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NHL's 'Make Whole' provision delightfully, Orwellianly named

So you're an NHL owner. You want the players to take a reduction in their share of the league's revenues but you don't want to blatantly request (anymore) an immediate rollback in their salaries for the coming year.

How do you reconcile this dilemma?

Why, you give it an awesome investment-ese name with a connotation that would make Orwell proud:

The League proposes to make Players "whole" for the absolute reduction in Players' Share dollars (when compared to 2011/12) that is attributable to the economic terms of the new CBA (the "Share Reduction"). Using an assumed year-over-year growth rate of 5% for League-wide revenues, the new CBA could result in shortfalls from the current level of Players' Share dollars ($1.883 Billion in 2011/12) of up to $149 million in Year 1 and up to $62 million in Year 2, for which Players will be "made whole." (By Year 3 of the new CBA, Players' Share dollars should exceed the current level ($1.883 Billion for 2011/12) and no "make whole" will be required.)

Any such "shortfalls" in Years 1 and 2 of the new CBA will be computed as a percentage reduction off of the Player's stated contractual compensation, and will be repaid to the Player as a Deferred Compensation benefit spread over the remaining future years of the Player's SPC (or if he has no remaining years, in the year following the expiration of his SPC). Player reimbursement for the Share Reduction will be accrued and paid for by the League, and will be chargeable against Players' Share amounts in future years as Preliminary Benefits.

The objective would be to honor all existing SPCs by restoring their "value" on the basis of the now existing level of Players' Share dollars.

Dirk Hoag of On the Forecheck puts that in English:

Now this is interesting - basically, the league is aiming to ensure that the players don't actually lose any money in 2012-2013 compared to 2011/2012, by spreading out payments covering that gap over the duration of their contracts. The kicker, however, is that those deferred payments will count towards the Players' Share in those future years, so it will hold back their progress on the financial front.

Eureka! Hockey renewed by fire made whole!


Make whole is a term used in reference to compensating a party for a loss sustained. The precise definition varies, according to contract terms and local laws...

Or make-whole call provision:

A stipulation in a bond indenture that permits the borrower to redeem a bond prior to maturity by making a lump-sum payment equal to the present value of future interest payments that will not be paid because of the early call. The provision makes the bondholder whole by providing compensation for interest payments that are missed because of an early redemption.

The NHL is going all investment- and legal talk* on the players here, acting as if lowering their payment now but paying it out later out of the players' share makes them, well, "whole." All square.

*Or hey, maybe they're actually going all Biblical, alchemy, or astrology on us.

Of course, guessing where revenues are going is, well, a guessing game. The players themselves modeled their offer off higher growth rates, which would make them "whole" sooner and be less of a hit to them. (Unless you view 57% as their divine right, in which case they will always and forever be "losing" more and more money to the owners because each year of revenue growth, in the NHLPA's terms, simply means more money they could have had but didn't.)

Dear Players: You Already Steal from Each Other

Indeed, while it's fun to pile on the owners for this clever word usage, let's not forget that every time an NHL player signs a front-loaded, cap-navigating deal that gives him tons of money up front while spreading the cap hit over a decade, that player is in essence stealing from his fellow players' share of the revenue pie. The yearly cap is determined by revenues, but the players' share is affected by what's actually paid out -- i.e. in actual salary, not in cap hit.

When players complain about escrow, they always sound a little oblivious. Why? Because some mechanism like escrow is necessary to maintain the system, but they pretend that it's not. It's like complaining about taxes simply because you don't like paying taxes. The only way to ensure a specific share of revenue is upheld when the actual season-ending gross revenues are not yet known, is to initiate some control that accounts for over- or under-spending, hence: Escrow. Stop whining.

But players also sound like they're avoiding the elephant in their own room: Every time a player takes home $10 million in a year where his cap hit is only, say $7 million, he's altering the balance of what cut he "should" be taking home and what he's actually taking home, thanks to the difference between his actual pay and his averaged cap hit. Escrow hits his peers harder.

The players, in a letter from Don Fehr to the PA, are naturally skeptical of the "made whole" concept. But even there, Fehr himself is guilty of his own fundamentalist spin:

"It is players paying players, not owners paying players. That is, players are "made whole" for reduced salaries in one year by reducing their salaries in later years."

Well for one, that depends on what the revenues are in future years. And two, even if you're making less than what you hoped, it's still actually owners paying players. No amount of "but we made concessions last time!" whining can change that.

The Oct. 16 NHL proposal has made things interesting again, but the PA's initial internal response should remind you not to get your hopes up. This battle still looks long and bloody. The two sides are too in love with their own rhetoric and righteousness to find a solution soon.

Bottom line, the owners want a change to the old system that gives them a bigger piece of the pie. The players feel they shouldn't give that up because they gave things up last time. Until someone bends, we'll just be laughing and crying over the language.