Deal Makers Talk of Deal Breakers

As a trade union man from way back, Marvin Miller holds to traditional notions about the business of sport.

Sitting in his Manhattan apartment with its panoramic view of the East River, Miller, the retired leader of the baseball players’ union -- the man who helped create free agency -- scowls at the mention of a salary cap in hockey.

“Artificially limit salaries? I can’t think of an employer in the world who wouldn’t want that,” he said during a recent interview. “It’s a negation of everything a union is supposed to do.”

Although Miller sides with any union that fights a link between salaries and revenues, a growing number of sports business experts suggest the issue is not so simple.

With the NHL already losing 775 games to a lockout, and the season in danger of being canceled any day now, these observers say the future of professional sports in America depends on a new way of thinking: Management and players treating each other not as adversaries but as associates, albeit sometimes reluctant, in a joint venture.

“The business of sport has only been around about 20 years and, in many respects, it operates under an antiquated model,” said David Carter, a Los Angeles sports marketing consultant. “Trying to apply traditional labor practices is really a problem.”

For the NHL, that problem centers on what management calls “cost certainty.” The players’ union has interpreted this as a salary cap, which it initially vowed never to accept.

The sides met for four hours Friday, according to a statement from the union. No progress was made and no further talks are scheduled, but the parties have agreed to keep open lines of communication.

The latest proposal from the NHL called for a team salary range of $32 million to $42 million, which also included benefits. It linked salaries to revenue by guaranteeing players a minimum of 53% of league revenue and a maximum at 55%.

Though players rejected the offer, Philadelphia Flyer Jeremy Roenick, one of the league’s most recognizable and outspoken stars, told ESPN he would favor having the union poll its membership on the cap issue if owners adjusted those numbers upward.

This is hardly the first time a season has ground to a halt with owners claiming that rising salaries will bankrupt the league and players arguing they need to earn as much money as possible during their relatively short careers.

But in recent years, the NFL’s success has caused some experts to reassess earlier qualms with salary caps and widespread revenue sharing.

They say that pro sports differ in key ways from other types of industry.

Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon, points out that team owners have unusually diverse motives.

Some operate methodically, mindful of the bottom line. Others have vast resources and are willing to lose millions of dollars in exchange for victories.

Furthermore, this is a marketplace where no one wants to force the competition out of business.

Baseball, for instance, needs the Milwaukee Brewers and Tampa Bay Devil Rays as much as it needs the Dodgers and New York Yankees. A schedule full of reasonably competitive games sells tickets and attracts television viewers.

Salary caps, along with revenue sharing, can help create parity between small- and large-market teams, experts say.

Even players have a stake in league prosperity.

“When owners increase revenue, there’s more money to pay the players,” said Mark Eschenfelder, an economics professor at Robert Morris University in Pittsburgh.

Not that Eschenfelder or anyone else questions the work Miller did in baseball. There was no free agency when Miller took over the union in 1966. Owners exerted almost complete control.

“They had a reserve clause that made people property,” Miller recalled. “Major league players were truly brainwashed.”

But sports business analysts say the landscape has shifted.

“From a sustainable business model, there’s a key partnership that has to be forged,” Swangard said. “There’s a feeling that ownership would like to have some cost certainty and would be willing to reward players for building the business.”

The example Swangard and others point to is the NFL.

The league has a so-called “hard” cap that prohibits teams from spending more than approximately 64% of defined gross revenues, or money from radio, television and gate.

Players agreed to that upper limit because they received a “floor” that forces teams to spend at least 56% of revenues on payroll. This guarantees the players a slice of ever-expanding broadcast dollars.

“They were willing to take that trade-off,” Eschenfelder said.

The NFL also has extensive revenue sharing between teams to keep small-market clubs, such as the Green Bay Packers, competitive with those in large markets such as New York and Chicago.

In the NBA, a “soft” cap limits payrolls to about 55% of revenues. There are loopholes in this ceiling -- a club can exceed the cap to keep one of its own free agents -- but also a luxury tax that can penalize teams for overspending.

“Certain owners have now realized there can be a steep price to pay,” Swangard said. “It’s effective but also needs some tweaking.”

Perhaps because of Miller’s lasting influence, baseball has been resistant to such changes. Major League teams have no salary cap. Negotiations for a new collective bargaining agreement in 2002 nearly led to a strike, but management and labor eventually agreed on a luxury tax.

The major leagues had a luxury tax once before, in the late 1990s, with a handful of top spenders paying at season’s end. This time, however, the trigger was set high: $120.5 million last season.

Three teams had to pay. The Angels owed $927,059 in competitive-balance tax. The World Series champion Boston Red Sox owed $3.1 million.

The tab for the Yankees came to $25 million, or slightly more than the Devil Rays’ entire payroll.

The major leagues also have revenue sharing, though not as extensive as in the NFL.

“You have to make it worthwhile for the Dodgers and the Yankees to go out there and go for [free agents] while still helping the Milwaukee Brewers,” Carter said.

Now the NHL must decide how far, if at all, it will venture into the new economics, dividing up revenues that are considerably smaller than those in other major sports.

Commissioner Gary Bettman, citing a league-commissioned report compiled by former SEC boss Arthur Levitt, claims that salaries and bonuses eat up approximately 75% of league revenues. If accurate, that figure is more than 10% higher than in football, baseball and basketball.

League officials also say its teams lost $497 million over the two previous seasons and that a cap is the only way to continue in business.

Players have argued the league is under-reporting revenues. They have proposed a 24% rollback in all salaries and a luxury tax instead.

Watching from afar, Miller doesn’t see a need for artificial limits.

“Salaries are set by negotiations between the player and his agent and the owners,” he said. “Sports, by virtue of the way salaries are set, have this automatic lever that industry doesn’t have. That lever is the owner who has to dig in his pocket for the salary, the guy who has to agree to it in the first place.”

Even the experts who support caps acknowledge that, to date, none of the leagues has got it exactly right.

The much admired NFL model, which has brought years of labor peace, is beginning to show cracks. Some teams are generating more local revenue -- which is not shared -- creating friction between haves and have-nots.

“There are things we’d ... like to improve,” NFL Commissioner Paul Tagliabue said in his state of the league address in Jacksonville, Fla., on Friday. “The record shows we have a very competitive league with everyone having a shot at winning.”

Carter wonders if the four major sports might find a compromise that incorporates parts of the old -- Miller’s ideas -- with the new model and elements as yet untried.

“Somewhere in the middle is where the deal lies,” he said. “You need the brightest people and the most-influential people to create a new blueprint.”