NHL teams lose money, and the lockout isn’t going to change that
The National Football League isn't just profitable; it could replace the toilet tissue in the League headquarter's bathrooms with dollar bills and still have enough left over to give Roger Goodell his own Scrooge McDuck money bin. For example, only one team in the NFL discovered a way to lose money in the 2010 season: The Detroit Lions, thanks to winning just 23 percent of their games over five years and experiencing an 0-for-16 season.
This despite the NFL's players taking 57 percent of the League's $9 billion in revenue annually.
"We'd all like to have football's problems," an NHL executive told me recently.
After the NFL's lockout drama, the players' share was reduced down to a 50/50 split (on average) in what was called an "all-revenue" model. The rich will get richer; and the collective brain-trusts of Enron and Solyndra couldn't find a way for an NFL team to lose money under this CBA's terms.
But someone will. Someone always does. In a business with 30-plus franchises, there's going to be an owner who overspends or a team that fails to keep its gate up or a market that suddenly doesn't support the franchise the way the League hoped it could.
The problem in the National Hockey League is that there are, at last count, around 18 teams that Forbes.com claims lost money in 2010-11. Many of these teams are successful on ice, but that success hasn't bled over to their economics.
This has led to both sides of the CBA debate targeting revenue sharing as a panacea for these money-bleeding teams. As James Mirtle of the Globe & Mail passed along:
The players' proposal involves giving up closer to $100-million, money the union wants to put into a $260-million revenue-sharing pot for struggling teams rather than benefit those that make a healthy profit.
The NHL has offered to raise revenue sharing to $190-million from last season's $150-million, with the extra likely easy to come by given it's a small fraction — just 10 per cent — of the owners' savings in their deal.
"We're not interested in helping the Toronto Maple Leafs make a bigger profit," one source on the players' side said this week. "We're interested in directly targeting the teams that are losing money and guaranteeing that they don't lose money in a new system. That's what we're prepared to do."
The NHL is down with revenue sharing, too, but thinks that player costs are the real devil in the details. Its mantra leading up to the labor battle with the NHLPA: The system they put in place seven years ago works for the on-ice product, but "we got the economics wrong."
Question is: Can they ever get them right, or are NHL teams destined to always be money losers?
The NHL has said that the NFL is its own animal, which is true: Professional football's television contract and revenue streams make hockey look like a lemonade stand by comparison.
The comparison the NHL likes to make is to the NBA, where costs are fixed and capacities are similar and both Leagues have had executives named Gary Bettman in the last 20 years.
In 2010-11, the year before its lockout, there were 15 NBA teams that lost money according to Forbes.com. Will a shift in the Association's revenue split towards the owners provide relief to some of these teams? Of course. But not all. Because self-inflicted wounds aren't easily prevented.
According to Forbes, the Dallas Mavericks lost $8.9 million on average over five years. This is, in part, because they chose to spend above the cap and paid $18.9 million in luxury taxes in the 2010-11 season. The Memphis Grizzlies lost $9.7 million; again, a team with a high payroll by choice.
The New Jersey Nets, meanwhile, lost $10 million on average over five years and then relocated to Brooklyn, where projections have them potentially in the top six teams in generated revenue next season.
The Charlotte Bobcats made the playoffs once in eight years and lost $26 million in 2010-11, the year after their playoff appearance. They are the Columbus Blue Jackets of the NBA — a team in a potential hotbed market whose futility hasn't allowed it to take root.
You'll find common threads between these NBA teams with the NHL, as broken down by Lyle Richardson in his terrific take on money-losing franchises. (Check out the first and second rounds of analysis.)
What it comes down to, frequently, for money-losing teams in the NHL: Budget mismanagement, either as intentional overspending to compete or irresponsible contracts handed out to ineffective talent; or franchise misplacement, as markets that can't sustain teams (Atlanta) stay on life support until moving to a market that can (Winnipeg).
(On that second point: NHL players, from my experiences, favor relocation for teams that struggle to fill their buildings, although not if it's the team for which they currently play. What they don't like: Not having a strong enough voice in expansion/relocation debates, and not getting a suitable slice of that fiscal pie the NHL receives as moving costs.)
Look, there's no question that player salaries have rocketed up in the last decade: According to CBC Sports, the average player salary has increased 69 percent since 2003-04. But as Dirk Hoag pointed out, there's a lot of losses for these teams that aren't simply fixed by downgrading player payroll:
In order to lose $273 million back then, "other costs" (outside of player costs) must have been in the ballpark of $770 million. Since that time, however, the league rolled back player salaries by more than 20%, and put a cap in place, so that player costs rose in line with revenues. In today's world of $3.2 billion in league revenues, that can only mean that "other costs" have basically doubled since then, as player costs have only risen by 25-30% overall.
Even if you use a generous figure of the players getting 60% of revenues today (a little higher than 57% due to high-salary players stashed in the AHL, long-term injury costs, etc.) that puts player costs around $1.9 billion for last season. $3.2 billion in revenue - $1.9 billion in player costs yields more than $1.3 billion in "other costs" that would still allow them to break even, but apparently they are even higher than that if Renaud's informant is correct.
There's also no question that 57 percent of the revenues is an unsustainable number, as the NHL and its owners have noted. Back in 2005, the owners know they [expletived] up, gave the players too much, saw the error of their ways in the NFL and NBA cash grabs and wanted one of their own.
Meanwhile, the sole reasons that player costs have inflated are (a) the financial system the owners put in place seven years ago and (b) the GMs whose fiscal irresponsibility has either subverted the effectiveness of that system or revealed it to be wholly ineffective in moving franchises into profitability.
Again, check out Lyle Richardson's piece. There are six teams — the Nashville Predators, Florida Panthers, Columbus Blue Jackets, Phoenix Coyotes, NY Islanders and Atlanta Thrashers — that annually lost money from 2005-06 to 2010-11. The Carolina Hurricanes, St. Louis Blues and Buffalo Sabres lost money in five of six NHL season between '05-'06 to '10-'11.
Would increased revenue sharing help the nine teams, on average, that lose money annually for the NHL? Yes, and it would help others like the New Jersey Devils that don't currently qualify for revenue sharing but lose significant money when they're not making Stanley Cup runs.
Would it "guarantee that they don't lose money in a new system" as a player proxy told James Mirtle? Not unless revenue sharing can promise playoff success in a way that parity hasn't; or create revenue streams where there aren't any; or produce a robust and enthusiastic fan base instead of one prone to apathy; or give the NHL the NBA's television contract(s).
Or prevent mismanagement of funds by team executives willing to throw money at on-ice problems and then cry poverty about it. (The solution, apparently: Give them MORE money to mismanage!)
Maybe the solution is to take the power away from the GMs and have the NHL negotiate all contracts, like some nanny state or Major League Soccer. It's something the NHL floated seven years ago; not a peep this round, even if it's the League's team executives that have turned the "cost certainty" of 2005 into 2012's next lockout.
The more reasonable solution: To accept that teams will lose money no matter what the players are or are not earning; and that the woe-is-us routine during every CBA negotiation clouds the real revenue, management and systemic market issues that aren't simply cured by temporarily rolling back salaries.
