Sports Business: Hockey
Fire and Ice at the NHL
How can it have so many problems--and be doing so well?
Gary B. Bettman, commissioner of the National Hockey League, has learned to skate a narrow, treacherous line. One moment, he is passionately promoting a sports enterprise that is thriving in such unlikely places as Nashville and Phoenix and that has seen the price of expansion franchises rise 60% in five years. The next moment, he is dousing financial fires from Pittsburgh to Vancouver, watching one NHL team declare bankruptcy, monitoring a half-dozen Canadian clubs mired in a currency-exchange crisis, and listening to team executives whine about a dangerous spiral in player salaries. The latest bad news: TV ratings for the NHL All-Star Game on Jan. 24 were down 19% from last year.
Hired away from the National Basketball Assn. and from the shadow of his mentor, NBA Commissioner David J. Stern, Bettman's mission was to take the NHL out of the Ice Age. And certainly he has done that. He has also put millions into the pockets of owners and players alike. But Bettman, 46, has failed to contain costs. Despite all his marketing energy, the NHL remains a weak sibling to the other big-time sports leagues. With its fundamental flaws of low youth participation, few U.S.-born players, and relatively small TV audiences and revenues, can Bettman, or anyone, ever take the NHL to a higher level?
When Bettman arrived in February, 1993, the NHL had a public-relations staff of one, a tiny cable-TV contract, and, most assuredly, no vision. Its marketing was a shade better than second-graders hawking lemonade. Almost single-handedly, the new commish had to upgrade its TV deals, get the NHL into the Olympics, and introduce pro hockey to such new frontiers as Miami and Raleigh, N.C.
Now, Bettman, like Stern a lawyer by training, finds his hyperactive 5-foot, 6-inch body being checked into the boards by the harsh--"insane," as one former NHL owner says--realities of pro sports economics and the peculiarities of the NHL. In stark contrast to Stern's hard-nosed victory last month in containing basketball player costs, Bettman's tenure has seen average salaries rise 250%.
In part, Bettman and his owners boxed themselves in. They had their chance during contract talks in 1995 to press for a salary cap or some form of internal taxation from the National Hockey League Players Assn. (NHLPA). But the players held firm, and the owners rejected the union's modest proposals to tax teams that overpay players. The resulting agreement, twice amended, now runs until the 2004 season with no escape hatch.
NHLPA executive Bob Goodenow maintains that the agreement is working, well-managed teams are flourishing, and the league is healthy. Bettman is less sanguine, volunteering that player salaries have risen faster than league revenues in the past two years. "There are franchises spending more than they should. That's something we've got to continue to watch," he says.
In December, the Boston Bruins' veteran president, Harry Sinden, revealed that league-wide, the NHL is paying 72% of its revenues to its players. Bettman won't confirm that and cautions that such figures can be misleading. Still, on its face, Sinden's NHL calculation is 15% higher than NBA owners thought was enough to lock out its players and 17% more than NBA players will capture at the end of their just-signed six-year agreement.
For the truncated NBA season, the salary cap per team is $30 million. Fourteen of the NHL's 27 teams have payrolls higher than that this season. And under their national TV contracts, an NHL team gets $16 million less than an NBA franchise receives. The NHL relies more heavily on arena revenues, and ticket prices are now the highest in the major leagues, with an average this season of $42.79, according to Team Marketing Report, an industry newsletter.BIG TEARS. "I think we have reached a crossroads where we need to address some things fairly quickly," says Pierre Gauthier, president of the Mighty Ducks of Anaheim. Gauthier claims his team, owned by Walt Disney Co., will run a $7 million to $9 million operating loss this season, even though it plays to 92% capacity in the Arrowhead Pond, its six-year-old arena, and even though its payroll, at $30.4 million, is only the 14th highest. "If we're starting to lose money, I suspect there's probably a lot of teams that are losing money," he says.
Of course, there is no major-league general manager who doesn't cry big tears on cue. And looking only at payrolls gives a distorted view, says Goodenow. "At the end of the day, franchise value...is the best indicator of the health of the league," he says. Under Bettman, franchise values have soared. As recently as 1993, new NHL franchises cost $50 million. In the latest round of expansion, which began this season in Nashville and will eventually mean new teams in Atlanta, St. Paul, and Columbus, Ohio, the price to join the NHL club has jumped to $80 million.
In 1995, the lowly Winnipeg Jets were sold for $67 million and at Bettman's urging, moved to Phoenix. Today, the Phoenix Coyotes have an estimated value of $87 million and are dickering to build a new arena in Scottsdale. That could push their value into the league's upper tier. According to some published estimates, 19 NHL franchises are worth at least $100 million.
Still, some NHL owners are looking doom in the face. Last October, the debt-strapped Pittsburgh Penguins, with $37.5 million in operating losses over the past two seasons, filed for Chapter 11. And last December, the partnership that owns the St. Louis Blues and privately built the $135 million, four-year-old Kiel Center, sent out a cash call to its investors seeking a $17.7 million infusion to cover operating losses. The Blues are now for sale.SLOWPOKE? Meanwhile, the NHL's six remaining Canadian-based franchises are getting whacked by an unfavorable currency exchange rate that has teams taking in Canadian dollars--worth 65 cents U.S.-- while paying out U.S. dollars to its players. The problem is so serious that Bettman engineered a modest revenue-sharing program that will give $3.5 million each to franchises in Calgary, Ottawa, and Edmonton. "Anything that would diminish our role as Canada's national pastime would be a severe negative to this league," says Bettman.
Add it all up, and there's an overarching question: Has Bettman moved too fast or too slow? More teams mean more of a national presence, added TV exposure, and greater brand recognition for the NHL and its increasing number of corporate sponsors. But it also has meant more jobs for players and thus, a seller's market when it comes to star free agents. TV ratings still bring up the rear, as do NHL rights fees, when compared with the other major leagues.
The pressure is to move faster. "This can't be the sport of the future forever," says Brian Lawton, a former union activist and now president of the hockey division of Advantage International, the agency that represents the NHL's best-paid player, Sergei Federov. "Gary looks at things and says, `We've made enormous progress,' and he's right," says Richard Burke, owner of the Phoenix Coyotes. "But I look at the same thing and say, `Gary, we need to go faster."'
Bettman bristles at the notion that the league is behind schedule. "It's a slow build. You do it a step at a time," he says. "You won't see the impact of what we're doing--nobody will--for another 5 to 10 years."
In fact, Bettman's record suggests that he is anything but a slow-poke. In his first six years, league revenues have mushroomed. Corporate sponsorships are up from $25 million to $250 million, thanks to ties with national brands such as Nike, mbna, and Wendy's International. NHL licensed goods are hot, too, accounting for $1.2 billion in retail revenue last year. National TV might be the greatest coup of all. When Bettman took over, the league had only a tiny cable-TV contract that gave each team less than $1 million a year. Compare that with the five-year, $600 million deal that the league signed with abc Inc. and espn Inc. last August. Still small by National Football League and NBA standards, it was such an astonishingly large package for the NHL that Bettman felt obliged to say, with a wink, that he hadn't negotiated "with a mask and a gun."
The NHL is also attracting a new breed of owners--media companies. Comcast Corp. bought the Philadelphia Flyers, Ascent Entertainment Group controls the Colorado Avalanche, and Time Warner's Turner Sports grabbed the expansion Atlanta Thrashers. Dallas broadcast mogul Thomas O. Hicks (page 58), chairman of Chancellor Media Corp. and owner of the Texas Rangers baseball team, owns the Dallas Stars.
Thus has the NHL laid the foundation for that immutable principle of sports ownership: The more money owners have, the more freely and irrationally they spend it. Average player compensation, despite a labor deal that the commissioner says restricts player movement, is up from $467,000 the year before Bettman took over to $1.17 million last season, union records show. Federov, whom most American sports fans might identify as a cosmonaut or victim of a Boris Yeltsin purge, will be paid $14 million by the Detroit Red Wings this season. That's the top salary allowed a 10-year NBA veteran this year. Just five years ago, the Wings' entire payroll was about $15 million.
While the NHL is playing with the big boys when it comes to costs, pro hockey still remains a virtual cult sport. Bettman points to the rapid growth of the game in nontraditional locales, but the absolute numbers are minuscule. So it's no wonder that hockey's ratings remain relatively flat. Still, that hasn't discouraged abc and espn. Steven M. Bornstein, president and ceo of espn and abc Sports, says sluggish ratings are not a concern because the NHL delivers "quality of audience." The league scores well with 18-to-34-year-old males that sponsors pay handsomely to reach.
Still, the NHL faces the bane of the major leagues: the rich market-poor market divide. Already, Detroit ($48.3 million) is paying players $35 million more than the expansion Nashville Predators ($13.6 million) pay theirs. For now, some lesser-paid teams are still high in the standings. But unless the owners with the new arenas, bigger markets, and deep pockets begin to share revenues with their poorer brethren, the NHL could be headed for a baseball-like quagmire: some teams with competitive hope, others without.
So the Bettman-driven economic growth of the past six years has created a hazy future. "I think the NHL was at a point where it had to move away from its roots to expose itself to all sorts of possibilities," says Bob Gainey, a Montreal Canadiens Hall of Fame defenseman who is now vice-president of the Dallas Stars. But, he cautions, sometimes you have to be careful what you wish for.By Jay Weiner in St. Paul and Mark Hyman in New YorkReturn to top