October 18, 2007
Revenues rising, but NHL has more work to do
TFP Editor-in-Chief David Pagnotta reviews five issues facing the NHL as it attempts to expand its revenue model.
 

Thanks, in large part, to increased ticket prices, not to mention the dramatic strengthening of the Canadian dollar, the league saw its revenues slightly increase last year. While other teams have bumped up their price tags, league-wide merchandise sales should provide a steady inflow of cash this season from fans itching to get their gloves on the new Reebok jerseys.

But a few extra million dollars here and there can only go so far for a professional sports league.

The NHL still has a number of concerns it needs to address before it can confidently say its numbers are heading in the right direction.

Questions continue to surround the league's national television contracts and the stability of its current markets. But these are just two of five important factors facing the league as it attempts to maximize its revenue potential.

So what needs to be done? How can the league generate a significantly greater revenue base? I'll tell you...
 

The league's national television deal with Versus sees teams earning merely $2 million each, per year, while it's agreement with NBC enables both the league and the network to share ad revenues only after NBC covers its production costs.

In comparison, teams in the National Basketball Association pick up more than $30 million apiece from national television coverage, every year.

For the most part, the league has done well in strengthening its local television coverage. However, Versus can only hit a limited audience. There's no doubting the fact a return to ESPN would put the league in front of the everyday American sports fan, whether he likes it or not.

"ESPN is an institution in the United States that will promote the game, and we need NHL hockey on in airports and hotels throughout North America," said agent Ian Pulver, who represents such players as Scott Gomez and Bryan McCabe [www.pulversports.com]. "The league must get back to ESPN in order to get the message out.

"Hockey, generally, is a regional sport and the clubs do quite well with their local TV packages, but ESPN is a national blueprint for sports in America."

While the NHL appears to have shown an interest in returning to ESPN, they may face a couple hurdles. Most notably, the league's deal Versus expires in 2011. Although, sources believe Versus would be willing to give up its exclusivity if it is given incentives, primarily cross-promoting its coverage with ESPN.

"I think Versus has done a good job for [the game]," said Scott Mellanby, former captain of the Atlanta Thrashers who recently joined CBC as part of its hockey coverage. "Obviously, ESPN is the best when it comes to sports [in the U.S.] as far as viewability. That's something the league is going to have to look at and make their decision."

A return to The Worldwide Leader In Sports should definitely be a priority for the NHL. While the economics of such a deal are unknown, the league needs to take in to account the exposure it receives from being on such a network.

Awareness is everything, and without it, the league will forever remain in the backseat of the other major sports leagues.

2. Stabilize your markets

With the recent talk surrounding market stability and whispers of expansion popping up, the NHL has to ensure its current clubs are successful in every aspect related to a professional sports organization.

Are fans coming to the games? Is there local support from businesses? Are people buying team-related merchandise? Is the team talked about on local radio shows? Does anyone really give a crap?

These, among others questions, have to be answered in order to ensure the strength of a franchise.

The NHL's revenue sharing model helps those in need of a handout. The big market teams pass on a percentage of their profits to the small market teams in hope of achieving some kind of parity.

For teams like the Carolina Hurricanes, sharing a piece of the pie has helped. The club has lost more than $130 million over 10 seasons, but financial stability seems to be around the corner.

"There's growth, but we still rely on [NHL] revenue sharing to run our business," Jim Rutherford, Hurricanes President and GM told the Raleigh News & Observer earlier this month. "This franchise, in the next three to five years, has a chance to be stable and operate on its own."

That's great news for one team, but not every organization is experiencing the same success.

After almost selling out their home opener, the Atlanta Thrashers' next two home games saw a 68-percent and 83-percent turnout, respectively. In Florida, where they actually sold out their opener, the Panthers witnessed their attendance drop significantly to 56.3-percent in their second home game and then rise back up to 82-percent in the third.

And in Nashville, where fan support is supposed to be alive and vibrant, after recording a 93.5-percent crowd in their opener, the team has yet to crack the 76-percent capacity barrier following three more games on home ice.

"Before they run to new markets, the league needs to make some real hard decisions with respect to the markets that they are in," stated Pulver. "The salary cap was supposed to solve all problems in the 30 markets that they are currently located.

"Gary Bettman, as part of the [collective bargaining] negotiation, insisted that a salary cap will make sure that all 30 teams are healthy, strong and viable. They still have persistent issues and problems in some of their Sunbelt markets that they need to clean up before they determine whether they should expand or not. It could be a possible relocation that's in order; one or two of them before expansion.

"In order for the game to grow, they need to be in the right markets. It's one thing to run around and sell teams for expansion, and increase the size of the league, but if their 30 houses aren't in order, they should be very careful."

Granted, not every market is perfect. But the Hurricanes have found a way to connect with their fans and encompass a local vibe into the experience of attending a hockey game.

Winning certainly plays a giant role in the success of a franchise, but teams must explore innovative methods of attracting fans. For whatever the reason, the Thrashers and Panthers haven't been able to effectively connect with their community, and that's causing a lot of concern around the hockey world.

"Every market can't be Toronto," Mellanby said. "There's teams in baseball and teams in football that struggle more than others to have success and to make money and to be a big draw. There's always going to be some markets that have got to be worked on."

The Hurricanes were a work in progress, but they're on the up-and-up. The Buffalo Sabres managed to avoid hard times back in 2002-03 and reestablish themselves as a successful franchise. Now, the focus is on the Predators, Panthers and Thrashers, and if these organizations fail to improve from a fan-related standpoint, relocation must be seriously considered.

"Nashville, with the team they've had, they have to draw better," explained Los Angeles Kings television color commentator Jim Fox. "Atlanta, in the next two- or three-years, has to do something. They've got to make the playoffs, and if that happens and there's no reaction to that as far as increased attendance, you've got to consider [relocating them]."

I'm not saying teams like Nashville and Florida should give up and move out -- although, Jim Balsillie is knocking on the Predators' door again -- but if they continue to falter, the league has no other choice but to sincerely contemplate the prospect of relocation. And Kansas City isn't their only option.

"I didn't believe it before, because of economies," said Fox. "I didn't think the NHL would look to go back to Canada, but now I would say it might be a viable option.

"Now, the [Canadian] teams with their dollar can be competitive. They were playing at a disadvantage [when the Canadian dollar was low]."

Added Pulver, "Wherever these teams end up going [should they move], the bottom line is if there's not enough corporate dollars in the community, combined with smart management running the team and a successful product on the ice, whether you have a salary cap or not, they're not going to do well."

3. Utilize your biggest asset: The athletes

Hockey players are arguably one of the most modest athletes you'll ever come across and connecting them with the sport's fan base is a no-brainer.

Following the lockout, the league came out with a shaky "My NHL" ad campaign that left many scratching their heads. Last season, they finally got it right with their "NHL players are just like you and me - plus they're really good at hockey" campaign.

The league came out with a few television commercials featuring Vincent Lecavalier and Brad Richards fighting over a video game, Daniel and Henrik Sedin (Swedish Twins) invited to an all-guys poker game, Joe Thornton having difficulties buttering his toast, and a number of players causing ruckus at a hotel.

Hopefully, last year's creativity is a sign of things to come as the league needs to build on that performance, especially across the United States.

"Canada in general is one thing. Where the work needs to be done is in the States," explained Hurricanes defenseman Mike Commodore. "In order to help sell the game and get people in the stands, to know the team is one thing, but you need to get some of your players out there. For us, it's Eric Staal and Cam Ward; the top-end players on our team, the guys with character. People have got to get to know them on a league-wide basis."

Added Maple Leafs star Bryan McCabe, "Promotions are a big part of our revenues. We've got to work jointly to put everyone's face out there. We [the Leafs] are fortunate to be in a market where people live and die for hockey here, but other markets aren't like that. Down in Florida, they might have to do a better job in marketing their young players."

Understanding that it takes a hefty amount of money to promote anything these days, the league, as a whole, needs to step up and keep the ball rolling in the right direction. Teams need to dip into the pockets and take responsibility for their own marketing. You cannot expect people to be interested in something when they aren't aware of the product.

"In Atlanta, I didn't see enough Marian Hossa. I didn't see enough [Ilya] Kovalchuk and [Kari] Lehtonen out there whether it be billboards or stores," said Mellanby. "I think [the NHL] can do a better job regionally and locally. But there's only so much money in the pie that gets divided up and sometimes those dollars just aren't there."

The NBA has done an excellent job selling its players to a worldwide audience. More than a quarter of their $3 billion in merchandise revenue last year came from outside the United States. As the NHL moves forward in its third post-lockout season, utilizing its athletes to connect to people across the globe is essential.

"Connecting with the fans and potential fans is critical in the evolution of the game," said Pulver.

Which leads us to...

4. Maximize the global market

I'm not trying to suggest starting up EuroNHL is necessary -- or a good idea -- but being able to properly penetrate a foreign market is vital when it comes to the overall growth of league-wide revenues.

After starting the 2007-08 season in London, England, the league plans on opening the 2008-09 campaign in Prague, Czech Republic, and there's already speculation the NHL will kick off 2009-10 in Stockholm, Sweden.

"I think it's a good idea," said Pittsburgh Penguins phenom Sidney Crosby. "It's obviously great for the fans, and for players it would be a great experience. Two games as players, it's fine. It's not like you're over there for a month. You're over there for a week. It's a great opportunity for everyone."

While Sid the Kid is bang on, he does raise a very pressing issue. If the league spends a week and opens its season overseas, what happens afterwards?

"It can only be measured by market penetration," Pulver explained. "If it's about going to play an opening game in London, and 20,000 people come and leave and no one talks about it anymore, it's a one-time spectacle. . . and we can all feel good that we opened our season in Europe.

"If it's about driving and penetrating the European market and connecting the players and the teams worldwide on a constant basis, then the answer [to start the year in Europe] is yes. But, one time shots and one time spectacles? What's the point if nothing else is done about it?"

There's nothing wrong with ushering in a new year in a hockey-crazed European city like Prague or Helsinki, Finland. The NBA took four teams on an exhibition tournament throughout Europe [NBA Europe Live] in an attempt to spread awareness across a growing demographic. After visiting six cities in twelve days, the league left behind hype and increased enthusiasm that will translate into higher merchandise sales, greater traffic to NBA.com and an overall excitement about the league.

"The main idea with it is to create a bigger fan base in Europe, and have them enjoy the game like we do over here," said Maple Leafs forward Alexander Steen. "I think it's a cool idea. I know people in Sweden or Prague or Finland would love to have NHL games come to their cities and open the season there. I think it does create a lot of interest, wherever they would go."

The NHL, whom many argue has much higher fan support in Europe than the NBA, needs to take advantage of their 'across the pond' faithful and drive the league directly in their faces.

"It's like advertising," explained Mellanby. "Why does Coca-Cola need to advertise? Because you do it to get your brand out there. It is important to promote your product."

Forget about expanding to Europe, although that could be a reality in 10 years once their current markets are stable. Start slow, generate a buzz and watch the fans show their support by purchasing apparel and increasing the traffic at NHL.com.

5. Viva Las Vegas?

Shifting back to expansion, if the league does decide to add two new teams [and many believe it will happen within the next three- to five-years], one of the markets it is supposedly very interested in is Las Vegas.

In August, Harrah's Entertainment Inc. announced that it will partner with AEG, a wholly owned subsidiary of the Anschutz Company, to build a 20,000-seat arena in Las Vegas.

The $500 million arena will be located behind the Bally's and Paris hotel-casinos on the Las Vegas Strip. Harrah's spokesman Alberto Lopez confirmed that the building will crack group in mid-2008 and is projected to open in October 2010.

While being the first of the major professional sports leagues to come to Vegas is an exciting prospect, the NHL will have to do measured research to see if the community will support it. Casinos may want to purchase tickets as offer them to their customers, but if people fail to show up, it will not look good on the league.

"You'll need to do extensive research to determine whether people want to go watch the Las Vegas NHL team play the Nashville Predators when Garth Brooks is giving a concert or Criss Angel is putting on a performance," Pulver explained. "Will people flying to Vegas, from the hours of 7-10 at night, pass on dinner, pass on a performance, to go see the Las Vegas team play the Calgary Flames?"

There's no doubting the amount of people coming in and out of Vegas on a daily basis will factor in to any decision, but will they stay in the seats? In order for the league to succeed in Nevada, they must make certain of corporate support. How creative a Las Vegas NHL franchise gets will dictate how well they perform in the public eye.

"The last thing in the world that the NHL can afford is to go to Vegas and for it to be a bust," said Pulver. "If the NHL does not survive in Las Vegas, that will not be good for the blueprint going forward for the NHL.

"If they're the first to Vegas and Vegas works, it will be a great move for the sport and the game. If they're the first to Vegas and Vegas doesn't work, it will not be good for the game and its future. If you bust in Vegas, it's not a good move. If they go to Vegas, they better be right!"

Recap

The NHL is on the right track in terms of expanding its revenues and creating greater awareness, but there is still a lot of work that needs to be done.

Returning to ESPN is a must if the league wants to be front and center in the eyes of the American sports fan, and utilizing its players to connect with the everyday fan worldwide is extremely important.

With or without Las Vegas, if the league does not have 30 [or 32] strong, vibrant markets, the NHL will forever be surrounded by question marks.

"The fact that the Edmonton Oilers are a revenue-share provider, and considered a big market in the National Hockey League... that doesn’t make sense to me," Pulver exclaimed. "The Edmonton Oilers are a small market who should forever receive money in any professional sports league. When the Edmonton Oilers become a revenue-share recipient for the right reasons, that will be a signal that the league is headed in the right direction."
 

David Pagnotta is the Editor-in-Chief of The Fourth Period Magazine and covers the Toronto Maple Leafs and the NHL for TheFourthPeriod.com. He is also a contributing writer for NBCSports.com.