Sunday, May 04, 2008

Trying Economic Times Ahead

The US is on the brink of recession. This will affect the NHL. Many teams should see their revenue begin to drop as less people are able to afford to attend games. With the current CBA that links the salary cap to revenues this could lead to a decline in the salary cap (or at least significant slowing in its rate of increase). This could leave teams with large longterm contracts at a significant disadvantage. They will not have the financial ability to add the necessary free agents to their payroll. This should hurt players with increased escrow payments.

One team that is claiming poverty is the Los Angeles Kings. They claim to be losing more money now than they were before the lockout. This claim is hard to believe, but it is likely that a 29th place team is not making as much money as they would like. They are using these claims to justify a ticket price increase. That is a move that might not be beneficial. It is very possible that an increase in ticket prices will lead to a decrease in paid attendance and thus a drop in team revenues. The St Louis Blues found that they had to reduce ticket prices to increase revenue. Likely they won't be the only team in this position.

It is very reasonable to be skeptical of the Los Angeles Kings financial claims because they are owned by the Anshutz Entertainment Group, who own many arenas and stadiums worldwide. They have ample opportunity to redirect Kings related revenue into the arena and claim that the Kings are losing money while the arena is making a profit.

Nevertheless, the financial outlook is not good for some of the weaker non-traditional markets in the NHL. These markets could have a tough time surviving an extended recession. These markets could legitimately find themselves in financial trouble in the upcoming season or two.

1) Tom Benjamin's blog did a nice job discussing this last Friday. A 'recession' or even the current slow down here in the states WILL have an effect. It remains to be seen if the impact is localized like it has in some markets like Detroit where Michigan has been in 'recession' for a decade, or if becomes a national problem.
2) If its the ladder then yes we could see a dip in inflation adjusted revenue and the cap become stagnant/flat. We don't foresee the cap going down any time soon. In fact its likely to go up (again) next season by 4-5 mil.
3) The only way we can see the salary cap going DOWN from one year to the next is with a significant loss of Canadian dollar value coupled with a very deep US/Canadian recession. None of those look likely at least in the short term. Recent economic trends actually have been mildly positive here in the states overall. As with everything, time will tell.
It is to late in the season for the current economic problems to affect the NHL bottomline this year. Clearly the salary cap will increase for next year. The question is 2009/10 - what happens then? If things stay slow or go into recession, it is reasonable to believe season ticket sales will be down, advertising will be down. If it stays slow into the playoffs next year and playoff revenue is down then there is no question that overall NHL revenue will be down and thus the salary cap for 2010 will be down. That is a bunch of ifs but it is not impossible and it could happen regardless of strength in Canada.
1) Its always a risky thing to try to predict economic conditions a year in advance, but its unlikely that we'll see a cap number decreasing in the current climate when Canadian franchise revenue accounts for between 30-40% of all income.
2) Its unlikely that we'll see a huge reductions in income from the bigger US markets. The smaller markets produce a relatively small % of NHL revenue. Also most TV contracts are already signed and that income is guaranteed Therefore the worst case scenario from current trends is a flattening of the cap from one season to the next, perhaps only going up a million or even staying static.
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