Title: Negotiation Puts Hockey In The Penalty

Not every negotiation ends on a good note. Just ask National Hockey League (N.H.L.) Commissioner Gary Bettman, who, on February 16, 2005, cancelled all of the games remaining in the season following a 5-month lockout by the owners. Though professional sports such as hockey and baseball have had close calls with losing an entire season, Bettman's decision was a first: The whole schedule was lost. Said Bettman, "This is a sad, regrettable day."

On the other side of the dispute, Bob Goodenow, executive director of the N.H.L. Player's Association, similarly regretted the impasse. He said, "Yes, we apologize to the fans." Though the repercussions to the league and its players are obvious, canceling the season also had ramifications on a broader level, including lost revenues for local businesses and N.H.L. game merchandise sales.

So, why did Bettman cancel the season? The primary issue was a salary cap, but Goodenow said, "The players never asked for more money. They didn't want to be locked out. Gary owes the apology. He started the lockout. We've done an awful lot to try to get to a fair resolution." According to reports, negotiations began when the league attempted to lower the average salary from $1.8 million per year to $1.3 million per yeara 28 percent decrease. The league's reason? Although the N.H.L.'s total revenue had reached $2.1 billion a year, players were paid 75 percent of this revenue. According to the league, this high percentage kept the league from being profitable and directly contributed to the league's loss of $479 million over the past two seasons. The player's union then countered with an offer to reduce salaries by 24 percent rather than the 28 percent the league wanted. Bettman then tried an alternative solution: to persuade the union to accept a salary percentage of no more than 55 percent of league revenues. Instead of reducing pay to an average level, this proposal would link players' pay to the leagues' revenues, which could fluctuate up or down. The league's players opposed both ideas until Bettman and the N.H.L. team owners offered a salary cap that did not link payroll and revenue. At this point, negotiations looked promising.

However, neither party could agree on an amount. The owners offered a cap of $40 million per team and then increased it to $42.5 million. But the players wanted a cap of $52 million per team and then lowered their proposal to $49 million. Although the dollar difference in this round of negotiations amounted to only $6.5 million, neither side could agree, negotiations stopped, and the season was cancelled.

Said Goodenow, "Gary gave us a final offer, a take-it-or-leave-it offer. We made a counterproposal and events ground to a halt." A reporter asked both sides whether they would have accepted a compromise of around $45 million per team. Such a compromise may have saved the season. Bettman stated, "If they wanted $45 million, I'm not saying we would have gone there, but they sure should have told us." Goodenow, however, wouldn't speculate: "The what-ifs aren't for real."

So how did the two sides eventually get the players back on the ice? They agreed to a 6-year deal that set a salary cap of $39 million per team for the 2005-2006 season (remember the players wanted a cap of $49 million). Many players were unhappy with the terms of the deal but felt that fighting the salary cap was a waste of time that did nothing but alienate the fans. Many players spoke out against Goodenow, arguing that he put the players in a no-win situation. Less than a week after the lockout ended, Goodenow resigned as executive director of the N.H.L. Player's Association. He denied that his resignation was in response to the players' complaints. The lack of an agreement in the N.H.L. negotiations was a loss to everyonethe league and businesses connected to the league, the owners, the players, and, of course, the fans.

Source: Based on J. Lapointe, and R. Westhead, "League Cancels Hockey Season in Labor Battle," The New York Times, February 17, 2005, p. A.

QUESTION 1

How would you characterize the N.H.L. negotiationas distributive or integrative? From what perspective (distributive or integrative) did the parties approach the negotiation? How might this approach have affected the outcome? (10 marks)

QUESTION 2

What factors do you believe led to the lack of a settlement in the N.H. L. negotiations? How might you have handled the negotiation if you were a representative of the league? QUESTION 3

Negotiating parties are often reluctant to reveal their BATNA (best alternative to a negotiated agreement) to the opposing party.

Do you believe that parties in the N.H.L. negotiation were aware of each other's BATNA? How might this knowledge have affected the negotiation? (10 marks) QUESTION 4

It appears that a point of compromise (a $45 million per team salary cap, for example) may have existed. What steps could both parties have taken to reach this point of compromise? (10 marks)