Comments on economics, mystery fiction, drama, and art.

Wednesday, February 16, 2005

Waiting for Goalies

Unless something dramatic happens this morning--and it might--the NHL seems unlikely to have a season. Major-league professional hockey was already in trouble, and this might well be something close to a death blow for the current organizational structure.

The remaining issues in the bargaining process don't seem all that daunting, however. The difference is between a "hard" salary cap at $42.5 million and $49 million per team, with the union offering a LOWER minimum team salary ($25 milion, compared with $30 million). The minimum salary seems agreed on at $300,000. Perhaps most importantly, the league agreed to de-couple the salary cap from revenues; the player's association had argued that the next couple of years are likely to have depressed revenue streams as a result of the lockout, so resricting overall salaries to 55% of a temporarily depressed revenue stream didn't make much sense. NHL Commissioner Gary Bettman, in his letter to Bob Goodenow (NHLPA Executive Director) goes, of course for the worst-case scenario of the NHL's position--if every team is at the cap, the league as a whole will lose money. It seems implausible that every team would be at the maximum, and there's no real way to guarantee profits in any event.

Interestingly, a coalition of NHL "stars" apparently pushed the union into accepting a salary cap.

Suppose there is a compromise--say, $45 million maximum team salary pool, and $30 million minimum. What are the implications?

First, average salaries are likely to fall. If they don't, then what was the point of the salary cap anyway? But whose salaries? Will salaries fall more for "stars" or for supporting players? I think it's clear that the supporting players would lose (proportionally) more. And, in particular, experienced supporting players will almost certainly be looking at large salary cuts, or at the prospect of being replaced by younger players at the minimum salary.

Second, will this solve the NHL's problems? No, it won't. The single major problem is the revenue stream the league is able to generate. There is no national media contract that provides any significant revenue streat. Some teams (the Rangers, the Maple Leafs, the Canadiens, the Black Hawks, the Red Wings, and a few others) generate local media revenue, but not enough, even it it were totally shared, to make up for the lack of a national contract.

In many ways, the lack of a national media contract is somewhat surprising. Hockey seems made-for-TV--a restricted playing surface, which can be covered fairly easily by a small number of cameras. Enough breaks in the action to permit instant replay. (The major negative is that the breaks in the action don't accomodate commercials all that well, which is a problem that can be addressed, if the league and players are willing to be creative about it. For example, a 2-minute break after a goal. Or a 1-minute break after every otehr--or every third--frozen puck/face-off.)

Most teams seem to do fairly well with arena revenues-attendance is strong, even in non-traditional locations. But arena revenue is not enough to allow teams to cover their costs. Take a team with a 17,500-seat arena, which sells out every game. That's 40 or so home games, or home attendance of about 700,000. (Assume revenue sharing is a net zero for arena revenues.) Then, if your payroll is the league minimum ($30 million), your averahe ticket price mas to be about $43 just to cover your payroll. Add in benefits, scouting nd player development (subsidies for minor-league teams), mamagement, arena probably need $65 - $70 million in revenue. Without media revenue, that's an average ticket price of $100...which will not fly.

So what can be done about the media revenue issue? I don't know, but unless the NHL solves that, all the lockout and lost season will do is depress fan interest and make it harder in the short-run.

Long-run? This is a league that might need to contract. In fact, something like the "promotion/demotion" system in English football leagues might be just the thing. Reduce the "major-league" part of professional hockey to 12-16 teams. The "secondary" league could pay lower salaries, making it easier to survive on arena revenues. Each year, the worst 2-4 teams in the "major league" would fall down a level, and the best 2-4 in the secondary league would get promoted. Any takers?


Post a Comment

<< Home