Tuesday, January 03, 2012

The NHL in 2012 – more Canada please

The NHL Winter Classic held yesterday at Philadelphia’s Citizens Bank Park continues to highlight what the National Hockey League is doing right. The first Winter Classic was held at a snowy Ralph Wilson Stadium in Buffalo in 2008, where Sidney Crosby’s shootout goal offered the NHL a showcase event. Five Winter Classics later NBC leveraged their Winter Classic coverage to launch their new sports network, the NBC Sports Network, one of 2012’s most anticipated sports business moments. ESPN may be the world-wide leader but the NHL’s decision to latch their brand to NBC will one day be a part of NHL commissioner Gary Bettman’s NHL legacy.

Looking into 2012, NHL commissioner Gary Bettman and the Lords of the Rinks face a couple major issues: the likely move of an NHL franchise for the second consecutive season; and a report that, more than ever, the NHL is Canada and Canada is the NHL.

The Toronto Star Monday obtained a copy of a ‘confidential report’ that shouldn’t have surprised anyone. According to Rick Westhead, the NHL’s six Canadian based 2010-11 franchises accounted for 33% of the NHL ticket revenue, or approximately $1.2 billion dollars. The six Canadian-based teams had six of the top seven highest totals, the New York Rangers being the lone American-based franchise.

After the 2010-11 season the Atlanta Thrashers relocated, returning the NHL to Winnipeg, which became the seventh Canadian-based franchise in the 30-team NHL. The Jets will be among the NHL’s top-ten when the report for the 2011-12 season is released.

“There will be a lot of people using these numbers to argue that the league would be better off with teams in Quebec City and Hamilton, Ont., rather than Columbus, Ohio, and a number of other locations where the NHL is not setting the world on fire,” said Marc Ganis, president of a Chicago sports advisory firm that has advised the buyers of several NHL franchisesm], in the Toronto Star report.

“The NHL had this initiative in the 1990s to expand into the U.S. sunbelt and by anyone’s definition, that strategy has been demonstrated to be only marginally successful,” Ganis said. "I think the argument for more Canadian teams definitely has merit."

The Mowat Centre for Policy Innovation at the University of Toronto published a report in 2011 that suggested Canada could be home to as many as six additional Canadian NHL franchises. Six may be a stretch but Canada will be home to two or three more NHL teams in the next five years.

The report suggested the NHL’s decision between the 1990s and early 2000’s to expand into Southern-based American cities has failed. The 21-team NHL added San Jose, Ottawa and Tampa in the early 1990s. San Jose and Ottawa are two of the NHL’s strongest franchises. It remains questionable if Tampa will be home to an NHL franchise in ten years’ time.

The Minnesota North Stars moved from Minneapolis at the start of the 1993 season to Dallas, an NHL franchise moving from a traditional to a non-traditional hockey market. The Dallas Stars were successful in the Lone Star State before becoming entrapped in Tom Hicks ownership woes a few years ago. The Stars were owned and managed by the NHL, forced into bankruptcy at the end of the 2009-10 NHL season. The Stars lost $38 million during their last fiscal year and $92 million over the last three seasons. Vancouver businessman Tom Gaglardi submitted the only bid for the team when the franchise was placed into receivership and auctioned off. It remains to be seen if the Stars have a long-term future in Texas.

The NHL added franchises in Miami and Anaheim at the start of the 1994-95 season. The Miami team has never worked. Los Angeles will never be a hockey hotbed - two teams in Los Angeles has never made financial sense. The Ducks and the Kings sell most of their tickets but it’s hard to make sense of Los Angeles having two teams, while hotbeds such as Toronto only feature one.

At the end of the 1995 season the Quebec Nordiques moved to Denver and the Winnipeg Jets moved to Phoenix. The Colorado Avalanche define success. The Phoenix Coyotes are playing their last season in Glendale. The NHL was forced to move both the Jets and the Nordiques when they did. The Canadian dollar’s value as compared to the American dollar stood in the neighborhood of 65 cents in 1995. Both the Jets and Nordiques played in outdated facilities in 1995. There wasn’t any hope either city would build new arenas in the mid 1990’s.

The Toronto Star reported the Coyotes last year generated $420,000 in ticket revenues per game in 2010-11, down from $450,000 in 2007-08. The Coyotes are dead last in the NHL in attendance, averaging 11,423 fans per game. The Phoenix daily newspapers no longer cover the Coyotes on a regular basis. The 2011-12 season is the third year the NHL has owned the franchise. The Coyotes will not be playing in Phoenix at the start of the 2012-13 NHL season, regardless if Bettman is able to find a buyer by season’s end.

The NHL has looked everywhere for a buyer for the Coyotes. There remain a few interested groups but when all is said and done it’s likely the NHL isn’t going to find a buyer. The Coyotes are forecasted to be located in Quebec City by the start of the 2012-13 NHL season, if the city starts building a new arena.

The Quebec City arena remains in the planning stages. The facility reportedly will cost around $400 million. Quebecor, a Canadian media company, has a management contract (the company wants to own Quebec City’s NHL team as well) and has bought the naming rights for $33 million and $63 million (fee based on the area being home to an NHL arena). Everything appears to be in place, but construction has yet to begin and no date has been set as to when the shovels will start digging. Le Colisée de Québec (the 11,000+ arena the Nordiques played in) could be home to the new Nordiques next year. However, if civic leaders don’t start building their new arena, the NHL will (though they should not) move the Coyotes to Quebec City.

The Hartford Whalers (a traditional hockey market) moved to Raleigh, North Carolina (a non-traditional hockey market) at the start of the 1997 season. Tobacco Road is the home of ACC basketball, not the NHL. The Carolina Hurricanes have consistently been in the bottom third of NHL attendance, hardly a barometer for success.

In 1998, the NHL expanded to two more non-traditional NHL markets – Atlanta (where the league failed for the second time in 2010) and Nashville. The Nashville Predators, like the Hurricanes, have consistently been in the bottom third of NHL attendance.

At the start of the 2000 season, the NHL expanded for the last time, returning to a traditional hockey market in Minneapolis and a non-traditional market in Columbus. The Minnesota Wild have been successful. However, the Columbus Blue Jackets’ future in the home of Ohio State University is one of the issues Gary Bettman will face in the next few years.

Canada will be home to two or three more franchises in the next five years. Quebec City will move forward on their arena plan and an American-based owner will gladly sell his team to Quebecor. It’s not a matter of if, but when Southern Ontario will be home to a second or possibly third NHL franchise.

The long list of failing non-traditional NHL markets with failed or failing franchises doesn’t include the New York Islanders, who have a murky future on Long Island. The Greater New York area is home to three NHL teams, one franchise too many. Islanders’ owner Charles Wang failed in August in gaining the needed public support (taxpayer dollars) for a much needed new arena. If the NHL doesn’t sell the Coyotes to Quebecor, Wang will try and sell the Islanders to Quebec City interests.

There remains one very big issue the NHL faces before moving one, two, or even three franchises to Canada – the current NHL collective bargaining agreement

The NHL’s salary cap includes both a cap and a salary floor, dictating both the most and the least an NHL franchise can spend on their teams’ payroll. When the current NHL CBA was agreed to in July 2005 the Canadian dollar was worth 75 cents as compared to the American dollar. The six Canadian teams are the economic engine that is driving up the NHL’s salary floor. The2005-06 NHL $39 million salary cap was the 2011-12 salary floor. NHL teams in Miami, Dallas, Anaheim, Long Island, Columbus, Raleigh and Nashville can’t justify a team payroll of $39 million.

Canadian NHL teams are great for NHL players. Canadian NHL teams aren’t great for small market American-based franchises located in non-traditional NHL markets.

For Sports Business News this is Howard Bloom

Labels: , , , , ,