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Insider

Finding the CBA 'sweet spot'

12/5/2012

First, you have to credit NHL commissioner Gary Bettman, which probably isn't something hockey fans want to hear right now. The target of fan and player frustration for most of the lockout might have saved the season with his idea to step away from the negotiating table along with NHLPA executive director Donald Fehr. After a line of strategies that haven't worked, including mediation and numerous failed proposals, this strategy appears to have given us the most headway yet towards the possibility of a hockey season.

For the first time, both sides are publicly saying that it looks like everyone involved wants to make a deal. That's progress.

Players were extremely cautious in their assessment of where things stand and rightfully so. We've seen these talks derailed too many times to get overly optimistic. But there is definitely more optimism than we've seen to date.

"Both sides are talking and that's always a better sign than not talking," wrote one player in an e-mail last night. "We'll see where this goes, hopefully in the right direction."

Meetings resumed this morning and at 11 a.m. the NHL's Board of Governors will meet in New York for the first time since voting to approve the lockout. Needless to say, a lot rests on Bettman's gamble to step aside.

But all the credit doesn't go to the commissioner. There's another factor that deserves some recognition.

The calendar.

In speaking with several economists whose focus is on the pure numbers of the sport rather than the deep emotions that have accompanied the lack of progress, it has been suggested that the owners have a clear understanding of exactly when is the optimal time to strike a deal with a players. Armed with the revenue and expense data that only the league and its teams have, economists say the league can project almost to the date when it becomes less beneficial to hold out for a better CBA and more beneficial to start playing hockey.

Not only do they say that date can be calculated, most assume that's exactly what the league has done.

"The clubs do have an idea that at one point the revenues they're forgoing now counteract the gains and lower costs in the future," said Dennis Coates, professor of economics at the University of Maryland Baltimore County. "They have that idea in their mind. What exactly that is? I don't know. I suspect very few people do. Their revenue projections and their cost projections are private to them."

The first portion the owners would have to calculate is what exactly do they have to gain by waiting? That comes in the form of lower player costs not only this year but throughout the existence of the next CBA. They'd also need to calculate what they can substitute for hockey in their buildings in the meantime to add other possible gains into the equation.

And then there's the losses, which can be calculated right down to how much money is lost each day. That number is likely a sliding scale that gets more severe as the season progresses.

"There is no doubt that losing some games at the beginning of the season is not particularly harmful to the league because you're eliminating pro rated salaries at the beginning of the season," said Victor Matheson, associate professor of Economics at Holy Cross. "If you lose half your games you lose half your expenses, but you don't lose half your revenues."

That's because the serious money is made later in the season, as the playoffs approach. And the biggest profits come during the playoffs when arenas are packed and players aren't paid.

"That's where your big money is made," Matheson said. "You don't mind losing your high-cost, low-revenue games at the beginning as long as you get your high-revenue games at the end, plus your Stanley Cup, which is plain old high revenues."

So to find that sweet spot in which to start the season during a CBA negotiation, there needs to be some revenue projection done based on data accumulated over the last several years.

"You'd look at attendance and ticket prices and guesstimate how much revenue canceling games becomes on December 14th relative to canceling games in January. They've got that data. Data we would kill to have," said Dr. Phil Miller, a professor of sports and labor economics at Minnesota State University.

Using linear regression, you forecast the attendance figures in each market.

"Linear regression is a statistical technique that you make an assumption -- for example attendance for a game would be a function of the win/loss record, the points of the home team and points of the visiting team -- some control of quality. A function of ticket price, function of weather, how close they are to the playoffs," Miller said. "If you've got the numbers, yeah, it's pretty straightforward."

Where things get hazy is in trying to factor in fan reaction from the lockout and whether or not CBA negotiating fatigue will impact ticket sales once doors are opened again. As angry as fans are right now, years of raw attendance data in sports suggest that a relatively short work stoppage won't have a major impact on attendance. Even with all the frustration fans have right now with another lockout, the safe assumption is that they'd still return in a big way if a deal is struck in the next few weeks, in time to get a meaningful season completed and award a Stanley Cup.

There isn't historical data, however, to aid in predicting fan reaction to a second wiped out season in under a decade. That's why the smart money is on the NHL finding a way to get games played this year, even if it's just another 48-game season.

We're hitting the prime window to get a CBA completed in order to make that happen. Maybe the progress is because of Bettman's strategy this week; maybe it's the calendar. Hockey fans don't care either way as long as there's progress.

And pressure to get a deal done.

"I think that they're past the point where the discounted present value of a few $100 million gained over the next CBA is worth it to continue to lose current revenues," said Dr. Rod Fort, professor of sport management at the University of Michigan. "We can just map the calendar."