Is market size or passion for hockey the best means to determine locations for NHL teams? Both? Or neither? Read on for my take.

A recent report in “The Business Journals” listed possible markets for new NHL franchises, using the following methodology:

We used team revenue data and average ticket prices to calculate the amount of TPI needed to adequately support a team in each league. Minimum income bases were estimated to be $85.4 billion for MLB, $37.6 billion for the NHL, $36.7 billion for the NFL, $34.2 billion for the NBA, and $15.4 billion for MLS.

We then calculated each area’s available personal income (API) by subtracting the TPI needed to support the market’s existing teams. Philadelphia, for example, has TPI of $281.5 billion. But its five existing franchises (one in each sport), need a base of $209.3 billion, resulting in API of $72.2 billion.

The report went on to list 58 potential markets, ranking from sufficient to insufficient, with American cities filling the top ten, including Houston, Las Vegas and Hartford. The first two have been previously mentioned as possible locations for NHL teams, while Hartford used to be home of the Whalers, until relocated to Carolina in 1997.

Canadian cities like Quebec City and Hamilton rated much lower on the list, at 31 and 33 respectively.

The study raised the ire of Calgary Sun columnist Steve MacFarlane, who slammed it as “a clear case of nerdy number-crunching gone horribly wrong”.

MacFarlane believes (and he’s not alone) Quebec City is the most logical destination for another NHL team (despite currently lacking an NHL-calibre venue), and pointed out Atlanta, which finished just outside the top ten on that list, recently lost their NHL franchise to Winnipeg.

He noted that, based on disposable income, there’s no way Winnipeg should have a franchise, yet they sold out their season tickets in only 17 minutes, and currently Jets merchandise is the league’s most popular sales items this summer.

MacFarlane suggests a passion for hockey, which Canadian cities have in abundance, trumps financial numbers in studies like these.

He also went on to make this point:

You may argue both Winnipeg and Quebec have already lost franchises of their own. But it wasn’t because of a lack of passion from the fans. The business of hockey was broken, and the salary cap era has fixed the model.”

To digress for a moment,  I remind everyone it’s not the salary cap which saved Canadian teams, and made it possible for Winnipeg to get back an NHL franchise, and raised the possibility of Quebec City perhaps getting one. The strong Canadian dollar is responsible for that.

If the “loonie” were still worth what it was ten years ago (around .65 cents US), we’d still hear cries from Edmonton, Calgary and Ottawa invoking fears of losing their respective franchises, Winnipeg wouldn’t have landed another NHL franchise, and no one would seriously consider the prospect of moving an existing franchise to Quebec City.

Furthermore, passion for hockey didn’t help the old Jets and Nordiques. Despite the myths of Canadian fans supporting their teams “no matter what”, those two clubs struggled to fill their respective buildings during their final years.

If passion for hockey alone were enough for NHL franchises to be successful in Canada, there would be a dozen of them, stretching from Victoria, BC, to St. John’s, NL.

Passion alone isn’t enough, especially if your market is too small to sustain a major league franchise over a long period of time.

As for the salary cap “fixing” the broken business of hockey, team owners in Nashville, Columbus, Phoenix St. Louis and Florida wouldn’t agree with that assessment.

MacFarlane does make a valid point about Atlanta losing their franchise, but a good argument can be made that the former Thrashers, from 2003 to this year, were poorly managed, run by an ownership group which more interested in their NBA franchise and their venue than in the hockey team which was part of the package they bought from Time-Warner.

The result was a team which only made the playoffs once during its ten seasons in Atlanta, and saw a steady exodus of stars (Dany Heatley, Marc Savard, Marian Hossa and Ilya Kovalchuk) which ultimately drove away fans, and led to their eventual sale and relocation.

As for Hartford, they lost their team when their owner, Peter Karmanos, grew frustrated with poor attendance and limited corporate support, though those factors were also the result of the Whalers icing mediocre rosters for several years.

Market size isn’t enough to sustain a franchise long term, if the support isn’t there from local sports fans and sponsors.

A more sober response to The Business Journals report comes from “Puck Daddy” Greg Wyshynski:

This study is going to be cherished by some U.S. markets that are desirous for the NHL, like Houston or Las Vegas or the “Remember The Whale!” crowd.

As a study of financial status of these markets circa 2010, it’s a nice glimpse. As a measure of a market’s viability for hockey, without factors like the current hockey culture and media outlets and corporate revenues and the potential for local ownership and facilities to support a team … well, like we said, it’s a nice study of financial status circa 2010.

Thing is, when you do measure those factors, Houston fares quite well, including an arena that seats 17,800 for hockey. We still think Quebec City is next for relocation or expansion … but Houston’s worth further, and more nuanced, study.

Agreed on both counts.

The NHL is a business, and that means making money. When selecting a market for relocation or expansion, they’re going to consider several factors, including population, wealth and media.

Houston housed the Aeros during the WHA years in the 1970s, and the Oilers were nearly moved there in 1997. It shouldn’t come as a surprise it would rank favourably in these studies.

What remains to be seen, however, is how well a franchise in Houston would be supported.

That would ultimately be determined by how committed ownership was to building and maintaining a competitive roster on a consistent basis.  That would build up and maintain a solid fan base, which would attract corporate sponsors and lucrative broadcast revenue.

The same goes for those in smaller, but more hockey-passionate, markets in Canada, such as Winnipeg.

Sure, there’s excitement this summer over the Jets, and it was a smart move by ownership to tap into that excitement by making those interested in season tickets buy into a three year package deal.

But questions remain over that market’s ability to sustain a franchise over the next decade or two.

The salary cap won’t help them if the team remains poorly managed as it was for all those years in Atlanta. Even if the next several seasons are productive, it remains to be seen if management can build upon that over the long term.

It also remains to be seen how long Winnipeg hockey fans will be willing to pay what will certainly be increasing prices to attend those games, and how effectively the team can tap into other revenue streams in the NHL’s smallest market.

Keeping pace with a rising salary cap could also prove troublesome, especially if ownership insists on remaining around the mid-point of the cap range.

The strength of the Canadian dollar will also play a significant factor. Passion and a salary cap won’t help the Jets if the “loonie” should take a significant tumble in value over the next ten to fifteen years.

With several current NHL franchises struggling, and complaints from some team owners over their struggles to keep pace with a rising cap, it’s possible we could see at least one more current NHL franchise forced to relocate to another market.

It’s also possible that, once the American economy improves over the next ten years, expansion could once again become a front-burner topic for the NHL.

“Nerdy number-crunching” will be as invaluable as determining those possible destination as fan passion for the sport. Shrewd ownership and management will be needed to make them successful.

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11 Responses to What best determines an NHL market?

  1. Grizzledbear says:

    Houston has always seemed to me to be a good spot for either an expansion team or one needing to relocate. They’ve supported the Aeros for many years down there, so a hockey culture already exists in that market to go along with a large population in that area.

  2. Reed Solomon says:

    Unmentioned factors:

    Less competition for disposable income – Winnipeg, for example, has only the Winnipeg Jets as a major league sports franchise to follow. While it has the CFL and a minor league baseball team as well, it’s no competition. Nevermind things to do in the winter in Winnipeg that aren’t hockey. Plus the corporate support in Winnipeg (and Canada) is huge as a result of limited outlets for corporate perks. Many corporations were frustrated at the fact they could not obtain tickets. Luxury boxes were the first thing to be sold out .

    The reason the Jets left was not in any major way the Canadian dollar or attendance. It was first and foremost the lack of a salary cap. Nobody would make an investment in the team or build a new arena without some semblance of financial stability. As for the low attendance, in the final year the Jets were sold and merely playing out the season. Many people stayed home out of bitterness and spite. It lowers the overall attendance average. Even still, the arena had only 12,000 good seats worth paying for that didn’t produce a sensation of vertigo.

    Winnipeg has a number of non-obvious and subtle intangibles going for it.

  3. JoeJets says:

    Its a common misconception that Winnipeg had poor attendance leading up it relocation in 1996. That simply is not true.Sure average attendance of 13,600 seems low by today’s standard, but when you stop to consider that in 1992-93 Average NHL attendance FOR THE LEAGUE was only 14,045. You begin to see that Winnipeg’s attendance was on par with average attendance in the NHL. So attendance was never really the issue Winnipeg had. And of course, today we see Winnipeg’s willingness to put its money where its mouth is, by selling out all season tickets in 17 minutes. By the way, those are 3 to 5 year contracts for those season tickets.

    What caused real problem for Winnipegin 1996 was the inflated value of US NHL teams in the mid-90′s.The Jets were sold to Burke and Glukstern in 1996 for $65 million. $65 million was a speculative price, at the time many people thought that simply putting a team in a large US city would instantly create a money winning franchise. That has since been proven wrong, but at the time, the Jets were probably only worth about $40 million in the Winnipeg market. While speculators will willing to pay $65 million to move the team to a large US city.

    What should have happened in 1996 (which was done this year for Atlanta), is the NHL should have taken a relocation fee for the difference between the market value in Winnipeg, $40 million, and the speculative value of $65 million. That would have taken the large profit out for Jets owner Shenkrow in 1996. It would have allowed groups, which included Chipman, to save the Jets, back in 1996.

    Anyway, that was then, and this is now. People have said “No one wants to own a team in Winnipeg”, “Winnipeg can’t sell enough season tickets”, “Winnipeg is too small for TV coverage”, and “No free-agent will want to play in Winnipeg”. All have been proven wrong (and quickly).

    Now we hear “Winnipeg can’t support a team over the next 10 years”, or “Winnipeg can’t support the team if the Canadian dollar drops”. I look forward to Winnipeg proving those people wrong… again.

  4. JoeJets: The league average isn’t the factor regarding the old Jets. The argument always was, “Jets fans sold out the arena and always supported their team, no matter what”. The statistics, however, prove otherwise. To be fair, that decline in attendance was primarily due to a mediocre product and uncertainty over the team’s future, but to suggest the Jets average attendance was “on par” for one season (when it was actually not only below the league average, but also well below the capacity of the Winnipeg Arena of 15, 393) is wrong.

    Furthermore, you continue to blithely ignore the fact the Canadian dollar was well below part with the US dollar at that time, which was cited as among the significant factors which resulted in the Jets being sold and relocated. The so-called “inflated prices” of US NHL teams would’ve been meaningless, had the Canadian dollar been stronger.

    I haven’t been surprised at all at the immediate success of the Jets in Winnipeg thus far, and I sincerely hope they can sustain that success for decades to come, I really do. But again, being in the league’s smallest market remains an issue down the road, as do the concerns about the franchise being able to keep pace with a rising cap, the fans ability in that market to keep pace with the rising cost of attending NHL games, and of course, the flux in the Canadian dollar, which is bound to eventually decline in the coming years, raises legitimate questions over their future. You can choose to ignore them, but you do so at your peril.

    Again, I wish you, your fellow Jets fans, and your team no ill will, and I sincerely hope they can make a go of it this time around. But those question I’ve raised have yet to be sufficiently answered, and until I see something from Jets ownership which addresses those issues, I’ll continue to be concerned.

  5. Reed: Yes, the Jets have no competition for major league dollars, but the problem down the road is the price of attending those games are already very high, and is going to increase in the coming years. They have no choice, for regardless of how the franchise does, they’ll have to charge high prices because of the size of their venue. Sure, they sold out their season tickets quickly, and have them locked up in 3-5 year contracts, but one shouldn’t automatically assume they’ll continue to have that kind of success over the years, especially if they fail to build and maintain a competitive franchise.

    The lack of a salary cap had NOTHING to do with the old Jets leaving. Nothing. The value of the Canadian dollar at the time played a considerable part in their departure. A salary cap today isn’t why Winnipeg has a franchise, but rather, the high value of the Canadian dollar. True North wouldn’t have tried it if the Canadian dollar were still below .70 cents US, and god help them if it should ever go down that low again for any length of time. And don’t say that it can’t happen again. Over two years ago, the “loonie” plummeted from worth over par against the American dollar down to .77 cents US. Fortunately, it didn’t stay down that long, but the point is, given the current economic uncertainty, the possibility exists for it to decline again, and to remain well below par for a substantial period of time. The salary cap won’t help them then.

  6. delvecchio says:

    Lyle,

    Great job with that article!

    Very well said.

  7. Griswel says:

    I agree 100% with your take on the importance of the Loonie. Paying costs in dollars worth $1.00 and taking in revenues in dollars worth $0.65 was a killer. Fortunately, barring a commodities meltdown, the Loonie looks pretty safe from long-term drops.

    On the other hand, I think you don’t value the CBA highly enough. Sure, it hasn’t solved all problems, it’s a compromise. However, it beats what had been in place by a wide margin. Today, even the richest teams need to parcel out salaries as though $3 million was real money. It’s far from perfect, but it’s much better than what came before, and it’s an important reason that smaller markets can compete. Isn’t the CBA a big part of the reason we have a dozen teams in each conference with a realistic shot at the playoffs as late as March? Hitting March 1st with only six teams out of it says good things about hockey October through February.

    I think you’re right about Atlanta. As with Chrysler and Newsweek, eventually people stop buying crap. On market size, other things being equal, you’d have to be crazy to put a franchise in Houston over a Canadian market. The issue is how unequal can things be before “Canadian” is no longer a magic enough word in hockey, 10% smaller, 20%, 30%? Market size isn’t everything, I don’t see an NHL team in LA.

    Of course, the best way for a small market to compete is to trade for a hockey-mad billionaire owner.

  8. chaas says:

    Oh gosh, the Whalers thing again … I had this argument with some boneheads this afternoon. There are plenty of reasons Hartford won’t have an NHL team again under the Bettman reign of terror and/or profit.

    Basically the Whalers would suffer the same issues Winnipeg suffers, but in exchange for currency differences I offer up two other arguments. First, the proximity to other NHL cities. New York, Boston, Long Island, New Jersey and Philly are all within 5 hour drives, the latter being the farthest. This means any sports fan already affiliated with these towns won’t be buying season tickets unless they’re also hockey-crazy. And that just doesn’t happen in Hartford. There’s a reason they call Connecticut UConn Country. When it comes to sports, Connecticut has a lot of options.

    Second, the XL Center has a capacity similar to that of Winnipeg’s building. I think it’s actually a couple hundred seats smaller, but we don’t need to split hairs. Low capacity has proven time and again to be problematic for NHL teams. Remember Pittsburgh’s Igloo, the old Boston Garden, the issue in Nassau, and the old Hartford Civic Center which has been renamed the XL Center? Not to mention I hear Winnipeg has a pretty small building … Heh.

    I’m not going to include a rant about Karmanos and his mismanaging through the 80′s and 90′s (even though I want to throw his ass under the bus). Instead I’m just going to comment on Gary Bettman. A lot of us don’t like him because he’s a lying snake and a shrewd businessman. But he’s not stupid. And I don’t think he’s stupid enough to think Hartford has a snowflake’s chance in hell of supporting an NHL franchise. So, under his whip, the children of Hartford shall go wanting.

    This argument made one of my friends, who loves the Whalers to death, cry. As a Rangers fan, I feel like I can now make it through September.

  9. cowtown canuck says:

    ” I don’t see an NHL team in LA.”

    Huh? The NHL already has two teams in LA…

  10. cowtown canuck says:

    Lyle,

    This needs to be repeated louder and slower:
    THE. LACK. OF. A. SALARY. CAP. HAD. NOTHING. TO. DO. WITH. THE. OLD. JETS. LEAVING!!!!!
    It blows my mind that there are people, especially some sports writers, that still think that if there was a salary cap back then that the Jets wouldn’t have left. People need to think with their brains, not with their hearts.
    When I moved to Calgary in 2003 you could not give away Flames tickets. You could not even find people who admitted they were Flames fans! There were no Flames car flags and no bars, except for the die-hard sports bars, would even think of painting a Flames logo on their windows. After the cup run, everyone jumped back on the bandwagon and the Flames survived. The coreleation, and causation, is unquestionable. When the Flames were missing the playoffs they were playing in a half empty arena and losing money, when the Flames were making the playoffs they were selling out and making money. Now that the Flames have returned to their losing ways the cycle is repeating. They may be officially sold out but the corperate season ticket holders are finding it a lot harder to give away the tickets.
    If they miss the playoffs for another couple of years the arena will again be half empty and the team will begin to lose money. They will lose less money that before because, and only because of the value of the $CDN. The salary cap will be meaningless.

  11. Ranzeir says:

    A great article that touches on a lot of points for those passionate hockey fans that support smaller market teams. Winnipeg fan’s seem a little defensive in relation to their team and market but that’s understandable, they have pride in their city and want to be seen as belonging in the show. Losing, a weak Canadian dollar, a weak local economy etc. will always be more important factors on how small market teams survive and prosper rather than the ‘salary cap’. I wonder how the owners of some of the weaker teams (Florida, NYI, etc.) feel about having to spend up to the cap floor…?

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