Bucky Backfires

Ripped from the Headlines: “Sabres Future Grim After Briere Ruling” by BuffNews columnist Bucky Gleason. Alternate title: “How I learned to start overreacting and hate the CBA.”

Fact: Daniel Briere got a $5 million contract in salary arbitration.

Speculation: The Sabres are “most likely” to trade Briere because of this.

Hyperbolic conjecture: Because of the new CBA, the Sabres won’t be able to stay in Buffalo.

Yes, it’s true. Bucky Gleason managed to take a $5 million contract for Daniel Briere and turned it into this closing sentence:

It makes you wonder if the Sabres could someday be gone, too.

How does Gleason manage to arrive at such a dramatic conclusion? Let’s follow the trail.

It all starts innocently enough, as Gleason acknowledges Briere is likely worth $5 million based on contracts given out to players like Martin Havlat, Alex Tanguay, and Marc Savard. Of course, we all can acknowledge the flaw in the arbitration process being that all teams are forced to pay for the foolishness of other teams (I’m looking at you, Boston.) But I won’t argue the basic premise.

Gleason then talked about the financial obligations necessary to compensate Briere:

Do the math, and the Sabres would need to attract about 1,500 more fans per game next season to make up the difference between what Briere earned last season and what he was awarded. It’s a conservative estimate based on $50 per seat. Now add seven more players who are certain to get raises.

Considering the Sabres added about 5,000 season ticket holders during the offseason (and have their money in hand earning interest) I think the Sabres may just be able to pull it off. The only problem there is that season ticket holders pay less than walkups, but more people guaranteed in the building means higher revenue all around. Take out the Montreal and Toronto games, and through December of last year the Sabres were averaging about 13,000 fans per game. I was at the Washington game in November and there couldn’t have been more than 10,000 people there. This year, I would be stunned if the Sabres averaged fewer than 18,000 fans per game. Heck, certain sections are already sold out for the year, and it’s been a long time since that has happened. So from a revenue standpoint, the Sabres are certainly looking at a solid increase over last year.

I’m not really debating Gleason here, just saying that his projections seem likely, especially when the ancillary revenues that come from a full house are added in (concessions, parking, etc.)

Gleason peers into his crystal ball:

Trading him appeared most likely Sunday. There have been rumors for weeks that Briere is headed elsewhere. Montreal is reportedly interested, but the Sabres would be more likely to ship him out of the conference. The fact the Sabres could be forced into dealing him exposes a flaw in the process and questions their long-term viability.

Well, it doesn’t mean we’re trading Briere, but I think it’s a foregone conclusion we will be trading somebody, or some bodies. The Sabres payroll, as noted in previous posts, could grow to as high as $43 million by the time all the players are signed. That’s the price of having a successful team. And while it sucks that it’s happening, even without the CBA the Sabres would be forced to deal some players because the Sabres couldn’t afford a $43 million payroll, with or without the new CBA. The difference is now, instead of having a limited number of potential trading partners in the big money teams, almost all teams are potential trading partners. Ottawa just went through what we’re going through when they lost Chara and had to trade Havlat. They had stockpiled a ton of good players, and the CBA is designed to force teams to disperse those players at some point. Every team in the NHL that gets good will at some point be forced to do this, it’s just that this year, the Senators, Sabres, Devils, and a few others had that unique combination.

If we were the sucky Sabres from 2002, we would be dancing around right now, thankful for the opportunity to recover quickly by reeling in a few players from other teams. What I don’t understand is how Briere’s arbitration reward “questions their long-term viability.” He attempts to explain:

The salary cap is based on league revenues. Larger markets with strong economies can get away with jacking up ticket prices. It increases revenue, which in turn increases the salary cap.

I’m going to try one more time to educate Gleason, as he obviously didn’t read my last attempt to do so. I’ll reiterate my previous writings:

I would like to ask on what he bases that the cap will keep going up so dramatically? The figure of $50 million was tossed around as being the number in two years. Are our local talk guys aware that the cap is tied to league-wide revenues? The reason the cap increased so dramatically from $39 million to $44 million is that it is tied directly to revenues. The 2005-2006 salary cap was based on estimated revenues for a league that was coming off a lockout season and were kept very conservative at just under $1.8 billion. The increase came from actual revenue in 2005-2006, which was about $2.1 billion, and was used to set the cap for this season. It took a miracle season of hockey to increase revenue $300 million in a season. Is there any way it’s possible to do anywhere close to that without signing a major TV deal?

If revenues rise to $2.2 billion, the players share does increase an additional one percent to 55% of revenues, so I could see the cap increasing a couple million over the next two or three years, but I am trying to figure out where the additional revenue will come from. There are certainly some sucky markets that could increase their attendance based on their percentage of capacity (Chicago, Washington, NJ, St. Louis, Islanders, Florida, Carolina, Atlanta.) Some of those cities should see attendance increases next year (Carolina, for example) but some teams are going to get worse and see their attendance drop (Tampa Bay). Until the NHL gets a real TV contract, there’s no way revenues can increase by more than $100 million or so, thus preventing any more dramatic salary cap increases. There is a point of diminishing return on increasing ticket prices, so that can increase revenue to a decent extent, but it’s possibilities are finite.

I love how he states that larger markets can just keep jacking up their ticket prices, as if there are no ramifications to that. There were a total of 11 markets that played to close to or over 100% capacity last season. Does anyone really think those markets, with maybe one or two exceptions, aren’t already maximizing their ticket revenue? Does he think Detroit sat around going, “you know, we could make and extra $8.2 million if we raised every seat $10, but let’s undervalue our product instead?”

But let’s take Gleason’s theory to the extreme anyway. Let’s say all eleven teams playing at capacity decide to increase every seat $10, and in defiance of all economic theorem, they suffer no drop in attendance. What would happen to league-wide revenue? 19,000 seats X $10 X 41 games X 11 teams = $85,690,000. League-wide revenues would increase $85.6 million, so lets round up thanks to concessions and such and call it a smooth $100 million, which is enough to trigger a cap increase for next year of around $2 million per team.

That’s it. That’s the absolute worst-case scenario, and it’s based on so many unlikely assumptions it’s darn near impossible to envision happening. It assumes no team in the league has a drop in attendance, and that every team in the league at capacity keeps a 100% capacity. It’s preposterous, and even if it happens one time, the cap only goes up $2 million. And it’s sure not going to happen next season, because ticket prices are already in place, so it’s fairly safe to say that next years cap will be $44 million again, or perhaps $45 million.

Now, I know you read all that, and are exhausted, but it’s still not the biggest reason why Gleason is wrong. He fails to understand the framework of the CBA, specifically section 50.4, or “League-wide Player Compensation, Players’ Share, Escrow Account.”

Essentially, the players are entitled to 54% of league revenues, which would be the midpoint of the salary cap multiplied by 30 teams, or $36 million X 30, or 1.08 billion. If teams, on a whole, spend more than that on salaries, then the money that it is “over” is refunded to the teams.

Example: Assume the Adjusted Midpoint of the Payroll Range is $36 million. The aggregated Adjusted Midpoint for all 30 NHL clubs would be $1,080,000,000. If the total aggregated Actual Club Salaries were $1,140,000,000 (or $38 million per team) then the players would owe the teams $60 million, or $2 million per team. This number is calculated three times during the course of the season, and any money that is “over” the Adjusted Midpoint is deducted from player salaries and held in escrow.

I see this scenario as very likely in looking at where many teams stand in relation to the cap today and where arbitrator rulings will be placing salaries moving forward. The arbitrator’s rulings will drive salaries far over the midpoint, forcing escrow payments from ALL the players.

So a block of large-market teams could attempt to manipulate revenues, but I think we have proven how moderate an impact that would have league-wide. And if you had (or have) a majority of teams spending at the cap, the money will revert back to the teams.

There are checks in place to prevent spending from outpacing league-wide revenues, and league-wide revenues, without a new national TV deal, are very limited in their capacity for growth. So while the new system is not perfect, it does prevent the doomsday scenarios that Gleason is describing. He should be ashamed of himself for writing an article that essentially is saying, “The new CBA will force the Sabres to move.” It’s wrong, it’s incorrect, and has no basis in fact once you actually study the way revenue sharing, league-wide compensation, and the players’ share are structured. In fact, the Sabres had a far, far, far greater likelihood of moving or going bankrupt (what’s that? that already happened?) under the old system than under the new CBA.

His writing panders to the casual fan that reads it, trusts what he says without doing any research (and face it, that’s most of us; and before the internet it was all of us), and concludes, “we’re getting screwed.” As a small-market team, the Sabres will never generate huge profits. Golisano, as evidenced in previous statements (”We’re not in this to make a ton of money, but we’re not in it to lose money, either”) understands that. But with smart spending, and that means letting highly compensated players walk, just as it did before the new CBA (Satan and Zhitnik ring any bells) the Sabres are in a position to field a competitive team and still not lose money.

Remember, to those who say the new CBA is a problem for the Sabres, that the Sabres lost money for close to 20 straight years before this past season. With the new CBA, they at least have a chance to be profitable, and competitive.