Just when all seemed well in the world of sports labor negotiations with the ratification and near-ratification of new collective bargaining agreements for the MLB and NBA respectively, the NHL’s wonderfully contentious relationship between its owners and players reared its ugly head. In November, NHL owners made an initial offer to allow the players to participate in the 2018 Olympic Games if the players’ association (NHLPA) approved a three-year extension of the current CBA. This offer was formally rejected on December 2nd, after NHLPA executive director Don Fehr told press that there was “no interest in the idea” from his side.
The NHL’s CBA doesn’t expire until the 2022-23 season, but both sides are able to exercise an opt-out clause prior to the 2020-21 season. While there is plenty of time for the sides to agree on the issues that divide them, there is also time for the sides to become further entrenched in their positions and for new issues to arise exacerbating differences of opinion on what constitutes a fair deal. Since the negotiations are apparently underway, let’s take a look at the issues that are likely to be addressed in the next CBA:
Escrow: From all appearances, this appears to be a major issue for players going into the next CBA. The escrow system was put into place to ensure that the 50/50 revenue split was actually achieved at year’s end. The CBA requires that a portion of player salary is retained in an escrow fund, which is currently set at approximately 15-16% of salary, until the accountants are able to determine the year’s total hockey related revenue. If the revenues that the players received is less than their agreed upon share, they may receive some of their escrowed money back. However, it has proven to be more likely for that money to go to the owners instead, leaving many players unhappy with the existing system.
While this may be palatable to players on the top end of the pay scale who are making millions of dollars per year, in a league where the minimum salary is $575,000 and the average career length is between five and six years, escrow can have a very real and detrimental impact on a player’s present and future financial situation. Solutions for this issue could include a cap on escrow or other modification to the salary structure to make player contracts more reflective of the salary they will be earning.
“No Trade” / “No Move” Clauses: Restrictions on the movement of players between teams is a topic likely to be addressed as well. These clauses ensure that veteran players, who may no longer be “worth” their salaries, can reject trades to teams considered undesirable to that player. This handicaps teams from getting a return for a player that does not fit their current performance or financial situation. Currently, a player is eligible to have these restrictions included in their contracts at age 27 or after seven accrued NHL seasons, whichever comes first. Look for the NHL to try and limit player eligibility for these clauses as well as impose limits on their scope and application.
“Dead” Salary Cap Space Trades: This occurs when an injured or retired player with term left on their contract is traded to a team with enough salary cap space to take on the contract with the knowledge that the player they are trading for will never suit up for his new team. Recent examples include the Arizona Coyotes acquisitions of both Pavel Datsyuk (retired) and Chris Pronger (injured/effectively retired) and the Toronto Maple Leafs’ acquisition of Nathan Horton (injured/effectively retired). While these trades appear to benefit both sides of the deals, they could also be construed as a circumvention of the salary cap rules in place, which disproportionately benefits teams with deep pockets. Owners of smaller market teams may look to put restrictions in place about trading players on long term injured reserve and/or the retirement list to prevent these trades in the future.
Player Bonuses: A term that was thrown around during this summer’s free agency was “lockout-proof contract”. The term was coined by player agents who got their clients’ salaries to largely be paid in bonuses, ensuring that they would receive a significant portion of their salary even in the event of a work stoppage. The most significant example of this was the contact Steven Stamkos signed with the Tampa Bay Lightning, which pays $60 million of the $68 million he is owed over the next eight years in the form of annual bonuses, which are guaranteed at 100% of their value even in the event of a work stoppage. The deal is also “buyout proof”, because the team would receive little in salary cap savings, as his annual salary is only $1 million. The NHL has to be concerned with the prospect of this kind of salary structure becoming normalized, because the prospect of players getting paid during a work stoppage would likely increase their willingness to take a stronger stance in CBA negotiations.
Contract Length: After a rash of “lifetime” contracts handed out before the last CBA (current NHL examples include contracts for Zach Parise, Ryan Suter, Marian Hossa and Henrik Zetterberg), the current CBA imposes limits of eight years for teams re-signing their own players and seven years for teams signing players formerly on another team. In an attempt to keep a player’s salary cap number down, teams have been regularly issuing max length deals, including recent eight year extensions to Victor Hedman, Brad Marchand and Brent Burns. Owners will likely push for shorter terms while players will attempt to keep the status quo.
Salaries for Younger Players: The NHL is increasingly becoming a young man’s league. While there are exceptions, there is significant evidence that NHL players “peak” between ages 23 and 26. However, players are usually not eligible for free agency until age 27. Prior to that, players are subject to the salary restrictions imposed by the rookie pay scale and restricted free agency. This leads to players getting overpaid for their less productive, post-prime years and underpaid during their most productive years. While the interests of younger players are not often well-represented by the veteran players who generally comprise the more influential members of the players’ association, the current salary structure creates an unsustainable inefficiency where teams feel compelled to give veteran players longer contracts at a higher price point than their projected production would justify in order to retain or obtain their services. Though the benefits to older players may not be immediate, a salary structure more in line with a players’ actual value would appear to ultimately benefit everyone over time, particularly as teams would more easily be able to fill out their roster with veteran players as opposed to cost-controlled players on rookie contracts.
Olympic Participation: Players want to go to the Olympics. Owners do not, unless they are granted certain concessions regarding expenses and insurance from the IOC and/or IIHF. NHL superstar Alex Ovechkin has made it abundantly clear that he intends to go to the Olympics and represent his country regardless of what restrictions the league may attempt to impose upon the players. He is almost certainly not alone in his conviction. This is a significant and personal issue for many players, many of whom grew up in situations where representing their country in the Olympics was as or more important than playing in the NHL itself. Therefore, it makes sense as a starting point in negotiations for owners. Assuming that they can get the costs and insurance taken care of, the owners have little to lose financially over this issue. The inequity in importance between the owners and players makes this issue ripe for the owners to use as a bargaining chip while trying negotiating the financial aspects of the CBA that have a more significant effect on their bottom line.
Some players have made it known that they were less than impressed by the NHL’s offer to extend the CBA as is, without any consideration to the issues listed above and others. The positive takeaway from the NHL’s first offer is that they appear to be using the current CBA as a starting point in negotiations, instead of attempting a drastic overhaul as they have in the past. While the NHL trying to strong-arm players into extending the current CBA may not appear to be the most encouraging sign that a deal can be made, there is plenty of time left for an agreement to be reached. Stay tuned.