Quadruple Whammy
The Jackets are one of several clubs taking a 25 percent cut in the money they receive from the league because they didn’t meet incentives spelled out in the 2005 collective-bargaining agreement. In short, the Jackets’ revenue-growth rate in the past year failed to match the league average during the same period. – Columbus Dispatch
Carolina and Nashville have also said that they will see their revenue sharing cheques cut because they did not meet the criteria for full participation. Phoenix, Florida and Atlanta are probably in this boat, too.
The small market American teams are not looking at a very good year, financially speaking. We can expect to see the vast revenue disparities to continue to widen and costs for all teams to continue to rise.
1) The economy is deteriorating as we speak. Teams with a low season ticket base will find it more difficult to attract walk up customers as discretionary income falls next season. (The silver lining? TV viewership may go up when more people find big league sports unaffordable.)
2) Revenue sharing has been cut for this year and as long as the big markets in Canada and the traditional American markets grow revenues faster than the revenues among the weak sisters, the welfare will get cut again next year.
3) Player costs are up substantially.
4) Travel costs – a hockey team’s biggest expense after payroll – are rocketing higher. The new schedule means significantly more travel and the price of oil will make that travel much more expensive. If the price of oil continues to rise, all sports will be negatively affected.
Few of these low revenue teams were profitable this year and losses will be even higher next year. None of these franchises were particularly robust in good economic times. A quadruple whammy is now slamming them. Are they all strong enough to survive?
We’ll see.
Postscript: The good news for the fan is that there is no way the NHLPA will opt to re-open the CBA given the poor economy. The bad news is that the league as a whole will suffer with a declining economy and high oil prices. The owners are whiners at the best of times and when they have legitimate gripes, the whining ratchets up several notches. It will be interesting to see whether the fans are sympathetic this time around.
You forgot to add that these teams will lose their better players sooner now thanks to the lower UFA age, and they will pay their RFA’s more and earlier than before. Oops. Forgot that it was all Lowe’s fault.
I think the correct response to this is “Nonsense. The lower UFA age has not hurt the small markets because the Rangers can’t wade into the FA market every year. Also young players are getting paid a lot more these days because we are seeing the greatest generation of young players ever. Everybody knows Malkin would have gotten even more money under the old CBA.”
I assume you’re kidding about the Lowe thing, Snafu, becuase I assume everyone around here is smarter than that.
Isn’t it funny how these things go, though? Five, seven years ago, it was the Canadian teams not called Toronto or Montreal that were hurting, and teams were being added to every new market under the (Southern) sun. Now, all those franchises are teetering, and the aforementioned Canadian teams are helping to carry the League. Makes you wonder where things will be in, say, 2015, if this trend holds, or if some other trend picks up to adjust the balance yet again.
I think it shows how much the currency can distort things in the NHL. It also shows how the NHL can’t escape the real world.
I don’t think we will ever see a $.62 dollar again – or anything remotely close to that number. It was an aberration. The US dollar bubbled first with the dotcoms and then with real estate. Those bubbles all popped and now we have to pay the price while it all unwinds. At least that’s my opinion. Worse – and again, in my opinion – we have to deal with hard times just as we enter a period of chronic energy shortage.
Anyway, the small market Canadian teams were hurting when the US dollar bubbled, but they still had revenues that easily outstripped those in the troubled American markets. That’s the constant. The southern strategy was not successful when the US dollar was strong and the weaker franchises are now being squeezed with the US dollar weak.
Teams that were losing money are going to lose more money. Most will try to keep the payroll below the midpoint to get more revenue sharing. It’s hard to be much better than mediocre under those circumstances. That makes it tougher to sell hockey by winning.
In hard times? We can see what a difficult economy did to attendance in a strong hockey market like Detroit. What will hard times in Atlanta do to the Thrashers?
I think it shows how much the currency can distort things in the NHL. It also shows how the NHL can’t escape the real world.
James Mirtle asked me to do a little number crunching for him regarding to that issue. He was wondering what the cap/floor would be if the CDN$ had stayed at the level that it was in the summer of 2005, when the CBA was being negotiated. In other words, how much cap/floor escalation is due to the CDN$ escalation. He expected to be posting something on my calcs this weekend.
I don’t want to “scoop” James, but the number might surprise you all – the total cap impact is only $2.6 million.
The southern strategy was not successful when the US dollar was strong and the weaker franchises are now being squeezed with the US dollar weak.
Of course, the US markets are not being squeezed by the strength or weakness of the US$. They do not have an exchange rate issue. Now, they are certainly going to be affected by some of the other factors listed above (and the CDN markets will be as well by travel costs and player salaries), but the US dollar weakness is not creating those other circumstances.
Starting at a 2005 figure is malarkey, GC. When did all the crying about the league’s economics start? Long before 2005, with the culmination of that lamenting being the Levitt Report. You go back and start adjusting values that led to Levitt along with your 2005 figures, and then you end up with the mindset that the owners had in designing this system.
The point isn’t just what actually happened (we can all see what happened, that’s called history). The point is what assumptions were made each step of the way in the designing the current system. You have owners and execs saying no one expected the CAD to increase the way it did. Why or why not?
Burke himself recently lamented that if all the growth is situated with 6-12 teams, the gap is only going to widen. That hurts teams – like the Ducks – who aren’t eligible for revenue sharing. [Please note that folks like Tom, me and others here pointed out the middle class squeeze would hurt teams too beyond the revenue sharing recipients who could not match NHL growth.]
Vancouver Sun: http://www.canada.com/vancouversun/news/sports/story.html?id=b7d84ee8-4d09-4d7a-8292-39efc8a712c1&p=1
Money-losing teams at the bottom end of the revenue stream, such as the Phoenix Coyotes, Nashville Predators and Florida Panthers, are all forced to spend more each season due to salary-cap inflation caused by rich teams like the Canucks.
According to a Toronto newspaper report in May, the 20 per cent of NHL teams based in Canada are responsible for 31 per cent of all ticket revenue, which for 11 of 24 U.S.-based teams was actually neutral or declined last season.
“It’s a lethal combination for the business,” Burke said Thursday. “It’s a new economic system; this could just be a blip. It sure looks to me like the [salary cap thresholds] are being driven by 6-12 teams. This may not be sustainable.
“Let me put it this way: We won the Stanley Cup last year and still lost millions of dollars. And we had a great rise in revenue; it’s not like we weren’t looking after our house. But we still weren’t eligible for revenue sharing.”
Revenue sharing was another CBA provision driven by players. The Canucks, for example, are believed to have paid $8-10 million into the revenue-sharing pool of $90 million last season. Burke said it’s not nearly enough.
He wants the wealthiest teams — others among the top six in revenue are the New York Rangers, Detroit Red Wings, Montreal Canadiens and Ottawa Senators — to pay more.
Good one, Burkie. Maybe if the NHL could get to a place where 93% of all revenues didn’t come from individual teams, that would be fair.
Also from Stephen Brunt at the Globe, on MacLean:
But as Doug MacLean, the former general manager of the Columbus Blue Jackets, said on TSN the other day, even as others were trumpeting the new cap number as evidence of the NHL’s good health: “There’s teams in this league that can’t afford to spend over $35-million a year. That’s challenging — and I’ve seen the revenues.”
That $35-million would be approximately $1-million a year above the new “floor.”
I don’t want to “scoop” James, but the number might surprise you all – the total cap impact is only $2.6 million.
It’s actually not surprising because most of the currency gain occurred before 2005. From 2005 to 2007, using the Bank of Canada annual figure, the Canadian/US dollar exchange rate rose only 12.7%. The problem is that the Canadian markets’ revenue growth in $CDN is already higher than that in the US markets, especially the smaller ones.
Tom -
Did you watch Bettman’s interview with MacLean during the Finals? You should dig it up on YouTube if you haven’t. I was intrigued by some of his comments about the revenue sharing. MacLean brought up the issue of currency fluctuations screwing over the American markets.
Bettman said that the revenue sharing ignores the effects of currency ie. places like Carolina aren’t being punished by the rise in the Canadian dollar. It struck me as being pretty contrary to the CBA.
I think this is all off the point. We don’t know the actual impact of the Canadian dollar on the cap because we don’t know how much of the league’s revenue is in Canadian dollars. We do know:
1) The impact of wild currency fluctuations on league revenues is significant. When the Canadian dollar was weak, it was a drag on league revenues. When it is strong, it provides a boost. League revenues measured in American dollars shows decent growth, measured in Canadian dollars, league revenues are flat or declining.
A stronger US dollar would impact the NHL in more ways than one. The price of oil – and travel costs – would fall along with the salary cap.
2) The small Canadian markets were squeezed dramatically when the US dollar bubbled, at par the small Canadian markets are big revenue teams. The league is probably healthiest somewhere in between. When Edmonton and Ottawa are big revenue teams, the league as a whole is not in great shape.
3) The disparity between big revenue teams and the revenue challenged is growing. The system sets the cap level too high for the revenue challenged and too low for the big revenue boys. As the big markets – some of whom who were made big by the loonie – drive up revenues they become more profitable. The revenue challenged become less profitable.
4) The profit disparity is now exacerbated by the fact that revenue sharing is cut when the weak markets can’t keep up. Big revenue teams have a smaller revenue sharing cheque to cut and the losing teams lose more.
5) Bad economic times will hurt the weak teams more than the strong ones on the revenue side and strong teams can absorb the extra travel and player costs on the expense side.
The southern strategy has not worked. Sooner or later, it will be crunch time for some or all of the failing franchises. I think sooner is more likely than later.
Bettman said that the revenue sharing ignores the effects of currency ie. places like Carolina aren’t being punished by the rise in the Canadian dollar. It struck me as being pretty contrary to the CBA.
It depends on what you mean by punished. I did see the interview. I’d guess that the NHLPA agreed to exclude the impact of the Canadian dollar in respect to the revenue sharing bar. In other words, teams had to show an 8% increase in revenues to qualify instead of the 12%.
I didn’t see the story Maclean referenced, but I’d guess Karamanos blamed the value of the Canadian dollar for the failure to meet targets to get full revenue sharing. Bettman responded by saying Carolina missed because they missed on the 8%.
It struck me as being pretty contrary to the CBA.
I’d guess that the NHLPA agreed to exclude the impact of the Canadian dollar in respect to the revenue sharing bar. In other words, teams had to show an 8% increase in revenues to qualify instead of the 12%.
Actually, if you read the CBA, there is a great deal of flexibility built into the revenue sharing in certain respects. It is subject to certain limitations, but the NHL can set their targeted player compensation levels (the thing which helps to determine what drives the formulae) at anywhere from $4 million above the floor up to the midpoint.
Sorry, I inadvertently posted before finishing my point above.
As well, the CBA does not use the defined terms when referencing the level of growth that must be achieved, thus leaving the point open to interpretation.
My point was that, with the exact language used in the relevant CBA provisions, there is considerable leeway provided to the NHL to decide what levels of revenue sharing it wants beyond the bare minimum that is prescribed.
Let me add some information on one market
1) Atlanta had have very robust advance ticket sales in the summer of 2007 due to their first ever playoff appearance in the spring of 2007. Those advance sales resulted in their 3rd highest revenue in team history. I am very certain they met the criteria for full revenue sharing this last year. Here is a link to an Atlanta Business Chronicle article that speaks to this.http://www.bizjournals.com/atlanta/stories/2008/04/07/story9.html
2) Given the absolutely brutal season 07-08, the Thrashers are almost certain to fail to reach the targets in 2008-09 and thus will see their share decline the following season. In fact, I’d be surprised if they met either the attendance or revenue targets. The team “goal” is “flat” sales compared to last year. That speaks volumes. My own informal poll of STH shows renewals down sharply among fans (I’m sure corporation will be back). Here’s another ABC article about the Thrashers target:
http://www.bizjournals.com/atlanta/stories/2008/06/23/daily65.html
3) The problem isn’t so much the Atlanta market but the hockey product. Atlanta is slightly smaller than Dallas and bigger than Tampa. Both teams have put a decent product on the ice and fans have responded. The Thrasher have failed miserably 6 or 8 seasons, just missing the playoffs in 05-06 and making them in 07-08 only to be swept. The team has finished in the 1/3 in defense 7 of 8 seasons. There are VERY few markets where you could ice such a poor product and expect solid ticket sales–doing so in a non-traditional market is not going to work either.
Here’s a summary I wrote about the recent problems and mis-management: http://thrasherstalons.blogspot.com/2008/07/why-nobody-wants-to-come-to-atlanta.html