NHL: Too Much Monkey Business?

As the economic downturn rears its ugly head with one story after another of major corporations and banks going bust, multi-billion dollar swindles and massive layoffs at companies once considered to be rock solid, what does it all mean for us humble hockey fans?

Consider the case of the Tampa Bay Lightning. Bought by two guys who borrowed the money from the original owner to buy the franchise, and who are now borrowing money from him to make the payments on the money they borrowed, the Average Joe and Jane can be asking themselves, "What the f#&!? is going on here?"

Consider that while NHL salaries are going up, the amount of money that the players have to give up to the NHLPA's escrow fund is also increasing, meaning that players are, it seems, actually taking home less.

Consider that at least three, and perhaps more, franchises are--and pardon the expression--skating on thin ice financially speaking.

In this thread, I'd like to get your thoughts and impressions, while providing you with some of the material I've seen from a variety of Canadian and US sports and media sources.

To kick it off:

The New York Post's Larry Brooks can be pretty snarky, but he does come up with some zingers.

His latest reveals, among other things, that the Bolts are ready to sell Stamkos:

"Tampa Bay management can deny, deny, deny in the best tradition of all sorts of scoundrels, but it is most certainly true that 2008 first-overall draft pick Steven Stamkos is available for trade, at least according to two franchises that have been in contact with the Lightning and have no reason to fib about it."

More on that, the mess in Phoenix, and the coming stalemate in Long Island, here:
http://www.nypost.com/seven/01252009/sports/moresports/showing_up_heres_least_they_can_do_151927.htm?page=0

Damien Cox is not my favourite sports writer, but he has a knack for digging up some interesting dirt.

"Economy not that bad, says Bettman" from today's Toronto Star, casts more doubt on the health of several franchises and the attempts to save them.

http://www.faceoff.com/story.html?id=3c7a1b97-4160-47ba-8e72-0818e29505ab

Thanks to Kukla's Korner for the Larry Brooks story, and Faceoff.com for the Cox article.

As previously posted, the podcast of Michel Langevin's 18-minute January 9th interview with NHLPA president Paul Kelly from Corus Sports Radio Montreal (in English, with intro in French):
http://www.corussports.com/radio/audioplayer.php?file=1359033.mp3&mode=cn&id=1359033&date=20090109

Kelly speaks about the coming pay cuts and 'cap casualties', possible relocation/contraction, and other fascinating subjects. No softball questions in this interview.

The warning signals are there.

A significant number of fans clamour for the contraction of NHL teams, but so far, I have noted few who really consider the possibly disastrous effect contraction could have on the NHL.

Without making an argument for or against it, I wonder if fans think about some of these aspects:

What happens to the players whose teams go bust?
What happens to the jobs related to those teams?
What happens to the minor hockey programs in those markets where franchises are folded?
How many players would lose their jobs if a dispersal draft were held?
Is there any way to do contraction without creating a domino effect where NHL franchises, several of them highly leverage, lose their value?
What would the reduction in revenues do to the rest of the league?

Bear in mind that the last time the NHL underwent a major contraction, it was in similarly difficult economic times. During the Great Depression and the beginning of World War Two, the NHL went from ten teams to just six.

Scaled to today's league, that would be a reduction from thirty teams to eighteen.

This would mean that, assuming a 24-man roster, close to 300 players would have to find new homes.

Ottawa Senators fans, in particular, know what it's like to have their team go bankrupt and get rescued. Not a comfortable feeling.

Food for thought, and hopefully, discussion.

Have a great Sunday everyone!

More on Phoenix from The Montreal Gazette's Pat Hickey:

Coyotes for sale, but don't bet on Balsillie


Commish says no one has divine right to 3rd ontario franchise



PAT HICKEY, The Gazette

Published: Sunday, January 25, 2009

http://www.faceoff.com/story.html?id=4cc8daac-fa68-4dfd-959c-ff4b13c876db

What can I say. I can't disagree with any of that. Except, perhaps, the number of teams that could go down. I'd say that dropping 6 bottom-feeding teams would be more than enough, along with some changes in revenue sharing, of course. One, maybe two teams could be saved by moving franchises to Canadian markets. But I can easily see this league drop to 26 teams before time times get better.

You only need one team in Florida. You only need two teams in the greater New York area. Phoenix, Nashville, Columbus, Atlanta -- not hockey country.

Columbus is a good hockey market. They've supported their team though the good and the bad.

Tukker wrote:Columbus is a good hockey market. They've supported their team though the good and the bad.

I agree with you. Columbus for the greater part of their existence have been in the upper half of the NHL in attendance, it's only been the past year and a half they've been in the bottom 3. And this is a team that has never made the playoffs. Now that they actually have a decent team, that's exciting to watch, I can see them turning things around in terms of attendance and emerge once again in the upper half.

If we are trimming teams that aren't supporting their franchise, then we should trim Chicago. This is the first year in at least the last 8 where they have been in the top half of league standings. Starting in 2001 till present they have been ranked: 24th, 23rd, 24th, 27th, 29th, 29th, 19th, and finally 1st this season. Obviously I don't think Chicago should move, but people shouldn't be so quick to judge what is and what isn't a hockey market.

New Jersey, however, is a joke. In the past 8 years, only twice have they been in the top two thirds in league attendance (they ranked 19th twice, in 2001 and 2002).

NHL attendance was taken from:

http://sports.espn.go.com/nhl/attendance?year=2001

EDIT: Sorry wprager I did not mean that as a direct shot at you. I have just seen too often Columbus not taken seriously as a hockey market. They are a team that doesn't deserve that. I have a lot of respect for the team, and their fans.

You cannot disperse players, thus you cannot contract teams. How do you fold 4 teams with highly skilled, highly paid franchise players? Where do these players go? What team can afford to take on their salary? How do you determine the order for such a dispersal?

DashRiprock wrote:You cannot disperse players, thus you cannot contract teams. How do you fold 4 teams with highly skilled, highly paid franchise players? Where do these players go? What team can afford to take on their salary? How do you determine the order for such a dispersal?

Well, I would think if the league did something so drastic like contract 4 teams, the salary structure in the league could be vastly different. It's the only option though. It would be unfair to the other 600 players in the NHLPA to allow them to become FA lets say. Order would probably go by reverse order according to the standings.

DashRiprock wrote:You cannot disperse players, thus you cannot contract teams. How do you fold 4 teams with highly skilled, highly paid franchise players? Where do these players go? What team can afford to take on their salary? How do you determine the order for such a dispersal?

While in theory, this makes sense, why couldn't the owner simply shut down, and declare bankruptcy?
I'd assume that each has their other business interests sufficiently protected by layers of accountants, lawyers, and corporations, so the only thing to go down would be the team itself. If my understanding of the Ottawa situation is right (and I'd assume it's the same in most centres), even the team and the management structure are separate corporate entities.

Once the team declares bankruptcy, the league may step in for a while, but ultimately, either the team will have to move or fold. In the interim, players will not come, and will demand to be traded, thus dispersal will happen in whatever manner possible, with the exception of the untradables (extreme top of the salary scale, and marginal NHL calibre). The players' union won't be happy, but what can they do? (IIRC, this situation did begin to occur on a couple of occaisions on teams who were on the edge of survival, but never played out to the end-game).

Gary Bettman was interviewed by Ron McLean during the ASG intermission and made a very strong point about contraction being a 'last resort'.

Objectively, it's not hard to see why.

Taking into consideration the hundreds of millions of dollars involved in the operation and revenue management of each team, and all of related economic factors is mind-boggling.

Looking at the attendance chart from ESPN (and thanks to Bass Destruction for posting it) the figures vary widely from year to year over the past five years. (The chart allows the viewer to recalibrate comparative numbers and averages between 2001 and 2009).

http://sports.espn.go.com/nhl/attendance?year=2009

Tampa, for example was near the top of the attendance charts just a few years ago; Chicago, recovering from many seasons as a moribund franchise, is now the league leader in attendance.

The decisions regarding 'holding or folding' cannot be taken with the snap of a finger.

There hasn't been a dispersal draft since 1991 when the Minnesota North Stars players were dispersed between the new San Jose franchise and the new Stars owner group who moved the team to Dallas.

http://en.wikipedia.org/wiki/1991_NHL_Dispersal_and_Expansion_Drafts

There is no precedent for the kind of dispersal draft that would result from the contraction of today's teams.

Bettman explained that the NHL's strategy is three fold: provide a cash infusion; find investors and/or new owners; see if more favorable conditions can be negotiated for a franchise before it is moved.

Even when Jim Balsillie's name comes up, it's worth remembering that though Balsillie flashed his cash, he apparently did not comply with the NHL's standards and practices. Bettman was very emphatic to McLean: "I don't want to personalize this, but I want to make it clear that Jim walked away from the chance to own a team."

Meanwhile, it appears that other suitors from Las Vegas, Kansas City, and now Hartford, are stepping up.

Paul Kelly has said several times that the Toronto/GTA market can support a second franchise. This presumably includes the Kitchener-Waterloo/Hamilton areas.

As a footnote, the Hamilton Tigers NHL franchise, which had previously been the NHL Quebec Bulldogs, operated from 1920 to 1925.

http://en.wikipedia.org/wiki/Hamilton_Tigers

Bettman pointed out that relative to the economic downturn, the NHL is managing to achieve real growth; but he didn't sugar coat it, saying "Nobody knows what's going to happen next year, and we're going to have to be very prudent about managing our expenses."

Again, this is not an argument for Bettman's perspective; I would be interested to hear other points of view.

But it does sound like the days of long term megacontracts and inflated prices for players may be coming to an end.

In fact, I wouldn't be surprised to see some of the existing megacontracts renegotiated at some point.

DashRiprock wrote:You cannot disperse players, thus you cannot contract teams. How do you fold 4 teams with highly skilled, highly paid franchise players? Where do these players go? What team can afford to take on their salary? How do you determine the order for such a dispersal?

Sure you can.

Think about it. The cap is determined by calculating 54% of what the average team makes in revenue. If you drop 4 teams that are losing the most money, the cap, league-wise, is going to shoot up. That's because the remaining 26 teams, which are more profitable, will now be used as the basis to calculate 54% of the average team's revenue. A cut in the number of teams -- at least teams losing money, or not doing all that well financially, or dependent on revenue-sharing -- is pretty much guaranteed to result in an increase in the cap, league-wise.

It'd be like dropping the worst four kids in a class, and *then* re-calculating the class average. Of course it'd go up!

rooneypoo wrote:

Sure you can.

Think about it. The cap is determined by calculating 54% of what the average team makes in revenue. If you drop 4 teams that are losing the most money, the cap, league-wise, is going to shoot up. That's because the remaining 26 teams, which are more profitable, will now be used as the basis to calculate 54% of the average team's revenue. A cut in the number of teams -- at least teams losing money, or not doing all that well financially, or dependent on revenue-sharing -- is pretty much guaranteed to result in an increase in the cap, league-wise.

It'd be like dropping the worst four kids in a class, and *then* re-calculating the class average. Of course it'd go up!

Okay...

So how do the remaining teams absorb close to 100 roster players from the four contracted teams, and who takes over their minor league affiliates?

And how do you account for, and recover, the lost revenue from the four markets you have eliminated, as well as the expected costs related to the contraction, i.e. termination of lease agreements, service contracts, merchandising and license agreements, real estate deals, possible lawsuits, etc.?

davetherave wrote:

rooneypoo wrote:

Sure you can.

Think about it. The cap is determined by calculating 54% of what the average team makes in revenue. If you drop 4 teams that are losing the most money, the cap, league-wise, is going to shoot up. That's because the remaining 26 teams, which are more profitable, will now be used as the basis to calculate 54% of the average team's revenue. A cut in the number of teams -- at least teams losing money, or not doing all that well financially, or dependent on revenue-sharing -- is pretty much guaranteed to result in an increase in the cap, league-wise.

It'd be like dropping the worst four kids in a class, and *then* re-calculating the class average. Of course it'd go up!

Okay...

So how do the remaining teams absorb close to 100 roster players from the four contracted teams, and who takes over their minor league affiliates?

And how do you account for, and recover, the lost revenue from the four markets you have eliminated, as well as the expected costs related to the contraction, i.e. termination of lease agreements, service contracts, merchandising and license agreements, real estate deals, possible lawsuits, etc.?

Careful, though. Not all the changes are in a positive direction:

• merchandising revenues (NHL paraphernalia) would drop dramatically in those markets which lost teams
  
• league-wide, merchandising may drop as fans question the viability of the league in general, or at least question which teams are next
  
• TV revenue will likely drop (there is no doubt that the broadcaster will demand renegotiation if the rights aren't already built into the contract)
  
• initial costs associated with the buy-outs of all those salaries (100 players, many of whom won't have two-way contracts) will likely be borne by the league, especially if bankruptcy is in the picture
  
• a domino-effect may occur, whereby the costs associated with the loss of a few teams may destabilize those who were borderline but surviving, thus accelerating the downward spiral
  

For once, I agree with Bettman, although through the entire interview today (it's the only part of the ASG I watched), I kept thinking to myself "weasel, weasel, weasel, ..." Contraction should be considered a last resort. There is no reason that restructuring can't occur, however. And there is no reason that movement of some of the franchises northward, not southwestward should have already occurred.

Tukker wrote:Columbus is a good hockey market. They've supported their team though the good and the bad.

But are they making money, scraping by or hemorrhaging?

ETA: Sorry didn't see the other posts until now. They aren't doing well now. Perhaps the newness has worn off. Perhaps the recession has set in. My guess is it's the latter, and with nojobs people will spend on college football and hoops before hockey.

wprager wrote:

Tukker wrote:Columbus is a good hockey market. They've supported their team though the good and the bad.

But are they making money, scraping by or hemorrhaging?

Forbes Magazine's 2008 financial profile of the Columbus Blue Jackets franchise can be found here:

http://www.forbes.com/lists/2008/31/nhl08_Columbus-Blue-Jackets_316038.html

Forbes' 2008 picture of NHL teams "The Business of Hockey" can be found here:

http://www.forbes.com/2008/10/29/nhl-team-values-biz-sports-nhl08_cz_mo_kb_1029nhl_land.html?partner=whiteglove_google

Making the playoffs, according to Forbes, is financially critical for the Jackets.

As an example of a franchise that has been turned around under William Wirtz' son Rocky, Forbes' profile on the Blackhawks is worth reading.

An excerpt:

Since Rocky took over, the team's season ticket base has grown from 3,400 to 13,500. FORBES estimates that the team swung from a $3.6 million operating loss in 2006 to an operating profit (Ebitda) of $1.4 million in 2007. A team with a storied brand in hockey's third-biggest city, the Blackhawks last year were worth $179 million. Now we peg the team value at $205 million. "I loved my dad, and he was a wonderful businessman," says Wirtz, who in the past had little to do with the hockey team and ran the liquor operation (annual revenue, $1.5 billion). "But if you are not in front of big changes, you are going to be left in the dust."

The full article here:
Chicago's Comeback
Nathan Vardi for FORBES, 11.17.08, 12:00 AM EST
http://www.forbes.com/forbes/2008/1117/123.html