Wednesday, October 3, 2012

Pipe dreams: NHL needs to seriously consider contraction

Kent Wilson at NHL Numbers posted a great article on what ails the NHL, and why player salary rollbacks aren't going to fix it. Ultimately, Wilson arrives at the hard truth for owners: the only real solutions are aggressive revenue-sharing via the ability to trade cap space, or, even more simply, contracting or relocating teams that have no real hope of breaking even.

Revenue sharing is great, and it's probably going to be incorporated into the next CBA on some level. But it's a cover-up for the league's real problem, which is that the gap between teams that generate the most and least revenue is extremely wide and irreversible. The hard salary cap implemented in the last CBA was supposed to do two things: create cost-certainty by limiting player salaries, and ensure competitive balance by guaranteeing that teams would be spending relatively similar amounts of money.

Instituting revenue sharing within the hard cap maintains cost certainty, but eliminates the competitive balance element, since it allows big-market teams to spend more and actively incentivizes small-market teams to spend less in the name of turning a profit. That's kind of Wilson's point: that the pursuits of profits and parity are often at odds with each other.

That's why the league's only real solutions to its problems are relocation and contraction.

Teams like Phoenix, Columbus, Tampa Bay, and Florida need to make deep playoff runs every single year just to avoid losing money. That's simply not realistic. And in Tampa Bay, for example, even winning the Stanley Cup wasn't enough to boost attendance for any significant amount of time. In 2003-04, when the Lightning won the Stanley Cup, Tampa Bay ranked 12th in the league in attendance. They enjoyed a bump in attendance for several years afterward, but by 2008 had fallen to 21st in the league.

The New York Rangers, by contrast, missed the playoffs for seven consecutive seasons between 1998 and 2004. In 2004, they still ranked ninth in the league in attendance, three spots ahead of the eventual champion Lightning.

Since 1990 the league has added nine teams in mostly non-traditional hockey markets (not counting relocations): the San Jose Sharks, Ottawa Senators, Tampa Bay Lightning, Anaheim Ducks, Florida Panthers, Nashville Predators, Atlanta Thrashers, Columbus Blue Jackets, and Minnesota Wild. Of the eight teams still remaining in their original locations, six ranked in the bottom half of league attendance last year, with the exceptions being Ottawa and Tampa Bay.

Moving one of those teams, the Atlanta Thrashers, to Winnipeg was a huge win for the league: the Thrashers drew just 72 percent of capacity in their final season, compared to 100 percent in their first year in Winnipeg.

Struggling to keep teams afloat in those locales is just bad business. The league's constant desperation to a) find an owner willing to buy the financial sinkhole that is the Coyotes franchise, and b) keep that sinkhole in a hockey hotbed like Phoenix, has laughably dragged on for years.

Since the 2004-05 lockout, league revenues have gown from $1.9 billion to more than $3 billion. The problem is that that growth has been primarily among select teams in big markets that care deeply about hockey. That fact is illustrated by this graph from Graphic Comments series about the previous CBA.

Teams that were losing money previously saw their losses mostly stabilize, but they didn't start magically turning profits. A lot of teams saw more or less the same results. But all of the additional league revenues have been realized by the teams that make up that green line. As a result, the salary cap has risen, but more and more teams that aren't seeing increased revenues are losing their ability to spend all the way to that cap. Parity is suffering as a result, and allowing big-market teams to trade for small-market teams' extra cap space is only going to exacerbate that problem. Small-market teams may come closer to breaking even, but it will be increasingly difficult for them to field competitive teams as they spend drastically less than their big-market competitors, much as they did in the pre-2005 economic model.

Putting more franchises in locations where they have a legitimate chance of success, and/or eliminating the ones that can't be moved to hockey-feasible markets, is the quickest way to put a larger percentage of the league's teams on secure financial footing and improve competitive balance at the same time.

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