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| The payoff for teams such as the Calgary Flames, which already had modest payrolls, will be a financial structure that should make it easier to remain competitive without breaking the bank. |
Looking at the net effects of the NHL’s new collective-bargaining agreement, one thing is clear: The rich got richer.
Virtually every NHL club will feel some sort of lift from the new CBA. All but two or three will reduce payroll this season from 2003-04 levels, and revenue sharing will pad the coffers of about a dozen of the league’s weaker-earning clubs.
But franchises that spent the most before the lockout — generally the league’s higher-revenue clubs — are the ones who’ll see the largest swings. It’s for the simple reason that their payrolls have been cut by anywhere from $20 million to $50 million, while many smaller-revenue clubs were spending less than the new $39 million salary cap even before the season-long lockout began.
Of the seven clubs to net the largest financial gains under the new system, according to a Street & Smith’s SportsBusiness Journal analysis, five were among the league’s top 10 in revenue in 2003-04.
Behind the numbers
Making accurate predictions for the final profit and losses of NHL clubs for this season is nearly impossible. Not only is revenue a giant variable, but so is revenue sharing and returns on payroll escrows that kick in if clubs spend more than 54 percent of revenues on salaries collectively. These are all moving targets based on a variety of financial tallies that won’t happen until the end of the season.
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| The Toronto Maple Leafs will realize about $25 million in savings from a smaller payroll. |
But by comparing 2003-04 payrolls to this season’s, and factoring in estimated revenue sharing, contract buyouts and the elimination of special assistance for Canadian clubs, we can at least identify a starting point for each club.
The one that will gain the most under the new deal is the New York Rangers, who, like all the big-spending clubs, will have no choice but to put money in their own pockets rather than those of the players.
The Rangers spent more than $85 million on players two years ago, including bonuses and deferred compensation. This year, they’re expected to spend around $36 million. Revenue sharing and a player buyout will offset that slightly, but the net gain will still be around $42 million.
The Toronto Maple Leafs were one of only two NHL clubs making an annual profit of more than $10 million before the lockout, and took in $19 million more in revenues than any other club, according to an NHLPA document. Now, they’ll have an extra $25 million to play with, which they can’t spend on player salaries no matter what.
While the big-spending clubs got an immediate financial shot in the arm, (in the form of shackles that keep them from spending), the working-class clubs got something far more nebulous — hope.
Many clubs say they actually expect to lose money this season, due to a drop-off in revenues. But none are complaining, because multiple owners and club presidents say the new CBA is more about competitive balance than financial relief.
“I don’t think the new system impacts us all that much,” said Columbus Blue Jackets President Doug MacLean, referring specifically to payroll economics. The club, which is in the middle of the pack revenue-wise, had never spent more than the $39 million salary cap, and expects to see player expenses reduced by only about $4 million this year, with that savings mostly offset by lower revenues.
MacLean said the real benefit to the Blue Jackets, who entered the league in 2000 and have never made the postseason, is that the club now has a good chance to make the playoffs.
On one level, competitive balance did not seem to be an issue in the NHL — eight different clubs made it to the last four Stanley Cup Finals, and a club in the lower-spending third won it all in 2004 — but many clubs lamented the perceived huge disadvantage they had when facing teams that outspent them two or even three to one.
In the new environment, every team can go into the season believing they have a chance to win, and having their fans believe as well. That, say the smaller-market clubs, is the real benefit of the new CBA.
“The level playing field is huge for us, because that alone should enhance revenues,” MacLean said. “If we made the playoffs, that would be a major swing in revenue for the franchise.”
According to the SportsBusiness Journal analysis, the Edmonton Oilers benefit less from the new deal than any other club.
Before the lockout, Oilers ownership group chairman Cal Nichols vowed to sell and move the club unless a new economic system was put in place. But now, no complaints can be heard from the Canadian Northlands.
Team President Patrick LaForge said the Oilers “have a better team at the same price,” and are better off because the entire league will be healthier.
Their cups runneth over
Meanwhile, the high-revenue clubs are figuring out what to do with their new cash bonanza. For some it will go straight to the bottom lines. Others are lowering ticket prices to levels they know are below what their markets can support.
The Detroit Red Wings, whose $80 million payroll has been cut in half, will lower the price of playoff tickets, always the hottest item in a city known as Hockeytown, U.S.A.
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| The Flyers are using some of their savings to give fans a break by cutting ticket prices. |
“We ran our business in the past on a deficit in the regular season and really charged big prices in the playoffs because that’s where we had to do the business,” said Red Wings general manager Ken Holland. “This year, we’ve promised a 10 percent to 20 percent reduction in playoff ticket prices.”
The Philadelphia Flyers chopped ticket prices by 5 percent to 19 percent depending on the seat location. “The reason was not so much we were concerned we’d lose fans but just wanted to give something back,” said Flyers Chairman Ed Snider. “We felt they deserved a break.”
The Flyers will save more than $30 million on payroll this year, offset only partially by revenue sharing and a $7 million buyout of two players. All told, though, Snider said the Flyers might not break even this season — despite expecting to sell out every game.
“With revenue sharing and buyouts and ticket price decreases, I’m not so sure we’re going to make money this year,” he said. “But I know we’re in a position to make money in the future.”
Boston Bruins owner Jeremy Jacobs said basically the same thing about his club in an interview during the summer. “I think this year we will be very hard-pressed to be profitable,” he said. “We’re all basing this on a lower income source.”
These claims by owners of some of the richest clubs may draw groans from skeptics. But about two-thirds of NHL clubs reduced ticket prices for this season, taking about a 10 percent bite out of the league’s largest source of revenue ($997 million in 2002-03). For those in the lower-income bracket, especially ones that did not end up making large payroll cuts, the reductions will indeed erase many of the short-term financial gains from the new CBA.
“Unless we go pretty deep in the playoffs, I don’t think we’ll make money this year,” said San Jose Sharks CEO Greg Jamison. “Our expenses are better, but we still don’t have the revenue yet to offset what this is going to be.”
The Sharks renewed 90 percent of their season-ticket accounts and expect the base to be similar to 2003-04, but they lowered ticket prices by 10 percent and face challenges on other fronts. “If suite leases, sponsorship and ticket sales are down,” Jamison said, “it’s going to take awhile on the revenue side to get to the point where one is going to offset the other.”
Fail-safe
NHL deputy commissioner Bill Daly said he thinks most clubs will fare better than they might expect, especially when factoring in revenue sharing and possible return from escrow payments attached to player salaries, something clubs can’t really budget for because they are based on too many variables.
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| Greg Jamison, CEO of the Sharks, still expects his team to end the season in the red. |
“I think even our low-revenue clubs can make money under this system if they choose to,” Daly said.
The CBA ensures player expenses are exactly 54 percent of revenues. If one club sees revenues dive or spends beyond its means, it could easily lose money. But if that happens leaguewide, the system adjusts for that and clubs, starting with the lower-revenue ones, will get money back at the end of the year.
It’s a fail-safe that has team owners sleeping easier at night, but not dreaming of untold riches.
“This is not going to be a home run for us financially; that’s not in the cards,” said Harley Hotchkiss, owner of the Calgary Flames and chairman of the NHL Board of Governors. “We think it’s going to give us the opportunity to be competitive and make some return on investment.”
The Flames, who made the Stanley Cup Finals in 2004 with a modest $36.5 million payroll ($41 million including bonuses and all other player compensation), face about a $10 million hit from the new CBA because of losing some special breaks from the league and local government. They used to get about $6 million or so in local tax breaks and incentives, plus $3 million from the league under the Currency Equalization Plan, through arrangements that had sunset clauses tied to the league’s old labor agreement.
Their opponents in the finals, Stanley Cup winners the Tampa Bay Lightning, also won’t see a major uptick from the new deal. They’ll spend to the $39 million cap this season, meaning an increase in overall player salaries, and project a $6 million loss in the regular season.
“We could come back again and say we’re going to try to break even by spending only $33 million,” said team President Ron Campbell, “but the No. 1 thing we’re doing is providing a competitive team on the ice for the community.
“Getting rich is not the goal. Every one of these owners really wants a chance to win, even in the smaller markets. That’s what gets the juices going.”
