The Economic Reaction of the NHL: A Guide
Posted 1:28 PM ET | Comments 4
The National Hockey League (NHL) is the largest-scale professional ice hockey league in the world. Its ability to attract the most talented players from around the world has enabled it to grow from a small, six team, regional league in the 1950s to the thirty franchise NHL of present day. Notwithstanding the League’s concerted effort at continued growth and expansion, the NHL is facing dire straits; the global economy is facing a downturn not seen since the Great Depression and professional sports are not immune to its effects. In order to combat these recessionary pressures, the NHL must make a poignant effort to set out a specific marketing strategy in which they utilize their strengths and disband their weaknesses. More specifically, it would be in the League’s best interest to contract in size from thirty to twenty-six teams, relocate two franchises to more profitable regions, promote a reliable, more thorough means of revenue sharing, and focus on marketing its product to hockey fans, not “flaneurs” (Mason, 2006b, p. 195). It is with these steps in their respective order by which the League could promote both a short- and long-term successful business model.
Currently, the NHL is situated in multiple non-traditional hockey markets: Los Angeles, Anaheim, San Jose, Phoenix, Dallas, Nashville, Atlanta, Sunrise, Tampa, and Raleigh. Of these ten non-traditional hockey markets, four have proven to be viable in the long-term: Los Angeles, Anaheim, San Jose, and Dallas. The remaining six, located in the South Eastern United States with the exception of Phoenix and, to an extent, Nashville, have been perennial “cellar-dwellers” with respect to fan attendance, averaging 83.4% (Appendix 2). This number is approximately 13.5% lower than the other twenty-four franchises that, when separated average 96.9% attendance (Appendix 3). The NHL’s overall average attendance is 94% (Appendix 1). From this trend, it can be ascertained that with increasing economic pressures, none of these six franchises have reason to maintain hope in the foreseeable future.
When looking at the North American market for professional Ice Hockey, the northern part of the continent proves more climatically congruent than its counterpart to the south. It is because of this that the League would be well-advised to remove four franchises from the NHL, contracting it to twenty-six teams. The other two teams would be well-suited to move into the under-represented Canadian NHL market: Toronto and Winnipeg. There are, however, some specific problems that the League must address before moving two franchises, most notably indemnification fees and arena construction. Since the Greater Toronto Area (GTA) has a population of over 5,000,000 (The Greater Toronto Marketing Alliance, 2005), it is obvious that a second team is more than feasible. It must be noted that an indemnification fee would be payable if the franchise relocated to within 50 miles (Class Lecture, 2009) of the Air Canada Center (ACC), the home of the Toronto Maple Leafs; however, for argument’s sake, we will assume that the team will relocate to a location the required distance from the ACC. With respect to arena construction, the recent interest of purchasing the Nashville Predators from Jim Balsillie, co-CEO and co-founder of Research in Motion, leaves little question about the second Toronto franchise building an arena. Winnipeg, on the other hand, is in a more complicated situation; with the largest facility being the Winnipeg Arena that only seats 15,565 people (Winnipeg Arena, 2009), a new facility would be required. To do so, a combination of corporate sponsorship of the arena, Personal Seat Licenses (PSLs) (Mason & Howard, 2008, pp. 132), and government subsidy would likely be required. Given that the city of Winnipeg supported an NHL team from 1979 through to 1996 (Winnipeg Jets, 2009), it is probable that the League could find a way to make this relocation work.
With contraction of the League, a draft would be required to relocate the displaced players from the four contracted NHL franchises. The operation of this draft would essentially mirror the NHL entry draft, with a lottery determining the order of picks. This draft would serve to improve the quality of play at the NHL level as the same number of players are now competing to play on 4 fewer teams. While an agreement would have to be reached with the NHL Players Association (NHLPA) in the Collective Bargaining Agreement (CBA), this process would serve to better the quality of play in the league, thereby making it more appealing to the target market and more sustainable in the long-run.
The National Football League (NFL) is financially the most successful of all professional sporting leagues in North America. Given this fact, the NHL could profit greatly from mimicking the NFL’s revenue sharing program. Currently, the NFL places “40% of gate revenues into a common pool to be shared equally among all teams. The remaining 60% [is] divided equally by the home and visiting clubs” (Mason, 2008, p. 85). Currently, “the NHL shares national television contracts and licensing revenues, but does not share local gate revenues” (Mason, 2008, p. 87). This strategy of hording gate revenues can lead to agency problems, resulting in a lack of correlation between league goals and individual franchise goals. By sharing revenues, each team benefits from every game played. Furthermore, each team has a vested interest in the proper management and promotion techniques of every other franchise. Although each franchise must be committed to beating their opponents every time they compete, it is not in their best interest to do away with the competition; without the competition, there would be no league to play in. Thus, given the disparity between the seat sales among the markets in the NHL, following contraction, the League would be well advised to equally distribute approximately 60% of all seat sales in the NHL, thereby promoting parity and a balance of competition within the League.
For too many years, the NHL has pushed for television contracts and entrance into large, non-traditional hockey markets. This push has resulted in debacles like the FOX Sports “comet tail” on slap shots, and the emergence of “flaneurs” (Mason, 2006b, p. 195). “Flaneurs” are fans that are “liable not only to switch a connection with teams or players, but also to forsake [the sport] for other forms of entertainment” (Mason, 2006b, p. 195). In the final phase of adjustment, the League needs to focus on those customers that make them money; the fans. Given that the NHL receives “nearly 80% of all revenues in the NHL… from gate and venue-related revenues” (Mason, 2006b, p. 194), it is in the League’s best interest to attract people to fill the seats. Given that current league attendance is at 94% (Appendix 3), there is only marginal room for improvement; however, any improvement that does occur will do more than increase direct revenues. As more people attend NHL games, the more people talk about it. The more that people talk about the NHL, the more people will tune in to watch the NHL on TV. Once TV ratings go up, corporate sponsorships quickly follow. Hence the League would be best served in focusing on the short-term goal of filling the stands, and, with proper nurturing and development of those fans, larger television contracts will soon follow.
Given the current economic climate in North America, the NHL could be facing an era of difficulty and depression; however, with the specific implementation of contraction, relocation, revenue sharing, and focus on the individual fan, the NHL could turn a dangerous situation into a glorious opportunity.
Currently, the NHL is situated in multiple non-traditional hockey markets: Los Angeles, Anaheim, San Jose, Phoenix, Dallas, Nashville, Atlanta, Sunrise, Tampa, and Raleigh. Of these ten non-traditional hockey markets, four have proven to be viable in the long-term: Los Angeles, Anaheim, San Jose, and Dallas. The remaining six, located in the South Eastern United States with the exception of Phoenix and, to an extent, Nashville, have been perennial “cellar-dwellers” with respect to fan attendance, averaging 83.4% (Appendix 2). This number is approximately 13.5% lower than the other twenty-four franchises that, when separated average 96.9% attendance (Appendix 3). The NHL’s overall average attendance is 94% (Appendix 1). From this trend, it can be ascertained that with increasing economic pressures, none of these six franchises have reason to maintain hope in the foreseeable future.
When looking at the North American market for professional Ice Hockey, the northern part of the continent proves more climatically congruent than its counterpart to the south. It is because of this that the League would be well-advised to remove four franchises from the NHL, contracting it to twenty-six teams. The other two teams would be well-suited to move into the under-represented Canadian NHL market: Toronto and Winnipeg. There are, however, some specific problems that the League must address before moving two franchises, most notably indemnification fees and arena construction. Since the Greater Toronto Area (GTA) has a population of over 5,000,000 (The Greater Toronto Marketing Alliance, 2005), it is obvious that a second team is more than feasible. It must be noted that an indemnification fee would be payable if the franchise relocated to within 50 miles (Class Lecture, 2009) of the Air Canada Center (ACC), the home of the Toronto Maple Leafs; however, for argument’s sake, we will assume that the team will relocate to a location the required distance from the ACC. With respect to arena construction, the recent interest of purchasing the Nashville Predators from Jim Balsillie, co-CEO and co-founder of Research in Motion, leaves little question about the second Toronto franchise building an arena. Winnipeg, on the other hand, is in a more complicated situation; with the largest facility being the Winnipeg Arena that only seats 15,565 people (Winnipeg Arena, 2009), a new facility would be required. To do so, a combination of corporate sponsorship of the arena, Personal Seat Licenses (PSLs) (Mason & Howard, 2008, pp. 132), and government subsidy would likely be required. Given that the city of Winnipeg supported an NHL team from 1979 through to 1996 (Winnipeg Jets, 2009), it is probable that the League could find a way to make this relocation work.
With contraction of the League, a draft would be required to relocate the displaced players from the four contracted NHL franchises. The operation of this draft would essentially mirror the NHL entry draft, with a lottery determining the order of picks. This draft would serve to improve the quality of play at the NHL level as the same number of players are now competing to play on 4 fewer teams. While an agreement would have to be reached with the NHL Players Association (NHLPA) in the Collective Bargaining Agreement (CBA), this process would serve to better the quality of play in the league, thereby making it more appealing to the target market and more sustainable in the long-run.
The National Football League (NFL) is financially the most successful of all professional sporting leagues in North America. Given this fact, the NHL could profit greatly from mimicking the NFL’s revenue sharing program. Currently, the NFL places “40% of gate revenues into a common pool to be shared equally among all teams. The remaining 60% [is] divided equally by the home and visiting clubs” (Mason, 2008, p. 85). Currently, “the NHL shares national television contracts and licensing revenues, but does not share local gate revenues” (Mason, 2008, p. 87). This strategy of hording gate revenues can lead to agency problems, resulting in a lack of correlation between league goals and individual franchise goals. By sharing revenues, each team benefits from every game played. Furthermore, each team has a vested interest in the proper management and promotion techniques of every other franchise. Although each franchise must be committed to beating their opponents every time they compete, it is not in their best interest to do away with the competition; without the competition, there would be no league to play in. Thus, given the disparity between the seat sales among the markets in the NHL, following contraction, the League would be well advised to equally distribute approximately 60% of all seat sales in the NHL, thereby promoting parity and a balance of competition within the League.
For too many years, the NHL has pushed for television contracts and entrance into large, non-traditional hockey markets. This push has resulted in debacles like the FOX Sports “comet tail” on slap shots, and the emergence of “flaneurs” (Mason, 2006b, p. 195). “Flaneurs” are fans that are “liable not only to switch a connection with teams or players, but also to forsake [the sport] for other forms of entertainment” (Mason, 2006b, p. 195). In the final phase of adjustment, the League needs to focus on those customers that make them money; the fans. Given that the NHL receives “nearly 80% of all revenues in the NHL… from gate and venue-related revenues” (Mason, 2006b, p. 194), it is in the League’s best interest to attract people to fill the seats. Given that current league attendance is at 94% (Appendix 3), there is only marginal room for improvement; however, any improvement that does occur will do more than increase direct revenues. As more people attend NHL games, the more people talk about it. The more that people talk about the NHL, the more people will tune in to watch the NHL on TV. Once TV ratings go up, corporate sponsorships quickly follow. Hence the League would be best served in focusing on the short-term goal of filling the stands, and, with proper nurturing and development of those fans, larger television contracts will soon follow.
Given the current economic climate in North America, the NHL could be facing an era of difficulty and depression; however, with the specific implementation of contraction, relocation, revenue sharing, and focus on the individual fan, the NHL could turn a dangerous situation into a glorious opportunity.
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