URL:http://blogs.hbr.org/hbr/hbreditors/2013/01/what_the_nhl_lockout_reveals_a.html
It's been quite a year for labor disputes in professional sports. First came a gamble by NFL owners to replace striking referees; then NHL owners locked their players out after the two sides couldn't reach a contract agreement. After outcry from fans and players, a deal centered around pay raises and pensions was reached with the NFL officials; and earlier this week, after months of contentious bargaining, NHL players and owners agreed on a compromise to put teams back on the ice.
In a country where unions are on the decline, are sports the last bastion of organized labor? Or is this a completely different kind of talent battle? To investigate this question, I interviewed Roger Martin, the Dean of the Rotman School of Management at the University of Toronto in Canada. He's the author of Playing to Win: How Strategy Really Works, and has written about the NFL replacement refs in The New York Times. An edited version of our conversation is below.
So what does the recent NHL agreement tell us about the current state of capital and talent?
That it's brass knuckles time. The two sides really still don't understand the dynamics and are duking it out in ways that are highly destructive and damaging. They have a narrative in their heads that still doesn't acknowledge that this is a new form of battle.
Capital still thinks this is about labor ... They're treating it as though players are their auto plant workers: "We can't make a buck and we're going to go out of business, so you have to work with us here."
Talent has this completely different frame. The irony is that they act like a union and use all the guidelines that were based on skilled labor being abused and trounced by capital. They're like: We're the product. More is better. And we couldn't care less about your economic situation. It's not relevant to us.
The best metaphor for me is The Fugitive. You know that scene where they're in those aqueducts above the falls? He gets Tommy Lee Jones' gun in the struggle and they're finally face to face. Harrison Ford is this innocent man — a refined, educated, naïve man — and he says to Tommy Lee Jones: "I did not kill my wife!"
And do you remember what Tommy Lee Jones says to him?
"I don't care." His job is to hunt this guy down. He doesn't care what he's done. And I see the same thing: the NHL is saying, "We are all losing money. We're going to go out of business." And the players are saying, just like Tommy Lee Jones: "We don't care. That's your problem. My job is to extract the maximum amount I can — I'm a star and I think I should get more."
It's brass knuckles, in part, because they're having a hard time figuring out what the new nature of the game is. So now they're going to have a 48 game season instead of an 82 game season, and billions of dollars of revenue is out the window. They're both going to have to suck up a big chunk of that, and it's because it took that long for the players to internalize that the owners were just going to cancel the season because, in reality, $3.3 billion in revenue ain't worth a dime if there are $3.4 billion in costs.
So what is the nature of the new game? Are we getting any closer to a consensus on it between the owners and the players?
I think we're getting closer.
Owners still think they deserve to make an attractive profit on this game. There's very little basis underlying that assumption, other than the idea that that's the way free enterprise works — as if this is free enterprise. It's actually a monopoly.
It's sort of like how airlines assume they should make money — no. Only one airline has made money over the last 40 years in the U.S.: Southwest Airlines. And everybody else is just doing a public service by flying people around. In a half hour, Delta is going to fly me to Detroit and make no money for their shareholders.
The owners are slowly but surely coming to grips with the fact that, on average, in most professional sports, you're going to make a very minimal return. The really great franchises will make a bunch of money; the crummy franchises will lose money; and they'll have rich owners who can absorb that and who have plans and hopes and dreams that someday they can make money. It's not a guarantee.
The exception to the rule, of course, is football.
The NFL has managed this shift quite remarkably, in a fashion that has gotten them so that virtually very team is profitable.
Speaking of football, when you look at the NFL labor dispute this past fall, with the so-called "replacement refs," how does it compare to what happened in the NHL?
Football has figured everything out better than the other leagues. They know how to stay one step ahead of the devil; they've focused on how to make the pie grow. This way, what they can concentrate on every year is how to get the players more money, and more is better.
What the players in the NHL are fighting about here is that the revenues aren't projected to grow so that, at least in the short-term, the players won't get more with a salary cap over the next couple of years. And the NFL has managed to keep the pie growing so that, even if they do end up with a brass knuckle fight and they end up with a smaller percentage in the short-term, they'll still have a higher absolute in gross revenues for the players.
Going forward, is there anything the NHL can or should learn from the NFL?
Even thought I'm not fan of NHL commissioner Gary Bettman by any stretch, he's really focusing on the big picture: he's trying to get a long-term contract so they build up a television audience, so they have enough franchises in enough cities so you can get national advertisers. All of those things are right for the long-term.
Football is played intensively in all the best television markets in the country; hockey, in general, is not played in a whole bunch of the best and growing markets. Nobody plays hockey on the west coast; nobody plays hockey in Dallas. Nobody plays hockey in Houston; nobody plays hockey in Miami; nobody plays hockey in Atlanta.
It's a chore of epic proportions. So Bettman's trying to figure it out.
And what about the replacement refs situation?
The replacement refs thing is kind of interesting because it was a test of replaceability. If you are talent, or hope to be talent, it's an illustration of what is absolutely, positively critical — and it would be the advice to give any young person: your value has to be observable to the end user.
So what the NFL hoped is that the quality differential of the referees would not be observable to the end user. That these wouldn't be personalities that the fans — both on TV and in the stands that cause the revenue to show up — would recognize for the most part, and that replacements would be fine. And they bet wrong.
This is why if, say, you are a chef, you know what you ought to be doing? Walking out into the restaurants, talking to your guests, telling them about what you've cooked, looking all messy like a chef is, so that they know that there's not a generic production process out there. That the production process is you.
You then cross categories from generic, replaceable labor — even though it may be skilled — to a named chef who makes $250,000. Then you could be a chef on TV who makes millions and millions.
It goes back to Michael Lewis' The Blind Side. He got it right: TV commentators started to point out that the reason a quarterback just got sacked and injured and out of the game was because his left tackle did not guard the blind side. And once they started pointing it out on national television, the left tackle salaries went through the roof.
How does this fit into the past year or so of labor battles — from the NHL and NFL, to teachers and other public employees in Wisconsin, to Hostess?
They're all different.
The NFL was a battle over the splitting of a massive pie — that's why they didn't miss any games. The question was: who gets what percentage of the pie that makes players rich and owners rich?
The NHL lost half a season, and $1.3 billion in revenue, because the players had to finally understand that the owners were totally OK with not having a season at all because they weren't making any money.
"Teachers in Wisconsin" is just too generic. They're not seen broadly, aside from the individual child in the individual class. Even if a kid likes his teacher, the kids aren't paying; the parents aren't paying; and they're not nearly observable enough. If I was a teacher, and I was bloody-minded, I'd make sure I was visiting with the parents all the time, getting to know them. This way I'm not a teacher; I'm, say, Gretchen.
Hostess is a situation where labor doesn't matter. The entire value is in the brand, not in the production or distribution. So they'll auction off the brand and start from scratch, building a sensible distribution system.