Monday, January 01, 2007

One Step up, two steps back – the National Hockey League

After Major League Baseball cancelled the 1994 World Series, baseball experienced a tremendous economic downturn that took the game nearly a decade to completely recover from. Many believed baseball fans were unforgiving after Bud Selig and the Lords of the Diamond declared the 1994 MLB season prematurely over. Interestingly, the same fate didn’t befall the National Hockey League after the cancellation of the entire 2003-04 season. The return of the NHL last fall was warmly received by hockey fans, but it now appears whatever hold the NHL had on sports fans is nearly non-existent as the NHL reaches the midway point of the 2006-07 season.

The year that was for the National Hockey League was indeed a classic example of one unexplained step forward, but at the end of the day two bigger steps back. The games iconic figure Wayne Gretzky suffered both personally and professionally in 2006. NHL teams are learning to live in a new economic age, some better than others. But the most significant business news in 2006 in regard to the National Hockey League was the saga of the Pittsburgh Penguins. Significant for reasons most industry observers have failed to consider – how the sale of the Penguins might positively impact the financial valuation of every National Hockey League franchise.

National Hockey League fans returned in record numbers in the 2005-06 regular season. A total of 20,854,169 and per-game average of 16,955 attended the 1,230 games, 2.4% ahead of the 2003-04 figures (20,356,199 and 16,550) and 1.2% ahead of the previous record season of 2001-02 (20,614,613 and 16,760). In all, NHL teams played to 91.7% of capacity.

"We can't thank our fans enough for the record support they showed," Commissioner Gary Bettman said. "For all our Clubs, a terrific season was made even better by the enthusiasm and encouragement our fans displayed night after night. We are deeply appreciative."

By attracting sellout crowds of 21,273 to the Bell Centre for each of their 41 home games, the Montreal Canadiens established a League single-season, single-team attendance record of 872,193. The Canadiens eclipsed the previous mark of 861,072, or 21,002 per game, which they set in 1996-97.

The Canadiens, Calgary Flames, Colorado Avalanche, Detroit Red Wings, Edmonton Oilers, Los Angeles Kings, Minnesota Wild, New York Rangers, Ottawa Senators, Philadelphia Flyers, Tampa Bay Lightning, Toronto Maple Leafs and Vancouver Canucks played to 98% of capacity or better over the full season.

The Avalanche sold out each game at 18,007-capacity in the Pepsi Center, extending the NHL's longest current sellout streak to 480 games, including playoffs. The streak began in November, 1995, during the team's inaugural season in Denver.

Twenty-four of the 30 NHL clubs finished even with or ahead of their 2003-04 performance. The top gainers were the Pittsburgh Penguins (+33%), Carolina Hurricanes (+27%), Calgary Flames (+16%), Tampa Bay Lightning (+15%), Nashville Predators (+10%), Buffalo Sabres (+10%), Ottawa Senators (+10%), Boston Bruins (+7%), and San Jose Sharks (+6%).

As the current NHL season reaches its halfway mark attendance has dramatically fallen or remains below 80 percent capacity in St. Louis, Boston, Florida, Washington, Long Island, Miami, Phoenix and New Jersey, but overall the statistical difference between last years NHL attendance and this years is insignificant. The NHL remains what it was before the year-long lockout in terms of their ability to sell tickets – widely popular in Canada and select regional American markets, but a sport that will never achieve national status in the United States.

The end result of the better than expected overall attendance – the NHL’s salary cap increased to $44 million per franchise for the current NHL season from $39 million used as the salary cap figure for the 2005-06 season.

League wide revenues were in the $2.1 billion range, significantly higher than the projected amount of $1.8 billion. The league and the union used that figure to set this season's cap at $39 million with a floor of $21.5 million.

"The previous cap wasn't miscalculated, it was a negotiated number," Bettman announced at during last spring’s Stanley Cup finals. “It is predominantly an increase in revenues. The cap was lower than it should have been this year based on what the revenues turned out to be, but nobody had any idea what the revenues were going to turn out to be because nobody had ever been in the situation that we were in.”

"Revenues will be at an all-time high for this league."

2006 was a year hockey’s most cherished figure would just as soon forget. Days before Wayne Gretzky was set to lead Team Canada to the Turin Olympics where Canada failed to defend the Gold Medal won at the 2002 Salt Lake City Olympic Games, New Jersey Attorney General Zulima Farber and New Jersey State Police Superintendent Colonel Rick Fuentes announced “Operation Slapshot” which looked at an alleged sports betting ring, allegedly involving among others Gretzky’s assistant coach with the Phoenix Coyotes Rick Tocchet. Tocchet has never been formally charged in the case.

However, for Gretzky his troubles didn’t even begin with Tocchet who remains unemployed and again and never been formally charged with anything in direct relationship to Operation Slapshot. In a classic case of the media running amok, reports in The Newark Star Ledger alleged that Gretzky’s wife, Janet Jones Gretzky allegedly had bet millions of dollars through the alleged gambling ring. The media circus in the days before Canada’s best hockey players left for Turin was a sight to behold (present company included), but through it all Wayne Gretzky stood by his wife. Bottom line, Wayne Gretzky emerged from the fallout from Operation Slapshot as a husband who stood by the mother of his three children. On a personal level, Wayne showed strength of character that frankly he didn’t appear to have. Nonetheless February was a terrible month for The Great One, his wife’s problems, having to fire his assistant coach, and the complete failure of Team Canada at the Turin Olympics.

As coach of the Phoenix Coyotes the professional side of Wayne Gretzky’s hockey life isn’t much better. As a part owner for the Coyotes, over the last five seasons the Coyotes have played to less than 80 percent capacity, a dangerous sign for any NHL franchise over that long a period in what remains a gate driven league. Currently the Coyotes with 30 points have the third worst record in the NHL. The Coyotes with Gretzky serving as full time coach last year, ended up with a losing record, twelfth overall in the NHL’s western conference out of the playoffs. Two of the greatest NBA players in the history of the league Bill Russell and Magic Johnson failed as coaches as did Hockey Hall of Fame member Maurice “The Rocket” Richard. Gretzky remains the managing partner for the Coyotes. Will Wayne Gretzky fire himself as a hockey coach?

The NHL has always had to fight a tough battle when it comes to garnering the media’s attention. In 2006 that problem took a quantum leap forward after many major American dailies decided they would no longer cover their market’s NHL franchises when that team went on road trips. When the New York Islanders visited the Ottawa Senators Wednesday evening at Ottawa’s Scotiabank Place, only New York Newsday sent a beat reporter to Ottawa. It was similar Friday night when the New York Rangers played in Ottawa.

The Los Angeles Times announced during the summer they would no longer cover the Los Angeles Kings and Anaheim Ducks on a fulltime basis. Additionally Helene Elliott, recognized with the 2005 Elmer Ferguson Memorial Award for distinguished hockey writing, will no longer be writing her weekly NHL column in the Sunday Times. Even with continued cutbacks at the Times and many other daily’s the news that The Los Angeles Times is dramatically backtracking on their NHL coverage is the last news Gary Bettman and company wanted to hear.

It’s not a matter of newspapers not respecting the NHL but cold hard budgetary rationale. Newspapers are cutting back wherever and whenever they can. Dailies haven’t sent reporters on the road with their local Arena Football League, Major League Soccer and WNBA teams. These are largely regarded as Tier II sports leagues, and in 2006 the NHL became a Tier II sports league to many major American newspapers.

Non existent television ratings provided newspapers with all the cannon fodder they needed to tell their publishers if cutbacks where the order of the day, the NHL would be the perfect target.

During the summer NHL executive vice-president Bill Daly claimed ratings for the 2005-06 season were more of a mixed bag. "In Canada, they were up rather significantly on TSN and CBC. In the States, local ratings for the majority of our teams were stronger than they were in 2003-04. Nationally... ratings were down," he said

The league’s showcase, the Stanley Cup finals went seven games this year, as it did when the NHL teams last competed for a Stanley Cup, the 2003-04 season.

Television ratings for Game 7 of this year’s Stanley Cup finals dropped 21 percent from the final game of the National Hockey League's last championship series two years ago.
The broadcast of the Carolina Hurricanes' 3-1 series- clinching victory over Edmonton on NBC Monday night was watched in 3.3 percent of the 110.2 million U.S. households with televisions, the network said.

In 2004, the decisive seventh game of the Stanley Cup finals between the Tampa Bay Lightning and Calgary Flames drew 4.2 percent of viewers on ABC. When the New Jersey Devils won Game 7 of the 2003 Stanley Cup Finals, it had a 4.6 rating on Walt Disney Co.'s ABC. The five final games televised on NBC averaged a 2.3 rating, as compared to the 2.6 generated when ABC televised the final five games of the 2004 Stanley Cup playoffs, down 11%.

The ratings from OLN weren’t just bad, they were an embarrassment for the league. The first two games of the Finals were on OLN and produced identical 0.9 ratings. That translates to about 621,000 households.

Ed Snider, the Chairman of the Philadelphia Flyers, did his best to spin the league’s terrible ratings. But then again given the incestuous relationship between Snider and OLN, what else could he say.

"When we first started on ESPN2, we had low ratings, too," Snider told the Philadelphia Inquirer, who is chairman of Comcast Spectacor, a subsidiary of Comcast, which owns OLN. "Plus, OLN is now in six million more homes [from last year at this time], and I think much of that has to do with the NHL, and I think it will continue to expand. I'm very happy with OLN and NBC."

Daly and the NHL has avoided spinning the spiraling ratings for the 2006-07 season as the league is about to reach the halfway point.

There are few selling points the National Hockey League can count on in marketing the league. One of those positive signs had been Canadian television ratings, key words ‘had been.’ According to a report in The Toronto Star, Hockey Night in Canada ratings are off 19 per cent for the early game, and a whopping 33 per cent for the late one compared to last year. TSN's ratings have dropped 18 per cent.

In fairness as the Toronto Star mentioned, coming off a year without NHL hockey Canadian NHL fans couldn’t get enough NHL hockey. CBC had their highest hockey ratings in ten years and TSN set an all-time seasonal ratings record.

"We all thought the numbers would come down, but this is more than we thought," admitted Joel Darling, CBC senior executive producer in The Toronto Star report. "It's a bit puzzling.

"It's like a lot of things; sometimes the honeymoon isn't as long as we'd like it to be."

When you consider the total number of hours people watching sports on television continues to grow at unprecedented levels, a report in The Vancouver Province should force Gary Bettman and company to finally wave the white flag and admit they’ve failed at building a television audience for hockey in the United States.

According to The Vancouver Province’s Tony Gallagher during last week’s NHL Board of Governors meetings held at the Breakers Hotel in West Palm Beach, those who either have hundreds of millions of dollars invested in the NHL or those representing their team owners, were appraised of the local cable ratings (regional sports networks) that suggests hockey is losing viewers at a remarkable rate, with the likely end result of the National Hockey League being perceived as a Tier II minor league sport along the same lines as Major League Soccer, the WNBA and the Arena Football League.

The area of concern isn’t the ill-conceived Versus national cable contract or the no-money down NBC agreement, but the various local television contracts. The impact won’t necessarily be on the rights fees the various regional sports networks are paying local NHL franchises in their markets, but the resulting fallout from other revenue sources; like sponsorship and arena signage rights fees. If no one is watching, those rights become worthless.

The good news (always makes sense to put your best foot forward), Evgeni Malkin and Sidney Crosby are lifting the Fox Sports News Pittsburgh ratings 40 per cent higher than expectations, and the highest they've been since 2000-01. That with the team possibly heading to another city.

It has been suggested in the pages of Sports Business News that the NHL hockey is never going to work in South Florida. Before the Miami Heat arrived in South Florida at the start of the 1987-88 NBA season, the Miami Dolphins where the only game in town. Within six years the NHL and Major League Baseball came to Miami; far too many teams in far too short a period of time. According to the report, FSN Florida officials promised advertisers before the start of the season ratings for Panthers games would average 1.0. One problem as terrible as that number is to begin with, ratings are 77 percent below what was expected. In a region where grocery stores rarely carry green bananas, no one will admit they’re watching NHL hockey.

In Atlanta the Thrashers are an exciting and competitive team led by Marian Hossa one of the NHL most electrifying players. The Ottawa Senators traded Hossa to the Thrashers for Dany Heatley two years ago. The NHL has already failed once in Atlanta and appears destined for the same fate once again. The television numbers are down a 10th of a rating point and fully 70 per cent below expectations.

The New York market remains home to three NHL franchises, at least one franchise too many for that geographical region. According to the published report, numbers are so low on Fox New York for Islanders games; the ratings numbers are not made available for distribution, something that didn’t seem possible.

One of the few American markets the bright thinkers the NHL employs (an Oxymoron if there ever was one) tries to sell media pundits on is Detroit’s label as “Hockey Town USA”. Indeed Detroit may like to believe its Hockey Town USA, but the current television ratings numbers are down almost 50 per cent over last year's figures. And last year's figures were a far cry from when the sport was going strongest in 2001. There are those who’d like to suggest the Wings are dealing with the aftermath from the Detroit Tigers winning the American League pennant but let’s remember the World Series ended eight weeks ago.

Earlier this month The New York Post’s Larry Brooks reported that ESPN refused to accept paid advertising from the National Hockey League. Was it because ESPN’s available commercial inventory is sold out? Ask any ESPN sales representative – there’s always room at the inn for anyone willing to buy advertising, except the pariah better known to ESPN officials as the National Hockey League. NHL deputy commissioner Bill Daly and NHL Enterprises president Ed Horne each told Brooks that ESPN wasn’t interested in doing business with the National Hockey League.

It’s almost as if ESPN is mocking the National Hockey League. When was the first time any advertising driven media (ESPN or any media outlet) suggested an organization’s money wasn’t good enough. It’s inconceivable that ESPN had the gall to refuse to accept the NHL’s money and advertising content. ESPN sent a message in no uncertain terms to the National Hockey League – ESPN doesn’t want anything more to do with the National Hockey League. If ever there was an indication that represented how little ESPN respects the NHL, its sending a message to NHL officials that their money and commercials aren’t good enough for ESPN to accept.

Which brings the NHL back to where they are with American cable television current agreements, the one that locked out ESPN, and the one that saw ABC end their long-standing agreement with the NHL. Versus, owned by Comcast, are expected to extend their current agreement for one year. All that will serve to accomplish is illustrating how terrible the decision was to leave ESPN.

Versus reached 65 million homes a year ago. A year later, according to a Los Angeles Times report the fledging cable network reaches 70 million homes. Meanwhile ESPN and ESPN2 each reach more than 100 million homes. ESPN had planned on placing NHL games on ESPN2. ESPN has taken cable television to another level averaging more than 10 million viewers weekly through the first ten weeks of ESPN’s Monday Night Football coverage. While ESPN and their family of networks report on NHL games, without NHL hockey ESPN canceled their nightly NHL magazine show “NHL Tonight” last year.

"ESPN provides the sort of Good Housekeeping stamp of approval," said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon and a hockey fan in a Los Angeles Times report. The NHL, he said, "would be better off finding a working partnership between themselves and ESPN. If it were my decision, and not knowing the reason, this league needs as many symbolic attachments to maintain their position as a major professional sport."

A year ago, there was a belief Comcast was going to attempt to build a second national sports network to compete directly against Disney owned ESPN. Versus had talked about securing the last available NFL TV package, the eight late season Thursday/Saturday night games the NFL kept for themselves to build the NFL Network. Whatever reasonable opportunity Comcast had to create a major national sports cable network all but ended in January when the NFL made the best move they could for their cable network, putting actual live NFL games (sports most valuable property) on their own network. Cable operators are balking at paying the NFL the carrier rights they are demanding to carry the NFL Network. Versus may be much cheaper but with a menu of NHL games and little else, Versus is doomed to failure.

Many of the NHL problems remain directly linked to their failed Versus agreement. The sooner Gary Bettman and his peons figure that out, the sooner they’ll find the only logical solution – a much needed return to ESPN.

Part II of SBN’s of NHL’s year end review will focus on the saga of the Pittsburgh Penguins and how the sale of the Penguins could prove to be the catalyst the NHL as a business desperately needs.

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