John Tavares' New York Islanders will benefit from changes made to the NHL's revenue sharing system - Mike Stobe
Rigidity was a major nuisance for various systems established by the 2005 NHL CBA. Has a solution been found to that problem with regard to revenue sharing?
Revenue sharing, officially dubbed by the NHL and NHLPA as the "Player Compensation Cost Redistribution System," is a complicated system, but not one whose basic idea is beyond grasp. The idea is take money from higher earning clubs and the league and distribute it to lower earning clubs in an effort to spur economic development in the lower earning clubs. Under the 2005 CBA, the first to contain a revenue sharing regime for the NHL, rigid rules were established in terms of qualifications and amounts transferred from the league and higher earning clubs.
As a result of the hard-line formulaic approach, some teams that did not meet qualification standards (such as the New York Islanders and Dallas Stars) were left with no money, while others were left underfunded. This further led to arguments during the most recent lockout over the allocation of money not only between clubs themselves, but it bled into the larger issue of the division of hockey-related revenue between players and owners.
The 2013 CBA brings with it a proposed solution to the harsh dictates of the 2005 revenue sharing system: the Revenue Sharing Oversight Committee (RSOC). The Revenue Sharing Oversight Committee now takes a deeper look at each club's financial requirements and their diligence in growing their own revenue vis-a-vis the previous regime. By setting up built-in flexibility in the 2013 CBA, the NHL and NHLPA are giving themselves a better chance to succeed.
Composition of the RSOC
Seven voting members comprise the RSOC; three members are chosen by the NHLPA (with at least one player), and four, including the chairman, are chosen by the Commissioner (with at least one owner). Both the Commissioner and the Executive Director of the NHLPA serve as nonvoting members.
Powers and Duties
The RSOC has broad power to access financial information and club business planning documents, subject to confidentiality agreements. Their usefulness in making league financial decisions is more than apparent.
Under the CBA, clubs are entitled to receive certain amounts calculated by specific formulas, while others and the league are required to give up certain amounts to fund the revenue sharing pool. Under the RSOC's power, however, the distributed amount can be changed. If the change is within 15% of the original calculation, a vote of a simple majority is all that is required. If it is beyond 15%, a five-vote majority is required, and the change subject to an external limit.
Similarly, a five-vote majority can change the formulas used for funding and distribution, meaning that the formulas established by the 2013 CBA are simply default starting points that are not set in stone.
The RSOC is also tasked with overseeing the Industry Growth Fund, which will be established "to make long-term improvements in the revenue generating potential of the low grossing Clubs." The fund totals $20 million, but may be adjusted by the RSOC. Clubs that fail to obtain 75% of the league average in gate revenues (not total revenues) are subject to RSOC oversight and possible allocation of IGF resources. The IGF may allocate funding as grants, loans, or in-kind (actual objects). Recently relocated clubs are not subject to oversight until two years after relocation, but may still get IGF funding.
So why is the RSOC a good thing?
As I have alluded to several times already, preserving a certain amount of adaptability prevents the current system from running headfirst into failure. Establishing a committee that allows the NHL and NHLPA to work together to establish a regime that is poised for success also helps to ensure that a certain amount of rapport between the two sides remains, which is especially important given the happenings of the past few months.
The RSOC also has the ability to force clubs to be financially competitive while maintaining the flexibility to treat each club differently through its ability to vary distributions. Article 49.3(b) of the 2005 CBA set rigid eligibility criteria that have since been thrown out, allowing the RSOC to deal with each team on a case-by-case basis. Mandatory penalties for underperforming clubs have also been discarded in favor of letting the RSOC deal with such measures.
Giving the RSOC oversight over the business plans of underperforming clubs, as well as the Industry Growth Fund, teams are not left on their own, but given outside guidance by industry experts. Clubs will also be able to receive grants, loans, or assets directly from the IGF on terms negotiated by the league in the name of the league's own success, rather than from a private lender.
The 2005 CBA's stubborn revenue sharing system and seven year duration left some clubs in the dust and on their own. Under the 2013 CBA, however, the Revenue Sharing Oversight Committee is poised to provide the adaptability that a revenue sharing policy needs to be successful.