Originally posted at PredNation.com
In 1997, the NHL awarded four new expansion franchises to begin play over the next several seasons. Nashville, Atlanta, Minnesota, and Columbus were awarded franchises that first hit the ice in 1998, 1999, 2000, and 2000 respectively. This expansion was on the heels of two franchises, Colorado and Phoenix, moving from Canadian cities in 1995 and 1996 respectively, as well as the move of the Hartford Whalers to Raleigh, North Carolina to become the Carolina Hurricanes in 1997. Those relocations were themselves on the heels of several years of expansion that began in 1991 and brought in franchises in San Jose, Ottawa, Tampa, Anaheim, and Miami (Florida Panthers) as well as the relocation of the Minnesota North Stars to Dallas in 1993. Over a period of less than ten years, the NHL went from a league of 21 teams to a league of 30 teams by expanding or moving a total of thirteen franchises- a mind-boggling and unprecedented number in professional sports when discounting league mergers.
Gary Bettman is the commissioner of the NHL- a position he’s occupied since February 1, 1993. While the wheels were definitely set in motion prior to his term in office, the league direction since the early ‘90’s has been to migrate the game of hockey from “traditional” areas in the north to new areas in the United States in order to increase revenue streams via a larger fan base and the television contracts that would follow that fan base. Is that the case today?
Early on, those efforts were generally successful. The pinnacle of success was just after the 1994 season with media attention received from the New York Rangers winning of Lord Stanley’s Cup. What followed was the first labor dispute of Bettman’s tenure. The resulting years after that work stoppage have had moments of success to be sure, but that goal of increasing those revenue streams and increasing the fan base, particularly in the United States, is essentially at a stalemate at best. To understand why the NHL is at a crossroads, we must first examine some issues that this writer believes to be the core of the problem. From this point, I leave the factual world behind and move to the world of supported (hopefully) theories.
Without a substantial television contract, the NHL has had to rely on other revenue streams. Today, of the “big-four + NASCAR”, the NHL is the only league that lives on gate revenue first. There are several impacts to living off gate revenue. By living off of the gate receipts, a team’s financial success can be tightly integrated with the team’s success on the ice- particularly with how far a team advances in the higher-priced playoffs. This is especially true with teams that are not in “traditional” markets and don’t yet have the built in fan base to support a team in good and bad times. With the CBA crafted in 1995, this effect was especially magnified by having teams with payrolls that were three and four times the size of others. Small and/or “non-traditional” market teams generally had small payrolls in order to reduce their losses. Even many of the teams with larger payrolls and sold-out arenas suffered losses unless they either raised ticket prices, advanced deep into the playoffs, or both. None of these issues indicate a stable league. While the latest CBA has done a very good job introducing a level playing field for the teams in terms of salary, there are signs that the revenues are reaching their limits. This past season, the playoff games in Detroit were not sold out for the first time in years. The prices for those tickets crossed the line for that market- a market in one of the Original Six cities fielding a highly successful team. Attendance in several markets- large, small, traditional, and non-traditional- has been struggling of late. The latest increase in league revenue is the result of the NHL coming closer to exhausting its last bit of wiggle room by raising ticket prices in those markets believed to be able to handle it. Detroit seems to indicate that the end of that rope is near.
Assuming a substantial television contract is not in the immediate future, what other revenue streams are available to the league to keep the overall revenue consistently increasing? Expansion always brings an immediate boost to the league revenues followed by two or three years of a “honeymoon” period in the new market. Expansion, however, can not be a consistent revenue stream. Markets that have a team with low ticket prices and low attendance, while also fielding a competitive team, definitely might benefit the league if moved to a different market (assuming there are not other factors in play like disputes between a city and an owner). Franchise relocation, however, doesn’t provide a consistently growing revenue base either. Without a television contract, the future for consistent revenue growth looks bleak.
Additionally, the league’s goals of wanting a wider fan base and a large television contract in the United States do not support franchise relocation, particularly to “traditional” areas in Canada, nor do they support much further expansion- especially into those “traditional” areas. Both contribute to league instability (particularly franchise relocation), and that scares any potential investment in the league (which is what a network would be doing by awarding a large contract to the league).
This brings us back to the NHL being at a crossroads. Today, franchise instability and poor marketing has brought the league to the point they are today. The goal of obtaining a large television contract in the United States is still there, but it is obviously several years off. The current CBA has done a good job of spreading player salaries more equally among the teams- forcing a team to earn success by bringing in the right players, coaches, and management. The CBA is not a panacea to all that ails the league. With the pressure applied by interests in Kansas City along with the trials faced by the Penguins and Predators, the NHL will be forced to make a decision in the very near future.
There are several options available to Commissioner Bettman and the league owners:
The first option is to scrap the plan to woo a large television contract from an American network at this time and follow the money to Canada. Increasing the number of franchises in Canada- via relocation, expansion, or both- would allow the NHL to charge Canadian networks a larger fee to carry their games when the current contract(s) are up for renewal. If expansion is involved, there would also be an immediate revenue boost. Franchise relocation to Canada, assuming the market can bear it over the long term, would also provide an immediate boost by adding the possibility of franchise(s) with higher attendance numbers at possibly higher ticket prices. Fully embracing this option is the easiest path and has the largest short term reward, but could also further deepen the niche the league occupies in the United States to the point that they could never recover, particularly if the Canadian dollar ever falls in value.
The other extreme is to stick to their guns of expanding the game and wooing the American networks. Franchises must occupy all of the major markets and several strategically located smaller markets. The league must maintain franchise stability and aggressively market the game and all its teams. They have already made their job difficult with the franchise instability to this point, the lack of good marketing, and the move to a fledgling network. Remaining on either of those paths, with the possible exception of remaining on Versus, continue to make this option nigh-on impossible. This is the most difficult option, by far, given the pressures of increasing the revenue stream.
Another option is to adopt some type of middle ground between the two extremes. For example, if the league expanded to 32 teams and at least one team was strategically placed in Canada (via expansion or relocation), the league would be able to increase immediate revenues via expansion fees and Canadian television rights while maintaining at least 24 franchises in the United States. Following this up by diverting the influx of cash to aggressive marketing campaigns (during non-hockey sporting events) and televised games that use popular teams to showcase the newer and/or non-traditional teams. Focus those efforts primarily in those areas that need it the most- American television contract and non-traditional markets. If expansion/relocation is to happen, do it at one time (along with any re-alignment necessary) and then re-dedicate efforts to ensure franchise stability and ease the fears to any potential investors.
Which road is Bettman going to follow? I believe there are clues that point to that final option. Rumors of expansion have resurfaced recently. Las Vegas has long been rumored, as well as Kansas City and Houston. Then there is Balsillie with his obvious push to buy the Penguins and now the Predators in an effort to relocate one of them to Hamilton, followed by Bettman showing “interest” in the possibility to having more teams in Canada. Where Bettman is really struggling is that he, and several other owners, can’t stand Balsillie because he refuses to play the “political” game of team ownership. I believe Bettman’s first choice would have been to expand into two US cities sometime in the next three or four years. Balsillie has forced his hand. He obviously wants a team in Hamilton- either via relocation or expansion. The price Balsillie is willing to pay will force some owners to take notice- particularly those willing to sell their own franchises. If Nashville achieves the attendance mark for this season, it would be at least three years (counting the upcoming season) before Balsillie could legally move the team. Signs are pointing to that mark being reached, which adds more pressure to Bettman.
Bettman has the difficult task of increasing revenues (without just raising ticket prices), while also growing the game in the US, while being pressured by a potential new owner wanting to have a team in Nashville. Would he attempt to solve his problems by granting an expansion franchise to Vegas/KC/Houston and to Balsillie in Hamilton while solidifying those other franchises in non-traditional markets with aggressive marketing? Or would he expand into two of Vegas/KC/Houston and allow Balsillie to move the Predators to Hamilton? Given the need to increase revenue, while stalling for time in terms of an American television contract, I believe expansion is a definite and relocation (Nashville and/or other teams) is a definite possibility. Either way, I believe Canada will get another team. That said I believe that expansion is looked upon more favorably than relocation by the league and by any potential new investors in the league.
I hope that Bettman earns his raise over the next few months- for the league’s sake.
David Singleton ([email protected]
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