Richard Peddie says NHL lacks financial transparency

[No Fun Shogun]

We know the arguments as we've had them here, and there often some assumption that the league actually has to pay someone to shut a team down. What if an owner doesn't want to lose money any longer, and cannot find a buyer? So he hands the keys over to the NHL. They choose to relocate (if they have that option) or shut things down.

What actually is missing is how Peddie came to that conclusion, and what he considered. May need to read the book, but who knows if he really addresses it?

That's a pretty huge if, though. I doubt the NHL couldn't find at least one interested buyer willing to spend a hundred million+ on bringing a team to some market if push came to shove.

I've said it before, and I'll say it again... Saskatoon will get a team before the NHL seriously contemplates contraction.

Plus, the excerpt from your OP says that he spoke to Bettman on the topic three years ago, i.e. a full decade after the league had already expanded to 30 teams. I'm sorry, but if you're speaking to the commissioner of any league and saying it's a bad idea to do x when that had already been put in place and is effectively impossible to undo, then you're just wasting your's and his time.

 

[CanadienShark]

Thank you.

If the goal of the NHL is to further develop hockey, then of course contraction would hurt. That said, I really just approached this from more of a numbers game vs personal feeling or preferences. I love hockey, obviously, and I don't mind the idea that more people might discover it and become as big fans as most of here are. The dollars and cents of it have to make sense. You can't just keep adding teams if you can't find the right things that make it viable-- and viability does mean coexisting financially with the existing teams.



It's not that cut and dry, I agree. I ran a back of the napkin kind of exercise to illustrate how top heavy the NHL is in terms of where the revenue is derived. There is some return on an investment the NHL is counting on, and sometimes that's not very clear to me.

Right, I totally understand that. Obviously adding more teams is great, to a point, where it will actually become detrimental. I'm really not sure where we're at. I think adding teams could actually harm the league, but removing teams could harm the league as well. It is certainly tough to manage a viable franchise in many markets, such as Nashville or Florida, but I hope it is successful. After all, I think you want hockey to succeed as much as I do.

That's true - I think the NHL often makes erroneous assumptions, which can pan out, but often do harm to the league. I appreciate your response though - I see you post in such subjects and really respect your opinion more than most.

 

[Fugu]

Thanks again, CS. We have a lot of fantastic contributors on the Business of Hockey board, each with their own favorite topics and interests. I've learned quite a bit from many of them as well.

Plus, the excerpt from your OP says that he spoke to Bettman on the topic three years ago, i.e. a full decade after the league had already expanded to 30 teams. I'm sorry, but if you're speaking to the commissioner of any league and saying it's a bad idea to do x when that had already been put in place and is effectively impossible to undo, then you're just wasting your's and his time.

Yes, but.... this was the CEO of the largest NHL franchise, and the most highly valued NHL franchise ever-- the only one that gets on the lists with the really Big Boys of sports. I really would like to know what his angle was, as 3 yrs ago, they were probably just starting to consider the next lockout at the NHL level.

 

[cujoflutie]

Let's say you cut 6 franchises, with an average HRR of $60 million. That's a loss of $360 million from overall HRR, leaving 24 teams to share: $3300 MM - 360 MM = $2940. The average HRR is now $122.5 million per team (assuming they keep the same 82 game schedule).

As far as distribution of the central revenue, you have 24 teams sharing the now greater proportion of central revenue, so each team actually receives more of the shared money.

6 teams x 26 avg roster spots = 156 fewer players

50% of $3.3 billion HRR @ [26 roster spots, 30 teams] = $1.65 billion/780 players = $2.11 million/player

50% of $2.94 billion = $1.47 billion/624 players = $2.36 million/player


I'm not sure the PA has ever been about preserving as many union jobs as possible over creating the best conditions for the majority of players (especially guys who will be there more than a token 1-2 yrs). The careers are too short to sacrifice value for quantity, and furthermore, the shots are called by the stars and players with some longevity in the league.

But what you fail to address is cutting teams would equal fewer NHL games total. That shrinks the money pie and detracts from jobs. I don't know if the PA is all about the stars, isn't George Parros the president? He's a player who may not have a job with contraction. And even these stars realize that later in their career they could be relegated to 'role player' status, spots which would be expendable if there is contraction.

 

[Grudy0]

We know the arguments as we've had them here, and there often some assumption that the league actually has to pay someone to shut a team down. What if an owner doesn't want to lose money any longer, and cannot find a buyer? So he hands the keys over to the NHL. They choose to relocate (if they have that option) or shut things down.

We have recent examples, Fugu...

Supposedly that's exactly what happened to the Coyotes, as Moyes couldn't afford to run the Coyotes and threw the keys to the team on Gary Bettman's desk. However, even during bankruptcy proceedings, someone had to purchase the team and give Moyes money.

Let's consider the alternative: if Moyes were to shut down the Coyotes. I think the League has a say in that, and I'm pretty sure Moyes would rather sell the team to recoup some of his investment than to simply "go to zero".

What actually is missing is how Peddie came to that conclusion, and what he considered. May need to read the book, but who knows if he really addresses it?

Good point. And there likely wouldn't be empircal data to back up the assertion. The analysis would end up with "a lack of transparency".

 

[Burke the Legend]

Peddie sounds like an idiot... This guy was running a billion $ business??

 

[Fugu]

But what you fail to address is cutting teams would equal fewer NHL games total. That shrinks the money pie and detracts from jobs. I don't know if the PA is all about the stars, isn't George Parros the president? He's a player who may not have a job with contraction. And even these stars realize that later in their career they could be relegated to 'role player' status, spots which would be expendable if there is contraction.

During the 1970s, for example, the NHL played a 76 game season. They could strike the optimal balance between the actual number of teams in existence and divisional alignment to get to a similar number as today's games played. They could also assume that STHs (the majority of tickets are purchased by season ticket holders in many markets) are willing to pay an annual sum. The amount per game may not be that noticeable if you lose a few games.

Peddie sounds like an idiot... This guy was running a billion $ business??

Which was sold for a record sum of money. It wasn't a billion dollar business when he took over.

 

[King Woodballs]

I don't see anything wrong what so ever with his comments.

 

[MoreOrr]

I don't see anything wrong what so ever with his comments.

Based on what he's said and his apparent opinion, I doubt that Winnipeg would have a team now if he had his way. He would've just contracted the Thrashers and have it at that.

 

[MoreOrr]

I just wish NHL owners wouldn’t go on shooting themselves in the foot by writing outrageously fat cheques to star players. This is the hot potato that the NHL commissioner has to handle.

There's a simple little thread on the Main Board which seems so appropriate as an example of the point made above by Peddie.

http://hfboards.mandatory.com/showthread.php?t=1540603

 

[Dr Robot]

So if the league decided to contract the 6 lowest earning teams, how exactly is that going to fix the leagues financial model and not put an increasing number of teams in the red? The Pheonix coyotes(as well as a few more teams like them) are currently anchoring the salary cap which is the leagues highest operating cost. If those teams go away, the salary cap rises and instead of the final 24 teams making record profits the players salaries take a dramatic jump and suddenly 6 more teams that were staying afloat start to lose money. The league needs actual revenue sharing instead of the the joke form of it we have now and do work to actually promote its smaller teams instead of just trying to make a cash grab that really only helps the larger market teams. If Toronto and Montreal disappeared it would actually improve the leagues health quite a bit more than if Pheonix and Florida did.

 

[Highlander23]

So if the league decided to contract the 6 lowest earning teams, how exactly is that going to fix the leagues financial model and not put an increasing number of teams in the red? The Pheonix coyotes(as well as a few more teams like them) are currently anchoring the salary cap which is the leagues highest operating cost. If those teams go away, the salary cap rises and instead of the final 24 teams making record profits the players salaries take a dramatic jump and suddenly 6 more teams that were staying afloat start to lose money. The league needs actual revenue sharing instead of the the joke form of it we have now and do work to actually promote its smaller teams instead of just trying to make a cash grab that really only helps the larger market teams. If Toronto and Montreal disappeared it would actually improve the leagues health quite a bit more than if Pheonix and Florida did.

Great, lets relocate the leafs, habs and rangers to las vegas, albuquerque and honolulu and call it a day

 

[chasespace]

Great, lets relocate the leafs, habs and rangers to las vegas, albuquerque and honolulu and call it a day

Good job understanding the point he was trying to make.

He's not saying to get rid of the highest earners, he's saying there needs to be a total revamp of the NHL's economic and revenue sharing model.

 

[Section337]

I think the best way to contract is based on evaluating the teams players use in their no-trade lists and get rid of the most commonly denied six.

 

[Fugu]

So if the league decided to contract the 6 lowest earning teams, how exactly is that going to fix the leagues financial model and not put an increasing number of teams in the red? The Pheonix coyotes(as well as a few more teams like them) are currently anchoring the salary cap which is the leagues highest operating cost. If those teams go away, the salary cap rises and instead of the final 24 teams making record profits the players salaries take a dramatic jump and suddenly 6 more teams that were staying afloat start to lose money. The league needs actual revenue sharing instead of the the joke form of it we have now and do work to actually promote its smaller teams instead of just trying to make a cash grab that really only helps the larger market teams. If Toronto and Montreal disappeared it would actually improve the leagues health quite a bit more than if Pheonix and Florida did.

The thesis you present is very sound mathematically speaking. You have a system based on averaging all franchise revenues and setting the amount of mandated spending based on that result. Yes, getting rid of outliers on either end would yield a superior result.

However, since we're talking about finances and maximizing revenues, profits or franchise valuations, the goal typically is to make the most money possible.

In fact, the system created was a result of trying to protect the weaker teams and to gain cost certainty (a word we almost never hear from the league any longer). If you entertained the idea of contraction and revenue disparity, it might make sense to reconsider the economic system in place as well.

 

[aqib]

cross cleveland off the list.. please?.....

No. I live in Cleveland. We have an arena that could host an NHL team tomorrow. Not saying the league should expand here. I think QC, Hamilton, Markham, and Seattle should all be ahead of us. Just saying its better than folding a team.

 

[Kimota]

Bettman is a Stern acolyte. Stern always ran his BOG meetings as very controlled and limiting operations-- he sets the agenda and no one else gets to put up an agenda item. You cross him, you don't get your issue on his agenda. Bettman does the same thing. The meat of everything is discussed in the exec committees, and the rest of the BOG meets in the afternoon and basically gets to vote on a question or issue which they frame.

In this sense, Peddie is quite correct that there's little transparency for the full membership.

And Bettman accomplish that by pretty much choosing the new owners that come in. So then the whole league become his own puppet show.

And owner can say "well it's my team, i'll do what I want, say what I want" wich Bettman retork:"you're there cause we've allowed you to be there".