Making sense of hockey-related revenue | Hockey | CBC Sports

Hockey Night in CanadaMaking sense of hockey-related revenue

Posted: Thursday, September 20, 2012 | 08:20 AM

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Almost all of the 30 NHL teams either own their arenas or are paid to manage them. (Bruce Bennett/Getty Images) Almost all of the 30 NHL teams either own their arenas or are paid to manage them. (Bruce Bennett/Getty Images)

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The biggest issue to be resolved in the NHL lockout remains the percentage split of hockey-related revenue. And with lots of patience and research, one can see the landmines.

We're heading into Week 2 of the lockout, of this super stupidity, complete with cancelled exhibition games and a complete lack of negotiation. The biggest concern, however, may be that it's hard to see where or when the thaw is going to come.

With the National Hockey League wanting player costs to drop immediately and the NHL Players' Association proposing instead to slow salaries against revenue growth, we're at an impasse. And the overwhelming answer to a question about how the gap can be bridged?

"I don't know."

But the majority opinion from people on both sides of the argument is this: there's no incentive for anyone to back down now and when they are ready for serious conversations, they (initially, at least) will be kept private.

The biggest issue remains the percentage split. And after spending a lot more time than I ever wanted researching hockey-related revenue, you can see the landmines.

The NHL proposed four changes to HRR in its Aug. 28 proposal, outlined here. Those were removed from the Sept. 13 offer, but league commissioner Gary Bettman did say that package was off the table if not accepted by the expiration of the existing collective bargaining agreement on Sept. 15.

So the question then becomes, 'Where does this part of the debate go? After asking some people on the NHL side, none of whom will talk for the record (big fines), my sense is that a new agreement can be done without the proposed changes.

"If HRR has to be re-done ... we're talking about a long process," said one executive.

That is one reason the NHL is much, much, more concerned with the percentage split than reworking things at this point. However, if the NHLPA puts the cap on the table, all bets are off. The league would probably counter with a discussion on guaranteed contracts and the next Stanley Cup would be presented in 2020.

While it would seem to be a good omen that there appears to be an NHL willingness to retreat on this issue, it doesn't mean the NHLPA is thrilled with the HRR status quo. Any mention of dropping the split from the current 57 per cent for the players is met with stiff resistance because they are being told they're already under that number.

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.

If you go to Article 50 in the 2005 CBA, you can find all of these direct costs. While sources were reluctant to provide exact numbers, it appears the deducted amounts (yes, the jet fuel and massages) were getting closer and closer to the maximums -- probably hitting them -- during recent seasons. Here are some other examples:

CONCESSIONS

Concessions is a major revenue generator for teams and, by extension, for players. Clubs are allowed to deduct 54 per cent towards their costs. Some might not deduct that much; others may go over. But the league-wide average cannot exceed 54.

I'm no concessions expert like Boston Bruins owner Jeremy Jacobs, who, I assume, negotiated that figure. That may be a very fair total when you factor in worker salaries and buying the necessary machinery. But if you're a player, you're seeing a big bite taken out of your financial burger.

Then there's club/premium seating and luxury suites, which are enormous issues for the teams. These are obviously large numbers in the revenue game and the cost caps are very low (3.75 per cent for club/premium) or non-existent (zero for suites). The NHL and its members despise these figures. It's a big win for the players. But teams have found a way to get some of that back.

If you've bought some kind of package for these seats, you might get free parking or a bit of free food and drink. Well, the direct cost allowances for food (54 per cent, as mentioned above) and parking (30 per cent) are much higher. So teams began putting some of the costs of these seats towards those other two figures, giving themselves a break.

It's not just the Ilya Kovalchuk contract capologists who can be creative for NHL clubs. If you're an owner, you're giving the person who came up with this a promotion. If you're a player, you think it's cheating.

WHAT ARE YOU PAYING TO WATCH?

As mentioned, teams are supremely annoyed because they can't deduct any costs from luxury box revenues. But the NHLPA isn't thrilled either because it doesn't feel players get enough of the earnings.

Almost all of the NHL's teams own their arena or are paid to manage it (eg. Nashville Predators). "One-team" arenas (ie. no NBA tenant) must allocate 65 per cent of luxury suite revenue towards HRR. "Two-team" arenas (eg. Air Canada Centre) are at 32.5 per cent. So even though teams like Montreal -- and we're using the Canadiens for a specific reason -- can't deduct costs, 35 per cent of their suite cash can't be touched.

Would the NHLPA ask for that number to increase to 100 for one-teamers and 50-50 for the double-ups? The argument is: Are people buying those suites to watch hockey or are they actually buying them to watch something else? The Bell Centre is always busy, so I guess it comes down to whether or not you believe its concert/UFC/Cirque de Soleil lineup is enough of an attraction to make someone buy a luxury box.

Of course, the argument reverses in a place like Los Angeles.

"Drew Doughty can play for me any time," said one NHL exec, "but people in L.A. are buying boxes to see a different No. 8." It's a good line, so I'm using it, even though Kobe Bryant switched to No. 24 six years ago.

At the end of the day, though, it's a philosophical discussion. Do people buy boxes for sports or concerts? And if the NHLPA goes down this road, how hard does the NHL push back? You'd expect quite a bit, which isn't exactly great news. 

(Aside: there are some exceptions to the one- and two-team setups. At the Staples Center, I understand the Los Angeles Clippers get their money before the Kings and Lakers split. At PNC Arena, North Carolina State gets its luxury box cash before the Carolina Hurricanes submit their share of the NHL pie. And there are a couple of teams -- Edmonton being the most noteworthy example right now -- that do not own or operate their arenas. As a result, the Oilers don't get to exempt the same 35 per cent Montreal does. They must count all luxury box revenue towards HRR with zero ability to deduct costs. Now you know why Oilers owner Daryl Katz is hell-bent on that downtown arena.)

It's complex stuff. But what it comes down to is that when NHLPA executive director Donald Fehr says the players don't really get 57 per cent of HRR, these cost exemptions are what he's talking about. As revenues rise to last season's record of $3.3 billion, the value of those direct costs increases as well because they're all percentage-based. I've seen the NHLPA use 51 per cent as the actual number.

When Bettman says the owners only have 43 per cent of the revenues to pay their costs, it drives the NHLPA insane because it feels the league's already subtracted enough from the equation and any further issues are simply mismanagement. Clearly, the NHL and its owners feel otherwise.

The solution? I don't know.

As mentioned, the NHL has backed off its initial plans to rewrite HRR and doesn't seem inclined to revisit that right now. But the NHLPA doesn't want a decreased revenue split because it feels it's being skimmed already. And if it goes for more, well, you can't imagine the NHL responding positively.

Right now, it's about resolve. Who has more of it probably wins this argument.

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