NHL Debate: Should the NHL Contract Franchises in Non-Traditional Markets?

Ben Chodos@bchodosCorrespondent IIJanuary 21, 2013

NHL Debate: Should the NHL Contract Franchises in Non-Traditional Markets?

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    The NHL has forged a new labor agreement, but the last lockout did not address the league's core issues, and hockey fans missed more games this year. 

    Has this work stoppage done anything to benefit the teams' long-term prospects, or are we headed for more canceled games in the future? My fellow B/R Featured Columnist, Tyler Conway, and I have decided to debate one of the league's key issues. 

    Here is the motion: The NHL must get rid of a few teams. Tyler is in favor of this statement, and I am against it. 

    Let the debate begin.

Opening Statement: The NHL Must Get Rid of a Few Teams

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    A professional sports league doesn’t have two elongated work stoppages that cancel a season-and-a-half’s worth of games in an eight-year span if it has a viable business model.

    Though the NHL’s new agreement goes a long way toward finding a middle ground that most can live with, it’s become pretty clear that the league cannot subsist and thrive in the long term without contraction.

    The NHL’s problems almost begin and end with the league’s inability to land a viable television contract. According to Stanford sports economist Richard Noll, the NHL’s lack of centralized income would put teams at a loss even if every salary was zero. (h/t Forbes)

    On paper, the NHL's $2 billion television deal sounds like a ton of money. Now prorate that over 10 years and you get $200 million per season. Once again, not a bad sum.

    Divide that by 30 NHL teams. You come up with about $28.57 million. That’s how much the NHL will dole out to each of its franchises every season.

    For comparison purposes, Major League Baseball, which signed its own new television contracts in 2012, makes right around $1.5 billion per year from Turner Sports, ESPN and Fox. 

    Per Noll, the only non-contraction solution to the NHL’s financial woes is to tax the wealthier clubs 40 percent or more on their gross income. Contraction may be the second-to-last thing owners from Toronto, Detroit, Boston, etc. want to see happen.

    The last thing they want to see? The league siphoning half of their revenue and tossing it the Florida Panthers’ way.

    That means the only long-term solution we have is contraction.

    The NHL doesn’t need to contract swiftly. This would take years of market research, likely going back at least a decade, to see which teams are financially viable over the long-term.

    Contraction may be a last-ditch effort, but it could be the only thing that keeps the league from another near-cancellation when the next collective bargaining agreement ends.

    —Tyler Conway

Opening Statement: Contraction Is Not Necessary

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    There is no doubt that making a hockey franchise in Phoenix or Tampa profitable presents challenges. But is it really that much harder than making money running a football team in tiny Green Bay, Wisconsin? 

    The only reason the legendary Lambeau Field is still open for business is because the NFL’s business model shares 60 percent of its revenue among all 32 teams, as Time Magazine’s Gary Belsky notes. It is no coincidence that every NFL franchise—including the Jacksonville Jaguars—made Forbes’ list of the “World’s 50 Most Valuable Sports Teams.”

    Belsky also points out that the NBA shares 50 percent of its revenue, and Major League Baseball—which is often criticized for lack of parity—distributes one-third of its revenue among its teams.

    The NHL, however, just raised its level of revenue sharing from 4.5 percent in the last CBA to a whopping six percent in the new deal. (Pro Hockey Talk’s Mike Halford reports that revenue sharing among teams is $200 million, while Belsky’s article puts total revenue at $3.3 billion.)

    The NHL must realize that cities such as Boston, Montreal, Toronto and Detroit are in love with their teams, and it will never create that type of passion in Dallas or Columbus. But this does not mean teams in non-traditional hockey markets should get the axe.

    If the league ever implemented an effective revenue sharing system, these teams would be able to survive. Ultimately, it would be more competitive and popular if it made these changes. 

    —Ben Chodos

Rebuttal: Nothing but Contraction Will Work

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    Ben's analogy to the Green Bay Packers in the NFL is proof-positive that a team can thrive in a small market. There are other success stories across the sports world, like the Oklahoma City Thunder, that prove a franchise doesn't have to be in a major media market to be successful.

    Unfortunately for the NHL, its problems won't simply be solved by finding a few cities as crazed for hockey as Green Bay and Oklahoma City are for football and basketball, respectively.

    As I mentioned in my opening statement, the NHL's problems stem from a lack of centralized revenue, which usually comes from television contracts. Well, there's a very good reason the NHL will make a mere $2 billion in television money over the next decade: not enough fans tune in to watch games.

    Last season's Stanley Cup Finals drew an average of just 3.04 million viewers, which was down 34 percent from a year prior. That's one-fifth of the 2012 NBA Finals ratings and less than one-fourth of record-low ratings for the World Series. 

    It's not as if the NHL is in the same ratings peril as the MLS, but we need to stop acting like it's even in the same stratosphere as the other three major sports leagues.

    The NHL doesn't get the same money as other leagues because there aren't enough fans to justify the same costs.

    Ben correctly notes that the NHL exacerbates its problem by refusing to share revenue the same way other professional sports leagues do. You know what it took for owners in those leagues to start agreeing to revenue sharing? It's either been ingrained almost since inception, like the NFL, or dragged out via work stoppages.

    The NHL owners have gone through two lockouts over the past eight years and came away with a six percent sharing system. Something tells me the Original Six aren't going to start forking over more money without another fight. 

    Contraction isn't the ideal option. But it's become clear that it's the only realistic one remaining on the table. 

    —Tyler Conway

Rebuttal: Revenue Sharing Is Better Than Contraction

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    To sum up where we are right now, Tyler believes the NHL needs to solve its financial problems throughout contraction, and I am advocating for expanded revenue sharing. 

    In all likelihood, either suggestion would be unpopular with the owners. Big-market owners will fight against any system that causes them to part ways with a significant portion of their profits, while small-market owners certainly do not want to close up shop.

    For the NHL to be successful in the long term, it cannot have a work stoppage every time it negotiates a new CBA. For this to happen, the owners need to be happy, and as long as a significant portion of them are losing money, morale among the group will be pretty low.

    So the two options are getting rid of the teams that are operating at a loss or having the profitable teams help float the teams that fail to make enough money.

    As Tyler correctly points out, a lucrative television deal would be the cure-all to the league’s problems were it to split this source of revenue equally among the teams, as the NFL does.

    This puts the league in a situation where it needs to market its brand wisely and maximize interest in order to get the most lucrative deal possible. Right now, it is obviously not on the right track. 

    But contraction would be met with intense vitriol from owners, who would be facing failure, and the NHL Players Association, which would see many of its members lose their jobs. 

    Which path do you think would help improve the NHL’s image? Contraction and the nasty legal battles that will follow, or a commitment from the owners to improve the league’s business model and a show of good faith that everyone is in this together?

    —Ben Chodos

Closing Argument: Contraction Is the Only Option

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    As tends to be the case in debates like this, Ben and I largely have similar points shaped through very different prisms. We both agree that the NHL's current financial model is completely broken.

    That comes even after two lengthy lockouts in eight years, both of which alienated a fanbase that's already hanging on the fringes of mainstream relevancy.

    Since I've based so much of my argument on the lack of the league's lack of television revenue, it will be interesting to see how much the NHL's ratings are affected in the long term.

    If the NHL continues to lose viewers, as it did prior to the lockout, the need for contraction becomes more apparent.

    I say "need" because there's nothing in the NHL's history that suggests the owners will create an NFL-like revenue-sharing system. 

    Ben obviously presents the ideal scenario. In an ideal world, the owners do a pow-wow, agree to something resembling Mr. Noll's 40 percent tax rate and the NHL continues to survive with 30 teams—some of which thrive in small markets.

    This also isn't about low-brow hackery. Cutting teams should be a slow process, one that's done with care and over time. Start by finding the teams that are finishing deep in the red on a yearly basis and move them to hockey hotbeds, much like the NHL did with the now-Winnipeg Jets. A second Toronto team is long overdue, and Montreal could likely support another team as well.

    The contraction process should start only after relocation has been attempted. It isn't about ripping franchises away from non-traditional markets and costing people jobs over cruel enjoyment—it is about finding long-term financial footing for the NHL to stand on.

    That won't happen with the new collective bargaining agreement. It's yet another band-aid covering a league with a rotten financial core. Without sweeping changes to the financial system, the NHL will continue its cyclical process of short-term peace followed by long work stoppages. 

    Contraction isn't the ideal option. But based on everything we've seen from NHL ownership, it may be the only realistic one left. 

    —Tyler Conway

Closing Argument: Revenue Sharing Is Ideal and Realistic

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    The NHL’s business model is flawed, and the most recent lockout has not solved the league’s core problems. Tyler and I agree on this much.

    In fact, there is a surprising amount of common ground between us, as we both feel that contraction and revenue sharing are options that would solve the league’s problems.

    But I submit that revenue sharing is the more realistic, more effective and more beneficial option with the league’s long-term interest in mind.

    Tyler believes the NHL would have an easier time getting rid of teams such as the Phoenix Coyotes and Florida Panthers than it would convincing the Montreal Canadiens and Detroit Red Wings to give up its profits to float these failing franchises.

    When predicting any sporting event, I go with the team or player that’s most desperate. In a potential situation involving contraction, I would use the same line of thinking.

    A team in danger of ceasing to exist would put up a much greater fight than one that stands to make a few less bucks than it did the previous year. In addition, the NHLPA’s involvement in any scenario involving contraction would further complicate the matter. 

    More teams means more competition, more storylines, a presence in more markets and more room for the sport's top talents to shine. If the league can keep all of its teams while making them profitable, this is the ideal solution.

    It is also the more viable answer. The NHL owners have tough choices ahead of them if they hope to grow their franchise’s popularity and profits, and increased revenue sharing—not contraction—is the right way forward.

    —Ben Chodos