Friday, December 7, 2012

A fresh look at the NHL Lockout: why term limits make sense, and other thoughts on Bettman, Fehr, make whole, mediation, and the next CBA

By Finesse (follow me on Twitter)

The NHL Lockout is an emotional time for everyone.  Here are some long-winded thoughts on where things stand today -- term limits, "make whole," mediation, length of the new CBA -- and how they might get resolved. (Almost all details are from stuff on Puck Daddy)

Here's Donald Fehr, upset that his assistant isn't reading his press-clippings loudly enough.
Term limit on contracts

The NHL's offer calls for a maximum contract length of 5 years, or 7 years if a team re-signs its own player.  The players proposed 8 years as a maximum length for contracts.

This is the one provision that probably makes the owners look the worst because it is a mechanism to protect themselves from themselves.  But it might not be that simple.  Even though it's the "owners" giving out these contracts, remember that the "owners" are not a single entity -- they are 30 different people with very different approaches.  When four or five dumb owners give out mega-deals, it drives the price up for everyone and the "smart" owners are left with no choice.  Just look at the Penguins.  Are any of us really confortable with Crosby having a 12-year, $104 million contract, or do we just convince ourselves that it makes sense because we know that's what he would get (at least) on the open market?  Would we really be excited to give Malkin a 12-year deal in 2014 through age 40(!), or would we just say we're OK with it because we know that's what it costs to keep him?

The NBA has 5-year maximum contracts because it became far too common for a guy to sign a mega-deal and not even live up to 50% of the expectations.  The NBA's 5-year maximum doesn't just protect owners from themselves; it also creates an incentive for the players to earn their next contract by not sucking after signing a mega-deal.

7 years, $70 million.  Does anyone know who this is?
That latter concern doesn't seem to have hit epidemic proportions yet in the NHL (save for Ovechkin, most of the precipitous declines we see from mega-deal players are entirely predictable from the outset) but term limits aren't some phony concern used as a negotiating tactic.  Just read the 22nd amendment.  And given how big of a motivating factor money can be -- the term "contract year" is proof of that -- it's not a surprise that the owners view term limits as a critical piece of any new CBA.  So important, in fact, that the NHLPA's proposal accepted the concept (albeit 8 years, not 5).

(Another interesting thing to note: When LeBron James is a free agent in 2014, the maximum length deal he can sign is 5 years.  When Phil Kessel is a UFA in 2014, he'll probably want a 12-year deal.  If Leafs owner Larry Tannenbaum grabbed Kessel by the neck and starting screaming at him, "YOU ARE NOT LEBRON JAMES!!!!! I don't think anyone would have a problem with that.  When you look at it that way, it makes 10+ year deals that much more ridiculous).

Much more after the jump...

All of this clashes, of course, with the principle that if a player wants to play somewhere for 12 years, and an owner wants to sign him, then why should anyone legislate against that relationship?  After all, the freedom to be stupid is a founding principle of this country.

James Buchanan: 15th President of the United States; legendary dumbass
This conflict could be partially resolved by something that's already floating around.  The owners want the 5/7 term limit AND the so-called 5% variance rule -- that is, the actual salary a player earns in any given year of his contract cannot vary more than 5% from year-to-year.  (The players are countering with something in the neighborhood of 25% variance). Though this provision is currently being presented as secondary to the 5-year term limit, in practice it would probably be very effective in limiting the term of contracts.

Consider the case of Zach Parise, who signed a 13-year, $98 million contract with the Wild this summer (still ridiculous).

Under a 5% variance rule with no term limit at all, what could he get?  Under his current deal, the last 4 years are $2M, $1M, $1M, respectively, so we can just lop those off under the theory, "Zach, you better have retired by then."  That means the real "value" of the deal is more like 10 years for $94 million (a cap hit of $9.4M/year).  That would essentially tie him with Oveckin at the highest cap figure in the league.  It's almost unfathomable that anyone would have signed Parise to a deal with a $9.4M cap hit AND $9.4M salary for 10 years.

"Not so fast."
If some team wanted to hand over $9.4 million in cash to a 38 year old Zach Parise, who had 69 points last year at age 28, at least they would suffer the consequences of it in the form of a huge cap hit and actual cash out of pocket.  This kind of stupidity wouldn't necessarily force the smart owners to do the same thing because there would be actual consequences to these terrible contracts.  Under the current system, every year a team tacks on at the end for $1 million dramatically reduces the consequences of the dumb deals by drastically lowering the cap hit.

The more likely scenario is that Parise wouldn't get a 10-year deal, but if he did, it would be for a lot less than $94 million.  And if that happened, it would be a lot less of a risk for the owner because, you know, it wouldn't be $94 MILLION FOR ZACH F'ING PARISE!  You might see him get a 5-year, $50 million contract which is arguably a fair price to pay for having a top-10(ish) player in his prime and is, not coincidentally, the maximum term the owners are offering in negotiations.  And don't sleep on the positive side effect of term limits, which is that he will be in another "contract year" at age 32.  It's good for the game when players are motivated.

Obviously Parise is just one example and what I'm saying may not even be right.  But the takeaway should be this: the 5% variance rule, or even a 0% variance rule (which would be better), is a strong disincentive to give ultra long-term deals.  The 3 years tacked on the end of Parise's contract save the Wild about $2 million/year under the cap.  That can buy you a lot.  It's what the Pens just paid for Tomas Vokoun.

The other element of the owner's proposal is that players could get 7-year deals if they re-sign with their current team.  I couldn't be more in favor of anything than giving players financial incentives to stay with one team.  As fans we will always cheer for the front of the jersey, but it's a lot more fun when you're used to the names on the back, for better or worse.  I want Claude Giroux to be a Flyer.

How to resolve this: The players have to cave on the 5% variance rule.  It is the best way to make contracts have real consequences, and will separate the good GMs from the bad.  The owners should up the max lengths to 6/8 to help the players save face in hopes of actually saving the season.  They could even go to 7/9, because a 7-year deal takes you from UFA at age 27 to age 34, when you aren't washed up yet.

"I beg to differ."
The "Make Whole" Provision

According to reports, the NHL had upped the "Make Whole" provision of its offer from $211 million to $300 million.  Assuming that the players' share of revenue drops from 57% to 50%, this is the money that would be used to make full payments on contracts signed before the lockout.

The players argue that morality is on their side on this issue -- they signed a contract, and they believe it should be paid out.  While it's impossible to argue with that on principle, one problem for the players, as we pointed out months ago, is that these contracts are under the umbrella of a larger contract -- the Collective Bargaining Agreement -- that is no longer in effect.  No need to rehash that analysis here, but suffice it to say that if the players are not "made whole," they won't be suing the owners for breach of contract.

My take: It's not my money, so it's hard to feel invested in this. I'm sure it pisses the players off, but it probably also pisses Ted Leonsis off that Alex Ovechkin is signed for $9.5 million a year through the year 2021 and is a 65 point scorer.


Donald Fehr should stop the charade of asking for mediation.  Nothing that happens in mediation is binding.  Billionaire owners are not going to listen to a "non binding" mediator try to tell them what to do for the simple reason that they don't have to.  The only reason to do mediation is if it's so contentious between the parties that they can't even be around each other.  Which it wasn't, until Donald Fehr came back into the negotiating room.

Here's Donald Fehr, probably ruining something
Length of the new CBA

The owners want a 10 year CBA with an opt out after 8 years.  The players want an 8 year CBA with an opt out after 6 (that was recent movement -- before Thursday there were reports that they wanted a 5 year deal).

Having lost a season only 7 years ago, this one is obvious.  The longer the better.  The NHLPA is worried about locking in these "concessions" for 10 years.  It's surprising that this would become a sticking point because the truth is that the vast majority of the players in the league today will not still be in the league in 8 years.  (I have no idea what this website is, or if it's remotely accurate, but it says that over half of all players play less than 100 career games).  So you have to think, who on the union side has a dog in this fight?

I guess young players who plan on being in the league for a long time have a stake in this, but they are 20 years old.  To think that they are positioning themselves for 10 years down the road is to ignore evidence like this 20 year old Red Wings' prospect dressed like a furry and getting arrested for DUI under Michigan's "super drunk" law.

Heavily invested in CBA negotiations.
So other than Donald Fehr's omnipresent ego, that leaves only one group: agents.  Particularly the big agencies.  They have the resources to weather a lost season if it means gains in the long term, even as far as 10, 15, or 20 years down the road.  Does a 35 year old Craig Adams care whether the new CBA is 8 or 10 years?  Or a 32-year old Brooks Orpik?

Speaking of a guy like Craig Adams...

I have no idea where he stands in these negotiations, but here's what I do know.  He is 35 and scheduled to make $675K this year.  After that, he's probably out of the league.  He will never get a 5 year contract and he will not be in the league for the next CBA.  He needs to make his money now because there are going to be hundreds of new players drafted in June gunning for his job.

I don't weep for the Craig Adams types around the league, but they are the ones who have nothing to gain and everything to lose from this dragging on endlessly.  Kudos to Donald Fehr (I guess) for keeping union cohesion up to this point, but when will what's been lost through missed paychecks eclipse what can ever be made up by continuing to negotiate?  We have to be getting closer to the place where unity fractures.  And, frankly, it should. The players are not going to get as much money as they want -- this CBA will be worse for them than the last one.  Do the Craig Adamses of the world want to lose their last year in the league so someone who is in high school today can get a 6th year on his contract in 2022?  That's not for me to say, but I certainly wouldn't fault any player for saying "drop the puck."

It will undoubtedly suck for players to give back money on their current deals or not have the good fortune of signing a 13-year contract because they missed the 2012 free agency spending spree by a year.  But they should look at the bright side of things.  They get paid to play hockey for a living.  And that's pretty awesome.

1 comment:

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