Posted by John Vrooman on Friday, November 7, 2014 in National Hockey League.

Interview with CBS. 

The NHL has almost doubled its revenue since 2006.  What’s the secret to its success?

The NHL last added nine clubs in 9 years in their ill-fated sun-belt expansion from 1991 – 1999. This caused an explosion in payrolls from 56 percent of revenue to over 75 percent by 2003-04. This immediately resulted in the lockout of 2004-05 and the imposition of a hard salary cap at 57 percent of HRR (hockey related revenues). The players share has since been reduced to 50 percent in the most recent CBA. As a consequence the NHL has insured virtual cost certainty and increased profitability.

On the revenue side the NHL has always been heavily reliant on gate and venue revenue and while the League has experience fairly steady revenue growth the prosperity has not been shared by all of the clubs. The League is virtually split in half and deeply polarized in terms of revenue distribution.  Revenue sharing in the NHL is the lowest in all of the Big 4 NA leagues and the top ten clubs in particular have enjoyed box office success.

 The prosperity is also split between the traditional hockey markets and those hastily added in the sun-belt expansion. The non-traditional more southern markets have enjoyed some success but attendance is very volatile and heavily dependent on the quality of the product on the ice. This is not so much the case in the traditional (Original 6) markets particularly in Canada.

The most financial success is enjoyed by the Toronto Maple Leafs a team valued at $1.2 billion (the Buffalo Bills just went for $1.4 billion) that hasn’t made it out of the 1st round (knocked out first round in 2013) of the playoffs since 2004.  The Montreal Canadiens were the last team to win the Stanley Cup back in 1993.  This economic success of underperforming traditional market clubs is similar to the NFL Dallas Cowboys who are worth over $2.3 billion in spite of playing  .500 for the last 3 seasons.

 Major recent success comes from the hefty (in NHL terms) TV packages of about $21 million per club. NHL annual rights 2014-26 Rogers Sportsnet $433 million 2014-26; (12 years $5.2 billion); NBCSN $200 million per year 2012-21 (10 years $2 billion). This doubles the last contract and amounts to 20 percent of NHL revenue, but it still pales to the TV shares of about ten times that amount for the NFL clubs.

 The League has recently floated the idea of expanding by 4 teams which would probably repeat the negative effects of the last sunbelt over-reach. The Atlanta Thrashers have already retro located to the Winnipeg Jets. The best future would probably find an expansion club in Seattle and Quebec City for 32 clubs. The other possible options of Las Vegas and a second club in Toronto would probably be problematic.

 How much of its success is due to Gary Bettman?

Many traditional hockey fans would say that giving Commissioner Bettman any credit for NHL success would be like the Rooster getting credit for dawn.  Bettman gets all of the blame for the short-comings of the League (particularly the sun-belt expansion) but he also certainly deserves some of the cred for the re-stabilization of the league after 2004-05.

Will hockey always be a niche  sport?

Probably so, but its Board of Governors also must be careful of becoming too provincial in franchise location and style of play on the ice. This conservative economic policy  and under-estimation of markets in Western Canada and the US and the quality of play throughout the US, Eastern/Northern Europe and Russia led to the rival league war (WHA) which forced the conservative board of governors to change their traditional ways of thinking about hockey economics and the game itself. In the end hockey will be an economic success, but the clubs in non-traditional markets must deliver on the ice.

V