Thursday, February 09, 2012

Hockey is Canada – Canada is Hockey

The CBC, Canada’s national public broadcaster, holds their annual Hockey Day in Canada on Saturday, a daylong celebration that features Canada’s seven National Hockey League franchises playing on the full CBC network. The day-long broadcast runs more than 12 hours. Saturday may be Hockey Day in Canada, but if you ask most Canadians – every day is Hockey Day in Canada –as chronicled in “Hockey: More than a Game” where the producers in this documentary discuss how hockey is central to Canadian culture.

The Conference Board of Canada released a report on Thursday that suggested there are only two additional Canadian markets that could be home to an NHL franchise: Hamilton and Quebec City. The study dismisses Toronto as a possible home to a second NHL team.

There are a number of reasons the authors of the report believe a second NHL team in Toronto wouldn’t work. They included four so-called “pillars” the authors of the study offered: population, market wealth, corporate presence and a level playing field.

According the 2006 Canadian census (the information from the 2010 census is in process of being released) the Greater Toronto Area (GTA) is home to more than 6 million people. The GTA is defined as the central city of Toronto, along with four regional municipalities surrounding it: Durham, Halton, Peel, and York. However, if the area is expanded to include Canada’s Golden Horseshoe urban agglomeration, the population reaches close to 9 million or 25% of Canada’s population. Anyone living within the Golden Horseshoe can easily travel to Toronto.

Putting market wealth and corporate presence together (two more of the pillars), corporate Canada is based in Toronto and within the GTA. As far as market wealth, a 2012 Financial Post study reported that the GTA’s (and area) per capita average is 9% higher than the Canadian average.

That dismisses the first three pillars the report draws its conclusions from. The fourth point: the level playing field looks at the Canadian dollar vs. the American dollar. Current economic indicators suggest the Canadian dollar will remain at par with the American dollar for the foreseeable future.

The report also focused on the Toronto sports landscape. Toronto is home to a Major League Baseball, National Basketball Association, Major League Soccer, Canadian Football League and National Lacrosse League teams. If you asked a Toronto sports fans what is their favorite sports league, they would insist it’s the National Hockey League. If the law of supply and demand were applied to the Conference Board of Canada’s “playing field” criteria, it’s the other sports franchises that would be impacted by a second or third NHL team in the region, not the NHL.

The report also suggests “the prospective owner of a second Toronto NHL team would have to negotiate market entry with the combined new Maple Leaf Sports and Entertainment ownership group that now includes both Bell and Rogers. These large communications and media organizations recently acquired the Leafs’ corporate owner, MLSE, in order to maximize Toronto sports content for their various media platforms. A second NHL team in Toronto would represent even more media content and would further complicate the already-complex negotiations on who gets to broadcast what.”

Once again the authors of the report miss the mark. Bell Media owns TSN, Rogers SportsNet. The highest rated programs on both TSN and SportsNet are NHL broadcasts. A second NHL franchise in the GTA would offer both TSN and SportsNet opportunities for more NHL games and additional advertising dollars for the ratings driven programming.

In late November, developer Graeme Roustan announced a plan to build a $300 million, 20,000 seat arena in the Markham area (located within the GTA). Roustan and Toronto developer Rudy Bratty have created GTA Sports and Entertainment as part of that plan. Roustan and Bratty suggested they would bring their proposed plan to Markham City Council in the next few months. If that facility is built, it will be home to an NHL franchise. The other possibility is a second NHL team in the Air Canada Centre.

Los Angeles Staples Center (owned and managed by the NHL’s Los Angeles Kings) is home to the Kings and the NBA’s Los Angeles Lakers and Los Angeles Clippers. If the Anschutz Entertainment Group (AEG) can make it work in Los Angeles, Maple Leaf Sports and Entertainment can make it work in Toronto.

The two cities the report suggests can be home to NHL franchises, Hamilton and Quebec City, both face significant challenges before they can become home to an NHL franchise.

Hamilton’s Copps Coliseum opened in 1985. If an NHL franchise were to move to Hamilton, Copps would need to undergo extensive renovations. This arena doesn’t have corporate suites, lacks club seats and doesn’t have many of the amenities NHL teams require in their arenas.

Quebec City continues to talk about building a $400 million arena, but thus far, it’s been nothing more than talk. 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 report concludes: “Canada could sustain a maximum of nine NHL franchises—a conclusion based on our analysis of the market conditions required to support an NHL-level professional hockey team today. And while Winnipeg, Hamilton, and Québec City do appear to be viable locations for NHL franchises, they are all at the lower limit. These markets have only the minimum market size and income, and a relatively small number of corporate offices. They would need the Canadian dollar to remain strong; and these smaller markets will always be more vulnerable to any negative shocks to the national economy or their community than their larger competitors.

“Yes, they could be successful in the NHL—but only if they have dedicated owners who are in it for the long run and who manage their business operations carefully.”

Interestingly enough the report believes both Hamilton and Quebec City fall short of the needed corporate presence. Looking at the GTA (and the sum of all its parts), the region has the necessary corporate presence for two more NHL franchises. The Toronto Blue Jays (MLB), Toronto Raptors (NBA), Toronto Argonauts (CFL) and Toronto Rock (NLL) will be hurt by two or three NHL teams in the Greater Toronto Area. The NHL teams will thrive with corporate Canada in their ability to generate television and radio rights fees and in ticket sales. The other sports teams will suffer – not the NHL teams. If the marketplace determines the fate of sports in the GTA – the NHL wins.

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 (CBA).

The NHL’s salary cap includes 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 seven current Canadian teams are the economic engine that is driving up the NHL’s salary floor. The 2005-06 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. When there are nine or ten Canadian- based NHL teams – both the salary floor and salary cap will increase - something every National Hockey League player wants to see take place.

The bottom line – expect to see two or three NHL teams in the Greater Toronto Area in the next five to seven years and a team in Quebec City.

For Sports Business News this is Howard Bloom

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