VideoThe sports pages say that the ongoing dispute between players and owners in the National Hockey League, which threatens to put the 20042005 season on ice, is about the owners' desire to install a salary cap. It's really about accounting.
The owners contend that most of the league's 30 teams incurred staggering losses last season, and that its poor financial health is getting worse. But the NHL Players' Association claims the owners are hiding millions of dollars of hockey revenue in their other businesses, such as arenas and cable television networks. Teams are in better health than they let on, the union charges, and player salaries are actually in line with revenue growth at NHL clubs.
As long as the two sides disagree on what the bottom line looks like, negotiations about a salary cap will go nowhere. NHL commissioner Gary Bettman has indicated that when the collective-bargaining agreement expires on September 15, the league will lock out the players unless a new agreement is reached that includes some type of cap. But Ted Saskin, senior director of the NHL Players' Association, says the union won't even discuss a cap. "It's not on the table. The owners are saying they need to be saved from themselves — that they will act irrationally if they don't put [a salary cap] in place," he says. "We don't think it makes sense."
It's common for labor and management to hold differing views of a company's financial health during contract negotiations. General Motors Corp. and the United Auto Workers, for example, constantly bicker over how profitable the automaker really is. Labor disputes can even lead companies to profess extreme pessimism as they try to win concessions from unions. US Airways Group Inc., which recently reported a profit for the second quarter of 2004, was quick to point out that the airline expects future losses, and that another bankruptcy is a distinct possibility.
But large, publicly held airlines and auto companies release audited financial statements that are difficult to dispute. Most hockey teams — and most sports franchises, for that matter — are privately owned and are not compelled to release such documents. Teams that are owned by publicly held entities, such as The Walt Disney Co.'s Anaheim Mighty Ducks, are too small a part of their company's overall operations to show up in segmented reporting. In other words, when teams say they are doing poorly, players are asked to take management's word for it.
Each year, the NHL issues a Unified Report of Operations (URO) that includes aggregated revenues, costs, and — for the past few years — losses. But the players' union dismisses those numbers as inaccurate and too derivative to verify independently. The players claim that teams manage sales figures down and don't use uniform methods to account for varying types of revenue. "They offer selective disclosure," says Saskin. "If they want to claim poverty, they should open up the books and give full disclosure."
Levitt's Opinion
Last year, the owners did what they thought was the next best thing: they hired Arthur Levitt, the respected former chairman of the Securities and Exchange Commission, to conduct an in-depth analysis of the NHL's finances and report on his findings. The NHL insisted Levitt's findings could be trusted by player representatives and, perhaps more important, hockey fans. "He's unimpeachable," says Rodney Fort, a sports-business expert and professor of economics at Washington State University. "His integrity is unquestionable."
Sure enough, Levitt's findings were not good. Nineteen of 30 teams reported losses for the 2002-03 season. Combined, NHL clubs lost $273 million, Levitt found, confirming what the league reported in its URO. Moreover, player salaries ate up 75 percent of a team's revenues on average — by far the highest in major professional sports. (By comparison, players get roughly 64 percent of revenues in the National Football League.) "I don't know of any business that could continue to operate and pay that much out in salaries," says Levitt. "It's a terrible business. I would never invest in it."
The report was just what the owners had hoped for — Exhibit A for the argument that a cap was needed to curb out-of-control player salaries. "It couldn't have been better if Jesus himself walked out of the mist and said, 'Hockey's in trouble,'" says Fort.
Yet the players' union, and plenty of sports experts, didn't have much faith in Levitt's numbers. They argued that he could report only what the individual teams gave him. In other words, says the union's Saskin, "Garbage in, garbage out."
"The truth is that we still don't have an accurate picture of the league's finances," agrees Fort. Most likely, he says, teams gave Levitt only the data that would back up their argument that they are losing money. Critics complained, too, that the report didn't contain any detailed information on individual teams. "The results can't be verified independently," maintains Fort.
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