FanPost

How The NHL's Big Markets Use The CBA To Bankrupt The Small Markets And Maximise Profits

I've seen quite a few people suggest lately that the NHL's proposed new collective bargaining agreement is designed to help out the small market NHL teams. I've heard a number of people question how the large markets could allow the small guys to dictate terms that aren't beneficial to them. I think this is a misunderstanding of what the league's proposed CBA is really about. It seems pretty clear to me that the large markets are driving the negotiations here. But before I get into that in too much detail, let's look at what exactly the small markets are lacking.

THE PROBLEM IS REVENUE, NOT EXPENSES

A number of markets in the NHL are losing considerable amounts of money. In most cases those are market problems and not player cost problems. Sometimes it's because a team has to price tickets pretty low in order to get good attendance (like Tampa Bay) and in many cases it's because the combination of low ticket prices and low ticket sales result in really low revenues. Using last season's attendance and average ticket price figures obtained from ESPN.com I put together this chart to estimate the amount of ticket revenue each team in the league generated:

Team Avg Ticket Avg Home Attendance ~Ticket Revenue
Toronto 123.77 19,506 98,984,562
Montreal 88.67 21,273 77,337,353
Winnipeg 98.27 15,004 60,452,166
Philadelphia 66.89 20,433 56,037,298
Calgary 68.18 19,289 53,920,085
Vancouver 68.38 18,884 52,942,805
NY Rangers 66.20 18,191 49,374,012
Chicago 55.72 21,533 49,192,569
Edmonton 70.13 16,839 48,417,682
Pittsburgh 63.06 18,566 48,001,650
Washington 62.42 18,506 47,360,925
Minnesota 62.63 17,772 45,635,475
Ottawa 55.51 19,356 44,052,514
Detroit 53.28 20,114 43,938,631
Boston 58.94 17,564 42,444,109
Los Angeles 51.92 17,920 38,146,662
Florida 55.67 16,628 37,952,911
San Jose 49.73 17,562 35,807,689
Nashville 51.04 16,690 34,926,162
St. Louis 41.57 18,809 32,057,495
Buffalo 38.25 18,550 29,091,038
New Jersey 45.86 15,396 28,948,483
Columbus 47.95 14,660 28,820,827
Tampa Bay 37.73 18,468 28,568,703
Carolina 41.58 16,042 27,348,081
NY Islanders 49.06 13,191 26,533,169
Colorado 40.62 15,498 25,810,679
Anaheim 36.94 14,760 22,354,610
Phoenix 36.15 12,420 18,408,303
Dallas 29.95 14,226 17,468,817

Once you get past the Canadian teams (minus Ottawa, plus Philadelphia) revenue drops off a fair bit. Even the "rich" American teams like the Red Wings and Penguins make less than half what the Leafs do in ticket revenue. There's obviously a ton of kinds of revenue that aren't included here (this sums to $1.2 billion while total league revenues were $3.3 billion) and I'm just using the figures ESPN had available so I can't claim that this chart is a 100% accurate reflection of ticket revenue throughout the league, but I think it paints a good picture of the general situation.

There are two ways that the unprofitable teams like Phoenix could theoretically become profitable. One would be for revenues to increase to a level that would actually support their business. The other would be for the salary cap to fall sufficiently that costs fell below current revenues. The NHL's proposal to reduce the % of Hockey Related Revenue allocated to the players to 46% may go some way to accomplishing that but it doesn't solve the fundamental problem that some teams in the league can't get fans into their buildings at a competitive ticket price, and any proposal that does not address the revenue problem that the small market teams have isn't going to make them financially solvent. [info on the NHL's proposal taken from this Larry Brooks column.]

THE CURRENT CBA BANKRUPTS SMALL MARKETS FOR THE BENEFIT OF BIG MARKETS

As revenues grow in places like Toronto and Montreal, so too does a salary cap linked to HRR. That means that teams like Phoenix are required to spend more money based on what Toronto earns. Nothing in the NHL's proposal changes that in any way. The NHL has chosen a CBA model that ties each teams' spending to the other teams' revenues. Without significant revenue sharing this is always going to be a problem unless the players' share of HRR is reduced to something absurd like 10%.

What lowering the share of HRR given to the players does do is allow those big markets like Toronto and Philadelphia to pocket some of that additional revenue at the expense of the small markets. If Toronto generates $10 million in new revenue, MLSE is guaranteed that some of that money will be pure profit - they're not allowed to spend all of it on player salaries. But the small market teams who have not generated a single dollar of additional revenue are now required by the CBA to spend more money. The salary cap forces small market teams to continually outspend their revenues so that the large markets are guaranteed a certain profit threshold. As long as the NHL insists on there being a cap floor of any kind, this simple fact will not change. Contrary to the NHL's position, the salary cap does not enable the small market teams to be financially solvent; in reality, the salary cap actively bankrupts them.

Now, it's worth noting that there is some degree of revenue sharing in the NHL and that may offset this somewhat, but it doesn't change the fundamental picture.

THE NHL'S PROPOSED CBA IS ABOUT CONTROL, NOT FINANCIAL SOLVENCY

What specifically has the NHL proposed, other than a lower salary cap? Here are the items that Larry Brooks has listed, along with my explanation as to what they mean and who they effect:

  • 5 year contract term limit - the NHL wants to get rid of guaranteed contracts but knows the Players' Association won't give them up. Teams like the Bruins and Flyers would love to get out from under deals like Marc Savard's or Chris Pronger's but can't under the current CBA. A 5 year contract limit would significantly reduce the potential for teams to be on the hook if players receive career threatening injuries. The term limit may look like it's designed to go after "retirement" contracts, but it's really designed to go after guaranteed contracts. This does not appreciably help the small market teams, though as we saw with Nashville and Matthew Lombardi, guaranteed contracts can be a problem for them at times.
  • 5 year entry level contracts (3 guaranteed years, 2 one-year club options) - this is all about control for the clubs. This provides no real financial savings nor does it provide any real competitive advantage. This is a rule that would affect the big markets as much or even more than the small markets; consider the case of the Bruins having to trade Phil Kessel because of a cap crunch after his ELC expired, a situation that would never affect a small market team.
  • Equal cap hit for every year of a contract, some % of 1-way contracts in the NHL counted against the cap, no up-front bonuses - I think these could reasonably be argued to benefit the small markets from a competitive standpoint, but they do zero to address the overall cost problem
  • No salary arbitration - intended to provide maximum control over players to clubs, provides equal benefit to all teams.
  • UPDATE: 10 years of service required before becoming an unrestricted free agent - same reasoning/results as no salary arbitration. This is about control and not finances.

While the new rules proposed by the NHL may provide some modicum of increased competitive balance for the small market teams, they're primarily intended to eliminate the union's power and put the players at the mercy of the club which drafts them. These proposals don't fix the underlying economic issues of the small markets in any way, but they do give team management as a whole an increased toolkit to control players' careers.

What it comes down to is this: once the players' share of HRR has been set, the only remaining question is how it gets divvied up among them. The NHL's proposal would result in money tending to be concentrated in older veterans, but that doesn't help the small market teams because as long as they're required to spend a certain amount on salaries each year there's no real financial advantage for them in having to spend that money on expensive older UFAs rather than their own young players. They're still going to be spending more money than they're earning, and none of these proposals changes that. Just like the previous CBA, this one is designed to make the big markets more money. Everything else is just window dressing.

PensionPlanPuppets.com is a fan community that allows members to post their own thoughts and opinions on the Toronto Maple Leafs and hockey in general. These views and thoughts may not be shared by the editor of PensionPlanPuppets.com.

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