State of the Game: Part 1

Overtime Central will analyze the State of NHL hockey in a two part series. In today’s post we will discuss the business problems facing the NHL while in a future post we analyze the issues we see with the on-ice product.

Obviously the NHL business problems have only been exacerbated by the current lockout/strike (I like to call it a lockout/strike since the players desire to play only under the current contract makes them no less culpable in the state of affairs). This labour stoppage is supposed to provide a solution for the owners to the broken business model that is seen as the NHL’s problem. While I agree the bargaining agreement is a big piece of fixing the economics of the NHL I wonder if both sides understand that bringing the other to its knees will not fix pending doom facing the NHL, and how this long protracted dispute is only hurting its chances of economic recovery. Let’s look at some of the business issues facing the NHL and what affect the lockout/strike is having on them.

Labour Partnership

First and most importantly the current situation reflects the lack of trust between the NHL and NHLPA. For sports leagues to survive and thrive in the 21st Century they must form partnerships. Partnerships with broadcasters, with advertisers and with the players. All other major sport leagues’ Players Associations are docile compared to the NHLPA. While it is true the NHLPA is just trying to hang on to what it has, it is also true that the NHLPA has been militant when negotiating contracts in the last 15 years. In that time they never attempted to form a true partnership with the league, to share in its ups and downs. In the last two agreements, they forced the NHL into player-beneficial settlements that were not sustainable past the growth period of NHL expansion. By trying to hang on to previous levels of salaries the NHLPA appears to be oblivious to the new state of affairs for the NHL in 2005.

The NHLPA appears to be hung up on the percentage of revenue they receive, either in maintaining it or increasing it. No where else are the employees of a company able to correlate their salaries to the company revenue, while the NHLPA wants a link but due to contract lengths salaries will not decrease when revenues do. The NHLPA has taken control of its alternate revenues like player licensing in the last 15 years, but has no partnership with the NHL that would help grow the game and increase those other revenues. If MLB and the NFL are 1-2 in the sports popularity scale in the US and the NBA a 3 or 4 then the NHL is a 10 and the NHLPA has to understand that. The NHL’s position in the US is tenable at best as their most recent television contract suggests. In this period of trying to maintain US interest in the sport, the NHL can’t be cash strapped with a hostile partner.

I often wonder why the NHLPA fails to partner with the fans as part of the negotiations and propose ticket rollbacks along with their salary rollbacks. While some would say this is trying to control your employers’ business and is not your role, how is linking salaries to revenues any different? The NHL is certainly not blameless either. Their sense of partnership is one of master/slave. They also do not bring any truly revolutionary and compromising solutions to the table that would establish a partnership with the players. But believing that a salary cap in the $40 million range will put an end to all economic woes they face is ignoring their slipping US popularity.

US Fan Base

The NHL has expanded by 9 teams in the last 15 years with 8 franchises located in the US and has seen the relocation of 2 Canadian teams to US cities along with the relocation of 2 US franchises to 2 US “sun-belt� cities in the same time period. However since the last round of expansion in 2000-2001 the popularity of the NHL has declined in the US, culminating with the latest NHL US TV contract once again switching broadcasters to NBC for a $0 dollar contract (revenues will be split). ESPN, which will show more NHL games on ESPN and ESPN2 than NBC is paying $60 million per year for its latest deal. Compare that to the previous five year deal with ABC and ESPN that paid $120 million per year ($600 million over 5 years) and you can see that the broadcasters don’t think the NHL is worth anything anymore.

The strength in the NHL (and hockey’s) popularity lies in the Northern US States and Canada. While there may be a hit in these areas when the NHL returns, perhaps both in attendance and television ratings, it will be unnoticeable compared to the new market and southern US teams where I expect support to be decimated. Except in Canadian havens such as Florida and Phoenix, I can’t see why the average US fan would be excited to come back to hockey after a year or more absence. They have surely found a better way to spend their time and money since hockey isn’t at the pseudo-religion level like baseball or football. In some centres the next “fad� sport will have taken the NHL’s place, perhaps Arena Football or the National Lacrosse League.

Both sides have failed to understand they were already on the downward spiral in the US; that the bubble which started with the trading of Wayne Gretzky to Los Angeles has burst; that despite the attempt to broaden the fan base by expanding into new secondary markets the NHL’s popularity is waning. This failure to comprehend the situation and force the longest labour stoppage in the history of professional sports is the biggest mistake they could make. It will erode the NHL’s fan base and set it back 5, 10, 15 years in putting down deep roots in the US sports market. I also believe it will ultimately cost the NHL some teams, teams they were trying so hard to keep with the demands for a salary cap. As a fan I won’t be saddened by the loss of some US teams, in fact I believe that can only help in the survival of Canadian based teams.

Canadian Franchise Survival

The survival of the Canadian NHL franchise is rarely singled out as a reason for the current hard line of the NHL in contract negotiations. A level playing field for all teams with a fiscally responsible framework is for the good of the whole league. In my opinion the franchises that require this are the small, new market US (Columbus, Nashville, Minnesota, and Carolina) and sun-belt teams (Florida, Anaheim). These are the teams that have no fan interest, no local television revenue but still want to be competitive with a payroll of around $20 million. The fact that as little as five years after entering the league they NHL is trying to achieve concessions for these teams is offensive to me when Canadian franchises have suffered for 20 years on a more slanted playing field and came up with many creative ways to stay afloat including large owner groups and fielding less competitive teams than they would like. An April 4 proposal of a $37.5 million salary cap on all teams that places a $22.5 million floor on salaries, down from $32.5 million in previous proposals, can’t look attractive to the player’s union. Certainly it helps the bottom level teams in the US maintain their current payroll and be a little more competitive in the future perhaps, but does nothing for the Canadian franchises, who as established teams in fan driven markets must be at the top end of the payroll range and be competitive. Anything else will not be acceptable to Canadian fans after this labour stoppage, which was promised to fix what was wrong with the NHL. It does nothing to address how the currency exchange rate affects Canadian teams, and a salary cap alone will not change Edmonton’s, Calgary’s or Ottawa’s ability to hang on to free agents. The league has adopted a stance that their economic woes must be fixed on the backs of the players with a salary cap, when without revenue sharing or other mechanisms to keep the strong Canadian market competitive through dollar fluctuations and the like. Any employee faced with management proposing salary or job cuts to address losses while the other half of the problem (such as mismanagement or overspending) went ignored would be agressive in their options to defend themselves, not because they were selfish, but because they wanted to resist rolling over to company whims while the real problem remained unaddressed.

Conclusion

I don’t support one side or the other in this fight. I respect the players’ right to be paid more than a workers wage from a large revenue pool when their careers are very short. I respect the owners’ rights as business men to not pay their employees 75% of their revenue in salary. I believe the players should recognize a good thing and work cooperatively towards a common goal. I believe some owners should grasp that maximizing their profits now does little for the game or their franchises. Ultimately, both have no respect for their revenue streams, the fans, which may cost them when they return and they find no one sitting in the $100 seats or watching on TV.

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OC Jottings

No jottings in the last 7 days. Here is a random jotting.

  • February 20, 2007
    Mark Cohon One of Finalists For CFL Commissioner
    Wright could have been referring to the fact that the league attracts scorn in some corners because its teams routinely flaunt rules on the salary cap, creating an uneven playing field.
    Could have, but probably was referring to a constitution that requires two thirds support on a commissioner confidence vote in an eight-team league. Or the problem achieving a consensus on anything. Or the regular media leaks from owners trying to undermine the commissioner or league with no ability to punish them under the constitution. #
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