NHL--On the Treadmill to Obscurity

Those are the words of Arthur Levitt, former chairman of the Securities and Exchange Commission, after overseeing an audit of the National Hockey League's finances two years ago. Bargaining between the NHL owners and the players' union has reached a stalemate and the owners have locked the players out. The 2004-2005 season is all but over before it has even started.

According to the owners, the NHL has lost about $500 million over the past 2 seasons and the newly signed TV contract with ESPN and NBC is only worth $130m plus some profit-sharing (compare that to the $600m deal with ESPN and ABC over the previous five years). Of the roughly $2 billion in annual gross revenues that the league pulls in, about 75% goes to player salaries. The average NHL player earns $1.8 million a year. [How much do you think the average NFL, NBA, and MLB player earns?]

The owners are demanding that player salaries be reduced to about 53% of league revenues and that team payrolls be capped at no more than $33 million--equivalent to an average player salary of $1.3 million. The average payroll last season was $41.6 million.

For their part, even though the players' union believes that players should be paid whatever the market is willing and able to pay, the union has proposed a 5% cut in player salaries, imposition of a luxury tax on every dollar above a $50 million payroll, and more league-wide revenue sharing.

Will the two sides see that their mutual welfare depends on coming to an agreement? The owners are apparently willing to ride out a rather lengthy lockout--up to 18 months if need be. The players, on the other hand, are already looking for alternative employment. A number of NHL players have already signed on to play in the European leagues.

For an excellent overall look at the economics of the NHL (and the other major leagues) see the words of Matt Witting.