When the prospective owners of the Phoenix Coyotes recruited investors earlier this year, this was part of their pitch: We’re not buying the team. We’re buying 1/30th of the National Hockey League.
The NHL had just gone through another lockout. But now it had a new labor agreement that reduced the players’ share of hockey-related revenue from 57 percent to 50 percent, at a time when league revenues were poised to pop.
Total HRR had grown from $2.2 billion to $3.3 billion in the seven years between lockouts. The league expected to generate $1 billion more in national revenue over the next three years, with things like outdoor games and, oh, let’s see, a new Canadian TV contract. The owners would split that 30 ways.
“I like to say that the NHL is where the NFL was 20 years ago,” said Anthony LeBlanc, the Coyotes’ president and CEO, in an interview last month. “If you see what is driving television advertising these days, it’s sports. It’s 100-percent sports. It’s the only thing that is DVR-proof. It really is. That’s how television networks make their money, and look at what they’re paying the NFL. The NFL, every team is profitable.
“Are we going to be a $4 billion-a-year league in regards to television? Certainly not in the near future. But Canada, that could be a good deal.”
It turned out to be a record deal. The NHL announced Tuesday it had sold its national Canadian rights across all platforms to Rogers for 12 years for $5.232 billion Canadian – or $4.97 billion U.S. using the current exchange rate. Content is king, especially content that sells cable subscriptions and attracts live viewers, and Rogers president Nadir Mohamed said to his customers “hockey is the holy grail.”
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In Canada, the media landscape has been turned upside down. There is concern about TSN being shut out and how this will affect Don Cherry. CBC is keeping “Hockey Night in Canada,” a longtime tradition, at least for four more years. But while CBC is paying nothing to Rogers, it is losing control over the content, talent, sales and revenue. It is receiving nothing in return but promotion and prestige.
In Canada, there is anticipation, too, that the strength of the Canadian dollar, the strength of the Canadian economy and the demand for the NHL product above the border will lead to another Canadian NHL franchise, even as commissioner Gary Bettman insists the league is not considering a “formal” expansion process “in the short term.”
Not long ago, there were six Canadian franchises. At least four were in trouble because of a weak Canadian dollar and high taxes. Now there are seven Canadian franchises, and they are an economic engine – all ranked among the top 16 teams in value according to Forbes. While the NHL generates $200 million a year from its American national TV contract with NBC, it will generate an average of $414 million U.S. a year from Rogers using the current exchange rate. It’s as if the Canadian assistance plan has become the American assistance plan, and it’s much bigger.
But that is the significance of this deal across the NHL – that it fits into the larger economic plan and strengthens the league from top to bottom. Two governors of American teams said Tuesday they were thrilled, though they could not comment publicly because the board still has to approve the deal Dec. 9-10 at its meeting in Pebble Beach, Calif.
Rewind one year. The owners had locked out the players, and the NHL and the NHL Players’ Association were trading proposals that eyed 2014-15 and 2015-16. At one point, the NHL wanted the players to receive 49 percent of hockey-related revenue in Year 1 (2012-13), 48 percent in Year 2 (2013-14) and 47 percent in Year 3 (2014-15). Meanwhile, the PA wanted the players’ share in Year 4 (2015-16) to be 50 percent if revenues grew up to $4.2 billion – and 57 percent if they soared above that.
Why? Because both sides were confident the business would bounce back and keep growing. There will be six outdoor games this season. The new Canadian TV deal begins in 2014-15. A World Cup appears slated for 2015-16. More international events are expected in the future. Both sides wanted as big a piece of the pie as possible.
Now look: The NHL got the players to accept 50 percent of hockey-related revenue. The league has a more liberal revenue-sharing system to help struggling franchises. The league itself is generating more national revenue. NHL chief operating officer John Collins said last week the goal is for national revenues to comprise 20 percent to 25 percent of total revenues.
As revenues rise, the salary cap and floor will go up as they used to, so the players will make more money in real dollars. Rich teams will be able to spend more. The Chicago Blackhawks, for example, should have an easier time signing superstars Jonathan Toews and Patrick Kane to extensions. But the cap and floor won’t go up at the same rate they would have, because the players make less of a percentage of revenue now. Some teams still won’t be able to keep up, and we could be in the same mess again in a few years. But the more national revenue the NHL can generate, the better.
Say you’re the Coyotes. You have been at or near the bottom of the league in attendance in recent years. You want to win, draw fans and make the business work on your own. But the cap and floor are more manageable. You don’t have to hit attendance targets to receive revenue-sharing anymore. Your cut of the Canadian TV revenue now is $4.75 million a year at the current exchange rate, but it will shoot up to an average of about $13.8 million a year over the next dozen years – a $9.05 million difference per year. Now factor in revenue from the American TV deal, the outdoor games, a World Cup, other international events, et cetera.
And now consider this: If the NHL does expand – to, say, Quebec City and Seattle – the owners will split hundreds of millions of dollars in fees between them, and they won’t have to share any of that money with the players.
“We didn’t buy the Coyotes, we’re managing the Coyotes,” said Coyotes executive chairman George Gosbee in an interview last month. “We bought 1/30th of the NHL, and we’re extremely bullish on the NHL and what they’ve been able to do with the new collective bargaining agreement, where we’re going, the revenue projections over the next three years. We’re extremely bullish on it.”
The Canadian TV deal is one reason why.
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