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The Life

October 2, 2002
Early labor pains
ESPN The Magazine

MLB owners are through squeezing their employees, so fans of labor strife can now turn their gaze rinkward. Two years before the current pact expires, NHL honchos have drawn a line in the ice over player pay, and commish Gary Bettman has extracted $10M from each team to build a $300M strike fund.

"The agreement needs a fundamental overhaul," says Bill Daly, chief legal officer for the NHL. "Nothing is more important."

Jarome Iginla
Increases in NHL salaries has kept players like Jarome Iginla happy -- but not owners.
NHL revenues -- $1.9B last year -- have quadrupled since the current CBA began in 1995. Sounds like business is good, right? Well, maybe yes, maybe no. The league says its teams spend 73% of revenues on player salaries -- highest of the four major sports -- although that total is impossible to verify, since NHL teams don't disclose financial statements. But one thing is clear: Because hockey generates so little revenue from national media deals, NHL teams are on their own to a far greater extent than clubs in other sports. In fact, hockey franchises rely on ticket sales and stadium revenues for about 80% of their funds, vs. just 30% in football; only 5.4% of league proceeds are shared, vs. more than 80% in the NFL.

This really hurts the league's six north-of-the-border teams, which earn most of their revenues in Canadian dollars (worth 60 U.S. cents each) while paying salaries in greenbacks. The result: NHL teams are particularly exposed to economic ups and downs, and several owners are feeling the pinch these days -- even as clubs in big markets or big hockey towns use their higher revenues to sign top players and drive up prices. It happened this summer: the Rangers gave $9M a year to Bobby Holik; the Wings $8M to Cujo.

You'd think, then, that the NHL would be better at spreading the wealth, but hockey owners famously hate revenue-sharing. Right now, for example, the league transfers less than $50M a year to its Canadian clubs. Owners would rather go after players. Why? Because the average NHLer earns $1.3M, up from $271,000 in '91. Owners are rumored to want a hard salary cap of $32M to $50M per team. They say they're seeking balance. But limiting pay won't stop Dallas from generating more money than Tampa. It'll just force the Stars to spend their riches on something other than free agents -- like scouting or development, which matter more in hockey.

"You don't do a salary cap to create competitive balance," says Sal Galatioto, head of the sports finance group at Lehman Brothers. "You do a salary cap to cap salaries."

The league isn't pushing for change because financial disaster is imminent. No team is close to bankruptcy (aside from the Sabres, owing to parent-company issues) and prospective team buyers are out there. NHL owners want a cap for the same reason MLB owners wanted one: To keep small-fry clubs viable, even when they make bad decisions, without draining their brethren. Calgary, for example, just gave a two-year, $13M deal to Jarome Iginla, who earned $1.7M last season and had no leverage because he's six years away from unrestricted free agency. When the Flames start crying about money, the league has four choices: Watch them go under, subsidize them, make them move to a bigger market or stop them from spending too much cash. Bettman is going with option D.

The players, of course, are happy with things as they are. I'm told NHLPA boss Bob Goodenow has his own hefty strike fund, and despite Bettman's pleas to start talks, the NHLPA is skeptical. "Months ago I told Gary that if he has a proposal he thinks would interest players he should bring it forward," says Goodenow. "So far, [he] hasn't done that." The deadline is two years away, but the gloves are coming off.

This article appears in the October 14 issue of ESPN The Magazine.

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