A Revenue Wobble
Tom
It is time for some speculation on the impact of the new exchange rates will have on league revenues, the salary cap, and revenue sharing. I suspect it will be significant, since all the teams that should be scrapped are in the US.
HT
I think it is probably too early. First, I don’t think the Canadian dollar will necessarily stay where it is. The value of the dollar is tied to oil prices and I expect energy prices to rise, not fall. Second, even if the Canadian dollar continues to fall, the impact next year will not be enough to actually drop NHL revenues. If all other things remain more or less equal – the league “enjoys” a small increase in real revenues – the salary cap would still go up a little bit. Third, any adverse impact of the changing Canadian dollar will fall mostly on the Canadian teams. It will mostly help the revenue challenged teams in the United States if the salary cap level stabilizes.
A far more significant issue is the general state of the American economy as it continues to deteriorate. The consumer is being squeezed and that consumer will be cutting spending on entertainment and other discretionary items. NHL teams may find themselves with higher travel costs and lower revenues. The financially challenged teams could be substantially affected.
If revenues actually do fall we are into uncharted waters, but the cap formula includes an automatic 5% increase. As a result revenues have to fall a lot to actually drop the salary cap. A zero increase in the cap is probably my worst case scenario. I don’t think that would cause significant problems. It would, however, help the Russian league compete for players.
It would take a revenue disaster to actually drop the cap. If that happens, well, its a disaster. Its easy to imagine liquidity problems, an unhappy NHLPA and a difficult period for the league. I don’t think that’s very likely for this season. I expect a revenue wobble and mounting losses for the financially challenged. How that plays out is anybody’s guess.
Thanks Tom,
I did not expect such a rapid response to my email.
“A far more significant issue is the general state of the American economy as it continues to deteriorate. The consumer is being squeezed and that consumer will be cutting spending on entertainment and other discretionary items.”
I am thinking that this could have a major impact on the struggling franchises (geographic undesirables) to qualify for revenue sharing unless the qualifications are changed.
It would not have that much of an impact on qualificaiton for revenue sharing. TB is certainly correct about the relative non-impact of the exchange rate on the salary cap – it would take a 6-7 cent drop in the AVERAGE exchange rate for it to overcome only the extra revenue from the new Canadian TV deals. However, revenue sharing is to a great extent a self-correcting mechanism. If the NHL’s revenue growth rate goes down, or if the NHL’s revenue declines, then that actually makes it EASIER for teams to qualify in some respects, since it would be easier for a team to exceed the overall NHL growth rate (a precondition to qualification for full revenue sharing). Secondly, teams can never qualify for less than 50% of a full revenue share, even if their growth rate is less than the NHL’s and they average under 14000 paid for several years in a row.
A great deal of the NHL’s revenue is committed in longer-term deals through suites, signage, concessions, etc. That money is not affected by short-term economic fluctuations.
“Geographic undesirables”.
Hmm. That is at least a new phrase for the “Hockey is CANADA’S game only” crowd to adopt.
“teams can never qualify for less than 50% of a full revenue share, even if their growth rate is less than the NHL’s and they average under 14000 paid for several years in a row.”
That is my concern, regarding the struggling economy and high prices. I understand there were some teams on the dole this year that only qualified for the 50% of the full amount.
That 1/2 share is quite a hardship on teams that are having problems putting butts in the seats, yet are required to meet minimum salary caps.
“Geographic undesirables” was merely referring to the warmer climate franchises trying to compete with NASCAR and College Sports.
“Hockey is CANADA’S game only” ?
Have all the people died that remember the ‘original 6′ as being 2/3 in the US..?
I believe the “geographic undesirable” phrase applies to teams in or around the sunbelt, not US teams in general. Which is why the Original Six doesn’t seem as strange as the possibility of an NHL teams in Mexico City.
That is my concern, regarding the struggling economy and high prices. I understand there were some teams on the dole this year that only qualified for the 50% of the full amount.
Actually there were five or six teams that saw their payments cut by 25%. It was the first year it was possible to see the share cut. If they fail to increase revenues or meet attendance goals they will be cut again next year.
As far as I’m concerned, they can turf revenue sharing altogether. They’ll never contract teams, but at the very least they should be allowed to fail.
Actually there were five or six teams that saw their payments cut by 25%.
Actually, if memory serves (I believe it was a report form Columbus), only two such teams could be identified (Columbus and Carolina), and anything beyond that was speculated by the usual weaselly media clarification of “as many as . . .”, which is translated as “I would like to say the number is higher, ‘cuz it would make a better, more eye-grabbing story, but I can’t, ‘cuz I don’t have a shred of evidence – even off the record – so I will put this phrase in here, ‘cuz it can’t ever actually be false if you say it that way”. (God, the media is sleazy)