NHL Lockout 2012: Clearing Up Confusion

With so much information flying about the NHL lockout, some of it is bound to be wrong and/or misleading. With that in mind, here is a list of the most commonly misunderstood issues at hand between the players and the owners.

1. Forbes says 18 teams are losing money!

Every year, Forbes releases a valuation of NHL franchises in which the magazine does a lot of research not only to hammer down what each team is worth, but also how their cash flow works. Last year's rankings showed 18 of the NHL's 30 teams running at an operating loss. The problem is that NHL teams are run as private businesses and private businesses don't release their financials for review. Forbes builds their data off what they can gather off publicly available data, but that data is extremely sensitive to Hollywood accounting. For instance, last year, the Colorado Avalanche reported $7M more in gate receipts than the Florida Panthers, despite the Panthers drawing 1,100 more fans per game and having a higher average ticket price.

The Truth: Sadly, only the league, and possibly the players know the truth. Did the Panthers lose money? Yeah, probably. Did the Capitals lose more money than the Panthers? Probably not. Did the Sharks lose more than both of them? Come on now. Part of the reason for the Panthers' gate receipts being so low is that their lease agreement leaves nothing to the team for luxury box sales. Of course, the Panthers lease their arena from a company owned by the same company that owns them, but Forbes doesn't count that.

2. The players and owners are fighting over how to divide $3.3 billion

This one is more an issue of what's easier to say because it's pretty much the biggest number we know is true. A $70.2M salary cap is built on the expectation that Hockey Related Revenue will be $3.27B. The thing is that Hockey Related Revenue is not the same as hockey-related revenue (the important difference being that one is a CBA-defined term and the other is a general term I'm using to actually mean what revenue is). In reality $3.27B is what the league and players are expected to split this year after offsetting direct costs. Without offsetting those costs (and using a more traditional definition of revenue), the players charge that the real total revenue is closer to $3.7 billion.

The Truth: Once again, as it's a collection of private businesses, we're left to guess. The point is that at times, the "revenue" figure has varied by up to $800M depending on definition.

3. The owners get only 43% of the cut, but have to pay ALL the costs!

This one is very closely related to the last one. In essence, there are people who believe that the players get 57% of every dime the NHL pulls in and that the owners are left with 43% of the funds to be used to pay for absolutely everything else, including benefits for the players such as travel accomodations. Elliotte Freedman wrote a very good post a couple weeks ago that digs deep into the HRR issue which explains it:

For those of you who didn't pay attention in math class (raising my hand, too), HRR is a net number, ie. revenue minus costs. And in the now-expired CBA, teams were able to deduct certain amounts from HRR before the players were given their share.

The Truth: Like Friedman says in his article, direct costs are widely defined. The players essentially help pay for these direct costs straight out of what defines revenue. Lowering the cost outlay on the front end lowers the back-end share. Take $100M in revenues. The players' share would be $57M without direct costs. If you factor in a cost outlay of $10M, then the players end up with $51.3M (57% of $90M). The actual revenue hasn't changed, but it's a good example of how large the differences between net and gross can be.

4. The NFL and NBA took 50/50 or worse, so should the NHL!

Gary Bettman's rallying cry has been a cry to common sense in relation to the other two labor settlements that happened last summer. Both the NFL and NBA created systems in which their players took 50/50 or worse on their splits and it only makes sense that the NHL's 57/43 split doesn't fit that mold. Brandon Worley at Defending Big D did a pretty good job of starting to show the differences between the NFL and NHL and why that assumption doesn't work so well.

If the NHL is serious about adopting a financial agreement with the players similar to that of the NFL or NBA, then the league must also be willing to take the necessary steps to make that smaller percentage worth it for the players. While some may feel that the NFL deal was bad for those players, their overall share of revenue essentially stayed the same and the league is now back to enjoying financial prosperity. The NHL, meanwhile, is asking for the entire burden to be put on the players shoulders -- there's no doubting why the players have rejected such a proposal.

The Truth: Worley hits the nail on the head that revenue sharing in the other leagues is a much stronger system. There's something else at play here though. In general with very few exceptions, the revenue split between the NFL and their players and between the NBA and the NBAPA is not adjusted for direct costs. If the NHLPA's claim that their current situation leaves them with 51% of comparably-defined revenues, then you can see the easy disconnect between the league and the players when the NHL asks to keep deducting the costs that the other leagues do not deduct WHILE asking that the players take comparable percentages to that smaller amount.

In the end, only the NHL (and very likely the NHLPA) knows the truth behind which teams are really making money and precisely how much money is in play when it comes time to divvy up the spoils. Just know that the next time somebody points you to Forbes and says 60% of NHL teams run at a loss, they're buying a line.