The St. Louis Blues play the Columbus Blue Jackets in 2010. (Getty Images via @daylife)
Talks in the NHL labor battle slog on, mediators and all. Time is running short to salvage part of the 2012-13 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 have-nots 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.
Unfortunately, trimming back player salaries from 57% of revenue to 50% won’t solve the fundamental problem. Neither will throwing a bit more of the New York Rangers’ or Montreal Canadiens’ money 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 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 non-contraction 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?
Alas, the only other option: “Substantial contraction,” says Noll. “People in the south and west just aren’t hockey fans.”
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 pre-dates Bettman - that’s moved teams into Florida, Arizona, North Carolina and California. The plan has failed. So has expansion into other non-traditional 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.
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.
Problems run long and deep. Check the record since the NHL’s last lockout in 2004-05. League-wide 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 one-year 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.
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 three-year 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.
Then there are television ratings, mostly abysmal in the non-traditional 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 non-traditional 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, two-thirds 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 third-lowest 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 second-most disparate league, the most valuable team equals the bottom five. The ratio is closer to three-to-one in the NBA and barely above two-to-one in the NFL, which equally shares a strong national TV bounty among all 32 clubs.
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.
