Skating into the Black

Posted by on Thursday, May 9, 2019 in National Hockey League, Sports Econ Blog.

Interview with Columbus Business First.

-What’s the difference, economic impact-wise and team finances-wise, of the Predators making the Stanley Cup Final, as opposed to just having a moderately successful playoff run?

The rule of thumb in the NHL is that clubs breakeven on average over the regular season, and then generate positive in the black profit during each successive post-season round. This is especially true for non-traditional sun-belt expansion hockey markets like Columbus. According to Forbes estimates the Blue Jackets were 1 of 3 NHL clubs with negative operating income last year of -$1.7 million.

My best guess is that the Blue Jackets clear just under $1 million in local gate and venue revenue per Stanley Cup playoff game.

Because of relatively low revenue sharing in the NHL, the post-season runs are financially critical for the home team. The key to playing into the NHL black is to win consistently in the regular season and to somehow get out of the first round of the Stanley Cup playoffs.

–And how much does that change if they win the final? Essentially, is there a measurable difference in either the impact on the team or the city for each playoff run you go?

According to most academic economists the fiscal impact of post-season runs in professional is exaggerated and zero-sum at best. This is because the increased spending at and around Nationwide Arena comes at the expense of spending somewhere else in the local regional economy.

In this zero-sum view the congestion from the playoffs just crowds out other local events and usually results in higher prices for the hospitality industry. Furthermore most of the post-season gains are captured by the new luxury seat venues and the NHL teams themselves.

I differ from most academic purists with the argument that the negative-sum crowding out argument may not apply as well to NHL arenas as more monolithic and economically isolated NFL stadiums.

-Overall, where does the biggest benefit from a Stanley Cup run play out? Is it a bigger impact just on the team and its finances, or has playoff success/victory historically brought significant impact to the cities where the teams are based? How does it compare to other sports?

The key to increasing franchise value in non-traditional NHL expansion markets is consistent winning and consistent playoff runs beyond the first round. The second important factor is the financial structure of the roster that generates the product on the ice.

According to Forbes, the Blue Jackets are worth about $320 million (29th out of 31 NHL clubs) on annual revenues of about $111 million.

It is clear that the major “real” economic impact of the Blue Jackets run for Lord Stanley’s Cup is ironically the intangible networking or “water cooler effect” throughout Columbus. After shutting out the high flying Lightning in the first round, the upstart Blue Jackets are still hot in the second round and all of Columbus is buzzing, along with the rest of the more traditional NHL.

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