Boomer’s CBA – The Framework for Negotiation

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So I couldn’t wait any longer. As this season continues to erode away, and negotiations have been brought to a standstill, it was time to put my two cents in. The owners have stated that they would like a 50/50 deal. The players say they are willing to accept that relationship, as long as their current offers are honored. So why so difficult? If they are on the same page, why can’t they speak the same language? I set out to see if I could split the difference. Create a system where an equal split can be attained, while the players are compensated in full for their existing contracts. As it turns out, with a little “shared sacrifice”, it was a relatively easy deal to get done. The owners cannot go scorched earth. To jump to 50/50 would take too much from the players in the first two years, and leave zero cap space the next two summers for pending free agents. The players have to accept the fact that like the NBA and NFL, their salaries would remain flat for multiple seasons at the beginning of the deal, until the revenue split fell in line. By my math, that would mean little growth in year two or three. I also embraced the concept of the “Make Whole” program. The difference being, in my model, I will delink the “make whole” monies from the salary cap. Players should not have to pay players. To calculate future revenues is to attempt to figure out the rate of growth over the length of the agreement. The players will tell you that the league grew at a rate of 7.1% over the last CBA, and that it is reasonable to assume that it will continue. The league will tell you that is not sustainable, and that 5% is a more honest growth rate. I split the difference and chose 6% growth to start, but followed it up by projecting numbers off of continued 7.1% growth. I created an 8 year document. The owners offered 6, the players talked 5, but who wants to do this again in 5 years? The deal is somewhat frontloaded for the players, but their share never drops below 49% in any given season. I also have a salary cap delinked from revenues in years 2 and 3, as we attempt to get contracts to a 50/50 ratio. Here are the numbers based on 6% growth as I have calculated them

CBA-6% Growth Model

Player Share%    Total HRR      Player Share$        Owner Share$       Salary Cap     Average Salary

Year 1      53%        3.501B      1.855B           1.645B         70.4M       2.6M

Year 2      52%        3.711B      1.929B           1.781B         66.0M*     2.47M

Year 3      50%        3.933B      1.966B           1.966B         67.5M       2.52M

Year 4      49%        4.170B      2.043B           2.126B         72.1M       2.65M

Year 5      49%        4.420B      2.165B           2.254B         76.2M       2.76M

Year 6      49%        4.685B      2.295B           2.389B         80.4M       2.93M

Year 7      49.5%    4.966B      2.458B            2.508B        85.8M        3.14M

Year 8      50%       5.264B       2.632B           2.632B        91.5M        3.36M

*-Delinked salary Cap

What you see above is the revenue splits thru the 8 years of this offer. It slants towards the players early, leans towards the owners in the middle, and ends up at 50/50 in the end. The delinked Cap in year 2 and 3 is a mechanism to get costs in line. A delinked Cap would appear inevitable next year now given this year’s lockout. What all these numbers mean in the big picture will be explained further as we move along. I will also add in the “Make Whole” numbers as we proceed. First, I would like to show the numbers based on 7.1 percent growth. A 1.1 percent change doesn’t sound like much, but it is astounding how much everything goes up.

CBA-7.1% Growth Model

Player Share%     Total HRR     Player Share$     Owner Share$        Salary Cap     Average Salary

Year 1       53%        3.538B     1.875B         1.683B         70.4M         2.6M

Year 2       52%        3.789B     1.972B         1.819B         66.0M*      2.47M

Year 3       50%        4.058B     2.029B         2.029B         67.5M*      2.52M

Year 4       49%        4.346B     2.130B         2.216B        74.2M         2.72M

Year 5       49%        4.654B     2.280B         2.373B        79.2M         2.91M

Year 6       49%        4.985B     2.443B         2.542B        84.5M         3.12M

Year 7      49.5%     5.339B     2.643B         2.696B        91.0M          3.37M

Year 8      50%         5.718B    2.859B         2.859B        98.1M          3.65M

That is a lot to digest, but the numbers that matter are obvious. Based on current growth rates, by year 8 of the deal, the league would have over 5.7 billion dollars in revenue, and a salary cap that would encroach upon 100 million dollars. They should be able to find away to split this up. In this deal, the players would receive just over 2 billion in year number three. When you consider they received 1.88 billion last season, it means limited growth over the next 3 years (around 3%). But you also see exponential growth in years 4 thru 8. If you are wondering what all these numbers mean in the big picture, I will break it down now. The first set of numbers will be the 8 year relationship in real dollars. And the second set of numbers will factor in the “Make Whole” provision.

Final Numbers-6% Growth

Total Revenue            34.650 Billion

Player Revenue          17.343 Billion(50.05%)

Owner Revenue         17.302 Billion(49.95 Billion)

Player Growth            39.97%

Owner Growth           85.3%

Player Sacrifice           2.257 Billion

 

Final Numbers-7.1% Growth

Total Revenue            36.427 Billion

Player Revenue          18.229 Billion

Owner Revenue         18.218 Billion

Player Growth            52.57%

Owner Growth           100.1%

Player Sacrifice           2.384 Billion

That’s a lot of cash! The player sacrifice is the deduction of revenues based on what the players would have made with a continued 57% share of the pie. And then there is the payback:  The Make Whole provision that the league introduced. Based on my model, I believe the league would short the players close to 150 million in year 1, and 40 million dollars in year 2. That is approximately 190 million dollars that the players would have to agree to accept payment on in years 4 thru 8 of the deal (they can debate interest on the loan). The payments would operate exclusive of the salary cap. So what are the final numbers after the Make Whole provisions are complete?

Numbers after Make Whole-6%

Total Revenue       34.650 Billion

Player Revenue     17.533 Billion(50.5%)

Owner Revenue    17.112 Billion(49.5%)

Numbers after Make Whole-7.1%

Total Revenue        36.427 Billion

Player Revenue      18.419 Billion(50.5%)

Owner Revenue     18.028 Billion(49.5%)

When you look at the final numbers, they aren’t quite 50/50, and slants towards the players slightly, but I believe it is a result of the mess they made going into this agreement. When they finally get the numbers settled, they still have a myriad of contractual issue to deal with. Here is my take on how to get these settled.

CONTRACTING CHANGES

-Player option for 2 year extension on deal. Players didn’t want a long deal, so agree to 8 years, and if agreed by the NHLPA, extend the deal by 2 years at a 50/50 revenue split.

-Increased revenue sharing to 200 million dollars. I am not an expert on revenue sharing(not many are) but it’s what the players wanted, and the league has already agreed. Good for balance.

-Redefinition of appeals process- Jonathan Vilma’s appeal of NFL suspension went to Roger Goodell? Players deserve their day in court if they feel wronged. Not sure if an independent, or a committee would work best.

-Greater role for players with league issues. Players have their finger on the pulse of the game, yet they are shut out in the governance of the game. This is wrong. Greater presence would benefit all. PA should have greater role at league, GM and Board of Governor meetings.

-Multiple increases of minimum wage-Salary Cap went up 60% last deal, minimum wage went up 11%. 50,000 hike in year 4, and another in Year 6, increasing minimum wage to 600,000. Looking out for the little guy.

-3 year entry level deal, 6 years to UFA status(26 years of age). Players deserve this. League asked for 10 years, and then 8. No other league does more than 5. If league is asking for revenue split in line with other leagues, players contractual rights should be in line too. I like a free market.

Reduction or elimination of escrow payments. Players hate them. Let them keep their money. Not sure why you can’t deduct any overages from next year’s cap.

-7 year max contract duration. I don’t like mega-term deals. League has asked for 5, I think 7 is a good number.

-6% of cap max contract until 5 years of accrued service. Biggest concern league has is for how much kids are getting coming out of their entry level deals(you can thank Thomas Vanek and Kevin Lowe for that). Put a limit on what a player can make in years 4 and 5. With a 70.4 million dollar cap, a player would max out at about 4.2 million. I like this because the players get a set amount, the more the kids make, the less that is left for the vets, seniority should still be rewarded.

-Maximum 10% variance on any year of deal relative to cap hit. No more front loaded deals. Each year must be within 10% of the average.

-Amnesty provision in year 2. Cap could be tight in years 2 and 3. Teams have one time option in year 2 or 3 to buy a player out, without it counting against cap. NBA also had an Amnesty Auction, great idea.

No trade clauses not allowed until 8 years of accrued service. NTC’s are ruining the game, GM’s have to be able to do their job. I like the idea of bringing in the 10 and 5 rule that baseball has to protect veterans, but put in your 8 years before you can ask for this treatment.

That’s about it. I know some people resent media members thinking they can solve complex problems, that’s not what this is about. Like everyone else, I am growing increasingly frustrated by the lack of effort by both sides to get a deal done. It’s the fans who lose out in this battle, and I just wanted to give my take on things. I don’t think players or owners would even take the time to read this, but my goal was to show how easy it would be to get a functional deal done for both sides. I believe I have accomplished that.

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