Saturday, August 2nd, 2014

The Atlanta Solution

17

James Mirtle weighs in with a pretty good piece on the reasons why we are headed for a lockout despite the fact that the league has recorded – and bragged about – record revenues. In a nutshell:

Where the league is suffering and why we may have yet another lockout (the third under Bettman) is (a) the bottom 10 teams have revenues so low they can’t cover their expenses and (b) those at the top have little intention of helping them do so more than they already are.

While I think this is all certainly true, the Mirtle story illustrates the problem we all have when we try to sort out how the league and the players should go about to solving the problems. Data. James was left with trying to make his case using the numbers published by Forbes.com even though we all know their numbers are pretty much nonsense. The team valuations never seem to match up to the sale price when a franchise changes hand. The revenue numbers never match up to the reality either. When the Phoenix numbers were published as part of the bankruptcy, they showed Forbes missed the mark by a mile.

There are two clear erroneous trends in the Forbes data in my opinion: Forbes consistently underestimates the revenues of the smaller Canadian cities (and the impact of currency fluctuations) and consistently overestimates the revenues of the poorest American markets. Tyler Dellow published a spreadsheet of the ticket revenue data leaked to the Toronto Star some weeks ago. Edmonton sold $35 MM more in tickets than Tampa Bay last season. Is it credible that TB sold $25 MM more than Edmonton in concessions, sponsorships, local TV and merchandising? Forbes thinks so. I don’t.

The Forbes data has the effect of minimizing the problem, particularly when it adds in estimates for centrally driven revenues and even revenue sharing. In a league where 90% of revenues are locally earned, what really matters are the local revenues. This is why I’d quibble with the Mirtle conclusions. I don’t think it is the bottom 10 teams that are the problem – I think it is the bottom five teams. Teams like Colorado, New Jersey, Dallas and St. Louis may be enduring rough times lately but all four markets have proven that they can generate big revenues with a winning program.

Revenues drop in most markets when the team is rebuilding. This is normal. While I don’t believe in revenue sharing, I could almost accept it for teams like this – perhaps it is reasonable to give them some cash until revenues bounce back with an improved team. But what about teams that have pathetic revenues win or lose? Teams that will apparently be on welfare forever?

Thne team that generated the least amount of ticket revenue in 2011 was Atlanta and we know how that problem was solved. The next five teams – the Islanders, Phoenix, Tampa, Florida and Nashville totalled $94 MM in 2011. Worse, those five teams are down 20% since 2008. The gap is not getting smaller. It is getting bigger. The players can’t (and should not be asked to) solve that problem. The rich owners can’t (and should not be asked to) solve it either. Florida has to fix the Panther problem and Phoenix has to do something about the Coyotes.

If they can’t find enough people willing to pay big money to watch hockey? Too bad. The Atlanta solution works.

Note to the headline writer at the Globe and Mail: The league had record revenues last season, but it did not show record revenue growth or anywhere near it. Revenues quadrupled in the 1990′s. League revenues go up nearly every year and as long as they do, even by a little bit, Gary Bettman is happy to proclaim record revenues.

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Comments

17 Responses to “The Atlanta Solution”
  1. beingbobbyorr says:

    But what about teams that have pathetic revenues win or lose? Teams that will apparently be on welfare forever? . . . . The next five teams – the Islanders, Phoenix, Tampa, Florida and Nashville totalled $94 MM in 2011. Worse, those five teams are down 20% since 2008.

    Setting aside the Islanders (can Long Island be a viable big-league market or does Wang have to move to Brooklyn?), if

    (a) these remaining 4 southern (USA) experiments are a perpetual failure,
    (b) the other 26 ownership groups aren’t willing to subsidize them to the extent needed,
    (c) they refuse to entertain franchise dissolution or Canadian relocation

    then, why aren’t we hearing the mainstream hockey media grilling Bettman about the timetable for when his border-to-border American TV footprint is supposed to start paying dividends*? Even if the MSHM are the unknowing-victims-of-Access-Bias that the cynical among us think they are — i.e., and can’t think to ask this question on their own — shouldn’t fed-up-with-welfare big-market owners like Snider, Dolan, Jacobs & Company be feeding their local scribes with on-the-QT “suggested questions to ask Gary” about said timetable? I mean, when (& how) do these billionaires start turning the screws on their employee about getting the results that he’s been talking about for almost 20 years?

    * at least 30 healthy, un-subsidized markets, preferably accompanied by substantial growth in American TV ratings

  2. Tom says:

    I don’t expect – or even agree with – proactive efforts to contract, fold or relocate franchises. I’m saying that the needs of these markets should not be a factor in the CBA talks. What kind of CBA works for teams that can sell $35 MM in tickets? Work towards that.

    Right now the options are a) the players bail them out, or b) the rich teams bail them out. I think the third choice is “Nobody bail them out.” (Not even cities. Nashville gets $12 MM the community every year. Glendale…) Let them move, fold or lose money forever if that’s what they want to do.

    (In a perfect world, these teams could move anywhere. Why shouldn’t they move to Toronto? Why shouldn’t two of them move to Toronto? Wouldn’t the consumer get a much better deal if teams did not have exclusive territorial rights?)

  3. James Mirtle says:

    I’d wager growing by $1.1-billion in seven seasons is record growth in pure dollar terms.

    There’s obviously more than five teams struggling, too, and I don’t think we can use what are usually partial gate figures taken from midseason to dispute that. Look at the issues in Dallas, Columbus and now Colorado – there’s some of the biggest fall offs in revenue leaguewide.

    Those are the so-called safe teams?

    As for the Forbes numbers… I’ll only use the revenue figures and you’re right – they’ve got some issues. But even where they’re wrong (i.e. Edmonton), it’s not to the point they’re useless.

    As for the Atlanta solution… the main problem is there aren’t enough good homes for everyone. Especially if they’re unwilling to put two more teams in the GTA.

    • Tom says:

      There’s obviously more than five teams struggling, too, and I don’t think we can use what are usually partial gate figures taken from midseason to dispute that. Look at the issues in Dallas, Columbus and now Colorado – there’s some of the biggest fall offs in revenue leaguewide.

      I think the issues in all three of these cities relate to the quality of the team, not the quality of the market. At the very least, these markets get the benefit of the doubt. We know they can generate NHL revenues because they have generated them. Even after the crash, they are well ahead of the zombies.

      As for the Atlanta solution… the main problem is there aren’t enough good homes for everyone. Especially if they’re unwilling to put two more teams in the GTA.

      True, but I don’t think that is our problem, the player’s problem or anybody’s problem except for the owner of the team.

      • PopsTwitTar says:

        “True, but I don’t think that is our problem, the player’s problem or anybody’s problem except for the owner of the team.”

        Well its the players problem indirectly (from a jobs perspective). Which is why I think the players need to at least be willing to suggest an openness to giving back what it has (% of HRR, free agency terms?) in return for a level of control on what happens with franchises.

      • James Mirtle says:

        It’s a problem if we’re presenting a solution of relocation when there’s nowhere to go. Not much of a solution if it’s not possible.

        • Tom says:

          I’m not really presenting a solution. There is no solution for these places. Bad decisions were made decades ago. It isn’t my problem. They can try to relocate. If they decide KC or OKC or wherever won’t work either, they can fold and take the loss. Or they can keep on losing tens of millions every year while hoping the market falls in love with hockey.

          I don’t care.

          But what they can’t do is convince me that a change in the CBA – more revenue sharing, cutting player costs, or some combination – will solve anything either.

          • PopsTwitTar says:

            Theoretically, more revenue sharing could work. I dont know the numbers and I dont know how much annual revenue sharing and annual revenue growth and annual cost containment would be required.

            But that really isn’t the issue – the issue is why the NHL thinks it should have these 30 franchises in these particular locations. And like you are suggesting, the CBA negotiations are only one (small) part of that. The NHL can try to sell it any way they want, but this is all about squeezing as much money from the players as possible because that makes the franchises more valuable when they are sold.

  4. Triumph says:

    Part of the trouble with an ‘Atlanta’ solution – and not that I’m categorically opposed to it – is that based on how the system works now, every time a low-revenue team moves to a new market and becomes a medium-revenue franchise, it makes it that much more difficult on lower-revenue teams because of the salary floor. So while I don’t think the system should be structured around these teams, I do think that they can find a way to lower the salary floor and relieve some of the pressure on these teams.

    I also think the NHL drags its feet on the possibility of moving these franchises for two reasons – A: these cities pitched in to build arenas, it’s bad business to leave white elephants – it makes it that much more difficult to get public money later. (Note: I’m not talking about the morality of having public financing going into arena/stadium construction). B: The league has always prized a high-paying US television contract above all else, removal of key television markets makes it that much harder to sell hockey nationwide. This seems absurd to me, as the ratings in those cities have to be dismal whether or not there’s an NHL team, but everything I’ve read about it suggests that removing, say, Phoenix, Atlanta, and Miami makes a national TV contract that much more difficult to obtain.

  5. PopsTwitTar says:

    ” I think it is the bottom five teams. Teams like Colorado, New Jersey, Dallas and St. Louis may be enduring rough times lately but all four markets have proven that they can generate big revenues with a winning program.”

    Where are you drawing this conclusion from? When has NJ been able to “generate big revenues?”

    To me, its almost comical for the NHL to ask the NHLPA to help foot the money necessary to prop up the markets it can’t survive in. Whether you call it 5 or 10, what’s the difference? if its even 1, that’s not the players fault – unless you want to blame the players for the concept of a salary floor.

    If Im the NHLPA, I would offer the NHL a token reduction in percentage of revenue, say 54%. Then Id include (1) increased revenue sharing with less conditions, (2) better definition of HRR to include franchise relocation and expansion (or, alternatively, less of a cut to its % of HRR and a specific slice of relocation/expansion fees (say 25%), (3) player input on franchise expansion and relocation, and (4) a salary floor that starts low and increases slower than the cap.

    • Triumph says:

      The Devils were ranked 13th in revenue according to Forbes, and that was in 2010-11 when they had their worst year in ages. They are listed 10th on Forbes list for the year 2007-08, when they lost in the first round of the playoffs. Are they ever going to be consistently significantly higher than that? Of course not, but Benjamin’s point is that with a Cup run, these teams can jump into the top 10 for that particular year, making them profitable and worthy enterprises.

      • PopsTwitTar says:

        I guess we can assume that being in the Top 10 in revenue makes you profitable, but the Forbes numbers are so questionable, I will be skeptical until I see audited numbers (which I know I’ll never see ;)

        • Triumph says:

          Ah yes, the goalpost shift. Did Tom say that the teams were profitable? Absolutely not. He said they generated big revenues. Which is true, according to the Forbes numbers. These are two different things, don’t confuse them. You were confused about the Devils’ impending bankruptcy over on Tyler’s blog – their bankruptcy (which probably will happen) has little to do with their ability to generate revenue and lots to do with their ownership.

          • Triumph says:

            Oops, I see now that I accomplished the goalpost shift by using the P word in my post. Regardless, it’s hard that a team isn’t profitable when it goes deep into the playoffs, and I’d be shocked if the Devils failed to make a profit this season.

          • PopsTwitTar says:

            Whether or not there was a goalpost shift, does it really matter? Was Tom suggesting that making big revenues is enough? The purpose of Bettman’s CBA negotiations are to make as many NHL franchises as valuable as possible. Generally, franchises that are not profitable (and lets not waste time getting into whether we’re talking about above the line or below the line profitable) are going to be more difficult money makers. I would love to see, and I know I never will, if “big revenues” translates to “profit” in the NHL world.

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