Competitive Intelligence

The National Hockey League Catastrophe: Will there Be a Season Next Year?

In the how-to-wreck-a-market department, I noticed an article today describing how the National Hockey League is finding itself in the midst of a financial collapse. Starting 13 years ago the league, then 21 teams, expanded geographically - with nine new franchises, many in the Sun Belt - in order to win a lucrative national TV contract. The resulting broadcast deal pays only $4 million per team annually (compared to the NFL's $80 million per), and ratings are poor. Here's an excerpt from the Washington Post:

As the all-star break approaches, the league's six Canadian franchises are healthier than in recent years, thanks to an improved Canadian dollar. Dallas, Boston, Toronto, Detroit, Philadelphia, Chicago, Minnesota and the Rangers are believed to be profitable or close to it. Columbus is apparently well run and profitable.

But the vast majority of teams are sick.

Case in point is Tampa Bay, which has lost $50 million in the past four years, according to team officials. The Lightning, with one of the best young teams in the league, has a payroll at $33 million, which is in the bottom half of the league. The team saw a rapid spike in attendance during last year's playoff run in which it got knocked out in the second round.

But Lightning President Ron Campbell said the club would be better off financially if next season is cancelled. He said that from an operations standpoint, it would be the best year since his boss, industrialist Bill Davidson, bought the franchise in 1999.

"No one wants a work stoppage," Campbell said. "We just want a system that will allow us to operate with a small margin of profit. At the end of the day, we are still a business. And as much as you want to win, it's not much fun to win when it costs you millions of dollars."

Meanwhile, the expansion diluted talent, reduced goals-per-game, and left a larger percentage of the league out of the lucrative playoff season. Profits declined - two thirds of teams are losing money - while player salaries skyrocketed. The only solution is to bind salaries to league revenue. (The NBA caps salaries at 57 percent of revenue; NHL salaries consume 76 percent.) But doing this will force a lockout for most, if not all, of next season, which could bankrupt a quarter of the league.

But then, sometimes consolidation isn’t such a bad thing.

- Arik