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Tom Van Riper, Forbes Staff
I cover the business of sports for Forbes.
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B US INES S | 12/13/2012 @ 11:04AM | 8,474 views
The NHL's Best Hope:
Contraction
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Talks in the NHL labor battle slog on, mediators
and all. Time is running short to salvage part of
the 2012­13 season – all games through Dec. 30
have already been cancelled.
The current NHL battle between owners and
players is an old one, as sports leagues go. A
chasm between haves and have­nots puts
emphasis on doing something for the poorer
franchises. The owners focus on cutting the
players’ share of the pie, the players tell the
owners to share more revenue. The idea is that
eventually, some sort of compromise gets
worked out that includes a little of both.
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The St. Louis Blues play
the Columbus Blue Jackets in
2010. (Getty Images via @daylife)
Unfortunately,
trimming back player
NHL Labor
salaries from 57% of
Deadlock:Does
revenue to 50% won’t solve the fundamental
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problem. Neither will throwing a bit more of the
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New York Rangers’ or Montreal Canadiens’ money
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to the St. Louis Blues and Florida Panthers. That’s
because the fundamental problem is this: the NHL
has 30 teams when it should have 20 teams. Time to start chopping.
“You’ve got almost no centralized revenue to work with,” says Roger Noll, a
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Stanford University economist who has written extensively about sports
economics, about the NHL’s lack of a significant national television package.
“There is probably no way to make the bottom of the league viable. Even if
salaries were zero, some still couldn’t cover their other costs.”
Of course any contraction proposal offered up by Commissioner Gary Bettman
would meet the full force of the union. Getting it would be a long, messy,
process. But everyone, even Donald Fehr, has to face reality at some point.
Noll figures that, at least on paper, the only non­contraction solution out there
is a very high marginal tax rate – 40% or more of gross income – on the
wealthier clubs, with the money distributed to those at the bottom. Problem:
the big guys wouldn’t go for it. The original six (Toronto, Montreal, Boston,
New York Rangers, Detroit, Chicago) would be better off joining with a handful
of other strong franchises in Canada and the northern U.S. (Vancouver,
Pittsburgh, Philadelphia, among others) to break off into their own league.
Why give away the store to markets that aren’t helping to bring in more
national television money, which was the original hope?
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Alas, the only other option: “Substantial contraction,” says Noll. “People in the
south and west just aren’t hockey fans.”
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The 21st century hockey industry basically mirrors the 19th century railroad
industry: too much capacity. And just as some modern politicians are intent on
investing in high speed rail that no one wants to ride, the modern NHL has
pushed out more hockey across the country than people want to see. The most
obvious example is the Sunbelt strategy – a concept that pre­dates Bettman –
that’s moved teams into Florida, Arizona, North Carolina and California. The
plan has failed. So has expansion into other non­traditional markets like
Nashville and Columbus. Three teams in the New York area seems like
overkill, too, given that only one is enjoying much financial success.
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With the exception of the L.A. Kings, who get by on the sheer size of their
market, “The Sunbelt teams just have no significant ticket revenue and no
significant television revenue,” says Noll.
I have been writing for Forbes since 2005. Prior to
that I covered the business beat for the New York
Daily News. Because I've studied both finance and
journalism, and because I like both numbers &
analysis and sports, what's a more fun job than
merging the two, writing about sports from the
business side and from the stat geek/number
crunching side? I have a BS in business from Boston
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College and a masters in business journalism from
Problems run long and deep. Check the record since the NHL’s last lockout in
2004­05. League­wide revenue is up about 50% to over $3 billion. But 83% of
the profits go to three teams. Almost half the 30 clubs lost money last season.
And we’re not talking about a one­year knockoff. In the seven seasons the
league has played since the previous lockout, six franchises – the New York
Islanders, Nashville Predators, Florida Panthers, Phoenix Coyotes, St. Louis
Blues and Columbus Blue Jackets – have suffered operating losses in every
one of them. The Carolina Hurricanes lost money in all but one season, the
San Jose Sharks in all but two.
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The Tampa Bay Lighting, coming off a Stanley Cup championship just before
the last lockout, were profitable for awhile but have since reversed course,
losing money for the last three years. Borderline clubs like the Anaheim Ducks
and New Jersey Devils have been up and down since 2005 – the Ducks are
currently on a three­year streak of losses while the Devils, despite a lot of
success on the ice, have lost money in the aggregate over the seven years. The
Atlanta Thrashers lost money six years in a row before recovering as the
Winnipeg Jets last year, after a sale to True North Entertainment.
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Then there are television ratings, mostly abysmal in the non­traditional
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The NHL's Best Hope: Contraction - Forbes
markets. Phoenix gets about 10,000 viewers a game on local cable, Florida
closer to 3,000 (the Miami Herald quipped that some infomercials draw more
viewers than the Panthers do). For perspective, the Pittsburgh Penguins draw
roughly 100,000 viewers a game – a classic case of passionate markets
outdrawing large ones. Clearly the league expected (hoped?) that as it
expanded into large television markets in non­traditional areas, fan passion
and interest would eventually grow over time. But that hasn’t happened.
Attendance, at first blush, appears healthy in most NHL cities. Last season,
two­thirds of all teams filled their arenas to 95% or more of capacity. But
revenue is a different story. Teams in strong hockey markets naturally enjoy
more pricing power. A quick example: the Lighting drew 18,400 fans per game
last season, slightly more than the Rangers. But Tampa Bay used low ticket
prices to lure fans in – the club’s $38 average ticket price was third­lowest in
the league. Result: gate receipts of just $23 million. The Rangers, who charge
almost twice as much for tickets, had $95 million in gate receipts.
A peek at the valuations shows the NHL to be the most bifurcated of the four
major North American sports leagues. The league’s most valuable club, the
Toronto Maple Leafs, is worth what the bottom seven clubs are collectively. In
Major League Baseball, the second­most disparate league, the most valuable
team equals the bottom five. The ratio is closer to three­to­one in the NBA and
barely above two­to­one in the NFL, which equally shares a strong national TV
bounty among all 32 clubs.
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Clearly, something has to give. The NHL does enjoy a nice fan base in many
ways – true hockey fans are passionate and loyal, and surveys show them to be
upscale and tech savvy. So there’s money to be made online, on television and
at the gate, at least in strong markets. The sport just hasn’t caught on with the
casual fan. Sooner or later, the size and scope of the league will need to reflect
that.
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John Smith 3 months ago
There are great cities without teams. Lets just relocate them.
Portland, Seattle, Quebec City, Hamilton, lets start there
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Tom Van Riper, Forbes Staff 3 months ago
Author
It would be interesting to see which new markets could be viable. It’s a matter of
striking the right balance between hockey enthusiasm and size. I wouldn’t mind
seeing the NHL back in Quebec City, and the Pacific Northwest in the U.S. could
be intruiging.
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Mike Dissinger 3 months ago
I can’t speak for the rest of the league, but out here in San Jose things aren’t so bad. True,
the franchise has lost money — last season the Sharks lost $15 million — but that is in part
because the owners made the decision to spend a lot more (bumping up against the salary
cap) in order to remain competitive and chase the Cup. They’ve said as much. Despite high
ticket prices, the team hasn’t had trouble filling seats and sells out regularly.
Moreover, the Sharks get a lot of coverage in local sports media, receiving plenty of
airtime during the season. The Sharks definitely have a solid and loyal fan base out here.
My point, I suppose, is to suggest that it wouldn’t really make sense to eliminate teams just
because they’re out west or down south. It has to be done on a team by team basis, if at all.
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Tom Van Riper, Forbes Staff 3 months ago
Author
Good points Mike. And just to be clear, nowhere did I call for the Sharks to be
contracted. I did mention them as a club that’s lost money for five of seven
years, but that’s different from flat out calling them a contraction team. They are
one of the toughest teams to figure – good fan enthusiasm, constant sellouts,
but still a hard time making money. As to whethet the Sharks would be included
if you hypothetically contracted 10 teams – borderline in my book, with a better
chance of sticking than not sticking.
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Anon 3 months ago
The owners want the players to pay for their lousy decisions by implementing more
corporate socialism through salary caps, restricted free agency and other player limits.
If the owners are serious about the league succeeding financially, then they will get rid of
their territorial restrictions. Toronto and Montreal can support at least one other team
each. Quebec and Portland could also be viable. A second team in Chicago would work.
But the NHL keeps going to the Southern US well time and time again. Atlanta has failed
twice. Florida barely supports its NFL and MLB teams, let alone the NHL. Phoenix was
always a stretch. Who needs two NHL teams in Los Angeles.
Expansion was a ponzi game where new teams pay the other owners for permission to play
the game. The old owners pocket the money while waiting for the next expansion cash
bonanza. Eventually, like all ponzi schemes, they have reached their limit and they still
want someone else to pay them back for their bad business decisions.
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Eric Malmborg 3 months ago
Gary Bettman, on behalf of some owners, believed and still believes that the NHL can
thrive in southern markets.. They WANT to thrive because of the large populations and tv
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and advertising that exists, but what they dont understand is there is no demand for the
product… Hockey in the South is not “Build it and they will come” I agree with League
contraction and relocation.. Contract the Phoenix Coyotes, Nashville Predators, Anahiem
Ducks, Florida Panthers.. Move the Columbus Blue Jackets to Windsor and create an NHL
central division friendly crosstown rivarly, and then move Carolina up to Hamilton where
growth is strong, and can support a second NHL franchise and start another Canadian
team… Canada thrives on hockey, supports hockey, and local tv and advertising as well as
corporations will support hockey there… Use that to help hockey grow… Winnipeg has
been a proven success, and will continue to long term….
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Cecil Riddle 3 months ago
The Lightning are an ever increasing force in the Tampa market. The market is not
mature, that is a fact. But, 20 years ago you could not find 20 kids that played hockey. The
number is now in the thousands.
The lack of a national television contract has nothing to do with the “sunbelt teams.” How
would contracting every team outside of the northeast and Canada help?
I think a reasonable argument can be made that people are never going back to most
sports arenas in the numbers they did in the past. Homes are just too wired in now. There
are too many options in the comfort of your own home.
Its not unique to hockey either. I, like the rest of the country, am a rabid NFL fan. My
favorite team is the Tampa Bay Buccaneers. My number one complaint about going to
Bucs games is, I miss too much football while I’m there! Until they get the Red Zone
Channel, I’m out.
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Blue Karoly 3 months ago
If Gary Bettman had his way The NHL would open an NHL Franchise in San Juan, Puerto
Rico. Thinking that it would generate big time revenue for all. Ok Gary why are we still not
seeing any hockey on it’s 93rd day? Fire Gary Bettman he is a Lawyer just like the guy from
TMZ, however the “I’m a Lawyer” does you no good when your owners have to refund to
fans for the season tickets.
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