Everyone remembers the 2004-05 NHL lockout, the one that eventually cancelled the entire hockey season, the only time this has occurred in the modern era of professional sports. Now that the NHL has recovered reasonably well from the turmoil and uncertainty that surrounded that work stoppage, observers can look back in hindsight and consider it a cautionary tale. The league now has cost certainty to keep salaries from spiraling out of control and revenue sharing to help the lower income teams. Yet, it never needed to go as far as canceling an entire season. If cooler, future-oriented minds within the league and union had prevailed 10 years prior, the chain of events that led to the 2004-05 lockout may never have happened.
Bob Goodenow was hired as head of the NHLPA in 1992. His tenure spanned three CBAs and included a 10-day players strike (1992), an owners’ lockout in 1994 that took out nearly half of the season, and the 2004 lockout that cost the entire season. During the 2004 lockout, Goodenow was fired.
Gary Bettman became NHL commissioner during the 1992 offseason, coming over from a stint as a deputy to David Stern in the NBA. Bettman was brought in to help the league control costs, namely through the institution of a salary cap. The salary cap became the key issue in negotiations between the league and union, eventually leading to all three work stoppages. NHL owners looked at the its leading competitor in the NBA and saw that basketball had a cap in place for nearly twenty years.
Throughout it all, neither side budged much. The league brought in former SEC chair Arthur Levitt to determine how much the league was losing annually, which amounted to $273 million in 2003. Forbes looked at the numbers and found that the owners were hiding revenue here and there, yet the league was still losing money overall, $123 million for the same period. Either way, the situation was unbalanced and required significant financial restructuring.
To help bring the league back into the black, existing owners accepted new expansion teams in several US West and South markets, including the Bay Area and Atlanta, where the NHL had failed previously (Golden Seals and Flames, respectively). While a market like San Jose has been a success, many of the other non-traditional markets such as South Florida, Nashville, and Phoenix have struggled. Seeing this, some abandoned cities (Winnipeg, Quebec City) and upcoming cities (Hamilton) have expressed interest in landing some of the struggling teams. In the mid 90’s, no one would have thought Winnipeg would be able to have an NHL team again, but now it has a modern, if small arena in place with a capacity of 15,015. Taking a page from MLB, there appears to be a movement to “right-size” arenas for each market. What’s better, 5,000 empty seats and dozens of empty suites in a Southern arena that seats 19,000, or a packed, intimate, 15,000-seat arena north of the 48th parallel?
A Bureau of Labor Statistics article (PDF) published in December 2005 analyzed the circumstances that led up to the lockout and the subsequent CBA. Its opinion generally agreed with virtually every media outlet and even the players in saying that the owners dominated the new agreement. The owners got a salary cap, floor, and revenue sharing. The players were thrown bones here and there, in the forms of earlier free agency triggers throughout the CBA and a greater percentage of revenues if certain targets were reached by the league.
While both sides have lived in relative labor peace over the last several years, both sides are gearing up for at least a little conflict. Rich teams such as the Original Six want to be able to go over the cap since their revenue easily outstrip the cap. Low revenue teams, which make up around two-thirds of the NHL, have no interest in this. Of course, the have-nots would also love to lower the salary floor, which sits at $43 million this season. Both sides could grant concessions to soften both the cap and the floor, but there’s a slippery slope in doing that as it could practically negate the parity effects of having a cap/floor in the place. There’s also a quirk in the revenue sharing agreement in which have-nots which are in markets larger than 2.5 million households cannot qualify for a handout, even if they are in dire straits. This has caused a teams like the Ducks, Islanders, and Devils to make severe cuts over the past several years (the Devils have stabilized after moving into Prudential Center).
The union would love for these revenue sharing matters to become wedge issues among the owners, as they could bolster their case to soften the cap. As mentioned previously, Donald Fehr has been brought in to head the NHLPA, and he’s just as difficult to deal with as Bob Goodenow. Another issue is the players being forced to put 12% of their salaries in an escrow account to guard against revenue shortfalls. That escrow money essentially acts as an extra tax on them, and it will be an important negotiating item come 2012.
In the end, the NHL and the players benefited most from two events that were completely out of their control. The rise of the Canadian dollar to near parity with the US dollar brought the Canadian teams closer to financial equality with their south-of-the-border counterparts. Had this occurred in the mid-90’s instead of five years ago, there might not have been an exodus of teams like the Quebec Nordiques and Winnipeg Jets, and expansion could have happened in Denver and then fewer southern markets.
The other factor is the advent of HDTV, which has been key to increased viewership even though the NHL is no longer on ESPN. No sport has benefited more from an enhanced and far superior viewing experience than hockey. HDTV broadcasting en masse didn’t start happening until 2006.
It seems hard to imagine that hockey, with all of its labor strife over that past 20 years, could so easily shoot themselves in foot once again. You’d think they’d have run out of feet at this point. As badly as the NHLPA lost in the last round, prior to Fehr they had been rudderless, so it was imperative they had someone leading them with a coherent strategy and direction. The issue that remains is whether or not that direction is off a cliff.
newballpark.org 
HDTV rules for the NHL. Just not sure it’s bringing in anyone who wasn’t already watching. If Fehr decides to play tough, look for Bettman to lock the door again… Incidentally, the Sharks’ Patrick Marleau is set to play the 1000th game of his career (All with the Sharks!!) on Monday. This would have happened a year ago if not for the lockout.
re: Forbes looked at the numbers and found that the owners were hiding revenue here and there, yet the league was still losing money overall, $123 million for the same period.
I don’t think Forbes ever had access to the numbers. Just a lot of guesswork on their part. Art Savage used to say Forbes was way way off when it claimed the Sharks was making money.
@pjk – While Savage was probably technically right when he said “the Sharks don’t make money,” he wasn’t providing the full picture. What mattered then and still matters now is that SVSE makes money at the end of each year, which continues to be the case. They have the luxury of being able to do accounting tricks to hide revenue and claim a loss.
I personally asked one of the top SVSE executives whether they made $$ when factoring in all the concerts, etc and he claimed they still lost money. (What would help SVSE make $$ would be a nice long playoff run by the Sharks every year, but that pretty much never happens. There may be no playoffs at all this year.) I guess we should say the late Art Savage, BTW.
@pjk – Come on, you don’t really believe that do you? SVSE gets 55% of their revenue from Sharks games. They get all concessions and most parking revenue from all other events. They’ve invested in several other venues and have a very good formula for operating them – and they can write off a good deal of capex to boot. SVSE is not a company that is struggling, and they are not losing money by any honest assessment.
Since you brought up the 2004-05 NHL strike/lockout: this was one of those great examples that have been studied by econometrists to examine claims of great financial impact of professional sports on local economies — conclusion: these are way oversold by boosters (the substitution effect comes to mind). See e.g. “Selling the game: estimating the economic impact of professional sports through taxable sales.” http://www.thefreelibrary.com/Selling+the+game:+estimating+the+economic+impact+of+professional…-a0174639675
“(…) strikes and lockouts in professional sports have not systematically reduced local taxable sales. While these results, like any econometric estimates, are subject to some degree of uncertainty, they clearly place doubt on boosters’ claims of huge economic windfalls. Cities would be wise to view with caution economic impact estimates provided by sports boosters, who have a clear incentive to inflate these estimates. It would appear that “padding” is an essential element of many games both on and off the field. “
What’s that Walter O’Malley story, where he claimed to have lost $2 million despite actually turning a $2 mil profit, because he “should have” made $4 million?
Nothing to add about how terrible the hole is that the NHL and NHLPA have dug for themselves. Just thought I’d mention that I stumbled upon this site about 2 years ago looking for stuff about a new A’s stadium and in the meantime it’s become the best sports info site out there. Keep up the good work ML.
@Joe – Thanks. I appreciate the kind words.
@pjk–and if there wasn’t a baseball strike in 1994/1995, Cal Ripken would of broken his consecutive game streak in Oakland. I remember at the time Alderson not wanting to change the schedule to satisfy Angelos of the O’s.
Awesome post, ML. Hockey is my weak point knowledge-wise of the big four, and this post and others you’ve done have really helped me learn.
I have a quick tangent/counterpoint from a point of disagreement you and I had in another thread, and I’d be grateful if you could address it here:
We acknowledge that hockey, the NBA, and MLB have expanded when they were in need of an infusion of cash. The theme seems to be that, if the professional league itself is not perfectly thriving financially, that’s the time to expand.
Yet, in our contraction discussions here and at AN, you make the (well-respected) point that “MLB can’t justify contraction given $7B revenues.”
Given the logic of the previous point, and with the understanding that it’s never a great time to contract…wouldn’t it hold true that the best time to contract is when the game is awash with cash – not when it is cash-strapped?
You expand when you need money and have open markets, you contract when you have oodles of cash and two franchises that are sagging down revenues. Thoughts?
You don’t contract. EVER. It looks really bad, minor league, etc. It reeks of failure.
Regardless of being able to afford it monetarily, none of the big 4 could afford it optically or politically
That being said, I think expansion is coming to the NHL (back to Canada) and probably the MLB once all the stadium issues in the tow “Bay” areas are resolved
“Taking a page from MLB, there appears to be a movement to “right-size” arenas for each market. What’s better, 5,000 empty seats and dozens of empty suites in a Southern arena that seats 19,000, or a packed, intimate, 15,000-seat arena north of the 48th parallel?”
I wouldn’t really call this a movement. The Winnipeg arena was specifically built for minor league hockey, as the city had basically given up on attracting the NHL again. Now they’re faced with the question of how/whether they can expand it by a couple thousand to get the NHL back.
One would think the NHL learned its’ lesson with the loss of two seasons thanks to the owners and their greed. It would be wise for the players though to not to go high and hard against the owners when the CBA runs out in 2012. The owners have proven they have the ability, patience, and arrogance to wait out any labor struggle that may come. Which seems likely since the owners won big the last time out and the players will want some conncessions this time. I am hoping that both sides look at the two seasons the NHL lost and come up wih an agreement but that maybe too much to ask.