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2012 NHL CBA: Exploring Hockey Related Revenue

PHILADELPHIA, PA - JANUARY 31:  This is not Donald Fehr, but it's close. (Photo by Paul Bereswill/Getty Images)
PHILADELPHIA, PA - JANUARY 31: This is not Donald Fehr, but it's close. (Photo by Paul Bereswill/Getty Images)
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Hockey Related Revenue is a phrase that has entered the hockey lexicon in a big way in the week since the NHL made their initial CBA proposal to the players. The roughly 20% revenue reduction the owners proposed to the players created quite a stir. It would indeed be a large cut, even if it is in line with the other major North American sports. One of the prevailing thoughts circulating now is that the owners will ultimately try to re-define Hockey Related Revenue to cut the players' share even further..

How many people actually know what Hockey Related Revenue is? The salary cap is derived from revenue. Outside of that basic fact of the current CBA most hockey fans are rarely going to come in contact with the nuts and bolts of Hockey Related Revenue. I had a general idea, but I wanted to know the specific definition to get a greater understanding of the current bargaining process.

My attempts to define HRR without reading the CBA failed miserably (click here if you want to download the CBA for yourself...for some reason). Beginning with page 160 the document defines HRR. It covers a lot of ground, and the specific definitions offer some insight into ways both sides might like to tweak the definition during this round of negotiations to reach the most reasonable deal possible.

The broad definition of Hockey Related Revenue is as follows:

(a) "Hockey Related Revenues." "Hockey Related Revenues" or "HRR" for each League Year means the operating revenues, including Barter (as defined below).......derived or earned from, relating to or arising directly or indirectly out of the playing of NHL hockey games or NHL-related events in which current NHL Players participate or in which current NHL Players' names and likenesses are used, by each such Club or the League, or attributable directly to the Club or the League from a Club Affiliated Entity or League Affiliated Entity....

The money part of the definition above was lifted straight from the CBA. In English, HRR is defined as all operating revenue plus Barter (non-monetary profit, such as trading tickets for sponsorship, excluding profits from media commitments, promotional time not for resale, promotional materials, and NHL broadcasts). This is revenue derived from the playing of NHL games, participating in NHL-related events, and events where the likeness or name of a player is used.

The NHL doesn't use straight revenue to determine the salary cap though. They use net revenue. They subtract what they define as Direct Costs from Hockey Related Revenue before determining the salary cap. The CBA defines Direct Costs as:

"Direct Costs" shall mean any costs, including fixed and variable costs,attributable to a revenue-generating allocation of arena occupancy costs, and general and administration expenses, such as finance, support and general management function costs, may not be included as Direct Costs.

Teams are allowed to consider any money spent towards a revenue-generating activity as a Direct Cost (sorry employees of the Dallas Stars don't influence the salary cap) which, ultimately, keeps the salary cap lower than it would otherwise be. The exceptions to this rule are arena occupancy costs and general administration costs.

The CBA also provides what it describes as "a nonexhaustive list of Hockey Related Revenues order to permit the inclusion of new revenue streams" to further define exactly what HRR means. The list might not be exhaustive, but it's still hefty. Gate receipts from all NHL games (preseason, regular season, and postseason), special games (Winter Classic, games in Europe), revenues related to broadcasts (radio, cable, international, national, over-the-air), team websites, publications, novelty sales (both in-arena and non-arena), concessions, luxury boxes, premium seats, advertising (signage, sponsorships, dasherboards), and parking are the main components of HRR according to the CBA.

Little about that list really stands out. The exclusions are more interesting, and potentially present contentious issues in the negotiations. One aspect of HHR did stand out, though it's impact was probably negligible.

In the event that there is an NBA Players' strike or owners' lockout ("work stoppage") resulting in the cancellation of all or part of any NBA season in any League Year, and such work stoppage results in a refund being made to purchasers of fixed arena signage, luxury box/suite-holders, or premium/club seat holders in "Two-Team Arenas" ...then the NHL and NHLPA agree that such Two-Team Arenas shall be determined as if such refunds were not made.

The 2012-13 salary cap is partially influenced by a handful of NBA games that were never played. The impact is going to be minimal if there was ever even any impact, but it's interesting nonetheless. This clause attempts to allow the league to function normally whether the NBA exists or not in a given year.

The previous list of revenues is missing a couple potentially significant revenue streams: relocation and expansion fees. The CBA says all revenue generated from player assignment (waivers), relocation, expansion, operation of teams others than NHL clubs (AHL/CHL clubs), financial maneuverings (loans, interest income, investment activities, etc.), and league-imposed fines will not count as HRR. The two big ones are obviously relocation and expansion though.

Hockey Related Revenue then is a simple idea when you get past the legalese. It's the net operating revenue of the league plus Barter minus Direct Costs with the notable exclusions of relocation and expansion fees removed from the money pool.

Currently 57% of that number then goes to the players though their contracts. The owners want to re-define how that number is calculated on top of changing the percentage going to the players. I have a hard time seeing how they can significantly re-define HRR other than adding some currently restricted expenses to the Direct Costs list unless they try to completely change the definition of HRR which would have to stretch the negotiation process out significantly.

The ultimate point of taking the time to break down exactly what HRR means is to show that it isn't nearly as complicated as it seems at first glance. The information taken piece by piece is both logical and intuitive. The owners plan to re-define HRR to further shrink the share of revenue going to the players. That phrase without context can be overwhelming, but hopefully these modest efforts to breakdown a significant piece of the collective bargaining agreement help knock some barriers down.