After the implosion of the last bargaining sessions between the National Hockey League and its Players Association, a much was made of the “hill to die on” statement made by Bill Daly in reference to three factors the league would not budge on:

1) A ten year term on the next Collective Bargaining Agreement, with an option to walk away after eight years.

2) A maximum contract length of five year, with an option from teams to resign unrestricted free agents at a seven year maximum term.

3) Transition payments, as far as a one-time contract buyout, and compensation to small market teams are concern.

Having spoken to a bunch of people about the subject, I think I can break to entire issue down, in a way both sides understand. First, take a look at the chart below:

Basically, the chart depicts the NHL’s belief that in a shortened season of 50-58 games, teams expenses will remain at 75-90% of the amount of a normal 82-game season. It also shows that while large to moderate market teams can make anywhere between 35-50% of normal revenues, small market teams will only be able to recooperate 28-34%.

With that said, the league’s reasoning behind their inability to waiver from the three points above seems clear.

10 Year Term On The Collective Bargaining Agreement

If two cars with identical features are priced at $20,000, but one has a five year/80000 KM warranty, and the other has a five year/100000 KM warranty, which one would we buy? Obviously, the car with the longer warranty would be more enticing.

The same holds true for perspective sponsors. Guarantee revenue streams is of the utmost importance to the NHL. Their belief is that, similarly to the 2004-2005 lockout, they have to have sponsorship packages available at a reduced price.

Getting sponsors to sign on for a period of ten years, while only charging for the first eight, is the way to go for the league to salvage its advertising viability. In doing this, it seems like they have given sponsors a great opportunity to invest in the game, while not losing a dime. Even if the new CBA is not extended after eight years, the league can maximize its profits without losing those newly signed sponsors.

After all, who in their right mind would complain about losing two FREE years of sponsorship?

Five Year Cap On Player Contracts

Back-diving contracts have been “la mode du jour” for a way that NHL GM’s could circumvent to league’s salary cap. In 2004, there was only ONE contract signed for over a five year term, while there are 90 of them today. A clear sign of a growing, and detrimental, practice among league executives.

In instituting a five year limit on player contracts, the NHL can eliminate this trend, while at the same time creating a financially insurable baseline that all teams can work with.

And while the NHLPA says that it doesn’t want a term limit on contracts, nothing stops teams from resigning players still under contract to extensions that facilitate salary cap relief.

Take, for example, Ilya Kovalchuk contract as an example. Assuming he signed the first five years of his current contract for the current amounts, the cap hit would be $9,120,000. The next seven years would be $6,628571, while the final three would be at a cap amount of $2,666,667. Although the amounts in the first contract is quite high, the last two contracts are already below the current cap hit of $6,666,667.

What this does is allow teams to reevaluate their investment in certain players, giving them the option to resign them or let them go. Also, since the final portion is a difference of $4,000,000 on the salary cap, years 13-15 will allow for the competitive growth of the franchise in question.

Finally, reducing the maximum contract length reestablishes an almost useless trade market. Is it easier to trade a player, like Roberto Luongo, with a remainder of ten years on his current 12 year contract, or would he be easier to trade with five years left of a seven year term? The answer is obvious.

Transition Payments

Given the current state of the league, and the certain drop in the salary cap, NHL teams need to have the luxury of eliminating one contract off the books to ensure they can abide by the imposed limit. Some teams, like the Tampa Bay Lightning can buy out the contract of  Vincent Lecavalier, while others, like the Montreal Canadiens, can erase the acquisitions of either Scott Gomez or Tomas Kaberle.

The importance of these transitional payments between franchises is also paramount to ensure that small market teams, whose revenues due to the lockout have been significantly reduced, can receive enough compensation from healthier clubs to continue on.

While we all want hockey back, the strong stance taken by the NHL is certainly justifiable from a business perspective. Obviously, we don’t care about the numbers, but we all care about the long term health of the NHL