The 2020 NHL CBA Extension: An Unprecedented Surprise

By Tradon

I’ll be the first to tell you how irritated I am with the word “unprecedented.” The word describes a lot of things happening right now as Covid-19 has brought “unprecedented” times as it relates to economic, social, and political worlds. We’ve also seen unprecedented times in the sports world, from arenas/stadiums without roaring fans to crazy rule changes one could only expect to see during a pandemic. The NHL has also done something “unprecedented” as it relates to the relationship between the NHL and its NHL Players Association. The NHL has been governed by a Collective Bargaining Agreement for the last quarter of a century, though each expiration date of the prior agreements were coupled with partial or full lockouts of the league as the separate parties argued over numerous aspects of league as it pertained to contracts for players, revenue sharing, and other business related issues that would forever change the way the league would be run. This season, Gary Bettman and his colleagues at the NHL managed to ratify an extension of its current CBA through the 2025-2026 season that was set to expire in September 2022, all the while working to get the NHL back to playing hockey as soon as possible during the pandemic as well as ensure we would see hockey for many years to come. Unprecedented times have required unprecedented measures and not only is the NHL back to playing for the 2020 Stanley Cup, but we as fans won’t have to worry about losing our game due to negotiations for many years along with other goodies we can enjoy over that period. Let’s walk through what was discussed and how it will affect the NHL for the next 6 years.

For background, the NHL is currently governed with a “hard cap”, which was instated during the 2004-2005 lockout resolution of the CBA, prior to which the NHL was the only league in NA to not have any luxury tax, revenue sharing, or salary cap. The main issue at the time of the lockout was players’ salaraies because the NHL was spending about 75% of its revenues on salaries, much higher than its fellow sports leagues. The league then reverted to a hard salary cap league that is based on league revenues expected every forward looking season; but in order to ensure “equality” between the league and its players association, added a revenue sharing aspect that would allow for higher salary caps to occur, thus player’s could get paid more. As revenues grow annually in the NHL (pre-Covid), the salary cap follows right behind. The more the league grows its revenue base, the more money players can make in the future. The hard cap does not allow any team to hire and pay its players more than “upper limit of the payroll range” which has ultimately led to notable parity in the league as it prevents wealthy teams on the coasts (typically east coast) from paying a tax they can afford to load up on talent that fellow teams cannot pay. The NHL, in relation to the hard cap, also became the first league to retain its guaranteed player contracts along with the hard cap, a definite win for players. This resolution brought about many good things in the way of the NHL such as the aforementioned parity in the league along with consistently higher paid players as the NHL has continued to show strong revenue growth numbers year over year. However, it did bring a very contentious aspect to the table that had the potential to hold up the recent CBA negotiations. That aspect is “escrow.” Escrow is how the revenue sharing part of CBA is effectively conducted. The CBA requires the share of the league’s revenue to be divided evenly between owners (in the way of cash flow) and players (in the way of salary). The salary cap is tied to expected revenues in the next year and so the actual realized revenues per year typically differs from the expectations. In order to ensure that both parties are “made whole” the league withholds a portion of each player’s salary in a big escrow account. At the end of the season, the league tallies up the revenues and the escrow money is either shifted back to the players because the owners earned enough of the pie or, and more typically, the money is shifted to the owners. This occurs because the more teams that spend to the upper limit of the hard cap, the more money players are getting as a whole and if revenues fail to beat expectations, players lose their full potential salary. The percentage of money withheld every year differs based on that same revenue expectation. In the 2018-2019 season, the NHL only withheld 9.5% of players salaries. However, this variability of escrow percentage has greatly frustrated players because they never know how much of their salary will be withheld each year. The NBA has a fixed escrow percentage, given players certainty. Due to Covid, the escrow withholding percentage was expected to skyrocket, as revenues during playoffs were expected to greatly reduce since no fans are allowed in arenas, etc. This brought further frustration and uncertainty that the NHL would even be able to play during Covid because so many players were threatening to sit out as a result. Escrow was already a hot button issue prior to Covid and was threatening the viability of future seasons if the two parties couldn’t figure out an agreement, and now you throw in the Covid wrench and you have a recipe for certain disaster. Despite the uncertainty of play from a health perspective, there was much uncertainty about the players’ willingness to play due to these business issues, putting major fear in fans such as myself.

July 10, 2020 will go down (in this fans mind) as the day the NHL was saved from another grueling lockout. We were going to see hockey again following Covid and we wouldn’t be seeing it pause again for lack of negations between the two parties in the league. The NHL and the NHLPA managed to ratify an extension to the CBA  through the 2025-2026 season with escrow provisions that could extend it through the 2026-27 season. Along with that ratification, the league and its players association ratified the NHL Return to Play Plan for this season, which started without a hitch (Lets Go Oilers). Given the expectation of large revenue declines over the next season and beyond due to Covid, fans such as myself were expecting to see a large reduction in the salary cap to compensate for this, which is very bad from a fan, team, and players perspective. Further, as mentioned before, players were expecting to be withheld nearly 30-40% of its salary to ensure the 50-50 revenue split could be met, bringing many players to come out and give their take. The NHL decided a scenario that would hold the salary cap flat at the current $81.5MM level for the next years and won’t rise until the NHL revenues meet certain thresholds. This alone does put some pressure on some teams int eh NHL, but it doesn’t force teams to give away players for nothing in order to remain under the cap. I do expect teams like the Toronto Maple Leafs to struggle to fit players in its system following the massive salaries its extended to its star players, with the expectation that the cap would only increase, but at least they won’t have to give away someone like a Nylander for much less than they’re worth. The CBA also set a cap to the escrow at 20% for the 2020-21 season that would go down from there, mitigated the expectations of much higher withholdings. This effectively would maintain that both sides are giving something up to keep the league running, the owners are expecting to see lower cash flow and the players will see less salary. Gary Bettman assured that the escrow would have been much higher. Escrow will be capped between 14-18% depending on next years revenues and 10% in 2022-23 before falling to 6% in the last three seasons of the agreement, setting that cap and certainty. This agreement assumes both sides will feel some pain, and what entertainment business isn’t feeling some of pain as a result of Covid-19. Among other changes in the agreement, teams will no longer be allowed to include conditions in trades that involve singing of the players to a new contract. For example, the Senators received picks from the Sharks when they traded defenseman Erik Karlsson that were conditional on his signing; this will no longer be allowed.

Another hot button issue related to the CBA negotiations was related to the Olympics. The NHL was not allowed to be apart of the 2018 Olympics in PyeongChang and weren’t to be participating in any future Olympics. The NHL league owners were refusing to let their players play in the Olympics for a number of reasons including, the lack of insurance for its players, the three week pause to the NHL season that would inevitably have to occur, and lack of compensation for lettings their players under contract leave during a season to go play for their respective countries. Every NHL player have long wanted to go represent their countries and win a gold medal; it adds to the dream of being a hockey player. Although money talks, and the lack of financial support and the risk associated with letting players leave to play in the Olympics became too much for the owners to handle. I am a fan who loves the NHL and the Olympics and believe the Olympics should showcase these players on the international stage. The Olympics will bring interest to the sport and the NHL and growth goes from there. However, I would be on the side of the owners as I fully understand the risk these owners are taking for absolutely nothing in return. Despite the past problems, as part of the CBA extension the NHL players will be returning to the Olympics for at least the 2022 and 2026 Olympics. There will be many hurdles and discussions between the NHL and the IOC but it was believed that future participation would be tied to labor peace and this extension provided peace for least 6 years, enough for the players to get back on the international stage. I cannot wait to see Sidney Crosby and Connor McDavid team up for Team Canada, what a spectacle that will be. However, as an American I can’t say I will be rooting for McDavid (as a huge Oiler fan). At least I can say Seth Jones will be back on D to give McDavid a harder time than normal. Either way, what a site it will be to have NHL back in the Olympics.

So its true, July 10, 2020 has been and will be the most important day for the NHL this year, even superseding the day Bettman awards the Covid Stanley Cup. Without this extension, we wouldn’t be enjoying these games right now. What is so profound and unprecedented about this whole thing is that for the first time since the CBA governed the league, we had both parties come together to ensure that the NHL would continue. We used a pause brought by a pandemic to find peace and prevent a future, NHL driven lockout. I believe that much of the NHL’s fan growth was affected negatively during the 2005-06 lockout and the partial lockout in 2012-13. For a league that doesn’t get the attention that the NFL, NBA, or MLB get, it takes a lot for the league to gain fans, but very little to lose that goodwill.