NHL Lockout

I will not pretend that it's groundbreaking to write about the NHL lockout (at least for writers north of the 49th). However, I am the first that actually will get to the real problem. I am not going to say that the luxury tax should be at 50% on the dollar vs. 52%, those are just the minor issues. If the league signs a superficial deal with the NHLPA we can expect a play stoppage every few years. I originally wrote something similar to this a few days ago, but the lovely Windows XP OS and I do not get along (Linux looks better to me every day). So I re-wrote this quickly, so hoping I haven't forgot any of my key points! So without further rambling on, here is the definitive lockout column on the internet.

Problem: (all business students are groaning at this point)
The Collective Bargaining Agreement (CBA) between the NHL and NHLPA does not allow for many teams to be profitable.

Analysis:
The setup of the NHL ownership structure, and all pro sports leagues for that matter, is asking for trouble. Owners are competing against each other for market share, yet are in it together to grow the market. Usually these conflicting interests are what make free markets thrive. The NHLPA claims they want to have salaries operate under this "free market". One big problem with this: the NHL is not a free market. The NHL operates essentially as a single company; its competition is with leagues such as the Swedish Elite League. Each team within the NHL should be thought of as a division of a company, say IBM. IBM's Calgary division does not try to outbid IBM's Toronto division for a really great engineer. They already have this engineer in their company, sure it may help the Calgary division to lure the engineer away from Toronto, but IBM head office would not allow this since the company is artificially raising the salary of one of their employees. If Microsoft (the Swedish Elite League) tried to lure this employee away by offering more money, then this is the engineer's market value rising. So from this example, it is clearly in Calgary division's best interest to take on this amazing engineer from Toronto, but this is not what is best for IBM.

This leads into the question I hear often: "Why do the owners just not pay the players so much money?" A prisoner's dilemma forms between all the NHL teams. I will not attempt to draw a payoff matrix with 30 competitors since I would like to finish this post before I am 30 myself. Basically what ends up happening is that it is always better for teams to overpay players. If Montreal refuses to pay high prices, they lose lots of revenue from ticket sales, merchandise, and TV deals and lose a very large amount of money. If Montreal pays the higher price (with other teams doing the same), their revenue goes up, but their expenses go up higher, making them lose a smaller amount of money. If Montreal is the only one paying for star players, they will be extremely profitable. This leads to the conclusion that no matter what the other 29 teams do, Montreal should try to pay to get the star players. Aggregated over all 30 teams, the players' salaries artificially rise to the level that we see now.

Utopian Solution:
This solution will not happen, but describing a ideal ending can be useful in putting a realistic solution on the right track. The NHL should be a single entity, wich each team being a division. I do not care if it is a publicly traded company on a securities exchange or if it keeps the same 30 ownership groups, the key is that the NHL as a whole is one company. At this point, no salary cap is needed, just as how IBM does not need a salary cap. You can just have the central management not allow any team's payroll to increase too high. Management would be smart to not try to stack any specific team (New York or LA) to avoid fan backlash, but any issues like this should be handled by the management team.

Realistic Solution:
Basically just fold the whole NHL and have the same owners purchase the rights to all the old NHL franchises. A new radical structure is needed and since the union is too stubborn to allow for the company to be successful, this will initially eliminate them. I am not going to get into specifics of how such transactions will happen. In forming of the new NHL, have in place protections to guard against another prisoner's dilemma between teams. Have revenue sharing between teams, but the agreements have to be such that ownership of a single team cannot make profit without trying. Salary caps or a significant luxury tax are a must. These need to be put in place in the organizational charters. The NHL should still pay players more than any other league to ensure the best, but this can be adjusted. Ownership votes on salary cap level should happen at regular intervals, possibly every 2 years. This really does answer what the union claims to want; market price for salaries will be set because the NHL does not want a competition league to come in.

You may feel I am being too hard on the union, but I honestly feel they are 90% of the problem. I will go more in depth on problems with unions later, as I become a union member next week!