Recession, Relocation and Retraction

Recession, Relocation and Retraction

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    Just six months ago many a grapevine was carrying rumor of NHL expansion while I lamented the integrity of a revenue bound salary cap. Even into the new season few had foreseen the sheer gravity of the global economic downturn and its impact on jobs, housing, businesses and every facet of life down to sport. Now as international markets stutter into a depression that many an analyst believe could change the face of modern capitalism forever, the NHL seems to remain steadfast in addressing it’s minor successes as opposed to it’s crippling and potentially devastating financial model.

    Last year saw league revenue growth of 12% forcing the salary cap up to $56.7 million and the salary floor to $40.7 million. Increases in attendance through October 2008 and upturns in market growth in towns such as Chicago seemed to suggest the NHL was back on track and bucking the ferocity of the economic climate. However with liberal projections putting revenue growth for this season at 1%, it’s clear that the NHL sans a major TV carrier is in dire straights.

    Still if you thought the hockey was exciting this year, the off season should be even better. With eight teams within $1 million of the cap limit as well as countless promising talents all heading out of entry level contracts, any decrease or stagnation in the salary cap could cause chaos regarding contracts with an outlook of continued league revenue losses for years to come. Playing it safe would be one negotiating tactic on any long term contracts for those with cap space but spare a thought for the likes of Anaheim, Montreal, Detroit, Chicago, Dallas, Pittsburgh and Boston all of whom find themselves within half a million of the current ceiling. These teams and their GM’s are going to find the summer of 2009 extremely trying as they attempt to secure as much of their roster as is physically possible. Logic dictates that player wavering and contract buyouts will be common place with strong market franchises with cap room such as Toronto, Los Angeles, Buffalo, Vancouver, Colorado and Ottawa all likely to benefit from a healthy selection of free agents as well as trading block steals.

    While the eight pressed to the cap limit will struggle to maintain their competitiveness through 2009-’10 they are all beneficiaries of strong followings and sensible management that will find a way to persevere as the gap between themselves and the likes of Ottawa close up and fiscal climbs worsen. For the teams in unfashionable markets, Bettman’s sunbelt footstep, the outlook is of greater concern. Of the nine teams currently exceeding the average remaining cap space, a still worryingly low $3.8 million, seven of them can be traced to American markets that have failed to buy into the NHL the way Bettman had envisioned. While a lowering in the cap limit would obviously lower the floor, many of the minority market teams were struggling to remain viable when the cap floor was at $25 million and will be unable to benefit from the cap pushing at the top like a Toronto can. Subsequently the likes of Atlanta, Nashville, Phoenix and Florida will stay uncompetitive and unattractive whilst much of the rest of the league gains parity.

    It’s becoming clear that under the current financial climate the NHL will struggle to continue with 30 franchises if a major American TV deal, the saving grace of the NBA, NFL and MLB, cannot be secured. This is becoming a particularly touchy subject when held in context of the revenue sharing pool drawn into the CBA. With bottom feeding franchises unable to fill seats, the NHL’s primary source of revenue, it’s come unto the most successful franchises to effectively bailout teams operating at great losses. These escalating losses are now compounding the blips big market teams are experiencing, forcing league wide growth down and hampering the product more successful teams can ice as they contend with a revenue tied salary cap being driven down by the very same unmarketable franchises they are floating. While small market teams would be keen to reopen the CBA in an attempt to increase the revenue sharing pool bound to playoff profit from 9% to the 25% seen in the TV funded NFL, the NHLPA who have the option to re-open CBA negotiations are unlikely to do so at an economic nexus where owners will want to lower the players 56% cut in profits. Subsequently with the CBA probably locked up until the mandated reassessment in 2011 or 2012, league revenues are now trapped in a spiral as the economic downturn grips the leagues poorest-hardest and the collapse of the Canadian Dollar drives revenues lower still.

    Little wonder then that talk of contracting and relocation has gained an audience. With the William Del Biaggio fiasco still running the Nashville Predators name through the dirt and tying up ownership issues, not to mention $62 million of investment, in bankruptcy court, Nashville is a poster boy for failing southern franchises. Elsewhere Phoenix are hemorrhaging money at an alarming rate and Atlanta are managing to reach just 70% of ticket sales with some games seeing less than 10,000 heads through the Phillips Arena doors. In Florida both franchises are struggling with the Florida Panthers recently announcing staff redundancies while Tampa Bay’s new management team of Oren Kroules and Len Barrie are negotiating a bailout on their next payment to the arena owning Palace Sports, a deal that could involve former owner Bill Davidson.

    And the fun doesn’t stop in the south. In the NHL’s most geographically dense Atlantic division the Islanders are waiting on a deal to secure a new arena on Long Island with negotiations crawling to a halt and New Jerseys brand new Prudential Center arena is rarely near capacity as the Devils ownership battle Newark city council over utility bills. Even Detroit are having to put together low priced packages to get punters in the door as Hockeytown succumbs to the crash of the US motor industry and countless others in St. Louis, Columbus, and Carolina are relying on ticket packages to maintain market presence.

    With Research in Motion’s co-CEO Jim Balsillie casting a long shadow over the NHL’s struggling franchises, one wonders how long it will be before a Southern team finds itself uprooted to the hockey friendly surrounds of Hamilton, Ontario. Hardballed in the past by an NHL committee who has little time for the way Balsillie has gone about his business, particularly the selling of season tickets for a Hamilton team conceived by a verbal agreement to invest in the Predators, Bettman is determined to keep all thirty teams in their current markets. However where the recent Winter Classic between Chicago and Detroit proved a marketing coup for traditional American hockey cities, a Winter Classic staging between Phoenix and Florida is unimaginable. So has the NHL come to its senses in regards to where hockey sells? If it has, expect protests from the Maple Leafs ownership group keen to maintain their TV monopoly to fall on deaf ears.

    Nevertheless Balsille’s slew footing into The Hockey News top 10 people of power and influence is just one man, one savior for one struggling team. With the current economic climate likely to worsen and persist for some time a number of franchises are going to require substantial cash injections or relocation and as Quebec and Winnipeg proved; even Canada can sustain only so many teams. So is contraction a very real possibility? While the idea may be unpalatable, theory suggests the NHL is already over subscribed with a US market far hungrier for grass and hard-court sports and a talent pool that is stretched to breaking point. Removing red ink from unmarketable franchises in the revenue pool would prove a vote winner with bigger clubs and the relocation of teams to money spinning towns could bolster league coffers and reboot the salary cap.

    This may all seem like rhetoric but the league has one eye on Russia and the KHL. While the NHL is bound to a salary cap drawn to league revenue, the KHL is a free market. If the salary cap continues to fall under the burden of weak franchises the NHL is going to see an increasing number of star names, particularly veterans whose cap hit cannot be waivered, defect to the still monetarily secure upper echelons of the KHL. This will leave the NHL filling roster space with none elite, low cap players and the overall integrity of the league as the worlds greatest will be lost. Bettman may want to keep his American footprint alive but as a businessman he has to realize that the current financial model he is peddling is failing and will continue to fail in the face of money leagues such as the Kontinental Hockey League. So will teams relocate and contract? As more and more avenues of salvation are exhausted at the nose end of a dramatic economic downturn don’t be surprised if the league starts to have a change of heart.

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