Thursday, March 5, 2009

NHL Nearing A Business Peak?

The 2008 All Star Game in Atlanta

The NHL is on pace for another record season in terms of overall revenue, ticket sales, average attendance, and TV ratings (the last since the lockout). The economy has reached new lows and every expert is forecasting hard times for the sports industry. How much danger is our sport in? A little, I think.

First, lets take a look at the Hockey Related Revenues of the past decade (click to enlarge. NOTE: the pre-lockout revenues are totals of team revenues, thus making them estimate/ballpark figures. Exact figures were not available to me):

Since the lockout, the NHL's revenue has grown just over 16% to about $2.6 Billion. Everyone has heard Commissioner Bettman's projections for this year, starting at definite growth to recent reports indicating flat or slight loss of revenue. In this economy, staying at a flat rate around the current $2.6 Billion would definitely be a great accomplishment. If the league comes through with a 1% growth as I have projected, it would be another added success for the league. But, until the economy recovers (which may take 3-5 years), I do not see the NHL growing more than 1-2% in terms of revenue per year. At the same time, if the NHL were to flatten or drop in revenue for the next couple of seasons, it wouldn't surprise me the least because I think the NHL is reaching a business peak either now or in the near future.

Why do I think this? As it says right on the homepage of this site, 43% of the leagues revenue in 2007-2008 came from ticket sales. The NHL is a gate-driven league, and I don't think anyone is in a position to argue against this. Take a look at the NHL average attendance over the years (click to enlarge):

The league average attendance is at an all-time high, and if the pace continues for the rest of this season, the league will set a new record along with most likely passing the NBA in average attendance. But, say the season ended yesterday and the 17,338 average stood for this season. The NHL does not have much room to move to expand in terms of attendance, as the average capacity in the NHL is 18,446 (take average of NHL Arena capacities). Thus, unless teams are selling over 100% capacity (which some do), the NHL average attendance cannot go any higher than 18,446.

So, what can the NHL do to continue/keep its growth and revenue going? There are simple and raw ideas everywhere such as relocation, contraction, expansion, and taking a cut to get back on ESPN. I have three keys that I think will keep the financial stability of the league up along with possibly fueling the league for future growth when the economy turns around.
  • Be Very Cautious with the Salary Cap
Since being implemented in 2005, the NHL Salary Cap has jumped nearly $20 Million from the original $39 Million in '05-'06 to this seasons $56.7 Million. Raising the cap at $5-6 Million a year is something I never understood. What is the big rush? It seems as though the league has forced some giant contracts with such rapid inflation of the cap. Next seasons salary cap will suffer because of these jumps, as the cap will either stay flat or drop.

Just google something about bad or worst sports contracts and you will get millions of opinions on the worst ones ever signed or how huge deals are killing sports. As a Ranger fan, I cringed when I heard the amount Wade Redden got this summer. The economy slow down which is no doubt having an influence on the cap might be the best thing for it, as a couple of seasons of the cap staying flat or dipping probably wouldn't be the worst thing to happen to the league. At the same time, don't get me wrong, a top NHL player making $7 Million a year compared to Manny Ramirez making over $20 Million a year isn't fair. But you have to consider the economies at scale.
  • Get Creative with Television
As the late Jack Fallah would agree with me, Hockey and Television was not a good mix from the start. It has gotten better, much better, but at the same time Hockey and Television has never really taken off, with the exception of the mid-'90s on FOX. What do I mean by creativity? How about splitting networks, adding networks, or just getting back on FOX or ESPN? At the same time, I think the broadcasting of hockey could benefit from new technology. Mr. Fallah never liked how the camera would zoom too far in on the puck, not allowing him to see players away from the puck, which is where an important part of Hockey is played, and I would have to agree.

Look, the NHL on TV is like a marriage for business purposes. Of course it helps and the relationship is OK, but everything is not there. I do not have any magic answers, I just wish the NHL would get creative and serious in exploring their options for broadcasting the league.
  • The Obvious, Fix Two Franchises A.S.A.P.
I saved the most obvious for last. To me, some money the NHL earns falls between the cracks because of how much the league has to support struggling franchises in certain markets. Every league has gone through situations like this, and some successful franchises this season were once in trouble no less than 5 to 10 years ago. But, with the economy struggling to early 1990's levels, stopping the bleeding would greatly benefit the league on the bottom line. There could be many ways to do this, and I'm not sure what would be the best and most efficient, but something has to be done.

In general, I think the league is looking up and is in good position to deal with the economic struggles. I see no real reason as to why playoff ticket sales will struggle (besides the markets being in the toilet), as many fans save up for this certain time of year. Bettman and company are saying the playoff tickets will be an indicator for next season. I somewhat agree with this, but retaining current season ticket holders will be an even bigger indicator. If many teams do not reach a flat level of retention, the NHL could experience its first drop in average attendance in three years.


Attendance: Andrew's Stars Page
Revenues: Andrew's, Daniel Tolensky
TV Ratings: Andrew's

BallHype: hype it up!

1 comment:

  1. What will be key is if the league can manage to negociate a solid TV deal in the next few seasons.