The NHL, led by Commissioner Gary Bettman, attempted to convince players to accept a salary structure linking player salaries to league revenues, guaranteeing the clubs what the league called cost certainty. According to an NHL-commissioned report prepared by former U.S. Securities and Exchange Commission chairman Arthur Levitt, prior to 2004–05, NHL clubs spent about 76 percent of their gross revenues on players' salaries – a figure far higher than those in other North American sports – and collectively lost US$273 million during the 2002–03 season.
On July 21, 2004, the league presented the NHLPA with six concepts to achieve cost certainty. These concepts are believed to have ranged from a hard, or inflexible, salary cap similar to the one used in the National Football League, to a soft salary cap with some capped exceptions like the one used in the National Basketball Association, to a centralized salary negotiation system similar to that used in the Arena Football League and Major League Soccer. According to Bettman, a luxury tax similar to the one used in Major League Baseball would not have satisfied the league's cost certainty objectives. Most sports commentators saw Bettman's plan as reasonable, but some critics pointed out that a hard salary cap without any revenue sharing was an attempt to gain the support of the big market teams, such as Toronto, Montreal, Detroit, the New York Rangers, Vancouver, and Philadelphia, teams that did not support Bettman during the 1994–95 lockout.
The NHLPA, under executive director Bob Goodenow, disputed the league's financial claims. According to the union, "cost certainty" is little more than a euphemism for a salary cap, which it had vowed never to accept. The union rejected each of the six concepts presented by the NHL, claiming they all contained some form of salary cap. The NHLPA preferred to retain the present "marketplace" system where players individually negotiate contracts with teams, and teams have complete control of how much they want to spend on players. Goodenow's mistrust of the league was supported by a November 2004 Forbes report that estimated the NHL's losses were less than half the amounts claimed by the league.
Several players criticized the contracts that overpaid unproven players. One example was the 2002 Bobby Holik contract in which the New York Rangers signed him to five years for $45 million. After two years, his contract was bought out by the Rangers: "In the new world we live in, Bobby was just paid too much," according to Glen Sather, the Rangers' president.
Although the NHL's numbers were disputed, there was no question that several franchises were losing money, as several had declared bankruptcy. Other franchises had held "fire sales" of franchise players, such as the Washington Capitals. The league did not have large TV revenues in the US, so the NHL was reliant on attendance revenues more than other leagues. After the lockout of the 2004-2005 season, NHL teams made on average only 3 million dollars from television revenues. In addition in May of the 2004-2005 lockout, ESPN formally denied the option to show NHL games on the network due to low ratings in previous seasons. Many NHL teams had low attendance totals in preceding seasons.
Read more about this topic: 2004–05 NHL Lockout
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