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.

Former Nations Overlord. Current FN contributor and curmudgeon For questions, complaints, criticisms, etc contact Kent @ kent.wilson@gmail. Follow him on Twitter here.