With the recent cancellation of the Winter Classic by the NHL, I examine the NHL’s lockout relative to the other sports leagues and whether the proposed solutions will actually address the league’s financial problems.
The NFL: Largest national television contracts, hugely successful marketing deals with incredible revenue sharing that allows small markets to compete. See Green Bay, San Diego, Baltimore. true parity. Ticket receipts are not very important to the financial success of a team. Each team must be in benefit. The last work stoppage was in 1987.
MLB – Massive National TV Contracts, Biggest Online Commercial, Summer Sports Monopoly. While large markets can spend, smaller markets are still profitable because teams with lower incomes can spend as little as they want to build a team. If a team will have revenue of $60 million, you can field a team for $30 million to make a profit. Each team must be in benefit. No work stoppage since 1994.
The NBA: Great national TV deals, great gate attendance for winning teams, poor for losing teams. The tiered financial system allows wealthy teams above the luxury tax threshold to directly subsidize teams below the threshold. The profitability of a team is questionable in smaller markets where media deals aren’t big enough to help offset low revenue figures at the gate. Bad receipts at the gate are a reflection of poor team results. See Charlotte, Milwaukee, Memphis. Small market teams can be successfully managed, check out San Antonio and OKC. The NBA has lost games in the 1999 and 2011 seasons.
How about the NHL?
The top 10 revenue teams do extremely well. The Canadian and Northeastern US markets sell their buildings and do reasonably well with local media deals. The national TV deals shared by all the teams are a relative pittance compared to previous leagues. We’re left with the 10 middle earning teams that need a deep playoff run with the extra dates to perhaps break even and the 10 worst earning teams where even a Stanley Cup win would mean a loss of tens of millions of dollars. This is the crux of why the NHL is at an impasse with its players.
Gary Bettman has created a tiered league in which only a third are truly financially sustainable. The league has expanded into so many non-traditional hockey markets that Gary has a problem. These markets will not support teams that do not win. They don’t like hockey enough as a sport to support the game for the sake of it, they can support a winner. See Colorado and how attendance dropped once the Sakic and Forsberg era ended.
Strong hockey markets can be financially sustainable even in low years in terms of on-ice performance. These teams have time to build a better team with the goal of winning more games, which in turn will make more money. But when you have 30 teams and 16 playoff spots, 14 won’t make it. Hence the ridiculous point system that Bettman created to keep all the mediocre to bad teams fighting for eighth place in their respective conferences. This is Bettman’s strategy to keep as many of these poor hockey markets interested in the playoff race for as long as possible.
To enforce this parity in the last CBA, Bettman fought hard to get the salary cap, but in doing so, he implemented a minimum salary. With the Canadian dollar turning toward parity with the US dollar and the continued success of the top-tier markets, under CBA rules, lower-tier teams were FORCED to spend at salary levels they couldn’t afford.
Where does this lead us? We have top tier fans, players and teams being held hostage to help these lower tier revenue teams. But will Bettman’s plan for a larger share of hockey-related revenue, the 50-50 deal, really help these teams?
The answer is no!
All of the NHL’s proposed 50-50 deals would keep all respective teams more money, but the teams’ lower income levels would still be hugely unprofitable.
With a gate-driven league, where most of the money is made in-building during games from tickets, luxury suites and concessions, revenue sharing in a pure sense is a hard sell. Why would the owners of the Leafs or Rangers want to just write the league a check for $30 million just because they draw better than Florida or Carolina? This is why revenue share levels remain so low. Sharing national television deals and marketing deals is much easier because those deals are negotiated at the league level even though the major teams and markets drive these deals. But the NHL’s deals in this regard lag far behind the other leagues, leaving lower-attendance teams with a huge cost-to-revenue gap.
So how can we structure the new NHL to make it more profitable for more teams with at least some sense of parity?
First, Bettman needs to forget the idea of full parity. The NFL is able to accomplish this because all teams can break even with their costs from their equal share of their league and television marketing deals without a single dollar of game-day revenue. This just isn’t possible with the gate-driven NHL. To make revenue sharing more palatable to top-tier revenue teams creating their own wealth, institute a luxury tax on every dollar spent over the limit. If the Rangers want to spend $10 million over the cap so they can get better players, then they pay $10 million into the tax fund. All teams that stay below the tax threshold get an equal share of the pot from the contributors.
Second, eliminate the wage floor. Teams in Florida, Phoenix and Tampa should be closer to $20 million in salaries, not the mandatory $40 million.
It’s all very well telling players that “we owners want closer to 50% of revenue than 43%.” But all the current plan will do is make the richest teams richer by being able to keep more of their profits and it will not noticeably improve the financial situation of the 20 or so teams that are losing money hand over fist and creating this need for a work stoppage every few years and potentially a second lost season.
Bettman’s current CBA plan, like all those before it, doesn’t address his league’s real economic problems, but instead attempts to shape the league toward an ideal of parity that it cannot achieve sustainably.