Rotten Economy Makes Second Team Feasible

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    This proposed offer to purchase the struggling Phoenix Coyotes by Jim Balsillie may be a better possibility this time around. It may seem impossible to fathom another NHL club so close to its flagship franchise, the Leafs and the Buffalo Sabres, but it’s not jurisdiction that’s at the heart of the issue here.

    It’s the salary cap, revenue and a return to the dead puck era.

    Moving struggling franchises to a Canadian market prior to the global economic crisis was a potential disaster, with an extreme possibility of throwing the NHL back into the dark plague ‘dead puck era’ that forced significant rule changes after the lockout.

    That’s the extreme case; probable, but less possible.

    The one argument against a move of a franchise from the southern U.S. to Canada I used for justification was the salary cap and the NHL business model.

    When the NHL emerged from the lockout, I thought it would go down like this: a lucrative emerging TV deal brought in higher revenue, in turn justifying NHL expansion, regardless of U.S. or Canadian based teams, as long as all clubs remained healthy and profitable. More revenue meant the ability to pay a greater number of players, further justifying expansion without diluting talent.

    The salary cap, based on projected revenues consists of ticket sales and hockey related revenue. Season’s ticket holders have already purchased most packages for the 2009-10 season, but the following season is the one at issue. Players receive a CBA dictated portion of revenue (about 56%) forming a cap ceiling and floor.

    The ceiling is less of a concern; the cap floor is another story.

    Escrow payments from player’s cheques form a safety net for ownership groups, ensuring allotted percentage of revenue is paid to players. Should revenues not meet projections, owners retain escrow payments. Players and franchises in a partnership are responsible for increasing revenues to justify the higher salaries.

    Assuming the trend for Canadian cities as indicated in an article by Rick Westhead ( http://www.thestar.com/comment/columnists/article/433906 ) – allocating 31-percent of NHL ticket revenues ($1.1 billion U.S. worth) to the six clubs North of the border – moving a struggling franchise from the U.S. to Canada would have allegedly increased the salary cap floor – as well as the ceiling – from increased revenue.

    Struggling teams at the bottom would be required to shell out more for players and struggle to scrape more than the bottom of the cap floor, even with revenue sharing (another sticky point for profitable team owners that don’t want to share revenue with weaker sister organizations).

    Financially struggling teams would have been in a difficult position if the Kitchener-Waterloo Penguins, or Hamilton Predators emerged prior to this economic crisis.

    But now, a team in an “unserved Southern Ontario market” could be a welcome revenue source for the league in the face of the economic conditions, possibly propping the soon to be decreasing salary cap at its current level, preserving the current cap/ceiling combination.

    Before the crisis, in the extreme scenario, the NHLPA brotherhood would ensure star players receive close to the top of the salary cap allotment (20% max of cap per season) and to keep salaries in line with revenues, will filter a star athlete’s worth in the open market. This would increase the gap between stars and players making closer to the minimum than a middle ground for the sake of staying within a cap structure.

    A lucrative television deal wouldn’t likely be considered for non-U.S. based franchises, further dampening the justification for expansion (due to higher revenues), and in fact, U.S. based teams would not filter into the NHL, instead, possibly moved elsewhere.

    In a worst case scenario, struggling clubs would be forced to fortify with less talented players – skewing the perceived parity in the current NHL – leading to * gulp * a return of a dreaded defensive system-based strategy throwing the NHL into a dark age of obstruction and trapping. Just like the Boston Bruins of 2007-08 or the Jacques Lemaire led Minnesota Wild.

    The on-ice product would further deteriorate and the merry-go-round of lockouts, rule changes, and fans losing interest in watching an unexciting product would deem ownership of NHL franchises a less attractive investment for an owner, and boring to the fan.

    Under the current CBA, it was unlikely a franchise was moved north of the border. The return to the dead puck era may seem far-fetched, and perhaps it is. It would take multiple franchises to move to Canadian digs for such a scenario for that to occur.

    But times have changed. Fans without steady income are more reluctant to pay for entertainment, especially if available on television.

    But with the current economic conditions, propping the salary cap and floor at this current level could be a welcome bonus for the on-ice product, the NHL and it’s sister franchises.

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