Sunday, November 30, 2008

Point your compass North Mr. Bettman

Both the National Post and the Globe and Mail provide some fascinating reading this weekend on the state of the NHL and the dwindling options for Gary Bettman.

The Globe and Mail's Eric Duhatschek reviews a litany of woe for the Commish, including concerns for the Islanders, Devils, Lightning, Panthers, Coyotes, Thrashers and everyone's favourite domino to fall yet the Nashville Predators.

From souring rink deals to collapsing real estate markets and financing from sellers to keep the prospective buyers afloat, the financial picture of at least one third of the NHL's franchises don't appear quite as positive as that forecast from Mr. Bettman of just a few weeks ago. Corporate deals that may unwind due to the ongoing economic troubles of the USA are just one of many headaches for Mr. Bettman as he tries to present the image of a league dealing with events beyond much of his control.

Duhatschek even provides some insight from the previously untouchables like Detroit who with an economic storm raging across the industrial belt of America, where the Red Wings are facing declining attendance and the need to become more competitive for the entertainment dollar in a struggling city.

The only real strengths for the NHL it seems are found north of the 49th parallel, where Canada's six contributors to the NHL family continue to play to large crowds and collect handsome rewards from television and marketing deals.

Though even those bell weather franchises could suffer economic troubles if the Canadian dollar continues to patrol the lower regions of the scale compared to the US currency. Still, though the prospect of success for any NHL team would surely seem better achieved in Canada, a situation that the National Post approaches in its weekend edition.

The Post reviews a number of sports business forecasts that outline that any potential Canadian franchise, would perform far better than the current group of struggling teams mainly rooted in the American south and southwest.

The proposal of a second Toronto franchise touted as being the leagues third most successful option without so much as even purchasing a pair of skates. The always present option of Hamilton another success story waiting to be told, if only the political aspect of the Sabres and Leafs can be overcome.

Winnipeg and Quebec City's once abandoned by the league in its quest for a southern footprint, suddenly look much better ready to provide a home in a place where the sport would rule, where the fans are passionate and where the ink hopefully won't be flowing in a colour of red.

Stubborn as the NHL has been to its blueprint of Bettman geography, most would think that those options are still but wild and fanciful dreams of only the truly addicted of hockey fans.

But as the losses mount and even the more stable of franchises begin to feel the pain, one wonders if Mr. Bettman can ignore the solid bets for his risky wagers for much longer.

Trouble ahead
Gary Bettman recently reported a sunny forecast for the NHL. A closer look tells a different story
From Saturday's Globe and Mail
November 29, 2008 at 12:54 AM EST

The survival of the New York Islanders hinges on an arena deal that may be compromised by tightening U.S. credit markets.

The Coyotes' future in Phoenix is threatened by the plight of owner Jerry Moyes' trucking firm, Swift Transportation, during an economic slowdown.
The Atlanta Thrashers are in court daily, mired in an ownership tug of war that threatens to de-stabilize the franchise.

A 27 per cent share of the Nashville Predators is tied up in the William (Boots) Del Biaggio bankruptcy hearing.

The Tampa Bay Lightning's new owners reportedly needed help from previous owner, Bill Davidson, to complete their purchase.

The Florida Panthers are papering the house with ticket promotions and giveaways: present a Florida driver's licence, get a free ticket.

The New Jersey Devils moved to a new facility in Newark two years ago, but it has not been a cure-all for their economic struggles either. At the moment, as one of 17 teams experiencing attendance downturns in the first quarter of the season, the club is fighting the city and contractors over who should pay utility bills - and it's hard to make ice without water and electricity.

Against this mounting evidence, amid the worst financial crisis since the Great Depression, commissioner Gary Bettman recently reported a sunny forecast for the gate-driven National Hockey League, buffeted by increased attendance in October and brisk ticket sales in many markets.

Looking forward, the picture isn't so cheery.

"The U.S. economy in June was okay and the Canadian dollar (drop) didn't really happen until October," explains Larry Quinn, Buffalo Sabres managing partner and minority owner. "So a lot of these things don't hit you immediately, but there is a 12-month cycle involved ... and going out, it's looking pretty scary a year from now."

Many of Quinn's peers echoed his words. NHL presidents, governors and general managers are worrying and wondering what the future may hold.

While the league enjoyed audited revenue growth of 12 per cent last year, growth is expected to flatten to about one per cent this season, according to numerous team executives. Moreover, eight to 10 teams are struggling — at the most dire end of the scale, the New York Islanders and the Phoenix Coyotes are losing tens of millions of dollars annually.


Even some of the traditionally prosperous clubs are concerned. The Detroit Red Wings operate in a city that relies heavily on the auto sector.

"The biggest concern is for 2010-11," says Detroit general manager Ken Holland, who needs to sign four prominent unrestricted free agents next summer. "The feeling is, we're living (with our heads) in the sand if we think the entire economic system in Canada and the United States can be on a major, major downturn and pro sports is going to hum along, business as usual. Somebody's dreaming if they think that, right?"

Bettman, during a speech given in Toronto to a sports business conference, described the NHL as "still in a growth period" while expressing caution about the slowing economy. Meantime NASCAR, with its close ties to the U.S. auto industry, was expected to lay off nearly 1,000 employees. The NBA eliminated about 80 jobs, or nine per cent of its work force. In Major League Baseball, fewer players have been signed at this point of the free-agency period than in any year this decade except 2002.

Currently about two-thirds of NHL teams are operating comfortably within the current economic framework, including all six based in Canada. And a few clubs, notably the Chicago Blackhawks and Washington Capitals, are in the midst of startling turnarounds.
But the NHL's long been a league of financial haves and have-nots. The question during the economic crisis is, what becomes of the have-nots? Can they survive? Should the league consider contraction?

The options for the have-nots are limited under the current collective bargaining agreement, which cannot be amended without player association approval. Selling out is one choice; closing up shop is another. Trying to find investors to pour new cash into the operation is a third, but one that seems increasingly unlikely, given the times. Bettman has steadfastly refused to consider relocating struggling franchises to stronger markets — and the possibility of putting a second team in southern Ontario has been unilaterally dismissed. Contraction is another option and in theory would help the overall health of the league if it eliminated a team that drew heavy annual subsidies from the NHL's limited revenue-sharing pool. According to Quinn, increasing the size of the revenue-sharing pool — to approach the NFL model — would create a better overall distribution of wealth from top to bottom, but that sort of shift in thinking would require that the CBA be re-opened, a decision that is the hands of the players association at the moment.


Apart from market-specific challenges, the troubled clubs share one common problem: mediocre receipts in a largely box-office driven industry. Hockey teams derive a lower percentage of revenues from media rights and corporate sponsorships than the other three major sports leagues — the NBA, National Football League and baseball. Where there are large gaps in gate receipts and payroll numbers, trouble looms.

A few years ago, NHL teams may have looked forward to a one-time revenue boost from expansion fees of $250 million per franchise. Not today. There is no talk in NHL circles of expansion to Las Vegas or Kansas City. Hollywood movie mogul Jerry Bruckheimer, linked to a possible team in Las Vegas, appears to have lacked interested.

Hockey relies on people filling the seats, and 17 of 30 teams in the league experienced attendance decreases in the early part of the season. Atlanta was playing to only 72.2 per cent of capacity, New Jersey 78 per cent, the Islanders 81.4 per cent through mid-November.

The Columbus Blue Jackets, an expansion success story in the early days of the franchise, played to only 75.6 per cent of capacity through the first eight games of the season, the lowest percentage among the 30 NHL teams. President and alternate governor Michael Priest says the "softness" in ticket sales is largely related to on-ice performance and the need to woo back a frustrated fan base.

In "a recession-resistant, but not recession-proof" university town, "these are challenging times and anything corporate, or any sponsorship that's up for renewal is going to be a real challenge," says Priest. "We've seen pressure on that front already. How deep will it go? These economic times, I'm not sure we've ever seen anything like this, so I'm not I can even pretend to know the way it's going to go. Our market is certainly being affected, but not anywhere near where our friends in Detroit are."

In Rust Belt cities where families are worried about their jobs, does discretionary income go toward buying a ticket or into piggy banks?

"Just from looking at the numbers, in the blue-collar communities, you are seeing dips in the attendance — in Detroit, New Jersey, Columbus, Atlanta, Phoenix," says Paul Kelly, executive director of the NHL Players Association. "In blue-collar communities, where there is less disposable income, some people have obviously decided they have to cut back someplace, so walk-up sales are off in some of those communities. But again, they are offset by gains in some other communities, so from a league-wide perspective, we're still doing pretty well."

In Detroit, the future is a mystery.

"We've lost maybe 3,000 season-tickets from our heyday, but in the last couple of years, we've held our own," said Holland. "Now, are we going to hold our own in 09-10? I don't know. A lot depends upon what goes on in the auto industry in the next six months."

About 10,000 work directly or indirectly in the auto sector in Buffalo.

"We're up revenue-wise because we raised our prices, but our demand for tickets is softer," said Quinn. "At one point, we were about 20,000 tickets behind last year's total at the same time. We've been closing that gap.

"What we've seen is a delay in purchasing. People aren't going to buy January, February, March games near as quickly as they did last year. As each game is played, we have to see if we can we sell it - and it's getting harder. And if the economy gets worse, I suspect it'll be harder yet."


There are further concerns about sponsorships. Within the past three months, the NHL has signed on four new sponsors - Honda, Visa, Cisco Systems and Energizer Canada. However, holding onto existing sponsorship arrangements may prove difficult, as Tiger Woods learned this week, when Buick parted company.

"It used to be that were six or seven real critical sponsorship categories in sport - automotive, malt beverage, soft drink, financial, credit card, retail, airlines," said Timothy Leiweke, president and CEO of the Anschutz Entertainment Group (AEG), owner of the Los Angeles Kings. "Now, you look and say, the airline industry's never quite recovered, so they're on their butts. The auto industry's in terrible shape. The financial industry is struggling mightily. I think the credit card industry's next. The malt beverage category got down to two.

"So you look around and say, these are going to be very challenging times for teams and leagues."

AEG owns and operates over a dozen sports teams world-wide, including the Los Angeles Aztecs which lured British soccer star David Beckham with a $250 million compensation package. The Kings are down about 900 paid admissions per night.

"Suddenly, a bad economy comes at a time when we probably have more of an issue with our fans than we've had for a long time," said Leiweke.


Without expansion revenues on the horizon, the No. 1 priority is stabilizing teams in their current markets, a familiar challenge for Bettman and the NHL. For more than a decade now, whenever the league succeeds in plugging one financial leak, another springs up elsewhere.
Attendance has fallen by four per cent or less in 11 of the 17 markets experiencing declines through mid-November. More important are the rise and falls of gate receipts. While the average NHL ticket price rose 5.1 per cent, according to Team Marketing Report, the Devils dropped theirs by 15.7 per cent in response to weakening demand and the faltering economy.
Overall revenues this season are being propped up by the rebound of two teams - Chicago, which raised ticket prices by an average of 28.4 per cent, but is still up 65 per cent at the box office year over year; and Washington, which had a more modest 8.3 per cent price increase and a 24 per cent bump in attendance; and Boston, where the team is playing well. In addition, three teams that entered bankruptcy protection within the past decade (the Sabres, the Ottawa Senators and the Pittsburgh Penguins) are nicely stabilized.

"The early signs we've seen through the first six weeks of the season, from an attendance and a revenue perspective, do appear positive in the face of what appears to be an economic crisis all around us," says Kelly, of the NHLPA. "As long as teams continue to perform, even in tough economic times, people still seem to want to support their sports teams — and have that distraction; and they're spending money and going out to see the games. Now, how that will continue to play out over the course of the season is anybody's guess."

Phoenix, according to team president Doug Moss, was one of the early-season winners with paid admissions up 32 per cent, which translated into 60,000 more tickets sold. However, that still hasn't come close to washing away the red ink.

"There are more tickets to sell," said Moss. "The bottom line is, we have to win. The 60,000 tickets mean (fans) believe what we're saying; and in what they're seeing on the ice, but we're only going to sell the remainder of our seats, as we start to win more."

Once upon a time, the only marketing the Red Wings' needed was to release the home schedule in early July. The tickets would, in effect, sell themselves.

"Those days are gone," said Holland, "and they're gone everywhere, except maybe in Canada - and they've got to be careful there too."
Salary Cap

Unlike past years, when the players' association openly questioned the NHL's accounting methods, all revenues are subject to an independent audit by a jointly appointed accounting firm.
The salary cap is a definitive (and public) measuring stick for the league's overall economic health. Introduced after the NHL locked out its players for the 2004-05 season to seek "cost certainty" in its business model, the system guarantees players 56 per cent of total revenues and leaves the owners with 44.

In the first three seasons of the postlockout NHL, revenues rose sharply, from $2.14-billion (all currency U.S.) to $2.32-billion to $2.6-billion, resulting in a salary-cap increase from $39.5-million to $56.7-million.

"Since the first year, we've been experiencing real growth rates of about six to eight per cent," said Paul Kelly, the NHLPA's executive director, who added that in last year's growth rate — of 12 per cent — roughly 3 or 4 per cent was as a result of the favourable currency exchange of the Canadian dollar.

That revenue spike also raised the spending floor — the minimum dollar amount that lower-revenue teams were obliged to direct towards payroll.

For 2008-09, the floor was set at $40-million, or more than the ceiling was just three years ago. The unintended consequence of such rapid growth was that some of the lower-end teams, who couldn't make a go of it with payrolls in the $20-million range prior to the lockout, cannot possibly operate in the black now with payrolls nearly double that amount.

Says Detroit GM Ken Holland: "Because the lion's share of the money for 08-09 is in the bank, I don't think the [salary] cap is going to be significantly affected for 09-10, but unless the economy makes a major, major, major recovery in the next 12 months, we've got to be looking for the cap to go down in 2010-11."

NHL's future lies in Canada, reports say
Matthew Coutts, National Post
Published: Saturday, November 29, 2008

Jim Balsillie's most recent attempt at NHL franchise ownership seems to indicate his intention of bringing another team to Canada hasn't waned, despite NHL commissioner Gary Bettman's sticking to the vision of growing the game in non-traditional U.S. markets.

But when looking at the economic case for a new team in Canada, compared with struggling U.S. franchises, sports economists routinely suggest there is no comparison.

"If you just look at the way things are right now, Canadian teams are in a better position than they have been at any time in the immediate past," said Ian Hudson, an economics professor at the University of Manitoba.

With a combination of a stronger Canadian dollar, revenue-sharing and salary-cap systems born from the NHL's 2004-2005 season lockout and a struggling economy that has forced people to focus their entertainment dollars, mid-sized Canadian cities such as Hamilton have become a sounder bet for long-term success.

"A place like Southern Ontario is no worse off than most of the United States. So if you are hunting for a franchise, you don't have to necessarily be fantastic, you just have to be better than other places that the franchise could go," Mr. Hudson said. "So if the economy is tanking in Southern Ontario, chances are good at least that it is going to be tanking in the United States."
As reported in the National Post last week, Mr. Balsillie is set to purchase a 27% minority stake in the struggling Nashville Predators NHL franchise. It will be the Research in Motion co-founder's third attempt to buy into the league. Previous attempts to buy a team - the Pittsburgh Penguins in 2006 and the Predators the year after - collapsed at the last moment after the league opposed his intentions to relocate the teams north.

Mr. Bettman recently said expansion and relocation were not on the league's current agenda but conceded placing another team in Southern Ontario was worth consideration, when the time comes.

While several Canadian cities have expressed interest in hosting a team and have a history of supporting hockey - such as Winnipeg, Kitchener and a hockey-starved Toronto desperate for a second option - Hamilton remains at the top of the list for many who see northern expansion as a logical step.

City councillor Ian Whitehead has been a part of past attempts to land an expansion team and heads an ongoing grassroots campaign designed to keep Hamilton in the mix. He said it is politics, not questions of financial viability, that keeps Hamilton out of the league.

"Unfortunately, politics is getting in the way of a team being in the strongest, densest market in Canada. It's not about viability. I get tired of hearing that argument," he told the National Post. "We all know. Any of the pundits know. This is not about viability; this is about politics, and unfortunately politics don't always make good business decisions. We need to take the politics out and realize that there is a hunger in Southern Ontario that needs to be fed."

A recent study by Chicago-based Sportscorp suggests a second team in the Toronto area would be the third most valuable team in the league before even setting a skate on the ice - as much as US$600-million.

Sportscorp's Marc Ganis said he reached the number after factoring in what the Maple Leafs are worth, whether the market could absorb a second team, the general climate for sports franchises and the valuation of other teams in the NHL.

"Toronto is a unique market. Its size, its strength, its visibility its corporate base. The wealth of individuals. Just the sheer population size makes it a bit different," he said. "I think it could absorb a second team very well."

Other sports economists say hockey-mad Canada is better prepared to support a team than struggling southern markets, such as Phoenix and Nashville.

Nashville, a city of more than 550,000, has been struggling to support its NHL franchise since it arrived in 1998 as part of the NHL's push into non-traditional U.S. hockey markets.

The original owner, Craig Leipold, had to sell the franchise in 2007 after losing US$70-million over the first nine seasons.

He was open about the lack of corporate support for the Predators. According to Maury Brown, the president of the Business of Sports Network, the team remains in a "state of flux."

"Given the state of the economy, it's a lot more difficult mostly on the sponsorship side.... Renewal of sponsorships are going to be a problem" for bellwether teams in any league, he said, specifically for the struggling Sun Belt teams in the NHL.

Mr. Brown added that the Predators are also competing for corporate and fan attention with the NFL's Tennessee Titans, which are having an excellent season. "That makes it difficult to sustain it."

The focus on NHL expansion into southern U.S. markets has been met with middling success. Franchises such as Anaheim and Dallas have landed on solid footing while others, specifically Phoenix and Nashville, remain in a state of financial uncertainty.

Forbes magazine currently ranks the Predators as the 23rd most valuable franchise, valued at just over US$160-million. According to Forbes, the team lost US$1.3-million last season.

Meanwhile, the attendance at Predators games is down to an average of 13,800, the third lowest in the league and a drop of 600 from the same time last season.

By comparison, the health of Canada's six current teams has never been stronger. Forbes ranks Toronto as the most profitable team in the league. Montreal, Vancouver and Ottawa are not much further down the list, while Edmonton and Calgary - two teams struggling to survive pre-lockout - are turning an annual profit.

No Canadian team is receiving money from the league's revenue-sharing assistance program, which takes money collected from the top 10 money earners and shares it among the most financially challenged teams, including Nashville.

"One of the surest investments right now, I think in the world, would be a second NHL franchise in Southern Ontario. Everyone I have talked to, and any economist report, tell us it is a job creator and it's a profit maker," said Oakville MPP Kevin Flynn, who is preparing to petition the Ontario government to push for a second NHL team in the Greater Toronto Area.

"It really is the centre of the hockey world. This is what we are known for."

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