More money, more problems.
This certainly is the case with many professional sports leagues, most recently the NHL, which despite months of negotiations on a new collective bargaining agreement (CBA) has cancelled the first two weeks of the season (82 games total).
If an agreement is not reached soon, the season may be cut further or even postponed altogether.
This is bad news for the league, which previously cancelled its entire 2004-05 season primarily over failed the integration of a hard salary cap. The NHL claimed hockey clubs spent nearly 75 percent of gross revenues on player salaries—a much higher percentage than competing leagues.
Why do NHL owners push desperately to control salaries? One reason is that the league reported teams collectively lost $273 million in the 2002-03 season.
The CBA signed in July 2005, which resulted in the induction of a hard salary cap with a revenue-sharing model, proved to be merely a bandage. Thus, the contentious negotiations have begun again.
In fact, the expiration of the last three CBAs have led to lockouts. While the NHL hasn’t been the only league to undergo labor stoppages in the past decade, it is the only major professional sports league in North America to lose an entire season to a labor dispute.
Consequences from the 2004-05 NHL lockout were severe. TV ratings during the ensuing regular season and playoffs dramatically decreased, and subsequently, ESPN declined to match OLN's bid on broadcast rights. George Bodenheimer, former president of ESPN, cited the 10-month-long lockout and a weak financial model as the reasons for failing to match the contract offered by OLN (later known as Versus). Thus, the network's 21-year relationship with the NHL came to an end.
Losing the self-proclaimed worldwide leader in sports as a broadcast partner proved to be a game-changer. The 2006 NHL playoff ratings on OLN slumped significantly. In fact, more Americans could be found watching poker or the WNBA on TV.
Gradually, viewership improved. Comcast rebranded Versus as NBC Sports Network in January 2012. Thanks to compelling players and the success of big-market teams such as the Rangers and Devils in the New York market and the Kings in Los Angeles, the 2011-12 playoffs yielded record ratings for NBC Sports Net.
It is unfortunate that the league has not been able to build upon the momentum of the excitement of the L.A. Kings' first Stanley Cup championship. This latest labor dispute mirrors the conclusion of the 1993-94 season, when the New York Rangers won their first championship in 54 years but the league failed to build upon the heightened interest when it cancelled the first half of the following season.
Interest in hockey has been on the rise during the past few years. The NHL Winter Classic is an event that transcends the sport, while the NHL and NBC now have a long-term TV rights deal worth $2 billion over 10 years, nearly three times the value of the previous TV rights contract.
Recently, ESPN agreed to a one-year contract with the Kontinental Hockey League (KHL), a rival European hockey league that has temporarily signed NHL players such as Alexander Ovechkin and Evgeni Malkin, the reigning Hart Trophy (MVP) winner.
A big challenge for the NHL now is ironing out an agreement with Donald Fehr, executive director of the NHL Players Association and the powerful former leader of the Major League Baseball Players Association from 1986 to 2009.
The biggest hurdle in overcoming the NHL lockout will be shrinking the players’ share of cash from hockey-related revenues from 57 percent to 46 percent. The other sports leagues offer players a 50/50 revenue split.
The league also is looking to extend entry-level contracts from three years to five years, eliminate salary arbitration and increase the length of service from seven to 10 years for unrestricted free agency. In return, the NHL would incorporate a gradual increase in the salary cap over the next three years, which the league maintains would compensate for the decreased share in hockey-related revenues.
Fehr, a driving force behind the cancellation of half of the 1994 baseball season and the World Series that year, insists that the NHL cannot exist without the players.
He maintains that while the athletes have a share in hockey-related revenue, they derive nothing from the significant sums that owners make on the sales of franchises. His job is to get the most money he can for his constituents. It does not seem to faze him that many hockey clubs are not generating profits and that the league has already lost an estimated $100 million in revenue because of the games that have been cancelled.
Although both sides have been meeting, little progress has been made on core issues, which has raised fears of a lengthy lockout. However, NHL legend and former Phoenix Coyotes owner Wayne Gretzky believes the lockout will end before the annual Winter Classic in January.
Recently, both of New Jersey’s U.S. Senators, Bob Menendez and Frank Lautenberg, sent letters to the NHL and the Players Association advising them to consider the economy during their negotiations.
It has taken the NHL nearly six years to regain the prominence it had prior to its second lockout in the 2004-05 season. If history is any indication, another lengthy lockout will again significantly harm the NHL and its fanbase. Commissioner Gary Bettman, as well as NHL owners and players, must recognize the importance of settling a lockout quickly before the league must do extended damage control again.
Not all is gloomy for the NHL, however. Both the NBA and NFL endured lockouts last season yet experienced no decrease in popularity. The 2012 NBA Finals matched the preceding NBA Finals' TV ratings, while Game 1 of the NBA Finals drew record-high TV ratings, according to Nielsen research.
Meanwhile, the Super Bowl had an astounding 111.3 million viewers, making it the most-watched TV show in history. By the time the New York Giants were crowned champions, the summertime lockout was a distant NFL memory.
Jed Hughes is Vice Chair of Korn/Ferry and the leader of the executive search firm's Global Sports Practice. Among his high-profile placements are Mark Murphy, CEO of the Green Bay Packers; Larry Scott, commissioner of the Pac-12 Conference; and Brady Hoke, head coach of the Michigan Wolverines.
Earlier in his career, Mr. Hughes coached for two decades in professional and intercollegiate football, where he served under five Hall of Fame coaches: Bo Schembechler (Michigan), Chuck Noll (Pittsburgh Steelers), Bud Grant (Minnesota Vikings), John Ralston (Stanford) and Terry Donahue (UCLA). Follow him on Facebook, Twitter @jedhughesKF.