey were enthralled about the show and the personalities and the habits of its subjects, the Capitals and Penguins. No one can say whether this will translate to more interest or fans, but for a period over the last month, these two teams and the sport were exposed in a positive and compelling light, and there are no negatives to that.
I continue to be impressed by the NHL Winter Classic, an innovative creation the league can sell around and promote — and the media’s interest in it really surprises me. At SportsBusiness Daily, my colleagues and I were amazed at the depth of coverage leading up to the game. Then more than 500 credentialed media spread the story on game day. For an event that garners less than a 3.0 rating, the amount of coverage it generates is remarkable. Regarding the rating, frankly, I expected at least a 4.0 with the game in prime time on a Saturday, even being the lowest night of viewership and a holiday. Before I get the angry “You don’t get it” calls, I want to be clear. It’s a good number, and the NHL should be happy. It was the best regular-season audience since 1975, and the highest viewership over the four years of the Classic. Look at the trends:
2011 2010 2009 2008 4.5million 3.7 million 4.4 million 3.8 million
But I expected the number, with the promotion and hype of “24/7,” to be higher. I am sure John Collins and others at the NHL did as well. The game killed it in Pittsburgh (32.0) but didn’t fare nearly as well in D.C. (7.6), and there’s still the major challenge of increasing the appeal of the event and hockey outside the sport’s core markets. No easy answers there.
TREND ONE: We are in rare territory as we consider the possibility of two or more professional sports leagues experiencing labor stoppages in the next two years. The only time three leagues stopped play within an 18-month period was more than 15 years ago, in 1994-95.
Putting it in perspective: It was before 9/11. We were not at war. There were no crises in home foreclosures or unemployment. The average MLB player salary was just above the $1 million mark in 1994, roughly one-third the 2010 average. The SportsBusiness Daily had just begun, but there was no SportsBusiness Journal, so there was barely a forum for monitoring and discussing the business of sport.
What it all means is that anything can happen. We have no history to lean on here. Whatever this period will bring, it will NOT be business as usual. For that reason alone, we should invest more thought into the potential ramifications of any work stoppage.
TREND TWO: A work stoppage can be a game changer. I will stop short of suggesting a lockout or strike caused anything, but perhaps a significant stoppage can be part of a tipping point for a sport. Here are three examples:
• 1994 MLB strike: At some point in time, the NFL overtook MLB as the top sport in America. There is powerful evidence from the ESPN Sports Poll in 1994 to suggest the final breakaway was at the moment the season was canceled (see chart). For the first seven months of 1994, roughly the same number of Americans were fans of MLB as were fans of NFL. From August 1994 to today, MLB has trailed by at least 10 percentage points. The strike didn’t cause the flip, but it may have cemented it.
• 1998 NBA lockout: The size of both the overall NBA fan base and the avid fan base has never returned to their standings just before the lockout, not in 12 years. I am in the camp that says Michael Jordan’s retirement had more to do with it than the lockout, but is it possible that, without the lockout, Kobe Bryant or LeBron James or some of the others might have held or brought back the fans by now?
• 2004 NHL lockout: This one goes the other way. The NHL canceled an entire season, and yet the fan base has grown significantly since the lockout to levels beyond what they were before. I believe the significant difference in this lockout was the investment the league made in preparing the fans, teams, sponsors and media — 18 to 24 months in advance of the lockout — so they knew what was coming, could make alternate plans, and never got caught short in discussions having to say “I don’t know what to think or do about this.”
Pedestrians pass the locked gate of a parking area at the back of the United Center, home of the Chicago Blackhawks, during the 2004-05 lockout.
The NHL paid attention and made the action far more than a negotiation between management and the players. Labor actions now far transcend a debate between players and management. More is at stake for more people. And we have resources like SportsBusiness Journal and the Internet to keep the issues open and in front of everyone. I think the leagues that use the NHL’s approach of 2004 as a model will come out much stronger than those that do not.
TREND THREE: It’s a new economy. If previous strikes/lockouts embittered fans 15 years ago when times were good, we should expect the impact of stoppages to be far more powerful and prolonged this time around. Back then, the salaries of players weren’t emotionally linked to the financial well-being of everyday Americans. This is no longer true. We have seen declines in sports spending and attendance. Americans are much more conscientious about how they spend declining discretionary dollars and time. Much more is likely at stake for a league facing a work stoppage than the mere disenfranchisement of fans who continue to suffer in the worst economy since the Great Depression.
And it isn’t just dollars at risk. We can no longer assume Americans are that focused on the issues in sports. The October national study of Luker on Trends surveyed 1,000 American adults ages 18 and older and asked them to identify which sports were facing potential work stoppages in 2011. One in 5 (21.9 percent) knew the NFL was facing a stoppage, 13.4 percent said the NHL — though its CBA doesn’t expire until 2012 — 8.7 percent said MLB and 5.8 percent said the NBA. Less than 2 percent knew that both the NFL and NBA were at risk, and they are the two most publicized and first to act this year. When asked about the likely impact of a stoppage, two-thirds said it was not likely to change their level of interest. But put in context, a significant decline in interest, activity and spending by one-third of the fan base would be catastrophic for any league.
So, what now? Can any league, players association, sports sponsor or media company afford not to focus more time, energy and attention on the likely fallout from a work stoppage this time around? It is clear that previous stoppages are strongly linked to changes in subsequent fan interest, both good and bad. We are approaching only the second time when multiple leagues face labor actions at the same time — and it couldn’t happen at a worse time economically as Americans continue to grapple with the economy.
Rich Luker (firstname.lastname@example.org) is a consultant with The Luker Co.