Friday, September 21, 2012

NHL Players Would Be Better Off Without A Union


With yet another lockout upon us, it seems like an opportune time to ask whether NHL players are really made better off by their union, the NHLPA. A comparison with the non-unionized soccer players of the English Premier League suggests that the NHL players should ditch their union.

With former MLBPA chief Don Fehr at the helm, the NHLPA has the best leadership it has ever had, by a wide margin. Yet with the NHL seeking to further ratchet down the players' share of revenues, one must concede that at some point it ceases to be worth maintaining the union. After all, without a collective bargaining agreement, it would constitute illegal collusion for the NHL to place any artificial limit on player salaries.

To see how a non-unionized labor market works in a major professional sports league, one need look no further than the English Premier League.

With total 2010-2011 revenues (the most recent season for which figures are available) of 2.3 billion Pounds (about $3.7 billion), the EPL is the world's most lucrative soccer league.

Think about it this way; the NFL, viewed in the US as the model of a successful sports league, pulls in annual revenue of $9 billion in a home market of about 310 million people, while the EPL pulls in annual revenue of $3.7 billion in a home market of about 62 million. On a per capita basis, the EPL takes in $60 for every person in its home market, just over twice the $29 the NFL collects for every person it its home market.

And with no union, players claimed a full 70% of total EPL revenues. That's a lot better than the 57% the NHL players settled for in their last CBA, to say nothing of the sub-50% level the NHL owners are reportedly seeking in a new agreement. Indeed, it rivals the 75% of revenues the NHL owners dubiously claimed to be paying out in salaries prior to the last NHL lockout.

The EPL also undermines the claims by American team owners that "competitive balance" is critical to the success of the overall enterprise.

In the 20 years of the Premier League, Manchester United have won 12 championships, been runners up 5 times, and finished in third place in the remaining three seasons. More than half of the remaining top-3 finishes during the past 20 years were posted by either Arsenal or Chelsea.

And the money continues to pour in at twice the per capita rate of the vaunted NFL.

The NHL's annual revenues are reportedly around $3.3 billion, so even without any givebacks in a prospective agreement, if one uses the EPL as a benchmark for what players might claim in a free labor market, they are leaving about $430 million on the table in exchange for securing a collective bargaining agreement.

What do the players get in exchange for that $430 million?

Wealth redistribution, mostly. They get a voice in other areas, such as expansion and contraction decisions, scheduling, and rules. But mainly, through a salary cap (and floor), they force a redistribution of salaries from elite players to less talented players.

Under the previous CBA, individual player salaries were capped at 20% of the team salary cap. As a result, an Alex Ovechkin earns significantly less than he would in a free market, and much of what he would have earned is instead paid to his average-to-above-average teammates, who earn more than they would in a free market.

As owners continue to press for further reductions in the players' share of revenues, the proportion of players earning meaningfully less than they would under a free market system seems likely to grow.

I gauging the utility of the union, one must look not at average salaries, but median salaries. I can't find comprehensive salary data for the EPL, but one would expect top EPL players to earn much more, relative to the median salary, than their unionized NHL brethren.

We can look at what the top players earn as a proportion of total revenues, and there the data is surprising. There are 500 players on EPL rosters, and the top 2% - the top 10 players - claim 3.66% of total revenues. There are 690 players on NHL rosters, and the top 2% - the top 14 NHL players - claim 3.80% of total revenues.

This is a counter-intuitive result; if it were completely accurate, then it seems to be that there could be no doubting that NHL players would be better off without their union. However, my instinct is to say that the EPL may use a more inclusive (and accurate) definition of revenues, making it not quite an apples-to-apples comparison. Even so, it suggests that the higher share of total revenues enjoyed by players in a non-unionized labor market may not be spread much more unevenly than those in a unionized market.

That notional $430 million works out to about $623,000 per player, which would increase the average NHL salary by 26%. Or put another way, the average NHL player is taking a 20% haircut on his free market wages for the privilege of being represented by a union.

And given the similarity between the share of revenues claimed by the top EPL and NHL players, it strikes me as more likely than not that the median NHL player is also taking a significant haircut on his notional free market salary.

In which case, the NHL players would seem to be far better off passing on a union and collective bargaining altogether, and letting the market allocate a much higher share of revenues among them.



  1. This comment has been removed by the author.

  2. Interesting notion here - I wonder to what extent the competition for soccer players from other Euro leagues would have on this comparison, as you don't have anything like that for North American pro sports leagues.

    1. I think that's a good point.

      One might also speculate that soccer's dominance of the UK and continental sports markets makes competitive balance less important to league financial success there than in the U.S.

      On the other hand, the number of teams on the continent that can afford to compete for the talents of a Wayne Rooney or a Yaya Toure is not really that much higher than the number of NHL teams that could realistically afford to pay a market rate for a Malkin or Ovechkin.

      The financial resources of European soccer are concentrated most heavily in the EPL (Man Utd, Man City, Liverpool, Chelsea, Arsenal, and maybe Spurs), to which one might add from the continent Real Madrid, Barcelona, Bayern Munich, Juventus, both Milanese teams, Roma and maybe a couple other French or German teams. In any event it's a small subset of the Champions League regulars, and would contain fewer teams than the NHL.

      One other interesting difference is the higher geographic concentration of the EPL. Three teams, or 10% of the total, play in the NHL's largest market of New York. Six teams, or 30% of the total, play in the EPL's largest market of London.

  3. I think the thing you didn't account for is the system of promotion and relegation you find in the EPL and most other European soccer leagues: if a team doesn't win, it gets kicked out. By comparison, teams like the Maple Leafs can suck year after year, and their NHL franchise remains. If there was relegation, and the Leafs could wind up, say, in the AHL, there'd be a much different tune.

    1. Good point, I didn't account for relegation. Although I'm not sure which way it cuts. On the one hand, as you point out it puts a floor under complacent or incompetent owners.

      On the other hand, it also affords greater stability to good owners. An NHL team that knows its' claim on national broadcast revenues is secure can go out and make the large, long-term commitment required to sign top talent, in a way that, say, Queens Park Rangers cannot.