With the end of summer just around the corner, the National Hockey League (NHL) and the NHL players association (NHLPA) continue to negotiate on a new collective bargaining agreement. The current collective agreement expires on September 15th and with both sides being far apart on the one major issue most people don’t understand, revenue recognition, a lockout is looming.
NHL commissioner Gary Bettman has said that if an agreement isn’t in place by the September 15th deadline that the NHL will lock the players out.
Most members of the media talk about the split of revenues between the owners and players. Under the current agreement the players receive 57% of the revenues with the owners getting a 43% split. The owners have asked to switch this ratio with the players receiving 43% of the revenue. Conventional wisdom is that the owners and players will eventually agree on a 50/50 split of revenue. However this is not the big issue.
What is revenue? This is where the disconnect is between the players and owners. NHLPA union executive Donald Fehr wants the league to include all hockey related revenue, something the NHL highly disputes. The issue is cloudy when it comes to additional revenue like advertising, parking…etc.
Let’s use a small market team like the Ottawa Senators for example. In the case of Ottawa, much like 3/4 of the other teams in the league, the owner not only owns the hockey team, but they own the building too.
Every one can agree that in the case of the Senators the ticket sales belong to the hockey club. The Senators have set up their own ticket agency which charges a fee, much like ticket master does. This agency is its own company. So is this revenue attributed to the hockey team? What about the parking? Separate entities are often set-up to deal with the parking. Is this revenue included in the calculation?
Most buildings are set up as their own corporations and they charge the hockey teams rent. Is the rent reasonable? Is this a way for the owners to shift some revenue away from the hockey teams so they don’t have to include it in the revenues which are split between the owners and players. What about the concessions? Teams have often fought for concession revenues in markets where they don’t own the building, often citing the fact that concessions sales are dependent on the event. In the case of Ottawa, the concession owners pay rent to the building corporation. Should some of these revenues not be attributable to the hockey team. What about rink advertising and signage in the buildings? These are big issues which the NHLPA and NHL need to resolve.
It’s no longer the case of a 50/50 split of $100-125 million in revenue per team, but a 50/50 split of $150-250 million per team. As you can see, revenue recognition is the big issue and the bigger the market, the bigger the issues. This was a point of contention that the player’s backed away from during the 2004 lockout, but don’t expect Donald Fehr to back away this time. So expect a long, hard drawn out fight for this one.