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Can someone help me understand revenue sharing?

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12-07-2012, 11:57 AM
  #1
anothernobody
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Can someone help me understand revenue sharing?

I'm wondering if anyone can explain how the revenue sharing works in the nhl.

I understand how revenue sharing works between teams; financially, the top 10 teams contribute money into a pot that the bottom 15 teams can claim money from. The amount they can claim depends on a number of factors from over the course of the season (attendance % etc.).

But what I DO NOT understand is how the players are involved in the revenue sharing. I mean I know they were getting 57% with the previous CBA and that it is looking to be 50% on the new one. But how exactly does this affect players contracts, or how exactly is this percentage of revenues "shared" with the players?. W



I would like to point out that I do understand that the salary cap is determined by the previous seasons revenues. Which obviously over the last several years has been advantageous for the players because revenues have grown very healthily which has increased the salary cap thereby allowing individual players higher salaries... Is the cap determined by the players % of revenue sharing and thus is how the revenues are "shared" with the players or am I way off the mark in thinking this?



Also, how will this "make whole" agreement work for the players?


Sorry if this has been beaten to death and explained multiple times, I haven't been on the boards since hockey was cancelled. If it has been I am happy to jump to a link!

cheers for any help on this...

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12-07-2012, 12:36 PM
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Turbofan
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Hmm, to me it sounds like you're confusing revenue sharing with linkage a little? You essentially have the revenue sharing amongst owners part right. The other half of your post regarding the HRR split, gets into linkage and the HRR split between owners and players. The 'players share' of HRR isn't really on the topic of 'revenue sharing', which is an owner-to-owner thing. So for the rest of this post I'll try to avoid using the word 'share' when it comes to talking about the HRR split and instead use 'portion'.

To understand what linkage means you have to understand how players get paid their salaries.

In basic terms it means your salary is directly linked to the revenue of the league.

Contrary to most fan's beliefs, NHL player salaries aren't signed for fixed amounts. They are actually signed for a somewhat variable amount that can change depending on league revenue and the players' portion of HRR, as defined by the CBA. As fans, we are just sort of fed by the media what their contracts are currently 'worth' for convenience.

In the previous CBA, it was 57/43. (Actually not really..it wasn't fixed, but slid around between 54-57 depending on revenues, but in the last few years it landed and stuck at 57). So 57% of all league revenue is handed to the players and they go and chop it up further from there and that's how players make their salaries. 43% goes to the owners and they use it to cover the other costs associated with operating an NHL franchise..with whatever left being profit.

The CBA is sort of a larger contract that governs all other player contracts. If the % of HRR for the players changes from one CBA to another, then all salaries are adjusted accordingly. Every player who signs a contract in the NHL should know this.

Therefore, it is my opinion that calling for 'contracts to be honored' is a bit bogus, because in reality they are being honored. Salaries are linked to their percentage of HRR% as defined by the CBA. If it goes down to 50% then your contract essentially, becomes worth less. Conversely, if by some reason the players' portion went up to 60%, your contract would suddenly be worth more to your pleasant surprise. That's how it works in a linked system.

That's my somewhat simple take on linkage as I understand it. Colored with a bit of pro-owner bias I must admit. Other posters here will be sure to correct or clear up anything I may have misconstrued. Hope it suffices...there is some more complex stuff like escrow and etc. I won't try to get into.


Last edited by Turbofan: 12-07-2012 at 12:41 PM.
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12-07-2012, 12:55 PM
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haseoke39
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REVENUE SHARING

what you said you understood, revenue sharing between teams, is the only kind of revenue sharing there is. Nothing else to know here. The only thing being negotiated about this is how much money will get redistributed, and both sides have agreed it will increase substantially.

MAKE WHOLE

When you talk about "make whole," that a mechanism put in place so that salaries can immediately drop down to 50%, and stay there, while eventually paying out the nominal value of current deals. This is how it works:

average player salary is 2.5M. Dropping to 50% makes it decline to 2.2M.

In year one, pay 2.2M
In year 2, revenues have grown somewhat, so the league can afford to pay 2.4M while staying at 50%.
In year 3, ditto, so they pay out 2.6M.
In year 4, ditto, so they pay out 2.8M.

Over the lifetime of the deal, the average value is 2.5M. The reason players call it "players paying players" is because, when the team starts paying out 2.6 and 2.8, that comes out of the team's cap, meaning they have less money left to sign other players. So other players face less market demand than they otherwise would so that their brethren can get backpay.

Of course, it's worth noting that the league has since conceded that it would pay for about half of the cost of "making whole," meaning they would shuttle some money around off the cap in order to pay out full value, so future players don't face quite as much diminished demand.

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12-08-2012, 01:58 PM
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anothernobody
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interesting a had no idea that contracts are variable... but all makes sense now.
Thanks very much for the help guys, both great posts!

cheers

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12-08-2012, 05:15 PM
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NugentHopkinsfan
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In the NHL revenue sharing is where Toronto, New York, and Montreal take a bunch of the money they make because they are big markets and have fans and give it to the 10 or so teams that can't charge more than $40 for a ticket so they can almost break even.

In other leagues there are many teams that make big profits and HUGE tv deals to split up. In the NHL it's basically stealing from a couple teams to prop up a bunch of failed markets.

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12-08-2012, 06:27 PM
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MoreOrr
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Quote:
Originally Posted by NugentHopkinsfan View Post
In the NHL revenue sharing is where Toronto, New York, and Montreal take a bunch of the money they make because they are big markets and have fans and give it to the 10 or so teams that can't charge more than $40 for a ticket so they can almost break even.

In other leagues there are many teams that make big profits and HUGE tv deals to split up. In the NHL it's basically stealing from a couple teams to prop up a bunch of failed markets.
And what do all those other markets do? You know, the ones between those top 3 (Toronto, Montreal, and the Rangers) and those "failed markets" at the bottom? That's one question.
And how many "failed markets" are there exactly? Just to be clear on how many markets I'm asking about in the first question.

Ok, so hypothetically, let's say the League decides to cut the Revenue Share recipient loose, and, I don't know, 3, 4, 6 of them die. What then will happen to the revenue averages for the rest of the League after that? Won't a higher revenue average then result in salaries going up even higher? And if that happens, won't there then be another group of teams requiring "Revenue Sharing" or else they be cut loose to die from not being able to compete? Seems like a vicious circle.


To the OP, another generalized answer is that Revenue Sharing is what becomes almost a necessity in a league where there is extreme economic disparity. The NHL is such a league, with 3 to 4 general economic levels... The top 3, the next 3 or 4, then a large group of about 20 (give or take) and then a bottom group of about 2 or 3 teams. The lower ones generally help to keep salary costs reasonably in range for the next group above them, while the top group(s) keep pushing the salaries higher as a result of them having extremely high revenues. Thus the Revenue Sharing, in order to try to maintain survival of all in the League and to try to keep all teams reasonably competitive.

OH, forgot to mention this: Haven't heard of any of those teams being stolen from complaining!


Last edited by MoreOrr: 12-08-2012 at 07:30 PM.
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12-08-2012, 07:24 PM
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Quote:
Originally Posted by NugentHopkinsfan View Post
In the NHL revenue sharing is where Toronto, New York, and Montreal take a bunch of the money they make because they are big markets and have fans and give it to the 10 or so teams that can't charge more than $40 for a ticket so they can almost break even.

In other leagues there are many teams that make big profits and HUGE tv deals to split up. In the NHL it's basically stealing from a couple teams to prop up a bunch of failed markets.
Revenue sharing in the NFL consists primarily of:
- Collective TV revenue being divided up among the 32 teams, AND
- 60% of the gate for the home team, 40% for the road team

The TV share goes back to 1961. The gate sharing goes back to the very beginnings of pro football. It's interesting to note the difference between the NFL and NHL ownership over time. The NFL was concerned with stabilizing after the way in which the 1920s unfolded, and sharing the gate allowed teams to better handle economic disruptions. The NHL owners were too busy contracting the league to the bare minimum, rejecting expansion at every turn, and waiting until every other league entered other major cities before finally blessing them with the league's presence.

Now, one thing that the NHL has that the NFL does not have is local TV deals. The NBA and MLB also have this. The suggestion was made by Bob Costas for MLB (but it applies for all similar leagues) that revenue derived from local TV deals needs to be split 50-50 as well. This would prevent the massive disparity between the Yankees and Royals from directly impacting the ability to compete on the field. It would work in the NHL as well.

However, your laughably oversimplistic explanation works as well. Rather than realize that there is a cyclical nature to sports and economies, you choose to believe that this is a shakedown, and that it could never stabilize anyone who it doesn't help today.

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12-10-2012, 01:56 PM
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sandysan
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Quote:
Originally Posted by Mayor Bee View Post

Now, one thing that the NHL has that the NFL does not have is local TV deals. The NBA and MLB also have this. The suggestion was made by Bob Costas for MLB (but it applies for all similar leagues) that revenue derived from local TV deals needs to be split 50-50 as well. This would prevent the massive disparity between the Yankees and Royals from directly impacting the ability to compete on the field. It would work in the NHL as well.
It could work I suppose, but what about concessions and non-hockey related events that are covered by arena management ?
If Celine dion sells out the bell center, then tampa should get a check ?

I am all for the parity in the NHL that is often lacking in MLB and to a lesser extent the NFL. I have no problem with revenue sharing, what I dont want is for teams to become dependent long term on these subsidies while they run the team into the ground in their own markets. Teams like the royals ( who seemingly are looking to make a move with recent trades) or teams going boom to bust like the marlins. By telling teams we are going to cut you into the pie without you having to lift a finger, you are simply going to incentivize the have nots perpetually living off the largesse of the have teams and will strongly reduce the growth and expansion of the game into non traditional markets.

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12-10-2012, 08:19 PM
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Quote:
Originally Posted by sandysan View Post
It could work I suppose, but what about concessions and non-hockey related events that are covered by arena management ?
If Celine dion sells out the bell center, then tampa should get a check ?

I am all for the parity in the NHL that is often lacking in MLB and to a lesser extent the NFL. I have no problem with revenue sharing, what I dont want is for teams to become dependent long term on these subsidies while they run the team into the ground in their own markets. Teams like the royals ( who seemingly are looking to make a move with recent trades) or teams going boom to bust like the marlins. By telling teams we are going to cut you into the pie without you having to lift a finger, you are simply going to incentivize the have nots perpetually living off the largesse of the have teams and will strongly reduce the growth and expansion of the game into non traditional markets.
...and that's a risk, when the revenue sharing check is so massive that the incentive to win is less than the incentive to gouge. Not "profit", per se, but gouge. When an owner has no interesting in putting a winning product out there simply because he can live large off the revenue sharing, every dollar collected from ticket sales is dirty money.

But that's what the salary floor eliminates. It's a mechanism that MLB lacks, and it means that it's impossible to force the RS check to be invested at all. Since MLB also lacks a salary cap, it's caused about 10 teams to throw in the towel completely, and the chance of a legitimate market contraction is certainly there. When a kid grows up in a market that not only has no success, but no chance of success, why would he follow the team? A kid growing up in Cleveland can see the chance for the Browns or Cavaliers to quickly retool, and a kid in Kansas City can see the Chiefs have a terrific draft and immediately become contenders, but they'll never see the Indians or Royals able to do the same.

What MLB has that the NHL also does not is a massive TV contract. The revenue sharing numbers thus cannot become so large as to cover the entire roster payroll, so winning (or at least attempting to) is still a necessity. The NFL and NBA also have revenue sharing, but you don't see teams floundering for years at a time unless they're legitimately poorly run.

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