The NHL’s Proposal

Via Fire & Ice

NHL PROPOSAL TO SAVE 82-GAME SEASON

  1.  Term:

      ·  Six-year Agreement with mutual option for a seventh year.

  2.  HRR Accounting:

      ·  Current HRR Accounting subject to mutual clarification of
        existing interpretations and settlements.

  3.  Applicable Players’ Share:

      ·  For each of the six (6) years of the CBA (and any additional
        one-year option) the Players’ Share shall be Fifty (50)
        percent of Actual HRR.

  4.  Payroll Range:

      ·  Payroll Range will be computed using existing methodology. For
        the 2012/13 season, the Payroll Range will be computed
        assuming HRR will remain flat year-over-year (2011/12 to
        2012/13) at $3.303 Billion (assuming Preliminary Benefits of
        $95 Million).

      ·  2012/13 Payroll Range……………………
        Lower Limit = $43.9 Million

        Midpoint = $51.9 Million

        Upper Limit = $59.9 Million

      ·  Appropriate “Transition Rules” to allow Clubs to exceed Upper
        Limit for the 2012/13 season only (but in no event will Club’s
        Averaged Club Salary be permitted to exceed the pre-CBA Upper
        Limit of $70.2 Million).

  5.  Cap Accounting:

      ·  Payroll Lower Limit must be satisfied without performance
        bonuses.

      ·  All years of existing SPCs with terms in excess of five (5)
        years will be accounted for and charged against a team’s Cap
        (at full AAV) regardless of whether or where the Player is
        playing. In the event any such contract is traded during its
        term, the related Cap charge will travel with the Player, but
        only for the year(s) in which the Player remains active and is
        being paid under his NHL SPC. If, at some subsequent point in
        time the Player retires or ceases to play and/or receive pay
        under his NHL SPC, the Cap charge will automatically revert
        (at full AAV) to the Club that initially entered into the
        contract for the balance of its term.

        ·  Money paid to Players on NHL SPCs (one-ways and two-ways) in
          another professional league will not be counted against the
          Players’ Share, but all dollars paid in excess of $105,000
          will be counted against the NHL Club’s Averaged Club Salary
          for the period during which such Player is being paid under
          his SPC while playing in another professional league.

      ·  In the context of Player Trades, participating Clubs will be
        permitted to allocate Cap charges and related salary payment
        obligations between them, subject to specified parameters.
        Specifically, Clubs may agree to retain, for each of the
        remaining years of the Player’s SPC, no more than the lesser
        of: (i) $3 million of a particular SPC’s Cap charge or (ii) 50
        percent of the SPC’s AAV (“Retained Salary Transaction”). In
        any Retained Salary Transaction, salary obligations as between
        Clubs would be allocated on the same percentage basis as Cap
        charges are being allocated. So, for instance, if an assigning
        Club agrees to retain 30% of an SPC’s Cap charge over the
        balance of its term, it will also retain an obligation to
        reimburse the acquiring Club 30% of the Player’s contractual
        compensation in each of the remaining years of the contract. A
        Club may not have more than two (2) contracts as to which Cap
        charges have been allocated between Clubs in a Player Trade,
        and no more than $5 million in allocated Cap charges in the
        aggregate in any one season.

(continued below)

  6.  System Changes:

      ·  Entry Level System commitment will be limited to two (2) years
        (covering two full seasons) for all Players who sign their
        first SPC between the ages of 18 and 24 (i.e., where the first
        year of the SPC only covers a partial season, SPC must be for
        three (3) years).

      ·  Maintenance of existing Salary Arbitration System subject to:
        (i) total mutuality of rights with regard to election as
        between Player and Club, and (ii) eligibility for election
        moved to five years of professional experience (from the
        current four years).

      ·  Group 3 UFA eligibility for Players who are 28 or who have
        eight (8) Accrued Seasons (continues to allow for early UFA
        eligibility—age 26).

      ·  Maximum contract length of five (5) years.

      ·  Limit on year-to-year salary variability on multi-year SPCs—
        i.e., maximum increase or decrease in total compensation
        (salary and bonuses) year-over-year limited to 5% of the value
        of the first year of the contract. (For example, if a Player
        earns $10 million in total compensation in Year 1 of his SPC,
        his compensation (salary and bonuses) cannot increase or
        decrease by more than $500,000 in any subsequent year of his
        SPC.)

      ·  Re-Entry waivers will be eliminated, consistent with the Cap
        Accounting proposal relating to the treatment of Players on
        NHL SPCs playing in another professional league.

      ·  NHL Clubs who draft European Players obtain four (4) years of
        exclusive negotiating rights following selection in the Draft.
        If the four-year period expires, Player will be eligible to
        enter the League as a Free Agent and will not be subject to
        re-entering the Draft.

  7.  Revenue Sharing:

      ·  NHL commits to Revenue Sharing Pool of $200 million for
        2012/13 season (based on assumption of $3.303 Billion in
        actual HRR). Amount will be adjusted upward or downward in
        proportion to Actual HRR results for 2012/13. Revenue Sharing
        Pools in future years will be calculated proportionately.

      ·  At least one-half of the total Revenue Sharing Pool (50%) will
        be raised from the Top 10 Revenue Grossing Clubs in a manner
        to be determined by the NHL.

      ·  The distribution of the Revenue Sharing Pool will be
        determined on an annual basis by a Revenue Sharing Committee
        on which the NHLPA will have representation and input.

      ·  For each of the first two years of the CBA, no Club will
        receive less in total Revenue Sharing than it received in
        2011/12.

      ·  Current “Disqualification” criteria in CBA (for Clubs in Top
        Half of League revenues and Clubs in large media markets) will
        be removed.

      ·  Existing performance and “reduction” standards and provisions
        relating to “non-performers” (i.e., CBA 49.3(d)(i) and 49.3
        (d)(ii)) will be eliminated and will be adjusted as per the
        NHL’s 7/31 Proposal.

  8. Supplemental and Commissioner Discipline:

      ·  Introduction of additional procedural safeguards, including
        ultimate appeal right to a “neutral” third-party arbitrator
        with a “clearly erroneous” standard of review.

  9.  No “Rollback”:

      ·  The NHL is not proposing that current SPCs be reduced,
        re-written or rolled back. Instead, the NHL’s proposal retains
        all current Players’ SPCs at their current face value for the
        duration of their terms, subject to the operation of the
        escrow mechanism in the same manner as it worked under the
        expired CBA.

  10. Players’ Share “Make Whole” Provision:

      ·  The League proposes to make Players “whole” for the absolute
        reduction in Players’ Share dollars (when compared to 2011/12)
        that is attributable to the economic terms of the new CBA (the
        “Share Reduction”). Using an assumed year-over-year growth
        rate of 5% for League-wide revenues, the new CBA could result
        in shortfalls from the current level of Players’ Share dollars
        ($1.883 Billion in 2011/12) of up to $149 million in Year 1
        and up to $62 million in Year 2, for which Players will be
        “made whole.” (By Year 3 of the new CBA, Players’ Share
        dollars should exceed the current level ($1.883 Billion for
        2011/12) and no “make whole” will be required.) Any such
        “shortfalls” in Years 1 and 2 of the new CBA will be computed
        as a percentage reduction off of the Player’s stated
        contractual compensation, and will be repaid to the Player as
        a Deferred Compensation benefit spread over the remaining
        future years of the Player’s SPC (or if he has no remaining
        years, in the year following the expiration of his SPC).
        Player reimbursement for the Share Reduction will be accrued
        and paid for by the League, and will be chargeable against
        Players’ Share amounts in future years as Preliminary
        Benefits. The objective would be to honor all existing SPCs by
        restoring their “value” on the basis of the now existing level
        of Players’ Share dollars.
***

NHL’S PROPOSAL TO NHLPA TO SAVE THE 82-GAME 2012/13 SEASON
We have reached a critical point in our collective bargaining negotiations. In an attempt to save an 82-game 2012/13 season (including the usual schedule of Playoff Games), the NHL is making a substantially revised proposal to the NHLPA regarding the critical issues on which the parties have been separated and which are essential to an agreement with the NHLPA on a new CBA moving forward. We believe that the proposal set forth below is fair to the Players and the teams, and good for the game and our fans.

This proposal is based on what we believe is a fair sharing of revenues as between the Players and the Clubs.

This proposal does not require any roll-back in the salaries of Players, and attempts to recognize and protect prior contractual commitments.

This proposal provides for increased revenue sharing, targeted to those teams that are most in need.

This proposal is our best attempt to save an 82-game 2012/13 season, and is, in fact, the best we can responsibly do.

Our negotiations with the NHLPA have failed to progress on the most critical economic and system-related issues. After considerable deliberation, we have decided to make this proposal because time is of the essence. Specifically, in order to save the full 82-game season, the Regular Season schedule will have to commence no later than November 2, with 7-day Club Training Camps that must open by October 26. As a practical matter, this means we must conclude a new written CBA by October 25. We believe the parties can achieve this and that by working together, we can jointly preserve an 82-game season for our Players, our Clubs, and most importantly, for our fans.

Delay (beyond October 25) will necessarily leave us with an abbreviated season and will require the cancellation of signature NHL events. Failure to reach a prompt agreement will also have other significant and detrimental impacts on our fans, the game, our Clubs, our business and the communities in which we play. All of this will obviously necessitate changes to this offer in the event we are unsuccessful in saving a full season.

Here are the elements of our proposal and a brief explanation:

Term
The term of the CBA proposed by the League—6 years, plus a mutual option for a 7th year—is consistent with the term of the expired CBA. It will allow for our fans, the Players and the Clubs to enjoy a reasonable and extended period of labor peace thereby enhancing the short to medium term business planning of the parties. During this time, the League and the Players can work together to continue to build on the momentum the NHL has experienced over the course of the past 7 years, both on and off the ice.
HRR Accounting
We agree to retain the CBA’s current HRR definitions. Further, we propose to formalize the various agreements the NHLPA and the NHL have reached, and lived under, during the course of the expired CBA, and to clarify mutually identified ambiguities in the CBA. Importantly, we do not believe any of our proposed clarifications should have any impact either on the amount of the Players’ Share or the amount that any individual Player is entitled to receive. None of these clarifications for instance, would have had a material impact on the 2011/12 Actual HRR number. This proposal is all about certainty, clarity and speeding up our complex, end-of-year accounting process.
Applicable Players’ Share
We believe a 50-50 sharing of Actual HRR is a fair allocation and a reasonable compromise as between Players and Clubs. The simple fact of the matter is that it costs Clubs more money now to operate and to generate revenues than it used to. These increased costs include amounts dedicated to the health, safety and enhanced comfort of NHL Players, the increased costs associated with generating ticket and gameday revenues, and the significant capital investments that are regularly being made around the League to enhance the fan experience and to create new revenue streams. The proposed 50-50 sharing arrangement, comparable to the sharing arrangements in the NFL and the NBA, will enable the NHL to protect and promote the long-term future of the game, the financial health and stability of the Clubs and the long-term earning capacity of the Players.
Payroll Range
We propose to set the 2012/13 Payroll Range on the basis of last season’s Actual HRR, using the same methodology as used in the recently expired CBA. While this will result in a reduced Upper Limit for 2012/13, we have also proposed to permit the Clubs to exceed the Payroll Range this year, to a maximum of $70.2 million – which was the Cap established prior to this past summer. This will allow a Club that chooses to do so to maintain or enhance its current roster during a full-year transition period.
Cap Accounting
We are proposing that a Club’s Lower Limit obligation be satisfied without reference to (or inclusion of) performance bonuses. This will effectively increase the minimum commitment of actual compensation paid by the “Lower Limit Clubs” to Players. The proposal acknowledges the League’s agreement to a request made by the NHLPA earlier in our negotiations.

We are proposing that all years of existing long-term contracts in excess of five (5) years be counted against a Club’s Cap regardless of whether or where a Player is playing. While such contracts (and Cap charges) can be traded during their terms, in the event a Player subsequently retires or ceases to play, the effective Cap charge would revert to the Club that originally entered into the contract. This proposal is consistent with our other proposals intended to address the harmful effects of long-term, front-loaded, “back-diving” contracts.

We are proposing that the salaries of minor league Players on NHL contracts (above a threshold of $105,000) be counted against a Club’s Cap. This provision is intended to prevent Clubs from “stashing” or assigning players to the minors (or any other professional league) for “Cap management” purposes. We are not proposing that any salary paid to minor league Players on NHL contracts be counted against the Players’ Share.

Finally, we propose that to facilitate more trades and create increased flexibility in managing Cap Room, Clubs be allowed to allocate portions of a contract’s Cap charge (and related salary obligations) in the context of a Player Trade. This will facilitate additional Player movement and trades between teams as they manage their respective Caps and Payroll Range obligations.
System Changes
We also propose making certain modest modifications to existing elements of the current system, none of which will affect the total dollars to which the Players are entitled; they will address instead the allocation of those dollars as among various categories of Players, and we believe should ensure and improve the competitive balance and quality of play around the League as a result.

In our opinion, and as we have expressed in prior bargaining sessions, certain elements of the current system have produced a dynamic that has led to a misallocation of Players’ Share dollars in favor of those Players coming out of the Entry Level System at the expense of other, more proven and established Players. We are therefore proposing the following to hopefully address this dynamic:

(1) We have withdrawn our initial proposal that would have provided Clubs with an option to extend the terms of Entry Level contracts, and instead are proposing to reduce the duration of the Entry Level System from three years to two years, thereby allowing entering NHL Players an earlier opportunity to become Restricted Free Agents. This will free up more money currently committed to Entry Level Players in their third years who are no longer legitimate NHL prospects and will also allow talented NHL prospects an opportunity to negotiate non-ELS contracts earlier in their careers.

(2) We have withdrawn our initial proposal to eliminate Salary Arbitration. We are instead proposing to maintain the Salary Arbitration mechanism, and are further proposing that the rights of Players and Clubs to elect Salary Arbitration be made mutual. Moreover, we are proposing to revise the eligibility criteria for Salary Arbitration to five years of professional experience (instead of the current four years), the same criteria as existed under the 1994-2004 CBA.

(3) We have withdrawn our initial proposal to revise the eligibility requirements for Unrestricted Free Agency to 10 Accrued Seasons, and are instead proposing a modest single year adjustment to 28 years of age or 8 Accrued Seasons. This proposal still allows for the possibility of early UFA status for Players—as early as age 26.

All three of these system proposals are designed to shift the current allocation of Players’ Share dollars away from “second contracts” and toward “third and subsequent contracts” to ensure what we believe to be a more equitable and effective allocation of Players’ Share dollars to more proven, established Players who are playing in the prime of their NHL careers.

We are also proposing two additional system modifications that are intended to address the recent phenomenon of long-term, front-loaded, “back-diving” Player contracts that we believe has proven harmful to the interests of our Clubs and has clearly had the purpose and effect of circumventing the letter and spirit of our existing system. In addition, these contracts have increased the Escrow obligation and reduced the effective salaries of Players playing under “normal” contracts. In order to mitigate the consequences of these contracts, we have proposed 5-year term limits for SPCs and tighter restrictions on the year-over-year salary variability of contracts.

Due to our proposed change in the Cap treatment of minor league Players on NHL SPCs, we are proposing the elimination of the Re-Entry Waivers provision. The elimination of this provision, coupled with the ability to allocate Cap charges and salary in trades, should lend themselves to fewer NHL-caliber Players being relegated to minor league service for prolonged periods of time.

Finally, in order to help preserve the vibrancy and stability of European professional leagues as a continued source of NHL talent, we are proposing to convert the typical four-year period of exclusive negotiating rights that attach to European Players from the current “two-plus-two” model (with each Player being subject to having to re-enter the Draft) to a straight “four-year” model (with no obligation to re-enter the Draft).

Revenue Sharing
The NHL has proposed to increase the Revenue Sharing pool for 2012/13 to $200 million (assuming League-wide revenues of $3.303 Billion), representing an approximately 33% increase over the amount that will be distributed on account of 2011/12. This enhanced amount is at least comparable to the levels of revenue sharing in the NBA and MLB, and will be adjusted proportionately upward or downward based on Actual HRR results in future seasons.

At least 50% of the Revenue Sharing pool will be funded by the Top 10 Revenue Grossing teams. The remainder of the Revenue Sharing pool will be funded from League- and Playoff-generated revenues.

The Revenue Sharing pool will be redistributed to those Clubs who are in the most need in order to enable those teams to have sufficient resources on hand to compete for and compensate Players within the Payroll Range, and otherwise to provide a basis for their continued financial stability. In this regard, we are proposing to commit for the next two years revenue sharing payments to recipient Clubs that are equivalent to or greater than what those Clubs will receive on account of the 2011/12 season. The effect should be to continue—and even improve—the historic and unprecedented quality of play and level of competitive balance we have jointly been able to achieve during the period of the recently expired CBA.

All Clubs in the NHL except the top 10 Revenue Grossing Clubs will now be eligible for Revenue Sharing, including Clubs in large media markets who were previously ineligible (such as Anaheim, New Jersey and the New York Islanders, among others). Further, our proposal eliminates some of the current “business performance” thresholds that had the effect of materially reducing the amounts a Club might otherwise qualify to receive in revenue sharing. Instead, under-performing Clubs will be expected to enhance their business planning capabilities, will be provided on-site assistance to meet enhanced business objectives and will be provided with much greater counseling as to “best practices” in business operations.

In addition, we have proposed the formation of a functioning and active Revenue Sharing Committee, on which the NHLPA will have representation and will have an opportunity to provide input, to determine the best and most effective distribution of revenue sharing funds.
Supplemental and Commissioner Discipline
We are proposing to amend current Player discipline provisions to introduce additional procedural safeguards to protect Player interests, including an ultimate appeal right to a “neutral” third-party arbitrator with a “clearly erroneous” standard of review.
No Rollback; Players’ Share “Make Whole” Provision
The NHL is not proposing that current SPCs be reduced, re-written or rolled back. Instead, the NHL’s proposal retains all current Players’ SPCs at their current face value for the duration of their terms, subject to the operation of the escrow mechanism in the same manner as it has worked under the expired CBA. (In other words, under the expired CBA, the compensation a Player received each year was either higher or lower than the face value of his contract depending upon Club-Player contracting levels and the level and growth rate of HRR.) Under the expired CBA, in two of the seven years Players were paid in excess of the face values of their SPCs and in five of those years they received less than their face values. That process would remain intact under the new CBA.

Under our “make whole” proposal, which is premised upon a 5% anticipated growth of HRR both this year and in future years, every Player will be paid compensation based on the full value of the Players’ Share under which his current SPC was signed.

In order to effectively transition from a Players’ Share of 57 percent to 50 percent, including importantly to protect Players’ current SPCs against an absolute reduction in Players’ Share dollars, the new Agreement contemplates, in its initial years, a “make whole” mechanism that will effectively pay each Player currently under contract the difference between 50% of Actual HRR in 2012/13 and 57% of HRR in 2011/12—which was $1.883 Billion.

Again, premised upon an assumed 5% growth rate between 2011/12 and 2012/13, the “make whole” amount is calculated to be a maximum of $149 million for the 2012/13 season ($1.883 Billion minus $1.734 Billion (57% multiplied by $3.303 Billion minus 50% multiplied by $3.468 Billion). Similarly, utilizing that formula and our 5% growth projections, the “make whole” amount is calculated to be a maximum of $62 million for the 2013/14 season.

To accomplish the “make whole,” each Players’ pro-rata “make whole” will be determined for the first two years of the Agreement and will be paid to each Player as a Deferred Compensation benefit over the life of the Player’s existing SPC. For those Players whose contracts expire after the 2012/13 season, the benefit will be paid when final HRR is determined for this season (in October/November 2013). Player “make whole” payments will be accrued and paid for by the League, and will be chargeable against Players’ Share amounts in future years as Preliminary Benefits.

The “make whole” obligation will be operational only through the 2013/14 season because, beginning in Year 3, the projected growth in League-wide revenues should have resulted in an increase in absolute Players’ Share dollars (in excess of the Players’ Share of $1.883 Billion in 2011/12). This will effectively restore “full value” to all existing SPCs without any continuing need for a “make whole.”

We note in regard to this proposal, that while the NHLPA’s August 14 proposal was premised upon a 7% annual growth rate in HRR, we instead used the more conservative growth rate of 5%, consistent with our prior proposals. If the NHLPA’s estimate of revenue growth is more accurate, then the amount of money needed to effectuate a “make whole” would actually be less.

Kevin

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