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Economics 101

Posted 12:55 AM ET | Comments 9
The more posts and reliable news outlets I read there is a common theme. The NHL is anti Canada. Now, I know I may not be the most educated man on the planet or the most business savy, but there were some basic lessons in economics and business. There will be some people who may have a degree or more experience in the field I am about to talk about and I will take criticism as it comes.

The NHL is not Anti Canada, it has never said no to another Canadian team. The only clear thing is that the NHL doesn't want Jim Balsillie to be an owner. That being said here is my take on the situation.

Any pro sport, including hockey is a business. They are in business to make as much money as they can. The only way this can happen is to have people interested in your game. Canada has 32 million people, most are hockey fans and will watch games, buy tickets, merchandice and watch games on TV. Generating revenues for the teams and league, but there is only so much revenue the area can generate. Eventually the well will run dry. The market can become oversaturated and then the revenues could plateau or even start to dwindle. Would a team in Hamilton make money? Of course, that's not the issue. Let's say Hamilton has a team, then Toronto gets a second team, and Winnipeg gets the Jets back, well based on Canada's population and market share it doesn't take a rocket scientist to see that those teams would start to take fans and their revenue away from other Canadian teams and limit the money the NHL can make as a league. Does this sound familliar? Its the "Law of Diminishing Returns". I learned this in grade nine, high school and college. Remember the curve? the one where the line grows at an exponential rate and then stops rising and begins to drop. Well I think the Canadian market is just before the drop off. It could support another team or two, but not without an adverse affect on teams in the region.

The United states is nowhere near the midpoint of the previously discussed curve. With a population of 320 million and a minor amount considered to be hockey fans the potential for revenue generation is limitless. The only thing is that the revenues are harder to generate because you are trying to introduce a sport to areas of a country that may have never seen or played your game. There are no grass roots, but the seeds have been spread, they just need time to grow.

I mentioned at the start that the NHL was a business. Well, any business I have worked with is looking for a certain rate of return. I have a take on this too, one that most of us deal with on a daily basis. This one is a little harder to grasp becuase the revenue numbers may say otherwise.

The NHL in Canada is makes money. Would a team in Hamilton make money? Yes, that's not the issue. Due to Canada's population and market share there is only so much money that could be made, limiting the rate of return for the league. It would be like investing into a savings bond. Would you make money on your investment? Yes, would it be a good rate? not really.

If I wanted to make more money, like most people would I go to the stock market. Is my return guaranteed? No, but can I make more money? Way more, but I have to ride out the cycles. This is like the NHL in the US. Sure NHL may be struggling in Tampa, Phoenix and Nashville, but they have the potential to earn more money than Edmonton, Calgary, Vancouver or for that matter a team in Hamilton. It just takes time.
Filed Under:   NHL   Opinion   Oilers   Phoenix Coyotes  
August 12, 2009 12:02 PM ET | Delete
August 12, 2009 1:56 PM ET | Delete
You fail at geography forever.
August 12, 2009 2:37 PM ET | Delete
You made some good points but fail to recognize that many US based teams are supported in large part by Canadians. Buffalo would be negatively impacted by a team in Hamilton, none of the Canadian teams would suffer. Half of Buffalo's season tickets are sold to Canadians in the Niagara and Golden Horseshoe regions.
August 12, 2009 2:39 PM ET | Delete
Likewise, a return of the Jets would impact the Wild in Minnesota....not as much as Buffalo, but certainly affect them. Winnipeg is isolated and they also would not hurt other Canadian teams. Winnipegers are unable to affect another Canadian market because they can't support it given the geography!
August 12, 2009 2:41 PM ET | Delete
Your argument makes sense if a second team in Toronto and Hamilton and the Leafs existed or maybe in Montreal or the Maritimes, other than that, there is certainly solid economic evidence to suggest that 2 more teams (Winnipeg and Hamilton) can be accomodated while hurting Buffalo but the net gains of Hamilton would offset any Buffalo losses as the would be Leaf like in support
August 12, 2009 6:15 PM ET | Delete
August 12, 2009 11:25 PM ET | Delete
Toronto could get two more teams and still not win the cup. As for keeping a team in Phoenix I think the NHL is just trying to make a point. Case in point even if you can afford a Tim Horton's franchise for example you just can't move it too where ever you want just cause you own it. You own that franchise in that area. Just because you want a new location doesn't mean you can move it. Balsille is an idiot and the NHL is making him look like one daily.
August 13, 2009 5:31 AM ET | Delete
Most points were bang on, except the inclusion of Vancouver as a lesser revenue source than Tampa, Nashville and Phoenix. Vancouver has about 3 million people and is the only team in BC (population about 4.3 mil). It is also one of the rare Canadian cities that is well supported by a nearby US metropolis instead of the other way around. With Seattle being a similar size to Vancouver and within driving distance for games it has huge revenue generation potential.
August 13, 2009 5:37 AM ET | Delete
Also, I agree that the NHL is not anti-Canada. We lost 2 teams due to tough economic factors. When the time is right, the league will seriously consider another Canadian franchise. But they can't just create one on sentimental support. If the business of the game is better served with a US city having a team, then it will be there instead. That's why Vegas will likely have a team next.
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