Should the NHL be thinking about contraction?

[Jazz]

.....Believe me, the Isles are far from disintegrating and I'm actually thankful Wang came in and has poured his millions into developing a solid product. And again, the arena (especially the new arena) will be full when this team is working hard and winning.

Slightly off topic, but I am also glad that Wang is also pouring a fair amount of money into developing hockey in his native China. This shows how much he is dedicated to the sport.

http://www.nhl.com/nhl/app?service=page&page=NewsPage&articleid=281214

(I kind of wish the NHL was more involved in laying down grass-roots hockey programs around the world.)

 

[mfw13]

Kdb206,

If those revenue numbers are accurate, then:

a) I will happily eat a lot of crow because it means the average team is generating about $70 million a year in revenue
b) the NHLPA is the absolute stupidest union ever for agreeing to a $44 million salary cap when the median team revenue is about $70 million


However, I am highly suspicious of those numbers for several reasons:

According to those stats, the average league attendance in 2005-2006 was 16,955, and the average ticket price was $41.13. Take 16,955, multiply by 1230 (the number of games in the regular season) and you get 20,854,650 paid admissions. Now multiply that by $41.13 and you get $858 million in regular season gate revenues. Now explain to me how the league generated another $1.32 billion dollars in revenue (to get to the $2.178 billion number cited) when its US TV contract only paid it $67.5 million+ revenue sharing from 11 games on NBC averaging a 1.7 rating. Even assuming that the playoffs generated $150 million, that's still about $600 million dollars that are not accounted for. Even assuming a boffo $150 million per year canadian TV contract, your still left with a $450 million shortfall. Now maybe all that money came from merchandising, the internet, local TV contracts, and arena naming rights, but it seems like a bit of a stretch to me.

That said, if those numbers are correct and even the smallest market teams are making $30 million in non-ticket revenue, then with a $44 million salary cap, because they will still be making a profit even if they only draw 9,000 fans per game.

In that case, nobody needs to be contracted, nobody needs to be relocated, and the players are the biggest idiots ever for signing off on a $44 million salary cap.

 

[Nalyd Psycho]

Even assuming a boffo $150 million per year canadian TV contract, your still left with a $450 million shortfall. Now maybe all that money came from merchandising, the internet, local TV contracts, and arena naming rights, but it seems like a bit of a stretch to me.

That's actually a low estimate when you concider that Canada has 2 nationwide TV deals plus 6 local deals. We can confirm that the nationwide deal that give exclussivity to Saturday and only Saturday is worth 65 million.

 

[jkrdevil]

Kdb206,

If those revenue numbers are accurate, then:

a) I will happily eat a lot of crow because it means the average team is generating about $70 million a year in revenue
b) the NHLPA is the absolute stupidest union ever for agreeing to a $44 million salary cap when the median team revenue is about $70 million


However, I am highly suspicious of those numbers for several reasons:

According to those stats, the average league attendance in 2005-2006 was 16,955, and the average ticket price was $41.13. Take 16,955, multiply by 1230 (the number of games in the regular season) and you get 20,854,650 paid admissions. Now multiply that by $41.13 and you get $858 million in regular season gate revenues. Now explain to me how the league generated another $1.32 billion dollars in revenue (to get to the $2.178 billion number cited) when its US TV contract only paid it $67.5 million+ revenue sharing from 11 games on NBC averaging a 1.7 rating. Even assuming that the playoffs generated $150 million, that's still about $600 million dollars that are not accounted for. Even assuming a boffo $150 million per year canadian TV contract, your still left with a $450 million shortfall. Now maybe all that money came from merchandising, the internet, local TV contracts, and arena naming rights, but it seems like a bit of a stretch to me.

That said, if those numbers are correct and even the smallest market teams are making $30 million in non-ticket revenue, then with a $44 million salary cap, because they will still be making a profit even if they only draw 9,000 fans per game.

In that case, nobody needs to be contracted, nobody needs to be relocated, and the players are the biggest idiots ever for signing off on a $44 million salary cap.

Actually with on average 70 million the cap would be right near where it is now. 54% of 70 is 37.8. That would be the mid point meaning the cap cap under that would be around 45.8 million. THat's just 1.8 million more than what it is now which would really just mean higher escrow for the players.

 

[HughJass*]

Before you criticize what I am saying and call me an idiot, make sure you have carefully read what I said!.

I read it and still think you should push away from the desk and go outside and run around your block or something. I want to shoot myself for reading your post.

Some people have too much time on their hands to worry about the dumbest things. I love it how you guys talk about league revenues, tv contracts, and collective bargaining when you can't even balance your own check books. It boggles my mind every time, and that's why I usually stay away from most parts of HF now. Sadly, I saw the title of the thread and couldn't resist to see what was shaking. I want to shoot myself.

 

[GSC2k2*]

It depends on the latitude of the city.

If a traditional market has a crappy team and doesn't sell out, smart fans are punishing bad ownership and management.

If a non-traditional market has a crappy team and doesn't sell out, fans are ignorant and will never embrace the sport at the level required to sustain a franchise.

Timmah bringing the awesome yet again ...

 

[GSC2k2*]

I read it and still think you should push away from the desk and go outside and run around your block or something. I want to shoot myself for reading your post.

Some people have too much time on their hands to worry about the dumbest things. I love it how you guys talk about league revenues, tv contracts, and collective bargaining when you can't even balance your own check books. It boggles my mind every time, and that's why I usually stay away from most parts of HF now. Sadly, I saw the title of the thread and couldn't resist to see what was shaking. I want to shoot myself.

Storminator ... not so much.

 

[golfmade]

Slightly off topic, but I am also glad that Wang is also pouring a fair amount of money into developing hockey in his native China. This shows how much he is dedicated to the sport.

http://www.nhl.com/nhl/app?service=page&page=NewsPage&articleid=281214

(I kind of wish the NHL was more involved in laying down grass-roots hockey programs around the world.)

Seeing as how Wang is throwing money around, I'd gladly take some of his money to help develop hockey here in Taiwan.

 

[GSC2k2*]

Kdb206,

If those revenue numbers are accurate, then:

a) I will happily eat a lot of crow because it means the average team is generating about $70 million a year in revenue
b) the NHLPA is the absolute stupidest union ever for agreeing to a $44 million salary cap when the median team revenue is about $70 million


However, I am highly suspicious of those numbers for several reasons:

According to those stats, the average league attendance in 2005-2006 was 16,955, and the average ticket price was $41.13. Take 16,955, multiply by 1230 (the number of games in the regular season) and you get 20,854,650 paid admissions. Now multiply that by $41.13 and you get $858 million in regular season gate revenues. Now explain to me how the league generated another $1.32 billion dollars in revenue (to get to the $2.178 billion number cited) when its US TV contract only paid it $67.5 million+ revenue sharing from 11 games on NBC averaging a 1.7 rating. Even assuming that the playoffs generated $150 million, that's still about $600 million dollars that are not accounted for. Even assuming a boffo $150 million per year canadian TV contract, your still left with a $450 million shortfall. Now maybe all that money came from merchandising, the internet, local TV contracts, and arena naming rights, but it seems like a bit of a stretch to me.

That said, if those numbers are correct and even the smallest market teams are making $30 million in non-ticket revenue, then with a $44 million salary cap, because they will still be making a profit even if they only draw 9,000 fans per game.

In that case, nobody needs to be contracted, nobody needs to be relocated, and the players are the biggest idiots ever for signing off on a $44 million salary cap.

I have been trying mightily to refrain from responding to your thoroughly superficial posts. That has been pretty difficult, given your apparent sincerity in thinking that you are posting thoughtfully on matters when, with a little reading back, you would find that your notions have long been discredited. Furthermore, your tendency towards completely unsupported statements (such as the ridiculous statement that Bettman "should have" gone to Fox or other networks when ESPN stiffed the NHL but - according to you - did not) is more than a little aggravating.

However, I cannot resist.

My strong suggestion would be that you do a little reading on the subject. I would start with the Levitt Report itself, which provides a considerable amount of insight on NHL business if you know where to look. For someone with a "business background" (which I can assure you is more than matched by that of some other posters here), that should not be much of a challenge. Kdb's numbers are derived from that report. They are audited numbers (with the exception of only the 2 entities that were bankrupt at the time and accordingly could not get an auditor's opinion).

Secondly, you apparently do not understand the idea of concessions. Food/drink, together with souvenirs, programs, etc. comprise $400 million in revenues for the NHL.

You also do not seem to recognize that every NHL team also has local TV and radio deals, which (combined with the national deals) results in revenue of $432 million. All 2002-03 numbers, incidentally.

Also, it is not accurate to say that the smallest market teams are making $30 million in non-ticket revenue. The $70 million figure is an average, chum. Use your business background to figure out what that probably means. Alternatively, you can use grade five level math to figure it out.

On the cost side, you seem to fail to recognize that player costs are but a portion of total expenses. In 2002-03, non-salary/benefit expenses were approximately $24.5 million per team. Benefit expenses were $2.2 million per team.

For the NHLPA, obtaining a cap of that level on average revenues of approximately $70 million was a coup. I am assuming that you understand the difference between the cap and the real cap, which is the salary range midpoint. Their compensation percentage of the low-to-mid-50's is relatively consistent with that of basketball. In case you were not paying attention, the NHLPA was in the process of being routed due to the terminally flawed strategies of their former leader. It was only through the league's determination to actually think longterm and get themselves a partner in the PA (instead of squashing them and sowing dragon's teeth) that they were able to secure the deal. Being "stupid" had nothing to do with it. Do a little reading in that area as well.

Does that give you some insight?

Now go forward and post nonsensically no more.

 

[mfw13]

No need to make it personal....I'm happy to admit I'm wrong when I am.

However,

If the $432 million number is accurate, then the average NHL team is making $14 million a year in TV/radio revenue. Given that radio rights are worth next to nothing in most cities, that seems very high to me. Even if the average of $14 million is accurate, I'm guessing the median is a lot lower than that.

Your point about the non-salary costs is well taken....I did not think of that. However, if it's true that total expenses for most teams equals approximately $70 million as you posit, then about half the teams in the league are losing money (using the revenue figures from the Levitt report), and my original point about low attendance for many teams being a concern becomes relevant again.

Also, I sincerely doubt that the league is making $400 million from concessions. That's $13 million a team or roughly $300,000 per home game, which would mean roughly $20 per head per game. That's an outside possibity if teams got all the revenue from concessions, but since many of them do not get 100% of concession revenue I think that's unlikely.

BTW, the reason I am highly suspicious of the numbers in the Levitt report is that their revenue numnbers are quite different from the NHLPA numbers posted on this thread (about $15 million in the 2002-2003 season mentioned). Not a whole lot of money given the overall figure, but it still makes me wonder. ALso, its not exactly difficult to fudge financial numbers, since auditors will sign off on just about anything (see Enron, WorldCom, Adelphia, etc.). So pardon me for being suspicious of them when they don't make sense to me despite their being audited.

If you want to attack my reasoning or my logic, fine. But don't attack me for being suspicious of the financial numbers put out by the league. Not in the day and age of financial scandal.

 

[Nalyd Psycho]

Also, I sincerely doubt that the league is making $400 million from concessions. That's $13 million a team or roughly $300,000 per home game, which would mean roughly $20 per head per game. That's an outside possibity if teams got all the revenue from concessions, but since many of them do not get 100% of concession revenue I think that's unlikely.

It's concessions and merchandise. So that makes it seem reasonable, at least to me. Especially given the cost of jerseys...

 

[mfw13]

GS Carpenter, using your figures of roughly $26 million in non-salary/benefit expenses per team, I've done some financial calculation using the 2003-2004 revenue numbers from Forbes, the 2005-2006 payroll numbers, and my fifth grade math. I am assuming that revenue numbers for each team stayed constant from 2003-2004 to 2005-2006, although they undoubtedly did not due to increases/decreases in attendance. According to my calculations, seven teams MAY HAVE lost money in 2005-2006 even with the salary cap, although since we do not have exact revenue numbers or know exactly how much money they received in revenue sharing, we can't know for certain. Therefore I am assuming they received somewhere between $1-4 million in revenue sharing, since my reading of the CBA thread stickied at the top of this page indicates that is a likely range.

They are:

New Jersey - $6-9 million
Edmonton - $6-9 million
Carolina - $5-8 million
Atlanta - $1-4 million
Anaheim - $1-4 million
Buffalo - $1-4 million
Pittsburgh - $0-3 million

Note that for Pittsburgh, this was with a bare-bones $23 million payroll, and that Washington probably made about $15 million due to also having a rock bottom $19 million payroll which drove away significant numbers of fans. Attendance for the Blues dropped by 4200 per game after the strike, but the Blues were likely still slightly profitable due to having a $29 million payroll.

If the financial numbers on which I based my calculations are accurate (something which I seriously doubt), then the combination of revenue sharing and the ability to eviscerate payrolls by dropping them below $30 million means that most teams should be able to make a profit even with low attendance simply but cutting payroll to a minimum.

However, two of the three teams which did this alienated a lot of their fans and finished near the bottom of the league (Washington & St. Louis). Therefore, its possible that cutting payroll to the bones may not be a successful business model over the long term, since fans will not support a losing franchise forever. It'll be interesting to see how many teams can stay competitive with a $30-$35 million payroll, since going above that is when teams start to lose money.

Anyway, for now I'll eat my crow....most teams seem to be a lot healthier financially than I thought even with the lousy US TV contract. That said, almost all of the teams which I mentioned as being in questionable financial shape in the post with which I started the thread are in the bottom half of the league in revenue, so I wasn't totally wrong to be concerned about them. I just appears that for now that are able to balance their books by keeping their payrolls down and still being competitive on the ice, as witnessed by the fact that last year's four conference finalists had an average payroll of $34 million.

 

[MayDay]

The first is to improve the quality of the product. Since the lastest round of expansion began in the early nineties, nine franchises have been added. This means that there are now roughly 180-200 players in the NHL who arguably should be playing in the minor leagues, or roughly 6-7 per team.

I disagree with this basic assumption. You are assuming that there are more teams drawing from the same amount of young talent. It doesn't take into account the growth of the game.

Yeah, there are more teams now, but the talent pool from which NHL players are drawn is much deeper and larger than it was decades ago. Instead of a league consisting of 90% Canadians and drawing players mainly from Canada, after the 90's and the fall of the Iron Curtain, tons more eastern European and Russian players became available. That doubles the talent pool right there. Add to that the growth of the game in the US, and the increasing numbers of Americans and NCAA players taken in the draft, and that increases the pool even more.

I would argue that the quality of talent throughout the league, from top to bottom, is as good or better than it has ever been. It hasn't been diluted.

 

[MayDay]

txpd: Buffalo, Pittsburgh, and Ottawa are not by any stretch of the imagination traditional hockey markets. Those would be the original six teams, Philadelphia, New York, Vancouver, Calgary, and Edmonton.

Now that I am actually reading through the thread, I came upon this little nugget.

Man, you really don't know what you are talking about. Buffalo, Pittsburgh, and Ottawa all have long and successful hockey traditions dating back many decades before they were granted NHL franchises.

Just because it's not an Original Six market doesn't mean it's not a traditional market.

And I would argue that there are more hockey fans, per capita, in any of those three cities than there are in New York. New York is primarily a baseball town, always has been, always will be. Sure there are plenty of hockey fans amongst 8 million people, but they are the minority, and hockey news gets buried in page 8 of the sports section.

 

[Sotnos]

It depends on the latitude of the city.

If a traditional market has a crappy team and doesn't sell out, smart fans are punishing bad ownership and management.

If a non-traditional market has a crappy team and doesn't sell out, fans are ignorant and will never embrace the sport at the level required to sustain a franchise.

For the thread starter who seems bound and determined to bust on teams in cities he doesn't like and wonders why they exist, there is a very simple answer. Expansion fees, which propped up the League for years. One reason a CBA was approved over Bettman's objections in the mid-90s was that the owners were looking down the road towards more expansion fees in '99 and didn't want to do anything that would make them look financially unstable and scare off potential cash cows.

Whatever team you like probably paid their salaries out of money from those markets you don't like, and now that they've served their purpose, you want to contract teams? Not going to happen.

Even if you're new, it's not that hard to do a quick search and figure out this topic and others like it have been done to death here, and you will find it hard to win an argument with some of the fine financial minds here.

The business board is the best thing going around here lately!

 

[Ted Hoffman]

Attendance for the Blues dropped by 4200 per game after the strike, but the Blues were likely still slightly profitable due to having a $29 million payroll.

The Blues lost somewhere around $23 million last season ... largely due to (A) a debt load of $185 million (including the interest service on the bonds issued in 1994 to finance the construction of the arena - and re-financed twice between then and 2001) and (B) a state and local ticket tax of about 12.6%, easily the highest ticket tax of any city in North America with a professional sports team.

In the sale of the team this summer, former owner Bill Laurie assumed all debts associated with the franchise - meaning that Dave Checketts paid $150 million for the Blues and no debt whatsoever. The team still has the ticket tax, plus is responsible for all maintenance on the arena while getting no parking revenue from the attached garage; they do get all in-arena revenue and control of scheduling events at the arena. They are also now responsible for the cost of renovating the attached Kiel Opera House, a condition made by the City of St. Louis for ceding the land on which Scottrade Center now sits (and which was ignored by both previous ownership groups).