Why The League Cries Poor

Kent Wilson
September 04 2012 04:18PM

 

 

During the previous CBA fight, the owners side basically won the PR battle thanks to a number of factors including a weak Canadian dollar, profligate spending by big markets, suffering Canadian franchises and a complicit press.

This time, however, most of the sympathy seems to be on the side of the players. In part because its unseemly for the league to be instituting another labour clash in the wake of a battle in which they apparently routed their opposition. The Canadian dollar and teams are healthier than ever, the press are a bit more skeptical and most of the franchises that are failing this time around are suffering because of some combination of mismanagement and/or poor underlying fundamentals (like viability of the market).

Which brings us to this - the claim via Renaud Lavoie that the league has lost close $240M in the last two seasons. It's a transparent plea for sympathy from onlookers and may not be grounded in any sort of truth whatsoever. But why, in this green, venal landscape of millionaires vs billionaires, would the league even bother?

Daniel Kahneman notes in Thinking, Fast and Slow that humans are attendant losses in the context of fairness, reference points and entitlements. And that perception matters. In his chapter on "Bad Events", Kahneman shares some studies on public perceptions of fair/unfair behavior in market-based situations (merchants, landlords, employers, rents, etc.):

The basic principle is that the existing wage, price, rent sets a reference point, which has the nature of a reference point that must not be infringed. It is considered unfair for the firm to impose losses on its customers or workers relative to the reference transaction, unless it must do so to protect its own entitlement.

Emphasis mine

The point being that people, in general, judge an increase in price or rents as unfair, although the business in question can do things do to protect their own reference point (level of profits/viability of business/etc.). In one study described by Kahneman, 83% of respondents to a questionnaire thought it was unfair for a hypothetical photocoyping shop to reduce a workers pay from $9/hour to $7/hour, even if similar business in the market were paying an average of $7 to their employees.

However, 73% of respondents thought it would be entirely acceptable if the shop hired a new employee at $7/hour when the current employee left. Kahneman continues:

The firm has it's own entitlement, which is to retain its current profit. If it faces a threat of loss, it is allowed to transfer the loss to others. A substantial majority of respondents believed it is not unfair for a firm to reduce its worker's wages when its profitability is falling... 

When threatened, it is not unfair for the firm to be selfish.

In the current situation, the most obvious reference point for fans is the players 57% of league revenues. The league is looking to impose a loss on the players by reducing their share to 50% or lower in current negotiations, which is perhaps part of the reason many folks don't have much time for the NHL's side when it comes to the pending work stoppage.

Perhaps the bigger question is if public perception really matters. The fans came flocking back to the game after the previous lock-out, as Bettman is fond of pointing out. Of course, the fans were also mostly on the side of the league in that instance, so there's a chance the paying public won't be quite as forgiving this time around if the lock-out is extended and the owners are cast as the bad guys.

Kahneman notes that "unfairly imposing losses on people can be risky if the victims are in a position to retaliate. Furthermore, experiments have shown that strangers who observe unfair behavios often join in the punishment." Furthermore that "altruistic punishment is accompanied by increased activity in the 'pleasure centers' of the brain. It appears that maintaining...the rules of fairness is its own reward."

In 2004, the league was generally perceived as suffering from a broken system that was in need of repair. Although fans were frustrated and disappointed by the loss of a season, the prevailing zeitgeist didn't cast the owners and NHL as the villains of the piece. 

This time around, the push to redefine hockey related revenues and further drive down the players slice of the pie is a harder sell because of the way we tend to perceive fairness. What's more, the NHL risks retaliation by fans if the owners succeed in wearing down the NHLPA again; that is, unless they can somehow convince the public that their profits/business (their "reference point") is being threatened with a loss as well.

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Former Nations Overlord. Current Fn contributor and curmudgeon For questions, complaints, criticisms, etc contact Kent @ kent.wilson@gmail. Follow him on Twitter here.
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#1 Colin.S
September 04 2012, 04:21PM
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Why the league cries poor? I could have wrote this in one sentence.

Cause rich people want to be richer. DONE!

Toronto could have made 200million last year and they would still want to take a broom handle to the players just to make 202 million the next year.

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#3 mattyc
September 04 2012, 04:51PM
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Interesting article, Kent.

I really like how you sneak in some academia/pertinent research. Makes the read that much more worthwhile.

I find this whole PR battle thing quite interesting. Clearly both sides put quite a bit of value on it (which is why you see Fehr flanked by Ovechkin and Crosby when they put forward their proposal, or why both Bettman and Fehr spend half an hour after every single meeting answering half-coherent questions that are the equivalent of "are we there yet?!").

The overreaching thing that I find interesting about your article though is the need for us to form binaries (right vs. wrong, fair vs. unfair, win vs. loss) given that bargaining isn't the sort of thing that lends itself very well to that sort of analysis.

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#4 Eric T.
September 05 2012, 07:49AM
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I wonder how much of the battle for public perception is really just a battle over the players' resolve. The players likely have a perspective (in terms of understanding of finances, for example) that's not too different from the public, and their perception of what is fair is probably shaped similarly to (and perhaps shaped by) the public perception.

In any event, it seems that once the CBA is signed, it's in the interests of both the league and the players to have the blame for any stoppage land wherever it would be least damaging to fan support and revenues. The most callous approach -- one that I don't expect to see, but that I would certainly be considering if I were in an owners box -- would be to declare the day after the CBA was signed that the owners never really wanted a lockout but Bettman took a hard line and talked them into it, practically insisted it was the only way, and that they were firing him and moving into a new era of cooperation.

Bettman could get a giant severance payment (since it's not really his fault), most fans would eagerly accept that choice of scapegoat, and things could move forward with continuing profits for all.

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#6 jdubbs
September 05 2012, 09:53AM
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good read. i think that fans came flocking back in the previous lockout is because the Salary cap changed the way the whole league operated. it gave parity across the board. The whole game changed and people liked it, this is why fans came back. Fans don't care either way this time because a new contract will not change the Product, it will just change the way teams are paying their players. Fans know both sides are making ridiculous money either way so it is just dis-heartening.

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#7 PopsTwitTar
September 05 2012, 10:14AM
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@Eric T.

There's no way the owners will shoo Bettman out the door. He's doing everything they wanted, lockout included. But aside from that, if they come out and blame him for the lockout and talk about cooperation, those words will be confirmed as just more spin the next time there's a CBA standoff.

The one area where the owners might have/had issues with Bettman is the Phoenix mess. Aside from how bad it looks for the league in general, its actually costing the owners money. For now, the League seems convinced it will get that $$ back through Jamison. But if (when?) he comes back to the league in a few years needing more support, the support Bettman has from the big market owners may start to waiver.

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#9 Resolute
September 05 2012, 01:09PM
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@PopsTwitTar - I doubt for a second that the owners are terribly upset with the Phoenix situation. If they were that team would have been yanked by now. Personally, I'm willing to bet the owners are thrilled with how Bettman has handled the situation. Primarily, he has convinced Glendale to eat most of the losses. The owners' share of those losses came out to only a couple hundred grand per team over each of the last two seasons. In exchange for that loss, Bettman successfully fought off what they perceive as a major threat to their operation and created a scenario where there are at least three markets clamoring for teams, all of which are willing to build arenas. Even if they relocated the Coyotes to Seattle or Quebec at a loss, they will recoup that easily when the NHL expands to Toronto/Markham and Quebec/Seattle.

Myself, I see the Phoenix situation as a prime example of why Bettman has the safest job in hockey. He has all parties doing what he wants and saying what he wants. And he is going to make the owners a pile of cash in the end.

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#10 Resolute
September 05 2012, 01:18PM
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Kent - interesting analysis on public perception. I think we could take it one step further and view this little fiction as an assault on the idea that revenue sharing is the solution to all the league's woes this time around. The NHL can easily argue that many teams are losing money, and given the number that are struggling to reach the cap floor, it is believable. But as long as people can say "revenue sharing fixes that", the NHL loses sympathy. So the league quietly drops these hints with the hope that people think that spreading poverty around is not the answer.

I am actually a little surprised that the league isn't pointing out the NFL and NBA deals, both of which set the players' share in the 47-49% range. Even MLB pays only 46%. I'm a little surprised, given whining from guys like Darche and Kovalchuk about "what is fair" that Bettman isn't asking why it is fair for its union to be collecting ten points more than the other big leagues. Especially since that would force the union to respond in a fashion that forces them back into the linkage frame of mind. That is the core of the dispute - the players don't want linkage, but the owners will not play another game without it - so forcing Fehr to defend the players' share becomes tacit acknowledgement that this is the system going forward. Do that, and you are one step closer to resolving the impasse.

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#11 Colin
September 05 2012, 01:55PM
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This is the second time I've seen Kahneman cited in a hockey article, and it brings a smile to my face.

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#12 Joe
September 05 2012, 04:37PM
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I analyze numbers on a daily basis, and anyone with true analysis skills can take something and completely flip it around. My thinking is the league excluded all financially viable franchises, and only included the ones that lost money in this count. Think about it this way: How much have the Coyotes, Devils, Islanders, Blue Jackets lost combined in the last 2 years? According to a quick google search, NYI has lost 64M from 2001 to 2010, for an avg of 7M per year. The Devils are right around there. We know the coyotes are well over 20-25M per year. Columbus apparently has been losing about 12M per year. That's about 74-80M right there, among 4 teams. Where are the Sharks, Ducks, Thrashers, Panthers, Lightning, Stars, etc etc in all this? This could easily be a real number, but its no doubt highly manipulated.

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#13 Joe
September 05 2012, 04:40PM
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@Joe

Sorry-bad math! 74M between the Coyotes and Columbus. Add an additional 7M per year for NYI and NJ, and that comes to 102M- among 4 teams. For Columbus and Phoenix, that's probably AFTER revenue sharing.

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