An Overview of the NHL’s Money-Losing Teams – Conclusion

The last in my six-part series, in which I attempt to understand the factors behind eighteen NHL teams losing money in 2010-11.

Conclusion.

In my analysis of the eighteen NHL teams which, according to Forbes.com, posted operating income losses in 2010-11, it’s apparent not every money-losing franchise is created equal.

Looking back over Forbes.com’s listings of NHL Team Values from 2005-06 to 2010-11, nine teams – Nashville Predators, Florida Panthers, Columbus Blue Jackets, Phoenix Coyotes, New York Islanders, Atlanta Thrashers, Carolina Hurricanes, St. Louis Blues and Buffalo Sabres – were either perennial or near-perennial money-losers.

Given the Thrashers move to Winnipeg and re-branding as the Jets, that club probably won’t be in the red when Forbes.com releases its NHL Team Values List for ’11-’12.

Assuming the remainder see little change in their fortunes that season, eight NHL franchises could truly be considered “struggling” over the past seven seasons, the lifespan of the 2005 NHL CBA.

It’s also apparent a number of factors (among them: payroll, fan cost index, attendance, arena leases, outstanding debt, market) contributed to their consistent losses.

The same can also be said of the other nine teams which showed operating income losses in ’10-’11, and those which occasionally reflected losses in from ’05-’06 to ’10-’11.

When the NHL fought for “cost certainty” during the previous season-killing lockout, it tied runaway player salaries to the financial losses of its struggling franchises, threatening dire consequences for those teams in particular, and the league as a whole, unless salaries were brought under control.

The league achieved its aim of cost certainty, with the imposition of a triple-tier salary cap system, rolling back salaries 24 percent, and slashing the players’ share of hockey-related revenue from 75 percent to 54 percent, ultimately ensuring it would never rise beyond 57 percent in a given season.

The system was peddled by the league as a “cure-all” for its financial woes, supposedly “leveling the playing surface”, allowing all teams to become more competitive, and (hopefully) more profitable.

By the penultimate season under that CBA, however, those goals were not achieved.

Despite the strict limitations placed upon player salaries, the escalation in the salary cap – rising from $39.5 million in ’05-’06 to $59.4 million in ’10-’11 – is often cited as a principle factor for so many NHL teams losing money.

Yet, the nine teams which posted operating income losses throughout this period did so regardless of what the salary cap limits were. They lost money during the seasons the cap was at its lowest as well as at its highest. Variances in those losses appear as much tied to on-ice performance as to the cost of operating an NHL franchise.

Supposedly successful clubs – like the San Jose Sharks and Washington Capitals – frequently posted losses during this period. Some in traditional hockey markets -Chicago Blackhawks, Philadelphia Flyers, Boston Bruins and Minnesota Wild – also posted losses from time to time, while the Buffalo Sabres, playing in another traditional hockey market, posted almost annual losses.

In examining the consistent money-losers, the problems for most of them from ’05-’06 to ’10-’11 was due to on-ice performance.

For most, if they consistently missed the playoffs over this period, they struggled at the gate, forcing them to lower the cost of attending their games in hopes of attracting more fans. It also, in most cases, forced them to carry lower payrolls.

True, the constant escalation of the salary cap made it difficult for many of these teams to stay above he rising mandated cap minimum, but the poor product iced by those teams were due more to mismanagement than payrolls.

If most of those clubs had been better managed, the on-ice performance would’ve improved, increasing attendance and their fan cost index, generating more income, making it possible to keep pace with a rising cap floor.

The Predators, a well-managed, fiscally responsible, perennially competitive team, were an exception to that rule. Their losses, however, were tied to lingering debt, a nearly-botched selling of the team to local interests, and the difficulties of playing in what is considered a non-traditional hockey market.

Mismanagement is also responsible for teams carrying high payrolls whilst maintaining their fan cost index below the league average, meaning if they failed to make a strong playoff run, they risked operating income losses.

While supporters of those teams will justify those tactics as a team owner willing to spend to improve his club, more often than not, such tactics usually prove to be costly gambles which rarely pay off over the long run.

Mismanagement of payroll was just one factor, as other issues contributed to operating income losses. Lousy arena lease agreements. Lack of lucrative local broadcasting contracts. Considerable debt from previous years, often left over from previous – sometimes irresponsible – ownership. Change in ownership resulting in change with the on-ice product, sometimes not for the better, driving away fans and driving down operating income.

Market also plays a part, particularly for clubs which consistently iced a strong product yet continued to post operating income losses. Downturn in the local economies, especially since 2008, were also factors for some teams.

A few clubs with consistent on-ice success which posted operating losses appear to have funnelled part of their revenue either to their respective parent ownership group, or to the cities where they play.

Fluctuations in the value of the Canadian dollar affected the two Canadian-based franchises which twice posted losses over this period.

Any combination of the aforementioned factors could, and in many instances did, result in teams winding up in the red, be it occasionally or consistently, during the period in question.

For the eight truly struggling NHL franchises, a reduction in the players share of HRR might provide some short-term relief, though considering how many of them posted losses under the 2005 NHL CBA when payrolls were at their lowest, that’s not a certainty.

Assuming, however, it would provide some short-term relief, without a meaningful system of revenue sharing, most of those clubs could remain consistent money-losers again over the course of the next CBA.

Critics of revenue-sharing claim it won’t guarantee those struggling clubs will improve. If they continue to be poorly managed, no amount of revenue-share dollars will make them better.

Still, without given the opportunity to avail themselves of a better system of revenue-sharing, those teams which consistently lose money will only continue to fall behind.

If the NHL is serious about maintaining its consistent money-losing teams in their current markets, it seems a better system of revenue-sharing is the most reasonable course of action.

Even so, it won’t be a magical cure-all, any more than would reducing the players share of revenue to 43, 46 or 50 percent of a smaller HRR pie.

It won’t change indifferent owners, won’t improve incompetent management, won’t result in improved arena leases, won’t land more lucrative local broadcasting deals, wipe out existing debt, prevent the Canadian dollar from another potentially long tumble, or make an indifferent market fall madly in love with hockey.

Ultimately, those teams which consistently lose money must improve how they conduct business, or else the league must find people who can do a better job, even if it means moving one or more of those teams to other markets.

3 Comments

  1. great series Lyle! i especially agree with your last paragraph and would take it even farther than that. what should come out of this negotiation is the NHL developing a strategy for dealing with troubled franchises. they need to figure out how to identify them earlier, how to fix them once they’re identified, and decide when it’s time to move on. what can’t happen is to allow situations like Phoenix to linger,
    i would agree that it does take time to build a fan base in non traditional markets but there’s been enough time spent in Phoenix to show that the numbers aren’t there and really have never been. the money that’s been spent propping up the franchise could have been better spent elsewhere

  2. I too enjoyed this series of articles and thank you for all your hard work in bringing them to us.
    I am very mistrustful of most of the owners as I am sure they have other businesses and very creative tax attorneys and the bottom line for them is making as much money as they can and paying the least taxes possible. While that is the goal of most of the population and I find nothing wrong with it unless to pay the least amount of taxes they intentionally have their NHL team lose money. This kind of creative bookkeeping is done all the time and leads me to my mistrust.
    People say we need to take into account both sides of the story but I always say that there are actually three sides to every story.
    In this case it is the owners side, the players side and finally the truth, and I don’t know if we will ever know the truth.

  3. theres a key point that i think is being overlooked here.. that being that there might be no such thing as a successful 30 team pro hockey league in the north american market that exists today (re: recession). even if those 7 or 8 ‘mismanaged’ teams had done better, the stark reality is that 14 of 30 teams miss the playoffs each year, and some team will always suffer because of it..