See description and attachment.

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Negotiating on Thin Ice: The 2004-2005 NHL Dispute (A)

Introduction

National Hockey League veteran player Trevor Linden was gearing up for another faceoff. But this time,

he was not wearing his skates and helmet; he was wearing a business suit. And, instead of walking onto

the ice, clutching his hockey stick, he walking into yet another union meeting, clutching his briefcase.

The irony of the situation not lost on Trevor: his toughest and most consequential of battles had not

lasted three periods in a skating rink, but five months in negotiations with the National Hockey League.

And now, as the “game" went into overtime, he was unsure which side would prevail.

At issue was the negotiation of a new collective bargaining agreement(CBA)between the players,

represented by the National Hockey League Players’ Association (NHLPA), and the team owners,

represented by the National Hockey League (NHL). The CBA provided the basic framework for players'

salary contracts, and was the keystone for agreements on a wide array of issues, including salary

arbitration, free agency, and guaranteed contracts.

The CBA had been renegotiated many times before, but this time was different. The league, insistent on

cutting costs and curtailing the growth of players' salaries, was resolute on two key issues: 1) the

introduction of a salary cap, which would establish a limit on player salaries, and 2) the linkage of salary

to revenues, such that league-wide salaries would not exceed a fixed percentage of league-wide

revenues. Meanwhile, players adamantly opposed both proposals. As a result, this negotiation had been

more acrimonious, and less productive than any in the past.

The previous CBA had expired on September 15, 2004. Since the two sides failed to negotiate a new CBA

by that date, NHL Commissioner Gary Bettman locked out the players. This meant that no hockey would

be played, no revenues would be collected, and no salaries would be paid. This was no idle threat, and it

was not taken idly. With the lockout in effect, 150 NHL players promptly joined European hockey clubs,

sports arenas began finding other sources of revenue, and the Canadian Broadcasting Corporation (CBC)

replaced "Hockey Night in Canada" with "Movie Night in Canada.” Meanwhile, millions of hockey fans

turned their attention to other professional sports. The start date for the 2004-2005 NHL Season-

October 13, 2004-, came and went.

Months of negotiations had produced only rejected offers. Now in mid-February 2005, Union President

Linden wondered what lay in store for the players he represented and for the sport he loved. The union

had flexed its muscles in the past-and won- numerous times. Could they pull it off one more time? With

almost half the season already lost, and the rest of the season on the verge of being cancelled, which

side had the power to hold out longer, or to negotiate a more favorable CBA?

Background on the NHL

Professional hockey came onto the ice in the 1900s, and the National Hockey League was established in

Montreal in November 1917. The league, now headquartered in New York, was the official body

representing the collective interests of the NHL team owners. The league's responsibilities included

operational and administrative tasks such as setting game rules, scheduling seasons, selling national

television rights and, of course, negotiating the CBA with the NHLPA.

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The NHL Board of Governors oversaw the league, but most of the operations were carried out under the

supervision of the Board-elected NHL commissioner. The NHL commissioner worked on behalf of the 30

NHL teams across Canada and the United States. Teams were typically owned privately or by large

corporations, (e.g., Comcast owns the Flyers).

While each team had only six players (five skaters and one goal tender) on the ice at any time during the

game, each team was required to have between 20 and 23 players on its roster (with up to 3 goal

tenders) and up to 50 on its reserve list. Each team played 82 regular season games from October to

mid-April. The playoffs ran from mid- April to early June, and culminated with the Stanley Cup Finals

which were "broadcast to more than 150 countries, from Albania to Zimbabwe, and watched in more

than 300 million homes."

At the end of each hockey season, the league required all teams to report their financial performance by

preparing a Unified Report of Operations (URO). The URO included all hockey-related revenues and

expenses, and was designed to standard financial reporting methods in order for the league to compile

league-wide financial results. The league's reporting of its financial results has been a point of

contention throughout the NHL's history.

During the early years of the NHL's existence, the players accused team owners of concealing actual

revenues and underreporting the profitability of the game. The players received only league-wide

information, and perceived a difference between observable revenues (e.g., sum of ticket sales,

concession and parking revenues) and reported revenues of teams. Consequently, the players believed

that the league reported financial data selectively, and that each team 's idiosyncratic method of

reporting revenues disguised actual performance. Meanwhile, team owners were unwilling to engage in

any debate regarding the players' mistrust of their reporting, contending that teams were private

enterprises, and thus not obligated to disclose any financial information. According to team owners,

players should simply be grateful for making two to three times more than the average person, staying

at the best hotels, and being role-models to boys young and old. The situation worsened until 1967,

when the players banded together to create a players· union: the NHLPA.

Background on the NHLPA

From 1917 to 1967. players had no collective bargaining rights and few options when it came to playing

professional hockey-the number of NHL teams was limited, growing from five to six during this entire

period. Consequently, team owners were able to negotiate highly favorable contracts. Money was not

the only problem facing players. The game was also incredibly rough and it was not uncommon to see a

player with blood running down his face, cracked teeth, a broken nose, or a bruised shoulder. This was

not surprising: there were no rules requiring goalies to wear facemasks, nor for players to wear helmets.

In addition to risking physical injury, players endured significant verbal abuse from team owners, who

did it partly to conjure up a sense of aggression for games and partly to cement players' feebleness in

their relationship. Unsurprisingly, the relationship between players and team owners was marked with

hostility and distrust in the early years.

The first significant step towards unionization came in 1957, when Detroit Red Wing's team captain and

nine-time All Star, "Terrible'' Ted Lindsay, brought in New York lawyer Milton Mound to establish a

players' union. However, it would be another 10 years before the union was founded, as team owners

did everything possible to prevent unionization. Most effective was their punishment of players who led

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the charge in creating a union. For his unionization efforts, Lindsay was immediately demoted as

Detroit’s captain, transferred to Chicago (considered the NHL equivalent of Siberia at the time), and

portrayed in the media by team owners as greedy. 10 Under intense pressure from team owners to

disband, the initial group of union organizers dissolved. However, in 1967, under the leadership of

Toronto Maple Leafs' Bob Pulford, a new, more sizable and unified group of players emerged and was

successful in establishing the NHLPA. It was not long before the union was successful in negotiating

higher salaries, increased benefits, and the adoption of a salary arbitration process.

Headquartered in Toronto, Ontario, Canada, the NHLPA was founded as the labor union representing

NHL players ' interests. The players had power over all NHLPA activities. The players annually elected

representatives from their respective NHL teams to form an executive board. This board was overseen

by an executive committee, which was comprised of the union president and five to six vice-presidents.

The executive board and executive committee were largely comprised of veteran players.

By the 2003-2004 season, the union's negotiating team was working on behalf of over 700 NHL players,

who automatically became members of the union when they joined the NHL. These players hailed from

23 different countries, but over half of them came from Canada. As result of the NHLPA's success, most

of these players were well compensated for work. According to the league's reporting, more than 400 of

the current NHL players would make over $10 million during their careers. Superstar players could earn

as much as $50 to $70 million during their careers.

Head-to-Head

The 2004-2005 CBA negotiations were conducted by the NHL commissioner (on behalf of the league)

and the NHLPA's executive director (on behalf of the union). The current NHL commissioner, Gary

Bettman, began his tenure on February 1, 1993.

During his tenure, the league grew from 24 to 30 franchises, revenues grew from US$400 million to

over US $1.6 billion, and licensing revenues grew by a staggering 700 percent. Bettman also signed TV

deals with major American broadcaster’s ABC and ESPN, played a major role in changing the rules of the

game and, for the first-time, permitted NHL players to participate in the Olympic Winter Games.

Although Bettman was successful in reaching out to broadcasters, he was less successful in establishing

a positive rapport with the union. Some of his critics charged that Bettman was "not a hockey guy." In

some obvious ways he was not. He was a New York lawyer and a former senior executive in the National

Basketball Association (NBA). As a result, Bettman was perceived by many as motivated by money and

not by the love of hockey.

The entire burden of negotiating with the union did not rest on Bettman 's shoulders alone. NHL chief

legal officer, Bill Daly, participated in the negotiation of all major issues. In an otherwise contentious

negotiation, Daly stood out as one with the joint virtues of being well-respected both by the union and

by the league. He was close to Bettman, and could "stroll into Bettman's office and the commissioner

[would listen] to every word." On the other side of the table, representing the NHLPA, was executive

director Bob Goodenow. Bob Goodenow was elected in 1992 when the previous executive director, Alan

Eagelson, was accused of fraud and was forced to step down. A 1979 graduate of Harvard University,

Goodenow went on to study law at the University of Detroit, and subsequently became a corporate and

commercial lawyer. His days as a hockey player on the Junior Wings and as captain of Harvard's hockey

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team underpinned his interest in hockey. Through hockey friends, he eventually transitioned into the

world of professional hockey, first as an agent, then as deputy to Eagleson, and now as executive

director of the NHLPA. What Bettman did for the NHL, Goodenow did for the NHLPA: He grew the

organization and he delivered results. During his tenure, NHLPA revenues increased 25-fold, and the

NHLPA administration team grew from 2.5 employees to 50 employees.21 He also helped players

negotiate higher salaries; under his leadership, players' salaries had in- creased by 240 percent since

1995. Goodenow was a hands-on leader, and spent much of his time communicating directly with

players. He was always "available to take a player's phone call" and was well-respected by them. His

reputation was that of an energetic, militant advocate of players' interests. For players who

remembered (or knew of) a past in which they had been pushed around and out-muscled, such

leadership was welcomed.

Goodenow’ s top aide in the negotiations was NHLPA Senior Director Ted Saskin. Saskin was known to

be less confrontational than Goodenow and was seen as an effective communicator of the union's

interests. Alongside Goodenow and Saskin stood union president, and sixteen-year NHL veteran, Trevor

Linden. Linden was elected president in June 1998. As president, he was the primary voice for the NHL

players, was involved in planning union strategies, and was responsible for bringing player demands to

union management (i.e., to Goodenow).

In some ways, Bettman and Goodenow were entering the 2004-2005 negotiations as they had entered

so many other negotiations. There were differences in perspective, differences in interests, differences

in priorities, and differences of opinion. But what made this negotiation more difficult was not what

made Bettman and Goodenow different, but what made them similar. Both of these men had come into

their positions in the early 1990s. Both had performed incredibly well in their assigned roles. Both were

seen as capable, competent, and caring by their constituents. And both had the same problem: they

were negotiating in the dark shadows of their shared past.

More Money, More Problems

1992 Strike

Following his election to executive director, Goodenow had led the players on their first-ever strike in

NHL history. The principal issue in this negotiation was the players demand for full control of the

marketing rights to their images, (e.g., on trading cards, posters, and other merchandise). As the sport

gained popularity, the value associated with marketing rights grew.

What could have become a long protracted battle over a significant sum of money was in fact settled

quickly. The timing of the strike may have contributed: the strike occurred before the start of the

season's playoffs. It lasted only 10 days, from April 1 to 11, 1992.

When the smoke cleared, the players had been given full control over the marketing rights to their

images. In return, they agreed to accept a shorter CBA contract length. Although the players had

originally asked for a three-year contract, they settled on a two-year deal (for the 1991-1992 and 1992

1993 seasons). The collateral damage was minimal: the 30 games that were supposed to be played

during the strike were rescheduled, and four games were added to the regular schedule to pay for

increased league costs. The players were largely regarded as the victors in this negotiation.

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1994-1995 Season Lock Out

The expiration of the 1991-1993 CBA again resulted in conflict. This time, the issue was the league's

financial concerns. Although the two sides were unable to agree on a new CBA for the 1993-1994

season, both sides agreed to continue playing the game under the existing CBA terms by agreeing to a

"no-strike, no-lockout" pledge. One year later, there was still no new CBA. This time, believing that the

economic state of the league was getting progressively worse, Bettman insisted on signing a new CBA

before the 1994-1995 season began. When the two sides were unable to agree on a new CBA before the

season's start, the NHL locked out the players for the first time in NHL history.

The primary issue in the negotiation was how to help small market teams (those that brought in less

revenue) become more competitive. Both the team owners and the players saw that doing so was

necessary: more competition meant more rivalries, more exciting games, and more potential revenue

for the league. Unfortunately, as the NHL grew, the revenue gap between small market teams and large

market teams had widened, enabling large market teams to continually attract better players and thus

consistently win more games. However, while both the league and the union agreed that this situation

had to be fixed, they disagreed on how to make this happen.

The league's proposal had three key components:

1. A payroll tax system that would fine teams who exceeded the league's average payroll. The

collected taxes would then be redistributed to cash-strapped clubs.

2. An unrestricted free-agency system that would limit players' mobility early in their careers but

enhance it later. This issue, the league hoped, would reduce the bidding-up of players’ salaries, because

it would limit the amount of time during their career that players could accept competing salaries.

3. A cap (i.e., limit) on rookie (i.e., new player) salaries and on rookie signing bonuses to curb the

amount players initially made. This issue, it was hoped, would not only cut compensation to rookies, but

also provide a drag on their future salaries.

Of the issues presented by the league, the union outright rejected the NHL's proposed payroll tax. The

union argued that the tax would inhibit owners from paying fair (i.e., "market") rates, and would thus

artificially deflate salaries. Instead, the union proposed alternative schemes, such as managing the

franchises better and sharing revenues among them, or instituting a gate receipt tax of 5 percent that

could be levied on the top 16 teams. The NHL rejected all union proposals: none, they argued, would be

as effective as the payroll tax in lessening the revenue gap between small and large market teams.

While the two sides tried to find a way to work through these issues, Bettman embittered the union by

tabling additional demands that scaled back existing player rights, (e.g., eliminating salary arbitration

and per diems, stipulating that players had to pay their own medical insurance, life insurance, and travel

expenses for training camp, etc.). All of these, argued Bettman, were necessary to reduce costs. The

union saw it differently. They felt that Bettman was using these issues as threats to speed up the

negotiation.

After four months of negotiation, Bettman agreed to remove the payroll tax from his proposal. In return,

the union agreed to the rookie salary cap, the unrestricted free agency system, and some modifications

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to the salary arbitration process. By the time the new CBA was signed, the lockout had lasted 104 days,

from Oct. 1 to Jan. 11, and had thus eliminated nearly half of the scheduled season.

The league believed that the concessions they had extracted would curb escalating salaries and thereby

help small market teams to afford better hockey players and compete more effectively. According to

media sources, there were collective high-fives among NHL management. This interpretation-that team

owners had "won" in the 1995 negotiation-would not last long.

1998-1999 Season Renegotiation Request

By the start of the 1998-1999 season, the league was claiming that its last CBA negotiation had been

ineffective in curbing runaway player salaries. Indeed, the opposite seemed to have resulted. Extending

the age of unrestricted free agents limited the number of players in the market at any time. As a result,

quality free agents became scarcer and could command top dollars.31 Moreover, creative contracts

(featuring signing and performance bonuses) countered the effects of delayed free agency and of

restrictions on rookie pay. For example, on top of a lowered salary base, a rookie could earn significant

bonuses for scoring a certain number of goals or achieving a certain number of assists. As a result, team

owners were able to compensate players lucratively while adhering to restrictions. Finally, and again to

the disappointment of team owners, despite changes in the arbitration clause, players continued to win

most salary arbitrations. Looking back, Bill Daly conceded, "We felt that we had addressed escalating

salaries in a number of ways that would work. But it quickly became apparent that it wasn't working."

While the existing CBA was seen as problematic by the league, there was little that team owners could

do about it: the CBA did not expire until 2004. On March 19, 1999, Bettman wrote to Goodenow to

propose a voluntary renegotiation of the CBA in the near term. Otherwise, warned Bettman, the players

would have to prepare for major concessions in the 2004-2005 season (once the CBA had expired).

However, the union rejected the league's request for a renegotiation. The consequences were clear:

both sides knew now that the 2004-2005 season would entail a critical, high-stakes negotiation. And

both started to prepare for battle.

Preparing for a Face-off

As the 1998-1999 season came to an end, both sides started to build their war chests in preparation for

the impending negotiation. The NHLPA held onto union dues, which it typically repaid to players at the

end of each year. Plus, the NHLPA did not cut any licensing checks to players, which it typically did every

few years. Meanwhile, the league required each team to set aside $10 million apiece in an account to

help fund operations during a potential lock out or strike.

As the 2004-2005 negotiation neared, the team owners also voted unanimously to modify the league's

ratification rules for a new CBA. Previously, a simple majority was required to institute a lock out or to

ratify a new CBA. The new rules stated that any CBA which the commissioner (Bettman) did not support

would require approval by three-quarters of the teams in order to be accepted. The league also voted to

give the commissioner authority, in advance, to call a lockout immediately after the CBA expired.

According to media reports, the league was also successful in securing a unified commitment to the

2004-2005 lock out from all 30 team owners. To uphold this unity, the league benefited from a by-law

that prohibited team owners from speaking out about the lockout. The consequences of breaking rank

would be severe, as Atlanta Thrashers owner Steve Belkin would soon discover; he was slapped with a

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US$250,000 fine in October, 2004, for mentioning to the Boston Herald that the NHL would consider

using replacement players for the 2005-2006 season if a new collective bargaining agreement wasn't

reached. According to media sources, "No information got out unless it was an official league statement.

There were no renegades here. It all went through Bettman."

Saskin summarized each side's bargaining position: "At the end of the day, you had two very powerful

groups. On one side, billionaire owners, for whom this was typically not their primary business. On the

other side, players who had made a lot of money as of late, but who cared more for the game itself."

The Puck Drops

Underpinning the current dispute was the league's precarious and contentious financial situation. For

the 2002-2003 season, the league had reported combined operating revenues of $1.996 billion and a

combined operating loss of $273 million. The league also pointed out that NHL player costs were 75

percent of revenues, a higher percentage of revenue than in other major league sports. Also, that

season, only 11 teams reported operating profits, while 19 teams reported operating losses. The NHLPA

disputed the NHL's operating loss numbers and their percentage of revenues going to player costs.

Media also expressed some skepticism since the league refused access to their financial books.

However, the league charged that their economic troubles were grave.

To avoid continued operating losses, the league demanded "cost certainty" in this negotiation.45 To

achieve this, the league wanted two things above all else: 1) a salary cap, and 2) a linkage of salary to

revenues. Bettman argued that these were the only viable solutions to the growing evidence that NHL

revenues were not keeping up with increasing player salaries. While revenues had increased 160

percent since 1995, player salaries had increased by 240 percent over this same time period. The league

believed that player salaries were escalating because team owners, willing to pay big money for top

players in the hopes of winning a championship, were engaged in unhealthy bidding wars. As a result,

the average NHL salary was close to $2 million in 2002-2003, compared to only $733,000 in 1994-1995.

The league also released the results of a fan poll that revealed fans' concerns regarding the financial

health of the league. The NHL's financial condition was precarious, Bettman argued, and “what we need

to achieve is a system that enables all of our clubs to be economically stable and competitive."

The union rejected the notion that players needed to help team owners avoid bidding up their salaries,

arguing that "the free market should determine players' salaries and that the owners should be their

own salary controllers." Goodenow also rejected Bettman 's argument that salaries needed to be tied

explicitly to revenue: "They say they want a relationship between revenues and player costs. We say it

already exists." The union 's reluctance to accept a system that tied player salaries to revenues was not

only a matter of principle; the union mistrusted the financial and accounting numbers presented by the

league. The union believed that teams had under-reported their revenues and over-reported their

losses. Saskin called the teams' accounting “garbage in and out." How could players link their salaries to

revenue numbers they did not trust?

Goodenow, though well aware that the league was willing to fight harder now than in the past,

remained resolute: "I've told the players to be prepared for a long lockout by the owners. It may last a

year, it may last two or three years, but we will never accept a salary cap."

2003 to September 15, 2004

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On September 19, 2003, news of the NHL's losses of nearly $300 million for the 2002-2003 season hit

The Wall Street Journal. Within weeks of this report, the union proposed a deal that included a 5

percent salary rollback. The league countered with its first salary cap demand: limiting team payrolls to

$31 million per team. This salary cap was a significant decrease in the current average team payroll of

$44 million. No deal seemed possible.

The situation intensified as the tension between Bettman and Goodenow mounted publicly. The media

reported that the two sides seemed to disagree not only on the CBA, but also on what constituted a

meeting. While Bettman claimed all meetings before October 1 were "informal conversations,"

Goodenow retorted that the two sides had "12-plus meetings," which were "full-day meetings between

the two parties, not casual phone conversations between Gary and I." Hockey agent Ritch Winter

proffered hi point-of-view on the relationship between Bettman and Goodenow: "What [scared] me

[was] that there [were] so few people involved in the process. It [was] Gary Bettman and Bob

Goodenow and they [didn't] appear very cordial in their relationship."

The situation worsened as the union publicly reported its mistrust of the losses reported by the league.

In response, the league hired former chairman of the Securities and Exchange Commission, Arthur Levitt

Jr., to perform an independent audit of its 2002-2003 URO. The league believed that Levitt's former

leadership of an independent regulatory body would establish his impartiality and credibility. The "Levitt

Report," dated February 5, 2004, confirmed the league's accounting and financial conclusions. The

players, however, were unimpressed: the league had notified them of the "Levitt Report" only one day

before the report hit the newsstands. As Goodenow explained, ". . . The League did not advise the

NHLPA of this initiative and there has been no discussion of it by the parties . . . Against this background,

it is clear the Levitt report is simply another League public relations initiative. To suggest the report is in

any way independent is misleading." Because Levitt had been hired by the league, the union also

questioned his objectivity and whether he had been provided access to all relevant data. The

relationship between the parties remained contentious.

Five months passed with very little progress. At the end of July 2004, Bettman wrote a letter to

Goodenow highlighting 19 additional aspects of the CBA that the league would like to modify, including

salary guarantees, the rookie salary cap, salary arbitration, etc. The players again saw this tactic as a way

to put pressure on the union, and again this tactic embittered the union.

A week before the CBA was to expire, the union made another proposal: a 5 percent rollback in salaries,

a payroll tax system like the one the league had proposed during the 1994-1995 season, changes to

rookie salary contracts, and revenue sharing. The league immediately rejected this proposal because it

did not contain a salary cap. On September 15, 2004, Bettman announced the lockout: the players

would not get on the ice for the start of a new season.

September 16, 2004 to February 16, 2005

Shortly after the lockout announcement, the International Ice Hockey Federation (IIHF) reported that

more than 150 NHL players had signed contracts to play with European teams. By mid-January, this

number grew to 393. Meanwhile, the league advised team owners to allow other interested parties to

book their sports arenas for non-NHL events on a 45-day rolling basis, two weeks longer than the

previous allowance of 30 days.

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Both the union and the league knew it was important to maintain order in their respective ranks, but

dissension among union members began to surface early. On October 27, 2004, two weeks after what

would have been the first official day of the NHL season, Calgary Flames defenseman Mike Commodore

admitted that he would play under a salary cap: "I don't want to spend the next uh, however, long my

career lasts, playing here in the American Hockey League (with the Lowell Lock Monsters) . . . So I think

whatever it takes." Saskin was quick to respond: "We know that the overwhelming majority of our

members do not support the views that were expressed by Mike Commodore, but as I've said before we

have over 700 members with no gag orders or fines for players speaking out." The next day, Montreal

Canadians’' winger Pierre Dagenais also admitted that he would play under a salary cap.

The following week, the union held a four-hour meeting with team representatives and 74 players-

including Dagenais. According to the media, "the [union emerged] from the meeting as united as ever"

and several players publicly supported the union 's strategy. Notably, Dagenais, wearing an NHLPA cap,

responded to a reporter' s question regarding whether he would still play under a cap by stating, "I don't

have to answer that. All I want is to play hockey and these guys are working hard to fix the problem."

On December 9, 2004, the union shocked the hockey world by offering a 24 percent salary rollback on all

existing player contracts, a slightly better payroll tax, and other concessions on the rookie salary cap and

salary arbitration issues. Notably, the union was still unwilling to consider a salary cap. The league

countered with an offer that included a salary cap, eliminated salary arbitration, and restructured the

salary rollback to take more money away from higher-end players and none from lower-paid ones. Even

as the days progressed closer and closer to what would have been the halfway point of the season, little

headway was made in the negotiation. On February 9, 2005, Bettman raised the stakes by threatening

to cancel the entire season.

Bettman 's announcement was followed by a flurry of activity aimed at salvaging the season. With little

progress being made towards a new CBA, on February 11, 2005, the league released its "gag order on

owners, GMs, and coaches of [the] 30 teams allowing them to talk about the lockout to the media and

reach out to players if they want." The league hoped that engaging other individuals in the negotiation

would help to break the impasse.

Two days later, on February 13, 2005, at the request of the director of the U.S. Federal Mediation and

Conciliation Service, the two sides met with U.S. federal mediators in Washington, D.C. NHL Chief Legal

Officer Bill Daly and labor lawyer Bob Batterman represented the league while NHLPA Senior Director

Ted Saskin and labor lawyer John McCambridge represented the players. Bettman and Goodenow were

not present.

The day after, on Valentine's Day, February 14, 2005, Saskin and Daly met secretly and, for the first time,

both sides drastically altered their negotiating positions. The league increased its proposed salary cap

from $31million to $40 million, and, to address the union's mistrust of league-reported revenues,

relinquished its demand for linking salary to revenue. For its part, the union, for the first time, accepted

the idea of instituting a salary cap, but rejected the $40 million offer; the union proposed a $52 million

salary cap.

The next day, the league offered a "take-it -or-leave-it" offer: a $42.5 million salary cap and a deadline to

accept by 11 a.m. the following day. Bettman, feeling strongly that the league had reached its limit,

clarified: "This offer is not an invitation to begin negotiations-it's too late for that." Goodenow called his

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bluff, and counter-offered with a $49 million salary cap. Bettman rejected the offer immediately, stating

simply: "We cannot afford your proposal."

The following day, February 16, 2005, Bettman cancelled the 2004-2005 season. Rumors circulated that

backroom phone calls were made by players and owners, while emergency sessions were called with

hockey superstars Wayne Gretzky and Mario Lemieux, all in an effort to "uncancel" the season. It was

too late.

What to Do Now?

Linden reflected on where things stood. On the one hand, substantive progress had been made: the

league had relinquished its demand for linking salaries to revenues, and the union had accepted-at least

in principle-a salary cap. On the other hand, animosity and mistrust had been exacerbated, an entire

season had been cancelled, billions in revenue had been lost, and the two sides were still millions apart

on the most important issue in the negotiation.

Linden was reminded of frustrating times he had spent in the penalty box. At least in the penalty box,

players knew that they would be back on the ice within minutes. In this negotiation, the players had no

idea as to when they would return to the game. As he walked into the union 's strategy meeting, he

wondered what kind of power play could help the NHLPA score a new and fair CBA with the NHL.

Source: Negotiation: readings, exercises, and cases, edited by Lewicki, Saunders, Barry 7th ed. Case 3

“Negotiating on Thin Ice: The 2004-2005 NHL Dispute (A) New York. NY 2010

Source: "Negotiating on Thin Ice: The 2004-2005 NHL Dispute (A),"by Deepak Malhotra Harvard Business

School. Case 9-906-038, revised March 4, 2006. Boston. MA: Harvard Business School Publishing.

http://www.hbsp.harvard.edu. © 2006 President and Fellows of Harvard College. Used with permission.

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