On the Fallacy of Lockout Business Analogies

This may not go over well given the slight bit of optimism surrounding the NHL lockout after the league’s latest offer to the players but I think it still applies. I also started writing it on Christmas and then spent the next several days sick and left this unfinished, so I’m not going to let that delay stop me from putting an idea out there.

I was talking to my uncle about the lockout at our extended family Christmas party a couple weeks ago. As a small business owner, he’s pretty firmly on the side of the owners while I unapologetically side with the players in the current labor battle.

One of his key arguments was that, as a business owner, if he was losing money because he was paying his employees too much, it would be only logical for him to shut down. Either he temporarily closes up shop to get the employees to take less pay (a lockout) or he goes out of business completely, because it’s bad business to just keep throwing money in that particular pit.

It’s hard to argue with that but there was something bothering me about it and, after letting it bounce around in my head for a bit, I think I’ve figured it out.

Our attempts at analogy are oversimplified. They ignore both the franchise model used by the NHL as a whole and/or the fact that there is a very real scarcity of workers for the league.

The latter, to me, is the simpler one. As much as we talk about there being other outlets to find what we call “hockey” available during this lockout, only the NHL is made up of the 700 (or so) best players in the world. The KHL, AHL, CHL, NCAA, etc. are all “hockey” but they are not the same thing as the NHL.

While most businesses can say they want the best people in the world, only sports leagues that bill themselves as the top league globally actually need that talent because without it they’re not the product they say they are. Eventually it becomes a little self-fulfilling, as for a hockey player, going to the NHL proves that you’re one of the best players in the world.

My uncle’s convenience stores, for example, are not going to attract the top cashiers in the world in the same fashion that the NHL attracts the top hockey players. Attracting top-level talent is also not required, as swapping employees out is going to be less noticeable to his consumers. The quality of my uncle’s employees, the ones he’s worried about paying too much, is not the defining characteristic that it is for the NHL.

My uncle’s business is also not franchise-based, as the NHL is. He can open up shop pretty much wherever he wants and because all of his stores feed into the same pool of money, one under-performing store can drag the rest down.

That’s not the case for the NHL. As much as we’ve been talking about league revenues and expenditures as a whole during this lockout, that’s not how it actually works for the individual businesses. If the Phoenix Coyotes (often picked on in cases like this) lose money, it doesn’t affect the bottom line of the Toronto Maple Leafs in any way.

I won’t go into whether that’s how it should be or whether we see an accurate representation of each team’s finances or anything like that. The point is that most businesses do not follow the franchise model, so a comparison to the NHL is going to be invalid.

We keep seeing arguments made where the players are held to the same standard as the “common worker.” That they should just be happy to have a job. That comparison is invalid. Similarly, we can’t make an analogy between NHL owners and small business owners. There are just too many differences in how their businesses work.