NHL Faces Tough But Manageable Economic Situation
| Professional sports leagues have discovered that they are not immune to the current economic difficulties. Additional articles in this series on the current financial state of the major sports leagues in the United States are available here. |
The National Hockey League locked out the players during the 2004-05 season. The lockout meant that the Stanley Cup was not awarded that season for the first time since 1919.
The NHL’s CBA is slated to expire on September 15, 2011. The NHL Player’s Association has the option to extend it through the 2011-12 season.
The NHL doesn’t appear to be looking at any labor stoppages in the near future provided that the nation’s overall financial health doesn’t deteriorate too much further.
How Much Revenue Does the NHL Generate?
The 2005 NHL CBA instituted a salary cap for all NHL teams that is tied to league revenues. In the 2007-08 season, the averge NHL payroll was $44.3 million, basically the same as before the 2004-05 lockout. By 2008-09, the salary cap had climbed to $56.7 million and the average payroll had climbed to $53.7 million, led by Philadelphia at $66 million.
This season, the NHL expects to top last season’s record revenue of more than $2.6 billion on regular-season attendance of 21.3 million.
Great Depression II didn’t hit until the NHL season had begun however and most revenues had already been collected. Revenues are expected to drop noticably next year. Even this year, teams had to get creative to keep the stadiums full.
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A drop in revenues means a drop in the salary cap the following year, the ’10-11 season. The drop may be as much as 20 percent, making the salary cap for the 2010-11 season about $45 million. Only two teams have payrolls less than $45 million this year.
The NHL probably made a mistake during the 1990’s by following a national footprint strategy. They placed teams in large markets across the United States in hopes of securing lucrative television contracts. The television ratings didn’t materialize to justify the contracts.
Post-lockout, the NHL has regained its footing by focussing on local revenue streams. In 2007-2008, 43% of the leagues $2.6 billion in revenue came from ticket sales. NHL teams had an average attendance of 17,338 per game. With the average capacity for arenas in the NHL being 18,446, that revenue stream is about tapped out.
The Problems With Relying on Local Revenue Streams
The focus on local revenue has also highlighted the weakness of a couple of markets.
The Islanders are losing tens of millions of dollars annually. The Phoenix Coyotes recently filed for Chapter 11 bankruptcy protection and have entered into a proposed sale agreement with PSE Sports & Entertainment, LP. The $212.5 million offer is conditional on the Coyotes relocating to Canada, where prior to 1996 they existed as the Winnipeg Jets.
For some reason, NHL clownmissioner Gary Bettman is opposed to the proposal to move the team from its current hockey-crazy desert locale to the hockey desert of Canada.
This is true even though the franchise is estimated to have lost $200 million since 2001 and have been averaging $30 million a year in losses since the lockout. They are listed by Forbes Magazine as the least valuable NHL franchise, only $142 million.
Phoenix isn’t the only franchise struggling in the current climate.
The Panthers are one of the biggest offenders in padding attendance. It is possible to buy a ticket for $17. If that’s not good enough, for the same $17, you can get a deal including a ticket, a parking pass, a $5 gas card, and a food voucher for a total worth more than $17.
These promotions are necessary for reasons beyond getting people to the game. The Nashville Predators, a playoff team this year, barely met NHL standards for average attendance of 13,125 per game. The team pulled in an average of 13,400 fans per home game. Reaching the attendance goal is important because it means that the franchise will receive approximately $10 million dollars in revenue sharing from larger-market teams.
The NHL Has Found Its Niche
The NHL is probably in for some hard times over the next few years. A few weak franchises might need to be relocated or folded. Its primary source of revenue leaves the league more likely to be affected by the economy than if it had big television contracts.
A decline in revenue means a decline in the salary cap and lower salaries for those players that are unfortunate enough to be out of contract over the next few years.
But overall the NHL seems to have found a comfortable niche in the sporting landscape (a niche MLS would kill to have). It will likely be decades before the Fire could ever hope to generate a public response similar to that just generated by the Blackhawks playoff run. Arguably, the Hawks created more excitement here in Chicago than the Bulls did during their recent battle with the Celtics.
Its hard to believe that there will be another labor impasse so soon after the last one. But you can bet we’ll be hearing about the possibility of one over the next two years, especially if one or two of the franchises are targeted for relocation or folding.