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Owner CBA Leverage

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Old
09-25-2003, 03:23 AM
  #1
discostu
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Owner CBA Leverage

Recent threads have pointed out that the NHLPA will have some leverage in the coming CBA negotiations by having the ability to threaten to disband the NHLPA, and reform a new league, likely with a business partner (i.e. the WHA, perhaps a league in Europe, etc.). It was generally accepted that this alternative is a long-shot, as it comes at a great amount of risk and potential cost to the players or its business partners. The alternative does however give the players some leverage in negotiations though, as it gives them an out.

I had a thought about an equivalent or greater last ditch bargaining alternative for the owners: Consolidate all teams into one corporate entity. Let me explain.

Currently, the NHL is 31 different corporate entitities. One for each team, and one for the league itself. Each team is responsible to make most of their own business decisions and they receive the benefits and pay the costs of these decisions.

If the CBA negotiations ever turned ugly, the owners could decide to amalgamate all the corporate entities into one, and have thirty different "divisions" of the corporation, one for each team. Each current owner would receive a stake in the new formed entity which would be based on the estimated franchise value of their team. All assets of the team would then be owned by the new corporate entity. Each division would now have a manager who is responsible for making decisions relating to that division, however, they would be receiving various directives from the head office, including what their operating budget is. The NHL is able to set the salary budget of each team to whatever it wants, therefore it could decide to set them all at the same amount, thus creating a salary cap.

Because the whole league is one corporate entity, collusion is not a factor. The only potential legal problem I could see if there is a clause in the CBA that indicates that no owner can have more than one team. I think a rule like this is in place, but I don't think it is in the CBA directly. I think it is a rule that is able to change by a vote by the Board of Governors. If that is the case, I don't see anything in this alternative which would have to be approved by the NHLPA within the CBA.

There are a lot of issues that prevent this from becoming a reality, like the fact that owners would not be willing to give up their stake in a company, especially if the team is integrated with other corporations (i.e. broadcasting companies, other pro sport teams, arenas, etc.), however these issues can be addressed and negotiated. Also, any consolidation can be structured so that if the new system doesn't work, the old system can be restored, with all teams receiving all assets that they gave up in the original almalgamation. The profit/loss during that time period will be shared to teams on the basis of their share in the combined entity.

The main point behind this idea though is to identify an option that the owners will have during the negotiations. It's a difficult option, and one that the owners would not find ideal, but becomes an agreeable alternative to the owners if the league's future is put in jeopardy because of a stalemate during negotiations.

I'd like to hear your thoughts.

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09-25-2003, 05:06 AM
  #2
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I think it's a highly unlikely strategy, not the least of which is that the 31 corporate entities have 31 different motivations for entering into the league.

It would be interesting, however, if only for the spectacle of 'owner-holdouts' preventing the amalgamation of the league until their unreasonably high franchise price is paid.

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09-25-2003, 05:34 AM
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Quote:
Originally Posted by Other Dave
I think it's a highly unlikely strategy, not the least of which is that the 31 corporate entities have 31 different motivations for entering into the league.

It would be interesting, however, if only for the spectacle of 'owner-holdouts' preventing the amalgamation of the league until their unreasonably high franchise price is paid.

Other Dave
Highly unlikely strategy, but probably about equal or greater likelihood of the NHLPA disbanding and forming its own league. Both are lose-lose situations for either side, but remain as potential bargaining chips to keep the other side honest, or a relatively close facsimile of honesty.

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09-25-2003, 06:40 AM
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Quote:
Originally Posted by discostu
Highly unlikely strategy, but probably about equal or greater likelihood of the NHLPA disbanding and forming its own league. Both are lose-lose situations for either side, but remain as potential bargaining chips to keep the other side honest, or a relatively close facsimile of honesty.
The NHLPA forming it's own league isn't a lose/lose situation. The players might actually be better off if they moved to the WHA. They'd demonstrate that the players are bigger then the league itself. They'd also free themselves of all the historical baggage that continues to cloud the relationship between the PA and the league.

If the alternative is missing two seasons or missing one season and playing the other in the WHA, the players are better off playing in the second season. By the third year, the gap would better pretty close between what they'd get with the NHL and the WHA.

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09-25-2003, 06:53 AM
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Quote:
Originally Posted by BigDaddyMeatWhistle
The NHLPA forming it's own league isn't a lose/lose situation. The players might actually be better off if they moved to the WHA. They'd demonstrate that the players are bigger then the league itself. They'd also free themselves of all the historical baggage that continues to cloud the relationship between the PA and the league.

If the alternative is missing two seasons or missing one season and playing the other in the WHA, the players are better off playing in the second season. By the third year, the gap would better pretty close between what they'd get with the NHL and the WHA.
Even in the best case scenario, it would take the WHA a long, long time to get to the level of revenue that the NHL current has. Until that point, the players, as a whole are losing out. Either there won't be enough jobs to go around (i.e. less than 30 teams) or the salary levels are much below what they would be getting in the NHL.

Face it, both options (players forming new league or owners consolidating the league) or costly alternatives for both teams. As long as both sides have somewhat reasonable offers on the table, there's no reason to consider going to such drastic measures.

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09-25-2003, 07:39 AM
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Quote:
Originally Posted by BigDaddyMeatWhistle
The NHLPA forming it's own league isn't a lose/lose situation. The players might actually be better off if they moved to the WHA. They'd demonstrate that the players are bigger then the league itself. They'd also free themselves of all the historical baggage that continues to cloud the relationship between the PA and the league.

If the alternative is missing two seasons or missing one season and playing the other in the WHA, the players are better off playing in the second season. By the third year, the gap would better pretty close between what they'd get with the NHL and the WHA.
Why would they do that, the WHA has a salary cap at $10M + 1 player unlimited... This would mean $300M for all the NHL players + $xM for 30 other players (let's assume $10M each). This would give them a total of $600M. At that rate, they're better off signing with the NHL at a salary cap that's anything above $600M...

Imo, the fact that other leagues don't pay anything close to the NHL (for the mass of players, the NHLPA doesn't represent only the well-paid players) is leverage for the owners, who can point out that their "lowest" offer is still better than anything anyone else would offer.

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09-25-2003, 08:20 AM
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Quote:
Originally Posted by Smail
Why would they do that, the WHA has a salary cap at $10M + 1 player unlimited... This would mean $300M for all the NHL players + $xM for 30 other players (let's assume $10M each). This would give them a total of $600M. At that rate, they're better off signing with the NHL at a salary cap that's anything above $600M...

Imo, the fact that other leagues don't pay anything close to the NHL (for the mass of players, the NHLPA doesn't represent only the well-paid players) is leverage for the owners, who can point out that their "lowest" offer is still better than anything anyone else would offer.
They might have a cap now but that would change once they negotiate with the former NHLPA. Once they get the players, they can easily get the revenues to pay more. If the WHA has all the current NHL players which league are you going to watch?

The NHL owners are going to have to make a decision at some point when all the players are in the WHA.

Do they try to sell minor league hockey in their big rinks and try to pass it off as the same as what they used to have?

Do they try to outbid the WHA for their players?

Or do they get out of the hockey business?

In the first case, they have little hope of success. The fans will know where the best players will be and they won't pay major league prices for minor league talent.

In the second case, things get interesting. The NHL would probably end up paying out more to the players then they would under the current CBA. Who knows how things would play out but the players would probably try their hardest to keep the WHA viable just to use as leverage against the NHL.

In the third case, what do the owners do with their big buildings? They'll have to give up control of them. And who would be looking to take over? The WHA which could probably get many of the buildings at rock bottom prices. Some which have an NBA tenant like the ACC, MSG, and Staples Centre would be able to get a decent return but the others would have no bargaining leverage.

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09-25-2003, 08:38 AM
  #8
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Quote:
Originally Posted by BigDaddyMeatWhistle
They might have a cap now but that would change once they negotiate with the former NHLPA. Once they get the players, they can easily get the revenues to pay more. If the WHA has all the current NHL players which league are you going to watch?

The NHL owners are going to have to make a decision at some point when all the players are in the WHA.

Do they try to sell minor league hockey in their big rinks and try to pass it off as the same as what they used to have?

Do they try to outbid the WHA for their players?

Or do they get out of the hockey business?

In the first case, they have little hope of success. The fans will know where the best players will be and they won't pay major league prices for minor league talent.

In the second case, things get interesting. The NHL would probably end up paying out more to the players then they would under the current CBA. Who knows how things would play out but the players would probably try their hardest to keep the WHA viable just to use as leverage against the NHL.

In the third case, what do the owners do with their big buildings? They'll have to give up control of them. And who would be looking to take over? The WHA which could probably get many of the buildings at rock bottom prices. Some which have an NBA tenant like the ACC, MSG, and Staples Centre would be able to get a decent return but the others would have no bargaining leverage.
I don't think a new organisation like the WHA would be willing to give more than the lowest NHL offer to the NHLPA players. Why? First, they are lacking investors. They do not have the funds to operate such a big business. They also lack the rinks. Even if they could get some rinks at a bargain price, then again they would need the money to pay those "bargain priced" rinks. Besides, many rinks would be profitable without a hockey team, so there wouldn't be that many incentives in selling them real cheap. To top it off, current NHL owners might rather keep them and cause problems to the WHA who are "stealing" the players. A rink like the Bell Center would make more money without the hockey team, just from events.

Anyway, I doubt that the WHA would put itself in a position where they wouldn't make a profit. Also, at first they wouldn't be able to jack up prices in order to draw fans to their product. Add to that likely no tv contract, low sponsorship deals at first and I don't see them offering anything close to the lowest offer from the NHL.

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09-25-2003, 08:42 AM
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No offense discostu, but I had been saying this all along.

Post1

Post2 (at the very bottom)

I guess great minds oft reach the same conclusions.

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09-25-2003, 08:50 AM
  #10
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Originally Posted by DeathFromAbove
No offense discostu, but I had been saying this all along.

Post1

Post2 (at the very bottom)

I guess great minds oft reach the same conclusions.
I know it has been mentioned, and I forgot who did, otherwise I would have referenced it (I actually wouldn't. I'd take the credit and run ). I think it's a long shot though, as you've stated, and that's why I presented it in this form, as a bargaining chip that they don't want to play, but have it up their sleeve just in case. Like you've said, the larger markets wouldn't be too crazy about it, but if the alternative is a deal that will see the ruin of the NHL, then it don't look so bad.

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09-25-2003, 08:53 AM
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I doubt it would be possible with the current arrangement with the NHLPA, but the NHL could employ the NHL players and then loan them to its franchises. Just a variant of what you're proposing that wouldn't have to change the current ownership.

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09-25-2003, 08:56 AM
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Quote:
Originally Posted by discostu
I actually wouldn't. I'd take the credit and run


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09-25-2003, 08:59 AM
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Quote:
Originally Posted by Smail
I doubt it would be possible with the current arrangement with the NHLPA, but the NHL could employ the NHL players and then loan them to its franchises. Just a variant of what you're proposing that wouldn't have to change the current ownership.
On what basis would they be loaned at. Obviously, the league woud need the revenues to pay the players. If they are loaned out, then the teams would need to offer a transfer price for the player, likely at the player's salary. If that's the case, then the richer teams will still be able to outbid the poorer teams, leaving us no better off than we are now.

The purpose of the initial idea is to have a system where the league can mandate a salary cap without doing it via the CBA nor with it being collusion. The only way it can happen is if there is only one corporate entity.

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09-25-2003, 09:13 AM
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Quote:
Originally Posted by discostu
The purpose of the initial idea is to have a system where the league can mandate a salary cap without doing it via the CBA nor with it being collusion. The only way it can happen is if there is only one corporate entity.
Ya, but the players don't have to play for the NHL if they don't want to. And if they don't like the structure set up by the new NHL Corp., they can play for someone else. The players have been unionized so they would demand a CBA prior to any agreement to play, so it's not like the NHL can do whatever they want.

But this is how it is beneficial to the NHL. The NHL and the players will be bound together by a CBA. Both sides cannot do anything that is inconsistent with the CBA because it becomes a breach of contract dispute. However, whatever is not included in the CBA or specifically forbidden by the CBA, the sides are free to do. So if a salary cap is not mentioned in the CBA, then the NHL can freely institute a salary cap (but be damn straight that the next CBA negotiation will probably fix that).

How is this different from before? If the NHL is 30 different legal entities, the NHL can take no action that restricts competition (e.g. a salary cap) even if it is not already in the CBA because it becomes an anti-trust violation. But if the NHL was a single entity, they do not have to worry about an anti-trust lawsuit.

In summation:

If 30 different entities - any restriction must meet BOTH CBA approval AND anti-trust laws.

If a single entity - any restriction must ONLY be not inconsistent with the CBA (note the intentional double negative).

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09-25-2003, 09:14 AM
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Although it is very interested thought of a NHLPA forming league, i mean certain member within NHLPA will like that idea for personal interest. The ultimate result would be a complete fragmentation of the NHL and the talent will re-distribute evenly back the different league. i mean some will go back to the NHL. Some will stay in NHLPA. Some will go back to Europe. Even assuming such a scenario does happened, the ultimate battle would be whether the junior would enter the NHL draft or NHLPA draft or both. i mean it is too complex of an experiment with so many risk elements, i highly doubt the NHLPA are united to the point where they would try something like this. i mean you are already hearing high profile players such as Hull and Pronger voiced their opinion against the offical opinion of the NHLPA.

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09-25-2003, 09:22 AM
  #16
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Quote:
Originally Posted by DeathFromAbove
Ya, but the players don't have to play for the NHL if they don't want to. And if they don't like the structure set up by the new NHL Corp., they can play for someone else. The players have been unionized so they would demand a CBA prior to any agreement to play, so it's not like the NHL can do whatever they want.
Agreed that the owners wouldn't get off scott-free. Any new league, if it is under one corporate entity would need to offer salaries that exceed that of other leagues (WHA, Europe, etc.), which I'm pretty sure they would be able to for the most part.

Also, if they are under one corporate entity, there is no need for a lockout anymore, since they would be able to institute the salary cap they've been clamouring for, however, the players would then have the option to strike (since I'm assuming all of this is happening during CBA negotiations after the current one expires), so the players would still continue to have some leverage, however, their position would be weakened considerably.

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09-25-2003, 09:41 AM
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Quote:
Originally Posted by discostu
On what basis would they be loaned at. Obviously, the league woud need the revenues to pay the players. If they are loaned out, then the teams would need to offer a transfer price for the player, likely at the player's salary. If that's the case, then the richer teams will still be able to outbid the poorer teams, leaving us no better off than we are now.

The purpose of the initial idea is to have a system where the league can mandate a salary cap without doing it via the CBA nor with it being collusion. The only way it can happen is if there is only one corporate entity.
Well they can loan players at a % of revenues. They can put Forsberg's value at 10% of revenues (or highest bidder in % of revenues). They'd get something like $12M from the Rags for Forsberg or they'd get $6M from Calgary. Both teams would have 90% of their revenues left for other players.

They can also put a "maximum lease ammount". The main problem with this solution is that teams don't have the rights for players and as such the NHL needs to develop all players, etc...

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09-25-2003, 10:15 AM
  #18
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Quote:
Originally Posted by Smail
I don't think a new organisation like the WHA would be willing to give more than the lowest NHL offer to the NHLPA players. Why? First, they are lacking investors. They do not have the funds to operate such a big business. They also lack the rinks. Even if they could get some rinks at a bargain price, then again they would need the money to pay those "bargain priced" rinks. Besides, many rinks would be profitable without a hockey team, so there wouldn't be that many incentives in selling them real cheap. To top it off, current NHL owners might rather keep them and cause problems to the WHA who are "stealing" the players. A rink like the Bell Center would make more money without the hockey team, just from events.

Anyway, I doubt that the WHA would put itself in a position where they wouldn't make a profit. Also, at first they wouldn't be able to jack up prices in order to draw fans to their product. Add to that likely no tv contract, low sponsorship deals at first and I don't see them offering anything close to the lowest offer from the NHL.
As soon as the NHLPA decertifies and forms the WHAPA, the entire landscape changes. The investors come out sensing an opportunity. Having the best players in the world is what changes everything.

There are enough rinks in North America that could be used until the NHL owners are squeezed out. They can borrow the money to pay for the rinks based upon the revenues from people wanting to see the best players in the world. It would be easy to get the money if they can draw the fans.

As far as squeezing out the owners, there are two different situations: those that own their buildings and those that operate their buildings.

Those that own their own buildings are not going to find it profitable to hold onto them. I doubt that there is a building in the NHL that could be profitable without having its sole NHL tenant play. You can't pay all the operating expenses with revenues from the occasional concert. The owners have to pay taxes, insurance, maintenance, plus the opportunity cost of having their cash sunk into the building.

The teams that just control their building will be pressured as well. The municipalities that built the building did so on the premise of having 41 NHL games there each year. The NHL owners could either look to sell the operating rights for the arena or the local government could look to void the contract and grant control to another party (i.e. WHA owners).

How long do you think it would take a WHA with Thornton, Iginla, Naslund, Bertuzzi, Hossa, Heatley, etc to work out tv deals? TSN and Sportsnet would be looking for something to use to placate all the ticked off NHL advertisers that paid for their commercials based upon having the stars in the NHL.

As soon as the players move, everything else that revolves around the NHL will eventually also move.

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09-25-2003, 10:29 AM
  #19
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Quote:
Originally Posted by BigDaddyMeatWhistle
As soon as the players move, everything else that revolves around the NHL will eventually also move.
It's not that sudden. It would take several years at best, and even then, it's still unlikely it would ever reach the NHL's current levels of revenue.

If the whole industry goes through that kind of turmoil, many players would retire rather than go through all of those headaches of trying to make sense of the whole thing. Many European players would go back there to play, since in the initial years, the WHA would not be offering significantly more competitive wages, thus diluting the talent pool.

Fans would lose interest. The first couple of years would be ugly. The NHL has all the infrastructure in place right now. Fans know where to find their hockey. The die hards will always go flock to the best hockey available, but the casual fan will lose interest very quickly. If the new league can produce a much more exciting product, then yes, they will draw those fans again, but it would take a long time before that ever happens.

In short, there's too much to lose in the short term for the players for this to be a realistic option. It only remains a bargaining chip to keep the owners honest. If they started demanding a cap of $20-25 million dollars, then players may consider this an option.

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09-25-2003, 10:40 AM
  #20
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I can't see the NHL corporation flying.

1) I do think there would be anti-trust issues. It is one thing to set up a league - a new business - under that structure. It will probably be another to get a merger of 30 businesses approved when the purpose is anti-competitive. Maybe not - I'm not well enough versed in the law - but would governments allow all the TV stations in the country to merge into one entity?

2) Even if it was permitted, I think the league has credibility problems right from the start. The best thing for the Edmonton Oilers Division could do is to lose. They will make the most money with New York and Chicago in the Stanley Cup Finals every year.

3) The biggest attraction for investors in the WHA is the expansion fees they will be able to collect. I think Bob Goodenow will be delighted to help set the prices. They can set up an auction for the Toronto franchise. What will they charge the Rangers to get in?

Tom

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09-25-2003, 10:47 AM
  #21
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Quote:
Originally Posted by Tom_Benjamin
I can't see the NHL corporation flying.

1) I do think there would be anti-trust issues. It is one thing to set up a league - a new business - under that structure. It will probably be another to get a merger of 30 businesses approved when the purpose is anti-competitive. Maybe not - I'm not well enough versed in the law - but would governments allow all the TV stations in the country to merge into one entity?

2) Even if it was permitted, I think the league has credibility problems right from the start. The best thing for the Edmonton Oilers Division could do is to lose. They will make the most money with New York and Chicago in the Stanley Cup Finals every year.

3) The biggest attraction for investors in the WHA is the expansion fees they will be able to collect. I think Bob Goodenow will be delighted to help set the prices. They can set up an auction for the Toronto franchise. What will they charge the Rangers to get in?

Tom
1) I don't think that there would be anti-trust issues, especially if there is a competitive league forming. Also, given the non-essential nature of pro-sports, I think this would reduce the likelihood of anti-trust laws getting in the way.

2) If the same salary budget is set-up for all teams, then it takes away this issue

3) Possibly, but all teams would not be receiving equal share in the new combined entity. Toronto and New York would be receiving a bigger piece of the pie than Calgary and Carolina. If a fair offer is made, it should be more attractive for those teams to stay within the NHL.

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09-25-2003, 11:24 AM
  #22
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Quote:
Originally Posted by BigDaddyMeatWhistle
Those that own their own buildings are not going to find it profitable to hold onto them. I doubt that there is a building in the NHL that could be profitable without having its sole NHL tenant play. You can't pay all the operating expenses with revenues from the occasional concert. The owners have to pay taxes, insurance, maintenance, plus the opportunity cost of having their cash sunk into the building.
The Bell Center, like I said previously, would be more profitable without a hockey team than with a hockey team. They could fill the year with events and it pays more than what the Canadiens bring in. It has also been said that the Sens rink would be profitable even without the Sens (I remember that during the sale some buyers wanted the rink without the Sens...). I'm sure that there are other rinks in the same situation.

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09-25-2003, 12:20 PM
  #23
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Quote:
Originally Posted by discostu
1) I don't think that there would be anti-trust issues, especially if there is a competitive league forming. Also, given the non-essential nature of pro-sports, I think this would reduce the likelihood of anti-trust laws getting in the way.

2) If the same salary budget is set-up for all teams, then it takes away this issue

3) Possibly, but all teams would not be receiving equal share in the new combined entity. Toronto and New York would be receiving a bigger piece of the pie than Calgary and Carolina. If a fair offer is made, it should be more attractive for those teams to stay within the NHL.
1) Are you an anti-trust lawyer? I'm not and I don't really have a clue. I do know that both the Canadian and US governments would have to approve a merger. If you have some information as to how the governments would act in this case, I'd like to hear it.

2) Salary budget? Who cares? If I'm in Edmonton, the NHL corporation turns much bigger profits if I lose and if the Divisions in the big markets win. That is the way the NHL Corporation maximises profits. It is the way the NHL today would maximise profits too. The difference today is that Edmonton makes the most money if they win. Everybody in the NHL today has a powerful financial reason to try to win.

In the NHL Corporation, it will be in everyone's interest if the Rangers win. The Edmonton share of the profits - everyone's share of the profits - would be maximised with a Ranger Cup.

3) What NHL? It is shut down, remember? If they are going to try to set up this owner's league you suggest, it will take a great deal of time. Even to arrange the merger - among 30 partners! - will take years. Then come the regulatory hoops.

Meanwhile the WHA is inviting groups in Toronto who are interested in selling hockey in Toronto to submit a bid for an expansion franchise. How much could they charge?

Tom

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09-25-2003, 12:47 PM
  #24
David A. Rainer
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Quote:
Originally Posted by Tom_Benjamin
1) Are you an anti-trust lawyer? I'm not and I don't really have a clue. I do know that both the Canadian and US governments would have to approve a merger. If you have some information as to how the governments would act in this case, I'd like to hear it.
I'm not an anti-trust lawyer, but three classes I did take while in law school was Anti-trust law, Sports Law, and Labor Law (one of my favs).

Of course it is alot more difficult to get 30 mergers approved by the SEC than to set up an entire new league. And of course there are always anti-trust implications by such a merger. But that is not to say that it can't be done or the feds wouldn't allow it. It is a combination intended to restrict competition and on it's face a violation of the Sherman Act. However, the analysis does not end there. Essentially, the feds will look to see what is being restricted within the "relevant market" and weigh that against what is being gained.

The NHL would argue that competition is not being restricted because 1.) the teams still compete against each other for gate recipts, memorabilia sales, etc. but now instead share in the profits; 2.) that because of the territorial restrictions on each team, the teams did not directly economically compete against each other in the first place; and 3.) that the "relevant market" is the entire sports industry and whether the NHL is one corp or 30 corps, there is no restriction on competition within that market (the NHL still competes against MLB, the NBA, and the NFL). For those reasons, the restriction on competition is minimal at best and the NHL would weigh it against what would be gained. They would argue that what is being gained is economic viability of all it's member franchises. And the more member franchises it has, the more indirect competition between franchises and the more competition is actually created by the restriction.

The feds would argue the opposite.

It's a tough sell, but it has been done. The MLS successfully argued this before the SEC.

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09-25-2003, 02:42 PM
  #25
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Quote:
Originally Posted by DeathFromAbove
It's a tough sell, but it has been done. The MLS successfully argued this before the SEC.
I would have thought that the critical issue would be around restricted competition for labour. That would be the purpose of the merger - to prevent the worker from offering his employment to any one of the 30 teams. That is where big time sports runs into anti-trust problems. That and the fact the league erects barriers to entry.

None of the arguments raised address these issues.

Tom

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