Here we are, 12 days before when the NLL season was supposed to start. We have two weeks of the regular season “cancelled.” I put that in quotation marks because there is plenty of time to make those games up if its just those two weeks and a deal is reached soon. But the two sides in this labour dispute still seem miles apart.
The PLPA has shown the last few weeks that they are willing to compromise, making a few new offers, whereas the owners didn’t make a new offer in two weeks and seemed resigned to sticking to their guns on their old position from three weeks ago.
The public relations battle is certainly being won by the PLPA at the moment. While many have stated that this is due to the PLPA coming forward whereas the owners have remained silent, the truth is that the PR battle was being won by the PLPA long before they started to go public. In a Lax All-Stars poll conducted last week, 67% of respondents supported the PLPA compared to just 10% supporting the owners, 17% supporting neither side and 6% not understanding the issue.
The intent of this week’s version of Random Thoughts is to dig through the issues, let you better understand the issues that are involved, and break into the claims of both sides. As always in labour disputes, the truth of the matter typically lies somewhere in the middle of the picture that is being painted by both sides.
ATR vs. Drop Count
The issue between Average Team Revenue, or ATR, and drop count is the largest issue dividing the two sides at the moment. The players are seeking future salary cap increases tied to ATR, whereas the owners are looking towards drop count as the method.
Now from the standpoint of simplicity, drop count, or average attendance, is surely the simplest way to calculate future growth, but it is fundamentally flawed. If you’ve read Random Thoughts in the past, you will know that I make a habit of looking at attendance every week, and now you start to see why. The business of the NLL is heavily tied to ticket based revenue, and its safe to say that the vast majority of team revenue comes from ticket sales. But you would also realize just how many times I’ve pointed out differences between the reported attendance and the number of people in the seats. Therefore, the first flaw is whether the base attendance you would be working with is accurate or not.
The second fundamental flaw is how much attendance averages have increased or decreased every year. Keep in mind that the offers made by both sides include a minimum increase in the salary ranges of 3.5% to 4% per year. For the players to get any bonus increases, the attendance numbers have to increase by more than 4% every year. A big thanks to Paul Tutka for digging this information up, but here are the average attendances every year since the start of the 2007-2008 collective bargaining agreement (CBA).
Since that 2008 CBA, the gate-driven NLL has had the following total franchises/season (+ reported attendance avg.)…
’08 12 (10,475)
’09 12 (10,018)
’10 11 (9,559)
’11 10 (9,322)
’12 9 (9,469)
’13 9 (9,437)
’14 9 (9,430)
’15 9 (8,970)
’16 9 (9,152)
’17 9 (9,454)
’18 9 (9,411)
— Paul Tutka (@paultutka) November 16, 2018
Using the formula of 3.5% to 4% minimum increases, over the course of 10 years, the players would receive a bonus and a cap increase of more than the minimum if league attendance increased by between 35% and 40%. Over the last 10 seasons, league drop count has decreased by 10.2%. Its not even close to coming to the point where the players would see any other form of increase than the minimum. Even in the three instances where there was an uptick in attendance, the 2012 increase was 1.6%, the 2016 increase was 2.0% and the 2017 increase was 3.3%.
However, these attendance decreases don’t necessarily mean that there was a decrease in league revenue. I don’t have access to league financials (nor do I ever expect to have them), but simply due to inflation, ticket and merchandise prices increase. A simple comparison, what I paid for seats in the equivalent of the platinum section for a Rush game typically sells for $65/seat. In Edmonton in 2015, they sold for $48/seat.
The next fundamental flaw with the drop count system is that for drop count to increase in the future beyond the 4% per year, a lot of things would have to go right. Its nearly impossible for the most successful team in the NLL, the Saskatchewan Rush, to have any increase in drop count. The arena was sold out almost every night. Simply put, there aren’t any more seats in the SaskTel Centre to allow any growth. As a result with the most successful team in the league, you could only hope that attendance flat lines in the best case scenario. However, under an ATR system, over the course of 7 years, ticket prices will naturally increase due to inflation alone.
Another example is New England. While there are 7,000 seats in their arena, about 1,500 of them are obstructed view. And when I mean obstructed view, some of them you can’t see anything from about 15 feet in front of the one net to the end boards. There is little point in selling those seats. So the 5,557 average attendance the Black Wolves are getting is near the maximum they can achieve.
Then let’s look at the three expansion teams that have been announced. The Scotiabank Centre in Halifax has capacity for 10,595. Just to keep the average from decreasing, they need to have the arena 90% sold every night, and that’s to get to zero increase in drop count. The most that Halifax could increase the drop count percentage is by 1%, even if every game was sold out.
The Valley View Casino Centre in San Diego has capacity for 12,920. Just to keep the drop count average up, they need to be 73% sold out. The maximum they could increase the drop count percentage by, if every game was sold out, is 3.1%. Keep in mind that over 7 years, attendance needs to increase by 28% for the players to receive any benefit. So already taking into effect the Rush, Black Wolves, Seals and Halifax, the maximum contribution these four teams can provide towards that 28% is just 4.1%.
As for Philadelphia, the Wells Fargo Center can hold up to 19,543, so in theory, they could contribute as much as 9% to the growth figure. But how realistic is 19,543 people in the arena. If this was the Philadelphia wings of the late 80’s or early 90’s, its possible. But if you look at the figures of the Wings before the previous team left for New England, in 2014 they averaged 6,864, in 2013 it was 7,647 and in 2012 it was 8,212, none of which are above the current league average. The last time the Wings beat the league average was in 2009.
The best chance the league has at increasing attendance next season is in Vancouver with the move from Langley to the Rogers Arena in downtown Vancouver. The Stealth averaged 3,507 in 2018, so you would hope that there is an increase. However, of all the teams this season, I have seen the least push for ticket sales out of the Warriors. Season ticket holders informed me they weren’t even contacted for renewals until the last few weeks. Hopefully the Warriors have convinced enough Canucks season ticket holders to help fill the seats. I have also been informed that the upper levels of the Rogers Arena will be curtained off until such time that they can fill the lower seats.
What this data tells us is that there is next to no chance that the players would receive any cap increases beyond the minimum if growth is tied to drop count. This isn’t to say that over the last 10 years that an ATR system would have entitled the players to bonuses either, but drop count gives them next to no chance.
What the players are asking for is a system in which bonuses and salary increases are tied to ATR on all Lacrosse Related Revenue, or LRR. This is a system similar to that of the NHL, where they have a guaranteed 5% annual increase, or, if league revenue as a whole increases by more than that, the cap increases as well. They players fought for this back in 2005, and eventually they got it. The result, a $38 million salary cap in 2005-2006 increases to a $80 million cap in 2018-19, even with a 7% drop to the league revenue in the calculation in the last CBA.
The PLPA is looking for a system tied to the same system as the NHL, although they make it clear its not a revenue sharing system like the NHL has, but instead the caps and ranges increase the same as league revenue growth. Even though the league receives the vast majority of its revenue through ticket sales, the PLPA stated in the Lacrosse Classified podcast last week that should there be a television deal in the next 7 years, they should be entitled to part of it. Also, they expect that over the next several years, concession and parking revenue will increase as the league has made a point to go after new owners that are also arena owners.
Now while this seems to be a fair way to measure growth, it has its own problems. First of all, these teams are privately owned companies for the most part, and owners should be reluctant to hand over their financial information every year, which is private. Many of these operations have other sports franchises tied to their financials, and clearly a team like the Roughnecks wouldn’t want to disclose the results of the Flames as well. However, this can easily be accomplished by having segmented financials which comply to the terms of the CBA, and not GAAP. The PLPA has stated that they are willing to sign a confidentiality agreement and limit their list of people that will see the financial information to their financial consultants. However, the cost of producing this information isn’t cheap. Those teams that do not produce audited financial information will incur a significant cost. That cost could easily be $30,000 to $60,000.
How to Solve the Impasse?
The main problem at this stage is how to bridge the differences between the two systems. Whether there is a third way to calculate growth that is fair to both sides, I’m not aware of another option. One other thing that may want to be considered, is whether the cap should be tied to individual team revenue instead of ATR. This would certainly help limit the losses of the teams in financial difficulty, and to be honest, will help drive those teams with minimal revenue to deal with their revenue issues. The downside to such a system is that your big four, Saskatchewan, Colorado, Buffalo and Calgary, will be able to spend more on players and in turn, this should help them be better teams for longer periods of time. But in my mind, why shouldn’t a team that is better off have this ability? If you look at European soccer, this is very much the case of what happens.
Another alternative would be for the owners to look at revenue sharing, but as the PLPA stated on the Lacrosse Classified podcast, in 2013 the owners rejected any suggestion of this. I doubt they would entertain any suggestion of this now.
What Happened The Last Two Weeks
After the players rejected the owners’ offer from October 31, the players offered an olive branch and offered to play under a 1 year agreement, just as the two sides agreed to do in 2012 when the owners opted out of the CBA, to give both sides more time to solve the impasse. This time it was rejected by the owners, and as was stated on last week’s podcast by Peter Schmitz, the reason given by Nick Sakiewicz was that without a long term deal in place, it would make it difficult to sell expansion teams. Now I could give the owners a little leeway there. But it soon disappeared.
On Monday, November 12, the Saskatchewan Rush made the announcement that their pre-season game against the Colorado Mammoth, with approximately 8,000 tickets sold, was cancelled. It was the first major economic impact of the impasse. Then on Tuesday, November 13, Sakiewicz sent a letter to the PLPA demanding that they accept the owners’ offer from October 31, which had already been rejected, by 5pm the following day, or the first two weeks of the season would be cancelled. The PLPA then made an offer the following day, which stayed the cancellation to Thursday while the owners reviewed the offer. I was not surprised, but frustrated that it wasn’t accepted.
Based on the information from my sources, the offer made just before the deadline was a 5 year deal, which would give the NLL the labour peace it needed and was longer than the PLPA was comfortable with in the past. The main point in the offer was that the players would play for fixed salary range increases for the next two years, and within that 2 year time frame, the two sides would work on how the calculation of ATR would work. If they could not come to an agreement, either side could opt out after two years.
Now here’s the catch fans need to understand. The increases to the salary ranges under the PLPA offer were just 4% per year for the first two years. The prior CBA had 3.5% increases to the salary ranges already in it. Other than some increased expense reimbursements and a tiny increase to playoff bonuses, the players were in effect settling for a 0.5% increase in the salary ranges than what the prior deal had. Realistically, the owners could have accepted the deal, made sure the negotiations on ATR went nowhere and in 2 years, opt out and start over. The playoff bonus would have increased each player’s bonus by $150 per game for three of the seven games in the 2018 playoffs, and zero for the other four. The bonus increase was for the first two years only, then the rates would increase.
The expense reimbursements don’t appear to be a point of contention anymore, but according to my sources, in the old CBA, if you drove 76 miles to 150 miles, your mileage reimbursement was $32. Current rates would put the equivalent at $45 to $90. Meal per diems were $50 per day in the old CBA. Keep in mind these are professional athletes. They’re not eating at McDonalds, and often the only choice for them is the hotel restaurant, which isn’t cheap. In any event, these issues have been figured out and aren’t a part of the ongoing issue.
The league rejected the deadline offer, on the main point that the PLPA had increased costs so much that expenses could increase as much as 400%. I can’t comment as to whether the expenses increased from the prior offer as I don’t have any information on that issue and cannot confirm such as the owners are not currently talking.
After rejecting the PLPA’s offer on Thursday morning, the league gave the PLPA until that afternoon to submit a new offer. The owners didn’t even counter-offer at that stage. When there was no offer on the table, the owners cancelled all games for the first two weeks of the year. However, according to my sources, an informal offer was made by the owners hours after they issued the cancellation.
Now the cancellation was prudent. There still hasn’t been any training camp and arena dates need to be cancelled if there is no game with as minimal a cost as possible to the teams.
Truth In The Numbers
Like I said before, the truth in the numbers is normally somewhere in the middle as both sides try to present the figures in a way that make it look best for them. But let’s look at some of the numbers.
The first number that I will focus on is the statement by the commissioner that they are offering a 25% pay raise to the players. The statement is misleading to the effect that the way its written, it made many fans think that the players are getting a 25% pay raise right away. The fact is the raise is over a 7 year period, so in the 7th year of the deal, players would have pay ranges 25% higher than they did last season. This equates to 3.5% per year. My sources tell me that the offer made on Wednesday by the PLPA incorporated a 22% increase over 5 years. The truth is, had the old CBA continued in perpetuity, the salary ranges would have continued to increase by 3.5% per year.
It should also be mentioned that the increases are to the ranges players can be paid, and don’t guarantee pay raises for the players. The only players guaranteed increases are rookies, the approximately 5 franchise players in the league, and any player making 2nd year or veteran minimum. This equates to just 25% of the players in the league. Any other player might see no increase as their current salary still fits within the range. Under the old CBA, the ranges for the 2018-2019 season were $12,000 to $17,000 for year two and $15,000 to $31,000 for veterans. If you are making $22,000 per year, your salary still fits within the range even with a 4% increase to the range, so you might get nothing.
The league’s claim that the players’ offer increases expenses by 400% is very confusing to me as I have been attempting to find any reasonable explanation as to how they came up with this figure. Let’s start with something simple. The four largest expenses any NLL team has are players’ salaries, arena lease costs, flights and transportation and administrative staff. The last three of the four expenses are not increasing with anything in this CBA. Only salaries are increasing, and as shown before the minimum is 22% over 5 years in the PLPA’s offer. The only way salaries increase beyond the 22% is if league revenues grow beyond that in the five year timeframe. To be honest, if league revenues go up beyond that figure, the owners would have more revenue to pay the additional costs.
Clearly salaries on their own aren’t going up 400%. This only leaves expense reimbursements, which perhaps is what this is referring to, but even then the increases aren’t for 400%.
The only reasonable explanation left in my mind is that the 400% is a total of league and team expenses, which includes things such as Bleacher Report upgrades. Now if the league did expand to 30 teams, you would expect a 200%+ increase to league wide expenses just because there are more teams. Also the CBA allows the owners to increase the number of games, as long as player salaries increase incrementally to the number of games increased. Perhaps this too is included in the calculation.
I would love to find out from the league as to how the 400% was calculated, but I doubt that I’ll ever receive a full explanation when the league refused to have their financial consultant meet with the PLPA’s consultant on Thursday before games were cancelled.
Its entirely possible that the players did increase their demands on certain smaller items, as since salary increases and playoff bonuses escalate beyond year 2 of the 5 year offer, it wouldn’t be unexpected that other items increase as well.
All of this has to be kept in one simple context however. At least five of the nine teams lost money last year. For those five teams, there is nothing that leads me to believe that their situation will change drastically enough to make them profitable this year. How these increases can be afforded with this many teams losing money and their losses only going to continue is difficult to fathom.
Will the Season Be Shortened or Cancelled?
This is the most difficult question to answer and for the moment, it’s a wait and see situation. This is the first time that games have actually been lost to a work stoppage. In 2004, the players went on strike, but the matter was resolved during the preseason and no games were lost. In 2007, the league cancelled the entire 2008 season and gave up their arena dates, only to restore the season two weeks later once a deal was worked out, and no games were lost, although two teams opted not to play in 2008.
If a deal was worked out now, the two weeks that were cancelled could likely be made up during bye weeks, as long as arenas are available. If the games are not made up, there would have to be an adjustment to the schedule somewhere as some teams play twice in the first two weeks and others play just once.
If the impasse is prolonged, the NLL could go one of two ways. It could go the way the NHL approached its last few lockouts and play a shortened season, or, the NLL could soon cancel the season entirely. I doubt the NLL will have the patience the NHL had to play a shortened season and the length of time they will wait will be far less.
But until we have an official notice of a cancelled season or a timeframe for a season cancellation, we will continue to hope that these two sides can come up with a resolution to get this season back on track and we can start watching lacrosse.
Until next time…