NHL Lockout: How Eliminating the Salary Cap Would Benefit the Owners

Vince NashContributor IIDecember 4, 2012

NEW YORK, NY - OCTOBER 24: NHL Commissioner Gary Bettman speaks with the media at a press conference announcing the New York Islanders' move to Brooklyn in 2015 at the Barclays Center on October 24, 2012 in the Brooklyn borough of New York City.  (Photo by Bruce Bennett/Getty Images)
Bruce Bennett/Getty Images

Desperate times call for desperate measures when it comes to the National Hockey League lockout.

After months of failed negotiations and now fruitless mediation, Gary Bettman and Donald Fehr have decided to step away for the bargaining sessions for the time being. Both parties are hoping that some new blood at the negotiating table will help, but it's a long shot. What has transpired up until this point to have the NHL on the doorstep of yet another cancelled season?

After the 2004-2005 season was scrubbed, ownership thought they won by getting a hard salary cap. However, the players were the real winners with a 57 percent take of the revenue and guaranteed contracts. 

Now, ownership is adamant that they need to take the cap down to a 50-50 split in order to stabilize the league and its franchises. They have tunnel vision in regards to the salary cap, and need to take a look at other alternatives.

Salary caps aren't always a guarantee of financial success for owners. They typically only work well for leagues that have larger revenue pools to draw from.

For example, the NFL is currently giving its players a 46-48 percent cut of the league's $9.5 billion in revenue, which is less of a percentage than the 57 percent NHL players got in their last deal. However, with the NHL generating only $3 billion in revenue last year, the NFLPA's take triple that of their NHL brethren.

According to Forbes.com, there were 11 teams that had operational deficits in the NHL during the 2011-2012 season. Nine of those 11 lost a minimum of $9 million dollars, with small market Phoenix topping the list with a loss of $20 million dollars. Conversely, the Toronto Maple Leafs not only led the NHL in revenue, but also in operating profit (over $81 million for the season).

By comparison, during the 2010-2011 Major League Baseball season, just three teams had operating losses, and they were all large market teams (New York Mets, Los Angeles Angels of Anaheim and the Philadelphia Phillies). However, the team that had the most revenue, the New York Yankees, had an operating profit of only 10 million dollars, even though they had double the revenue of the Leafs.

Major League Baseball has shown that the vast majority of teams can be profitable without a cap, and the NHL should follow their lead. Many big league teams are in the black because of revenue sharing and the luxury tax, which is a form of financial assistance for small market teams lacking revenue. Among the teams who would suffer under a system like this in hockey are the major revenue teams like Toronto, Montreal and the New York Rangers, just to name a few.

While the most recent NHL collective bargaining agreement had a revenue sharing provision, teams were required to hit revenue benchmarks in order to get payment in it's entirety. If they didn't meet it, they could lose substantial amounts of the money. Some teams were also excluded from revenue sharing based on their market size.

The NHL system as compared to that of major league baseball is very complicated, and exact payouts are hard to determine. If this can be remedied and a luxury tax provision added for teams that want to spend excessively, then the owners should expect to have a financially healthier league from top to bottom.

The notion that the league needs a cap for competitive balance is laughable. Since the advent of the cap starting with the 2005-2006 season, one team has never made the playoffs (Toronto) and five others have made the postseason only once. This is in a league that offers 16 playoff spots every postseason. By comparison, since the 2004 MLB season, only 5 teams have failed to qualify for the postseason, with roughly half the playoff berths as hockey.

Another money pit for the owners are guaranteed contracts. Do you think the New York Islanders would like to walk away from Rick DiPietro's monster deal?

Many other teams have similar contracts that aren't worth the paper they are printed on. The only way the Players' Association would be likely to abandon guaranteed contracts is in exchange for getting rid of the salary cap. If Bettman and company can deliver this, they will not only win this labor negotiation, but they will also guarantee labor peace for years to come.     

Fortunately for the commissioner, the major league baseball player's union shares the same "greed is good" mentality as the NHL's union, especially with Donald Fehr at the helm. 

The only difference is the MLB owners were smart enough to realize that by giving the players what they want was in THEIR best interests. Why do you think the most recent MLB negotiation went so smoothly? When both sides get what they want, then everybody stays happy.

If Gary Bettman and the NHL owners could get this through their collectively thick skulls, they could end the lockout tomorrow.