NHL LOCKOUT – HOCKEY RELATED REVENUE

Gary Bettman NHL

By captcanuk (NHL Comissioner Gary Bettman on Flickr) [CC-BY-3.0], via Wikimedia Commons

I don’t pretend to know much about the economics of the NHL lockout – or economics in general – and that’s why I haven’t spent much time or energy, beyond one post really, on discussing whyexactly the NHL is currently in a state of disarray.  In the article linked to, I talked about how one of the main sticking points in this whole shit-show, is the definition of Hockey Related Revenue.  As a very quick recap, HRR is what pays the players’ salaries, and comes out of things like ticket sales etc., and currently the players receive a 57% share of that, and the owners take home 43%.

People who support the owners have argued that owners have to pay for costs (e.g. travel expenses for the team) and employees salaries out of that 43%, so the owners don’t actually take much of that for themselves at all.  My counter to that at the time, and I still stick by it, is don’t forget the non-Hockey Related Revenue.  Whilst probably nowhere near the amount that HRR brings in, I expect it’s still a significant chunk of cash.

Elliotte Friedman, a terrific columnist for CBC, has a piece up from last week which sheds some further light on hockey related revenue, and how it’s not as cut and try as 57-and-43.

Among the main points:

  • Owners can deduct a percentage of costs from HRR.  This happens before the 57/43 split between Owners and Players.  As Friedman explains, Hockey Related Revenue is a NET FIGURE, i.e. “revenue minus costs”.
  • The most important paragraph might be this:

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.

  • Concessions are an interesting item in HRR.  They bring in a lot of revenue for the teams, as people buy a ton of food and drink at games.  Friedman states that owners can deduct up to 54% of the revenue brought in from concessions to pay towards costs, and then essentially I suppose the remaining 46% is then divided up 57/43 between the players and the owners.  So, if I’m reading this right (correct me if wrong), the owners essentially receive 54% of revenues from concessions (which is HRR) to pay for costs, and then nearly another 20% on top of that which can be used how they see fit (i.e. to them or towards costs).
  • On the other hand, as Elliotte explains, premium/club seats and Luxury Suites sold in arenas, which bring in a vast amount of revenue, are only allowed to have very low amounts deducted from them (less than 4% for club/premium seats and 0% for Suites).  So obviously the share on these IS a lot closer to 57/43 – at least in theory.  Apparently owners are getting around this due to the fact that a lot of these seats are sold in packages, for example with free parking (which has a deductable amount of 30%) and/or some free concessions.  As the concessions have a far larger amount of revenue to be deducted for costs, owners will transfer the costs of these seats/suites onto the concessions/parking costs, so they can claim more.  The players see this as cheating the system; to be fair it seems like a loophole that any business savvy person would likely exploit, but I understand completely why the players don’t like the idea of it.
  • The Luxury Suite issue doesn’t end there.  There’s the further issue of how the arenas in the league are used.  Some are home to one team, i.e. just an NHL team, whilst some are home to two, i.e. an NHL and an NBA team.  Arenas with only an NHL team must submit 65% of luxury suite earnings to HRR, whilst 35% goes directly back to the owners.  Arena’s with an NHL and an NBA team, must only allocate 32.5% of luxury suite earnings to HRR.  The players understandably think this is a bit low, and according to Friedman would like to see these figures rise to to 100% and 50%, respectively.
  • To put that in simpler terms, and again if I’ve got this right, at the moment 35% of luxury suite earnings for one-team arena’s goes back directly into the owners pockets; the remaining 65% does NOT go to the players but is submitted as Hockey Related Revenue, which is then divided again into the 57/43 percentages.  That means for sure that the owners are getting significantly more than the 57/43 split suggests they are, likely a lot closer to 50%.

In my opinion, the argument that owners have to pay costs out of their 43% whilst players don’t is invalidated in light of the above evidence; I would think that by the time HRR is calculated, most of – or at least a good deal of – costs have already been paid for, and the rest is basically take-home pay for the owners.  Remember that in most cases, the owner is just one man – that’s a lot of money going to one man.  And good on him, he’s built his empire and taken the risk with a sports team, putting up his own money, thus he deserves to get the biggest chunk of the pie.  The reason I say the biggest chunk of the pie, even though on the surface it looks like the players get more, is that the 57% the players get is split between many players – not just one or two, but nearly 800 players league-wide as opposed to just 30 owners.

In terms of numbers, look at it this way: for arguments sake lets say HRR amounted to $2 billion this past year; the players share would amount to $1.14 billion, whilst the owners would receive the remaining $860 million; split the $1.14 billion between 800 players, and that’s an average of $1.425 million per player; split the $860 million between the 30 owners and that’s $28.67 million per owner, after a good deal of costs and plus non-HRR.  That’s a massive difference on a man-to-man basis, over a 1900% increase in pay.  And let’s also not forget that these owners have their own businesses that brought them their millions or billions in the first place, the money they receive from their sports teams is basically just a nice little side-earner anyway.  I get that it’s not as black and white as that, and my figures might be out a bit, I don’t know, but from my point of view the argument that owners don’t get enough is a non-starter.

Anyways, check out the CBC article and make your own minds up, but I think the NHLPA has a legitimate point about not giving up too much of their current 57% share, as it’s not a true representation of what they actually get in comparison to the money made by the league.

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