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Dan Tolensky wrote an interesting Blog wondering if July 1st, 2007 was the day that we wondered if the Lockout was a waste of time. I usually love what you're writing because he don't miss much. This time I think that he has. I say, however, that the NHL convinced the NHLPA that they would play for funny money that may, or may not, be worth an actual US Greenback ... for that reason the Lockout was worth every ounce of effort to NHL owners.

I'll explain what I mean.

NHL media pundits, can't be blamed for not understanding money but understanding hockey, were vocal about it being a win that players got 7% of the 10% that was held back in escrow. The subtlety, however, is that contracts were only worth 97 cents on the dollar in last year's NHL.

So, imagine you're Zedeno Chara fresh off you're July 1st, 2006 contract for $7.5M per year. Thanks to the revenue sharing formula implemented in the last CBA, and the fact that league-wide revenues fell 3% shy of the target, Chara only was paid $7.275M last year for the Bruins. Now, if you don't think that 3% is a big deal, think about whether or not you'd care about getting an extra $50-60 bucks every paycheck ... or to make it similar to the point I'm making about Chara, think about counting on it and then losing it for the entire year all at once. If you made $50,000 it would be like NOT getting paid $1500 that you had agreed to was your salary before the year began.

Now, if that happened to you you'd likely say, "Well, what's the point in talking about what I could earn ... why not just tell me what I'm going to get paid every year?"

This is the NHL however ... and unlike you and I, they're playing with funny money where players can sign a contract for $7.5M get $225,000 LESS than they signed for at the end of the year. The funniest thing was to hear that Bob MacKenzie reported that the 7% repayment to the NHLPA was seen as "good news" by the players.

If I ended up with less than my full paycheck I don't think I'd call it good news.

Now, let's get to why July 1st, 2007 proves that the Lockout was worthwhile.

The biggest thing that I feel EVERYONE has missed here is that the Players ONLY got back 7% of the 10% escrow payment from last year. Now, this year the cap has gone up from $44M to $50.3M and the increase of $6.3M represents an increase of 14.3% year-over-year. As usual, it is the subtlety of this that is most interesting.

Remember NHL players cannot be paid more than 55% of all league-wide revenues no matter what. This is very important.

So, if league-wide revenues do not increase by AT LEAST 14.3% players will loose even more money than the "meager" 3% that they lost this past season. What if league-wide revenues don't grow at all from the year before? Let's for an instant imagine that they stay exactly the same for the 2007-2008 season as they were for the 2006-2007 season.

Well that COULD mean that salaries are only worth about 83% of their face value. So, again, you're Zedeno Chara, you've signed a contract for $7.5M, gotten paid $7.275M in Year 1. In Year this could mean that you are only paid $6.225, or $1.275M less than you had signed on to. This would mean that in Year 2 of your deal that your contract was only worth 83 cents on the dollar! Imagine, again, that you're the average family earning $50,000, it would be like getting paid only $41,500 instead.

That's not even the worst part. The CBA says that all players have 10% of their paychecks withheld in escrow. This represented the 7% amount that the players were repaid from the escrow this year that we talked about earlier. Again, this means that Chara would have had a hold-back of $750,000. The worst part is that Chara (and every other player) would not only not get that hold-back returned to them but would have to pay back the league part of their salaries. This would amount to about $525,000 in Chara's case.

Of course, this may not happen. There could be revenue increases that COULD mitigate some of this. Perhaps the revenue increases will be 5% - 10% and that could lessen the losses the players will face.

The fact is, however, that we can comfortably say that the revenue increase will not be 17% and this means that NHL contracts are not worth as much as we all (and apparently the players all) think that they are. They're just numbers on a page and until the revenues are all tallied up next summer no one will know just how much of their paycheck they get to keep.

So, the biggest reason why the NHL Lockout was not a waste was because the financial fortunes of the league are GM proof. It really doesn't matter what a GM "agrees" to pay a player. It's all funny money until the end of the year.
Filed Under:   Free Agency   UFA   Lockout   Salary Cap   CBA  
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