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Can Gary Bettman fix the glitch or is the NHL broken beyond repair?
Near the end of "The Matrix Reloaded," there's a scene between our hero Ted "Theodore" Logan and a sinister program called The Architect, whose primary function is to espouse baffling exposition. The central theme of his speechifying: Neo is nothing more than a temporary way to balance an unbalanced equation, and that nothing he does can prevent all of this from happening again, as it has before.
Why? The Robot Overlords can't permanently remedy an anomaly in their system, so they go through this song-and-dance with a Chosen One every so often. Humans get defiant. Agent Smith gets all shooty. Zion is destroyed, the equation is balanced, wash, rinse, repeat.
Because this is the nature of the glitch.
The NHL's architect, Gary Bettman, discovered his own glitch in the Matrix over the last seven years.
The equation was seemingly balanced: a salary cap, a salary rollback and other mechanisms put in place after the 2004-05 lockout to achieve what he deemed "Cost Certainty." (And can't you just hear Agent Smith's reptilian lips uttering that phrase with a demonic purr?)
The glitch? That the percentage of revenue given to the players, now standing at 57 percent, was too large to sustain the viability of 30 franchises, something perpetuated by his own general managers as they sent labor costs into the stratosphere. The laser-focus Bettman had on establishing the salary cap was short sighted; he and the NHL were unable to predict how the league's teams would jump through CBA loopholes like hyperactive poodles at a circus in order to spend to win.
So rather than any dramatic restructuring of a flawed system — the NHLPA, to this point, hasn't gone to war over the salary cap in the 2012 labor talks — the NHL wants to fix the glitch.
Which brings us to an uncomfortable possibility: That the nature of the league's revenue and its potential growth all but guarantees that a work stoppage will occur at the end of every CBA. It's happened before, it's happening now, it'll happen again — unless conditions change.
The primary dispute in this lockout is the definition and distribution of Hockey Related Revenue. The owners want the players' share dropped to below 50 percent during the life of the CBA, which could mean a billion dollars difference between the current system.
Bettman's had a hard sell here because the League has trumpeted record profits for the last few seasons: $3.3 billion in revenue last season, signifying dramatic growth since the last lockout, in a terrible economy no less.
He's made the case that the players' share will lead to fiscal instability across the league. He's made the case that revenues growing at a 7.1 percent clip won't be the norm — that the Canadian dollar, the relocation to Winnipeg and the NBC TV deal have all led to the surge in profits, but only in the short term.
"Of course, there is a fourth factor," wrote Larry Brooks of the NY Post over the weekend, "the significant annual hikes in ticket prices pretty much across the board, and most dramatically in the league's biggest markets."
Which is to say that the NHL is still a gate-driven league, although it's not latched onto that teat the same way it was during the 1995 lockout. Other revenue streams — TV, digital, merchandise — have grown considerably, but not to the point where the NHL isn't beholden to the almighty turnstile.
And that's the scary part for this league: Owners can decrease the value of contracts and restrict salary inflation; but they all know that unless the situation is dire, ticket prices can't dramatically decrease for a significant portion of time.
In fact, they'll rise, though not at dramatic rates across the board. And if they rise, does there come a point at which the NHL risks tapping out certain markets?
Author Jonathon Gatehouse has an interesting look at Bettman in his new book "The Instigator" (review forthcoming) that deals with that very issue:
Then there's the question of capacity. The box office remains the number-one cash source for the NHL—accounting for almost half of all revenues—but the seven years of record attendance that Bettman likes to trumpet would seem to leave little room for improvement. Official NHL figures suggest that sixteen of its clubs—including all the Canadian ones—sell out each and every night, and that overall its rinks are filled 95.6 percent of the time.
And while twenty teams increased their ticket prices for the 2011—12 season, they were mostly modest hikes, with the price of the average NHL seat rising only 5.4 percent. Many of the best markets are tapped out. In Toronto, where the Leafs haven't made the playoffs since 2004, the average price is now $123.77. Winnipeg, with the smallest building in the NHL, charges the second most on average at $98.27 (125 percent more than the team was able to command in Atlanta). Montreal's average rose just 0.3 percent to $88.67. The Flyers, who had both the best attendance and worst prices in the United States, charged an average of $66.89. Boston, winners of the 2011 Stanley Cup, announced plans to hike their tickets by an average $5.25 apiece for the 2012—13 season to just over $64, but few teams will be able to follow suit.
The truth is that outside of the major hockey markets, it's often harder than the league makes it look to fill the seats."
As Cyril Leeder, Ottawa Senators club president, told Gatehouse, it's the business community support that's part of that concern:
Ottawa's tickets, which range from $15 to $200, already bump up against what Leeder feels is the local ceiling. "Everybody loves hockey in Canada—they get it, they understand it. But what we've learned over the years is that our business community can only support so many premium seats. It's the high-price tickets where we're restricted," he says. "That's the real challenge of a smaller Canadian market. You have to find revenue from other sources to grow."
It's the real challenge for any market, actually, and the challenge for this league. And there are two ways to think about the future of that revenue.
1. That the NHL expects to make a [expletive] load of money in the next decade thanks to a new Canadian TV deal, new Canadian NHL team(s), more revenues from untapped sources in Europe (for which the Premiere Games having laid the groundwork) and multiple outdoor hockey games every season (a concept that has been formally presented to the players within the last year). Hence, it wants to fix the players' share (and have it decline) right now.
2. That the good times of the last several years won't continue, that ticket revenue alone can't sustain these salaries and that it's vital that the NHL correct the over-sharing of revenue with the players before things get dire.
If you buy Option 2, then you likely sympathize with the owners here. And there's merit to it: I agree on principle with the NHL that 57 percent of the League's revenue, considering the levels and sustainability of that revenue, is too much for the players.
But I've long believed it's option 1 with a dash of option 2: The NHL and its owners knows there's a windfall coming, and wants to not only limit the players' share but also restrict salary growth in a way Bettman didn't in 2005.
Yet at the same time, it wants guarantees that if the golden goose dies, that owners have — wait for it — cost certainty, because it's still a gate-driven league and the gate's driving well about the speed limit already.
So I fear that this lockout addresses the glitch until the system produces the next one. And the next lockout fixes that glitch, until the next one. Wash, rinse, repeat. Causal sports fans wonder why the NHL would have four work stoppages in 20 years; the only plausible answer is that it's just how the NHL exists.
Meanwhile, the fans rage against the system and its flaws, while the Architect calmly states:
"Already I can see the chain reaction: the chemical precursors that signal the onset of an emotion, designed specifically to overwhelm logic and reason. An emotion that is already blinding you to the simple and obvious truth: We're going to lock them out and there is nothing you can do to stop it …"
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