Olympics, CBA at heart of struggle between players, NHL

Very soon thereafter and not unexpectedly, the NHL Players’ Association rejected Bettman’s offer while continuing to express the players’ strong desire to participate. The game of cat and mouse continued at the media conferences held with Bettman and NHLPA Executive Director Don Fehr around the league’s 2017 Winter Classic. Bettman continued to posture with his skepticism, while Fehr remained optimistic that the league and its players could agree on participating in the Olympics without extending the CBA.

It is no secret that NHL owners don’t like shutting down their business for two to three weeks in the middle of the season for the Olympics. There has never been any compelling economic reason to do so, either tangible or intangible. The NHL doesn’t receive any financial compensation from the International Olympic Committee, nor is it permitted to activate its own sponsors around the Games. In 2018, the Games will be played 14 time zones away from New York, so only the most hard-core fans in the U.S. and Canada will be watching any of the games live, particularly before the medal round.

Some marketing experts argue participation boosts the league’s exposure around the globe and hence indirectly provides an economic boost to the league. That is a specious argument at best and certainly not quantifiable in any meaningful way.

So if NHL owners can’t realize any quantifiable economic return from the IOC, it isn’t surprising to find them looking to extract something of value from the other major stakeholder in the equation — the players. The players have always been on record as wanting to participate. Bettman is wagering that perhaps the NHLPA is willing to give up something of value for the right to play in Pyeongchang. That might be wishful thinking, and the players seem prepared to call Bettman’s bluff.

Team Canada, all NHL players, celebrate their gold medal win at the Sochi Olympics in 2014. Photo by: GETTY IMAGES

In round numbers, only 150 of the approximately 710 players on active NHL rosters in 2018 will participate in the Olympics, or just 21 percent. The balance typically look forward to the vacation they get in the middle of a long and physically punishing season. However, that needs to be weighed against the very substantial economic issues affecting all players by extending the CBA for three additional seasons. At the top of the issues list is the players’ discontent with the current escrow system in the CBA.

The escrow system in the NHL is very complicated. It would take many pages to describe all of its intricacies. In summary and generally speaking, the CBA provides for a hard salary cap stipulating that the total annual player compensation can’t exceed 50 percent of all “Hockey Related Revenue” generated by the league. “Escrow” requires that some percentage of the salary that players have negotiated in their individual contracts be held back every year in escrow until it can be determined whether those negotiated salaries in the aggregate exceed 50 percent of HRR. If and when they do, the players end up receiving less than their contractually agreed salaries.

As a result, if the CBA is extended by the NHLPA merely for accommodating approximately 20 percent of its players who wish to participate in the Olympics — notably those who are the highest wage earners already — the escrow system will continue to the chagrin of most NHL players.

On the other hand, one might question whether a CBA extension is all that bad for the players. As recent history has shown under salary cap systems following the expiration of their labor agreements, negotiations have typically resulted in givebacks and concessions by the players. The NHL and NBA have routinely locked out their players upon the expiration of their respective CBAs to create leverage to extract better terms. That’s what makes the NHL’s offer to extend the CBA for three more years curious.

One wouldn’t think the NHL would give up the opportunity to put the screws to its players again in 2020 unless it believes there is some far greater economic benefit to continue under the terms of the current CBA. On a macro level, the NHL’s business is building some nice momentum on many fronts. By NHL standards, it now has an enormous television contract in Canada that runs through 2025. With the massively escalating rights fees paid to the NFL and the NBA in the U.S., the NHL may have an inkling of something similar on the horizon.

On a micro level, the NHL also may be worried about the serious financial issues facing owners in some of its weaker markets and would like to avoid the impact that a work stoppage might have on those franchises, as well as on the expansion Las Vegas franchise that will begin play next season.

Even though the NHLPA has rejected the NHL’s extension offer, one can safely assume this is not the last word we will hear about it. If Bettman isn’t bluffing, the players could propose their own changes to the CBA in conjunction with an agreement to extend it. In addition to proposing changes to the escrow system to make it more palatable to the players, such requests could include the NHL’s agreement to the players’ participation in the 2022 and 2026 Olympics.

The players also could seek the NHL’s commitment to develop a hockey equivalent of soccer’s World Cup in the middle of the NHL season, when fans are most engaged in the game and players are in top shape. No more of these preseason hockey exhibitions masquerading as World Cup-type competitions. If the NHL is willing to shut down for two to three weeks in the middle of the season for the Olympics, it shouldn’t have any issue with shutting down for a real World Cup of Hockey every four years and the massive dollars and marketing opportunities that would result. There are many interesting ways to implement a real World Cup of Hockey. However, a more extensive discussion of that is best left for another column.

Lots of food for thought.

Jeffrey A. Citron (jeffcit@gmail.com) is a corporate finance and sports lawyer in Toronto.