Posted by John Vrooman on Monday, June 27, 2016 in National Hockey League.

Interview with Las Vegas Sun.

NHL Expansion/Relocation.

Bottom line: NHL hockey can and will probably survive, but not thrive in Las Vegas. It is highly doubtful that the expected cash flow from more hockey in the Desert can justify the bloated expansion sticker price of $500 million, which is the current average value of an already up and skating NHL club in more traditional hockey markets.

A more reasonable NHL expansion fee should probably have been closer to $300 million over and above the cost of T-Mobile Arena.

I have attached my expansion relocation recommendations and for starters here is and interview I gave USA Today before the big season ticket sale last summer:

It’s not a given an expansion team will succeed in Vegas, said Vanderbilt University sports economics professor John Vrooman.

“The economic weakness of the market is the disproportionate reliance on a now very competitive gaming industry combined with a fluid fan base,” Vrooman said.

“The underlying financial structure of Vegas is fragile. Almost one-half of the home mortgages are still under water.

“The secret to success in a marginal edge sports market like Vegas is revenue certainty and the non-traditional demographic is risky business. This is particularly true in the gate revenue reliant (dependent) NHL and the NBA “

http://www.usatoday.com/story/sports/nhl/2015/01/19/las-vegas-market-expansion-bill-foley/22026309/

Here’s my recent discussion with Josh Cooper editor at Yahoo Sports Puckdaddy:

Vegas expansion is probably going to be problematic because there are several superior options, including doing nothing. The BOG is probably doing it for the one time shot franchise fee of a reported $500 million which is the average value of NHL clubs but still a touch on the high side.

The expected cash flow from NHL in Vegas probably won’t support $500 million and the fee should be closer to $300 million, and that would still be a tight squeeze. The rumored $500 fee is probably why Seattle (a far superior option) didn’t even submit an expansion bid.

I have attached my expansion relocation proposals for the League and an interview I gave the Pittsburgh Post-Gazette about the sale of the Pens. The expansion into Vegas is actually competing with the possible sale of the Pens and the Hurricanes.

Another exchange:

Did the NHL make a mistake you think by not going to also Quebec City? As expansion markets go how does that compare to Las Vegas?

The only weakness of Quebec city is the weakness of the Canadian dollar which is shared by all teams in great white north. There may also be some concern about hurting the Habs. Second team in GTA, Quebec city, Seattle, Portland and even Hartford are superior to Las Vegas.

TV market in Las Vegas is about the same size as OKC at 730k. (The NHL compares markets based on TV households in the CBA). The Las Vegas demographic is not hockey ready in the long term. If the league wants a team in Vegas they should probably move the desert dogs.

Another:

The last expansion litter of 4 clubs 1998-2000 was good for hockey fans but not so much internally for the league. Ironically the

League owners were living off of the one and done $80 million franchise fees while the rapid expansion was increasing player salaries from 57% of HRR to 75% just before the lockout and imposition of the hard cap in 2004-05.

The optimal expansion fee should compensate the league for the economic damage caused by expansion. $320 m for 4 teams was long gone and profits were continuously being squeezed by 20% across the board.

The optimal league size from the internal league profit-max perspective is to add that marginal market where the expansion fee is equal to the expected value of the cash flow derived from that market. $80 million each was apparently too low for the last expansion, and the average NHL value of $500 million is probably too high this time.

This is a major reason why Seattle is out didn’t even submit a bid. The Las Vegas revenue numbers just don’t add up to support the $500 million fee upfront, but the League is willing to take the money and run.

Suburban GTA and Quebec city might make economic sense, except for the significant exchange rate risk and potential economic damage to the politically powerful NHL Leafs and/or Habs.

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