Cap vicious cycle

Discussion in 'The Business of Hockey' started by Orange, Jul 9, 2007.

  1. Orange

    Orange Registered User

    Joined:
    Jul 12, 2003
    Messages:
    1,158
    Likes Received:
    0
    Trophy Points:
    0
    Home Page:
    This year, ticket prices will be hiked in Montreal so the team can spend up to (or close to) the cap without a deficit. Obviously if other teams also hike their ticket prices, the cap would rise next year again because of higher league wide gate revenues. My question is this : are we entering some sort of vicious cycle ? Each year, teams hike prices to afford to spend to the cap yet raise the salary cap for the following year. And how much more can ticket prices be raised before the NHL starts alienating it's fanbase ? And finally, is there a possibility for the bigger market teams to raise the ticket prices and the cap to a level high enough that some teams couldn't afford the league minimum ?
     
  2. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    Entering? Teams have been hiking ticket prices every year for the last 10-15 years.
     
  3. Fugu

    Fugu Guest


    Except for that one year when some teams lowered them (after the lockout) then raised them again the year after that..... ;)

    Oh yes.... what about St. Louis?
     
  4. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    Fine ... almost every team has been raising them every year for 10-15 years. Hell, the Blues wanted to raise season ticket prices in the upper bowl ends from $8 a game (yes, that's not a misprint) to $13 a game and it was, "OMG, ***, THEY WANT US TO PAY THAT MUCH? **** THAT, I'LL SIT ON MY ASS AT HOME!" as if they were personally getting kicked in the groinal area.

    Mind you, this is after Dave Checketts & Co. made it clear the team couldn't lose money long term ... so what happens? Scottrade gets naming rights to the arena, and they're subsidizing season tickets in that area so people now only have to pay $7 a game per seat for their season tickets.

    However ... the Blues were one of the first teams to push prices up every year as they built a "war chest" to be able to go out and give huge offer sheets for guys, and it got other teams to do the same. Now? It's just a means of increasing revenues over the previous year.

    (Note to Edmonton: before you decide, "gee - we'll go give away all our 1st's for the next x years!" see how that ended up for the St. Louis franchise.)
     
  5. BrianSTC

    BrianSTC Registered User

    Joined:
    May 23, 2007
    Messages:
    551
    Likes Received:
    0
    Trophy Points:
    74
    Location:
    Winnipeg
    See all the Blues home games next season for under $300...
     
  6. BrianSTC

    BrianSTC Registered User

    Joined:
    May 23, 2007
    Messages:
    551
    Likes Received:
    0
    Trophy Points:
    74
    Location:
    Winnipeg
    Sold out...I wonder if people buy the $7 tix but then move down to one of the empty $100 seats?
     
    Last edited: Jul 9, 2007
  7. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    Um ..... no - the ushers there were apparently pretty strict about that last year.

    ;) However, I don't think there will be nearly as many empty seats in the lower bowl this year.

    I missed a few things in the OP ...
    It's kind of like gas prices ... as long as people are willing to shell out $3.xx or more for a gallon of gas, demand will drive the price. When people decide they're not willing to pay, demand will drop and prices will drop as well.

    Right now? There's no sign prices are going to drop any time soon - for either gas in the U.S. or hockey tickets in some markets - because the demand is clearly there.

    Elsewhere in this forum, the myth of "nearly all the league's revenues come from gate receipts" was largely debunked ... so while increasing ticket prices will have some effect, it won't have nearly the effect one might think. Also realize that if Detroit's economy continues to struggle, Joe Louis Arena may not be sold out every night and prices there will stop going up and up and up (and may - gasp! - actually come down some).

    However ... could revenues rise high enough that it pushes the cap to the point that teams can't afford the league minimum? Enter the concept of "averaged salary" - the item that determines whether or not a team is cap compliant. It appears the Rangers and Flyers are betting revenues will continue to go up and up and up (and the cap with it), and by front-loading contracts to FA's now they'll be cheaper down the road when they're less effective but still carrying the same cap hit - making them attractive to teams who need to get to the minimum.

    Without thinking about how (or if) revenue sharing would continue to level the playing field, if the above scenario plays out, then we have our answer - the have-nots will seek out a 37-year old Daniel Briere making $2.5 million less than his cap number, helping them reach the Lower Limit as cheaply as possible. Will that indeed happen? Only if revenue sharing as it's currently set up is insufficient to help teams actually spend to the Lower Limit naturally ... and that debate I'll leave to others.
     
  8. 213 Sentinel

    213 Sentinel Registered User

    Joined:
    Jul 2, 2006
    Messages:
    1,484
    Likes Received:
    99
    Trophy Points:
    101
    Occupation:
    Auto Industry IT
    Location:
    Marysville, Ohio
    Home Page:
    Purely for my own edumacation, can you point me to that thread?
     
  9. BrianSTC

    BrianSTC Registered User

    Joined:
    May 23, 2007
    Messages:
    551
    Likes Received:
    0
    Trophy Points:
    74
    Location:
    Winnipeg
    Yeah, the Blues are starting to look playoff bound...
     
  10. GSC2k2*

    GSC2k2* Guest

    As well, IB, revenue sharing is such that (a) it increases as league revenues increase (the minimum revenue sharing amount is 4.5% of league revenues, or over US$100 million at this point) and (b) revenue sharing is provided to the extent that it will allow teams to spend to the midpoint, much less the floor.
     
  11. Fugu

    Fugu Guest


    How exactly did you draw this conclusion? Ticket prices were lowered in many markets after the lockout, then they were raised again, maybe to what pre-lockout prices were. While we can debate what will happen next year, I don't think you can say with absolute certainty where prices are relative to the maximum a given market will bear.



    Hmmm. I thought the mythological part was what percent of NHL revenues were derived from gate-driven sources. That includes gate receipts, but certainly is not limited to just gate receipts. I have yet to see anything (including Levitt's stale data also based on a different interpretation of what constitutes HRR) that substantiates the claim that gate-driven sources don't constitute the majority of NHL revenues. Even the Levitt data would support this point. I await GC's breakdown on this matter, as it seems he owes me a few posts over the past few months.......

    As for Joe Louis and the Detroit economy. This isn't too important if the NHL grows in other markets, but if there is no growth or even decline, and Detroit starts slipping... as one of the big donors in the revenue sharing program, it does bleaken the picture overall for the league, no?


    There are two pressure points however. While rising revenues do indeed push the cap up, the further it rises the more real money the large market teams are spending. Not only do their costs increase IF they decide to spend to the cap.... they are still on the hook to help the bottom half who can meet the revenue sharing criteria. What I think is going to happen is:

    1. The teams that have both low revenues and are exempt from sharing in the revenue redistribution program (Isles, Devils, Ducks?) will be in the most precarious position.

    2. The smaller market teams that qualify for Revenue Sharing have some built-in protection as long as their growth exceeds the NHL average. A situation that has larger revenue generators fueling the growth (through higher ticket prices and other means) would indeed widen the revenue gap further and disqualify some teams for a portion of their revenue sharing allotment. If the real growth potential is greatest in the smaller markets, they should be able to keep up.

    3. That said... in any scenario where there is revenue growth, the cap goes up. The better question may be in ascertaining what the full market potential is in the smaller markets and compare that to the more mature revenue in the larger markets. If those numbers are still to far apart, growth can be a double-edged sword where only perpetual revenue sharing solves the problem.

    4. Also, in our increasing revenues scenarios, the NHLPA share goes up at specific points until $2.7 billion is reached, where it then maxes out at 57%. I think I alluded to this before as both the pie growing in size and the size of the pie the players get increasing with it. This adds pressure to both the larger and small markets as I outlined in point #2.
     
  12. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    :teach:
     
  13. Fugu

    Fugu Guest


    Using your logic, couldn't I just as easily say that in some markets, the demand is clearly not there? ;)
     
  14. GSC2k2*

    GSC2k2* Guest

    I figured that if you read this thread, you would jump on that one, fugu. Mind you, IB was referring to the myth about it being "nearly all", which is an existing subspecies of the myth and in and of itself does exist in some hockey fans' minds. Your finer point about whether "gate-driven" means just tickets or tickets/concessions/suites is lost on some of our less analytical fellow board members, as I am sure you can appreciate. I am of the view that there is a strong impression out there that the NHL gets almost all its monies from the ticket window.

    Regarding your reference to Levitt's "stale data", I would agree that it is becoming stale, but not for the reasons you suggest (a different definition of HRR). I am of the view that the NHL has been tapping into new media revenue streams that are changing the revenue makeup.

    Also, and more importantly, one of my summertime projects is to test and, if appropriate, debunk what i believe is a persistent myth that there IS a material difference in how Levitt computed HRR and how the new CBA computes it. I have all the raw materials at my disposal, and (time permitting) I will be doing a line-by-line review.

    I am keeping track. I owe you one on Bill Gates, too, if I recall. ;)

    Certainly it appears to be the case that the larger markets such as TO are growing the slowest, at least for gate revenue. Intuitively that makes sense.

    You say that like it is a bad thing.
     
  15. Fugu

    Fugu Guest

    We've come to know each other so well, GC. :D

    IB, having a tendency towards sarcasm, though not quite as much as Timmy who is the God of Sarcasm.... was exaggerating a bit to make his point. He also must be kept in check, hence my clarification for those who often do appreciate the fine points. You give a man an inch, and well, you know the rest.



    I really was implying that the Levitt data may be stale even if we exclude the definition of HRR under the new CBA. If it represents the 2002-03 NHL, that is a mere 2 seasons after the most recent expansion teams were placed. The league is not only maturing, but there have been some changes in the types of TV/media deals since then.

    I think the league has admitted there were some changes to what is now considered HRR, and I have seen this in media articles as well. I look forward to your analysis.

    Intuitive to some perhaps.... Yet as you know, focusing on just a % without consideration to the total dollars involved can also be misleading. I remember my first job out of school, when a colleague got what seemed like a good raise. She didn't seem too thrilled by it, so I asked why? "Even 7% of jack **** is still jack ****."



    I like revenue sharing when the revenue is gained by the collective (e.g., NFL TV deal). I am leery of revenue sharing that has the potential to become wealth transfer. As long as the big market savings - revenue sharing is greater than the non-revenue sharing NHL w/o a cap... it can work. Some still might question what the real ROI is under this type of scheme. Another thread methinks.
     
  16. Timmy

    Timmy Registered User

    Joined:
    Feb 2, 2005
    Messages:
    10,690
    Likes Received:
    0
    Trophy Points:
    0
    Awards:


    I think Freddy pretty much sums up my ongoing predicament on these boards.
     
  17. Fugu

    Fugu Guest

    My favorite Dostoevsky quote:

    It seems, in fact, as though the second half of a man's life is made up of nothing, but the habits he has accumulated during the first half.
     
  18. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    Yeah ... I don't think we can state the logical conclusion here in public.
     
  19. Fugu

    Fugu Guest


    You're one awesome dude, IB.
     
  20. Irish Blues

    Irish Blues Worth waiting for :)

    Joined:
    Dec 15, 2002
    Messages:
    21,800
    Likes Received:
    0
    Trophy Points:
    0
    Occupation:
    Actuary
    Is there any wonder why Mrs. IB hates me? :D
     
  21. Fugu

    Fugu Guest

    ^ ^ ^ ^ ^

    Pssst. Check out who just became an Admin. :handclap:
     
  22. Timmy

    Timmy Registered User

    Joined:
    Feb 2, 2005
    Messages:
    10,690
    Likes Received:
    0
    Trophy Points:
    0
    Awards:

    Sweet Jesus.



    It's all over.
     

Share This Page

monitoring_string = "358c248ada348a047a4b9bb27a146148"