The NHL Lockout – Does Gary Bettman Have a Viable Solution?

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    louella6533575
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    With the NHL’s recent cancellation of the Winter Classic, I examine the NHL lockout with respect to the other sports leagues and whether or not the proposed solutions will actually address the League’s financial problems.

    The NFL: The biggest national TV contracts, massively successful marketing deals with amazing revenue sharing that allows small markets to compete. See Green Bay, San Diego, Baltimore. True parity. Gate receipts are not very important to a team’s financial success.

    Every team should be in profit. Last work stoppage was in 1987.

    MLB: Massive national TV contracts, huge online business success, summer-time sports monopoly. While large markets can spend, smaller markets remain profitable because lower revenue teams can spend as little as they like to field a team.
    If a team will have revenues of $60 million, they can field a team for $30 million to make a profit. Every team should be in profit. No work stoppage since 1994.

    The NBA: Great national TV deals, great gate attendance for winning teams, poor so for losing teams.

    Tiered financial system allows the rich teams above the luxury tax threshold to directly subsidize teams below the threshold. Profitability of a team is questionable in smaller markets where media deals aren’t large enough to help compensate for poor gate receipt figures.
    Poor gate receipts are a reflection of poor team results. See Charlotte, Milwaukee, Memphis. Small market teams can be managed to success, see San Antonio and OKC. NBA has lost games in 1999 and 2011 seasons.

    How about the NHL?

    The top 10 revenue teams do extremely well.

    Canadian and North Eastern US markets sell out their buildings and do reasonably well with local media deals. National TV deals shared by all teams are a relative pittance compared with the above leagues. We are left with the middle 10 revenue teams that need a deep playoff run with the extra dates to perhaps break even and the 10 teams with the worst revenues where even a Stanley Cup win would mean tens of millions of dollars lost.
    This is the crux of why the NHL is at an impasse with it’s players.

    Gary Bettman has created a tiered league where only one third is actually financially sustainable. The league has expanded into so many non-traditional hockey markets that Gary has a problem.

    These markets won’t support teams that don’t win. They don’t like hockey enough as a sport to support the game for the sake of it, they may support a winner. See Colorado and how attendance dropped once the Sakic and Forsberg era was over.

    Strong hockey markets can be financially sustainable even in down years in terms of on-ice performance.
    These teams have time to build a better team aimed at winning more games which will in turn make more money. But when you have 30 teams and 16 playoff spots, 14 won’t make it. Hence the ridiculous points system Bettman created to keep all mediocre-to-bad teams all fighting for the 8th spot in their respective conferences.

    This is Bettman’s strategy to keep as many of these poor hockey markets interested in the playoff race as possible as long as possible.

    To enforce this parity in the last CBA, Bettman fought hard to get the salary cap, but in doing so, implemented a salary floor.

    With the turn of the Canadian dollar toward parity with the US Dollar and the continued success of the top-tier markets, by CBA rules, bottom tier teams were FORCED to spend to salary levels that they could not afford.

    So where does this leave us? We have fans, players and top-tier teams being held hostage to help these bottom tier revenue teams.

    But will Bettman’s plan for an increased share of the hockey related revenue, the 50-50 deal, actually help matters for these teams?

    The answer is no!

    All the proposed 50-50 deals from the NHL would accomplish is more money being kept by all respective teams, but the lower revenue tiers of teams would still be massively unprofitable.

    With a gate-driven league, where the bulk of money is earned in-building during games from tickets, luxury suites and concessions, revenue sharing in a pure sense is a tough sell. Why would the owners of the Leafs or Rangers want to simply write a cheque to the league for $30 million just because they draw better than Florida or Carolina?

    This is why revenue sharing levels remain so low. Sharing national TV deals and marketing deals is so much easier because those deals are negotiated at the League level even though the marquee teams and markets drive these deals. But the NHL’s deals in this regard are far behind the other leagues leaving the lower attendance teams with a huge gulf between costs and revenues.

    So how can we structure the new NHL to be more profitable for more teams with at least some sense of parity?

    First, Bettman needs to forget the idea of complete parity. The NFL can accomplish this because all teams can essentially break even with their costs from the equal share of their TV and league marketing deals without a single dollar of game-day revenue.

    This is simply not possible with the gate-driven NHL. To make revenue sharing more palatable for the top tier revenue teams who create their own wealth, institute a luxury tax for every dollar spent over the cap. If the Rangers want to spend $10 million over the cap on to be able to have better players, then they pay $10 million into the tax fund.
    All teams that stay under the tax threshold, get an equal share of the tax payer pot.

    Second, eliminate the salary floor. Teams in Florida and Phoenix and Tampa should be nearer $20 million in salaries not the mandated $40 million.

    It’s all well and good to say to the players that ‘we the owners want closer to 50% of revenue up from 43%’.

    But all the current plan will do is make the richer teams richer by being able to keep more of their profits and it will not markedly improve the financial situation of the 20 or so teams that are losing money hand over fist and creating this need for a work stoppage every few years and potentially a second season lost.

    If you are you looking for more information about US Hockey Markets stop by our own web site. Bettman’s current CBA plan, just like all his previous ones does not address the real economic issues of his league, but rather attempts to shape the league toward an ideal of parity which it cannot sustainably attain.

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