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Analysis: The business of hockey

By CHAY RAO, United Press International   |   Aug. 25, 2004 at 8:47 AM   |   Comments

WASHINGTON, Aug. 25 (UPI) -- At the end of the Tampa Bay Lighting's 2-1 victory over the Calgary Flames in the deciding seventh game of the National Hockey League's 2004 Stanley Cup Finals June 7, Dave Andreychuk lifted the century-old trophy over his head and gleamed in triumph.

The 40-year-old Andreychuk had never won a championship on any level during his hockey career. Yet, there he was at the end of his 1,597th NHL game (the most ever by a player never to have won a championship), taking the Cup from NHL commissioner Gary Bettman, holding it close like a long-lost loved one, and letting the applause of the home crowd wash over him.

Overcome with emotion, he rhapsodized about the years that he had spent in the league, the men that he had played with, and his struggles along the way, but when pressed at a post game news conference, he stopped to try to sort out his feelings.

"I will tell you," he said to the gathered reporters, "I can't put into words how I feel."

Unfortunately for the NHL, those are the same words that fans all over North America are saying about the uncertain state of the league.

Over the past 10 years, the NHL has seen its popularity in the United States decline, as it competes for viewers with start-up leagues like the Major League Soccer and the Women's National Basketball League.

Though it is still considered one of the four major professional sports in the United States, along with baseball, basketball and football, the casual fans whose dollars that all sports leagues look to lure are by every indication tuning out professional hockey. A startling illustration of this fact: according to ratings information provided by Nielsen Media Research, the conference finals of the Stanley Cup Playoffs did not draw a large enough share of a potential viewing audience to rank in the top 15 sports programs during the week of May 17-23.

During the same week, more people watched a regular season WNBA game between Phoenix and Connecticut (1.0 percent of households with a television) and the Indianapolis 500 time trials (1.1 percent). In the face of these numbers, NBC -- which recently bid for the rights to broadcast NHL games, along with ESPN-negotiated a national television contract that stipulates that the NHL will receive no money until all of NBC's costs are recouped, after which they share the revenue equally. It is by far the smallest national television contract among the four major sports, akin to the contract recently signed by the Arena Football League.

Fans of hockey look at these numbers and scratch their heads. Hockey, they loudly proclaim, combines all of the elements of popular sports in the United States. It has the speed and athleticism of basketball. It requires the strength and toughness of football. It even has the strategy and tradition of baseball. Yet, rather than moving up on the list of major professional sports, it has moved down.

Under the leadership of Bettman -- once an assistant to highly successful NBA commissioner David Stern -- the NHL put in motion a "Sun Belt" strategy, placing franchises in southern cities through expansion and relocation. Over the course of 10 years, NHL teams have materialized in Atlanta, Nashville, Raleigh (N.C.), Dallas, Tampa Bay, and Miami.

Bettman's reasoning seemed sound. Through franchise fees and new fans attracted, expansion had been a bonanza for the National Football League and for Major League Baseball. By placing new teams in growing cities with young populations, the NHL looked to benefit by attracting new fans that would spur future growth.

However, the opposite has happened. Unlike Canadian and teams in the northeastern United States whose core group of devoted fans grew up playing the game in rinks and on outdoor ponds, sufficiently educated in the intricacies of the game, people in the new NHL cities found the game to be another distraction on an already cluttered sports scene. As attendance fell, so did the ability of these teams to secure the television and radio contracts that make up the lifeblood of a team's revenue stream.

Conversely, player contracts continued to grow. The top teams-based in traditional NHL strongholds like Detroit, New York and Philadelphia where local television and radio contracts are lucrative and fan support is stable-are able to pay top dollar for free agents, pushing up the overall salary structure of the league. Ten years ago, the average NHL player made $500,000; today, that same player makes $1.7 million. The largest contracts have grown from $4 million annually to over $10 million.

Naturally, this imbalance has wreaked havoc on the rest of the league. The Buffalo Sabers faced such financial difficulty that they had trouble making good on the checks that they issued to their players. The same situation applied to the Ottawa Senators -- only a bailout from the league prevented the team from bankruptcy two seasons ago. According the statistics provided by the NHL on its Web site, 75 percent of total revenues are spent on player salaries, the highest amount of any sports league.

In the face of all this uncertainty, the league's Collective Bargaining Agreement with the NHL Players Association expires on Sept. 15. For owners, the occasion for renegotiation of the agreement could not be better. According to a report authored by former Securities and Exchange Commission Chairman Arthur Leavitt, the NHL sustained losses of $273 million in 2002-03.

In the report, Leavitt detailed that only six of the leagues 29 franchises turned a profit, averaging $6.4 million. "I am satisfied," he concluded in the report, "that the present business model of the National Hockey League is not economically viable. Player costs of 75 percent of revenue clearly diminish any possibility of restoring a feasible business model."

Since the publication of the Leavitt Report, owners have pushed for radical changes in the Collective Bargaining Agreement, chief among them building safeguards into the agreement, such as a salary cap (which exist in the NBA and the NFL), that will control the growth of player salaries.

"I am not prepared to lose money in Hockey in perpetuity," Eugene Melnyk, owner of the Ottawa Senators, told the Financial Post in November 2003. "After they write the initial big check (owners) don't want to keep writing checks year after year. I don't want to do that either."

However, the NHLPA, the organization that represents the interests of the players at the bargaining table, does not see the Leavitt report as a completely unbiased assessment of the game's financial picture. The organization correctly points out that Leavitt was retained by the owners to draft a report of their finances, that the NHLPA had no input into the selection of Leavitt or in determining what constitutes "revenue" as compared to other major sports. Of the four franchises that the NHLPA was able to independently investigate, according to NHLPA executive director Bob Goodenow, "we found just over $52 million in hockey-related revenue not reported in the League's voluntary and unaudited process."

If this is the case, the player's argue, then the report itself is a just a public relations move to capture fan sentiment and implement a salary cap -- a provision the NHLPA soundly rejects.

"We continue to believe," Goodenow said in a February statement, "that a market system, not a team of hired-gun accountants, provides the best measure of a hockey business. In a market system, the owner decides how much to play the players. The owner knows the value of his business better than any paid consultant of league employee and the owner uses this knowledge when he sets players salaries."

As the Sept. 15 deadline approaches, the irresistible force is set to meet the immovable object. Owners insist that a renegotiated Collective Bargaining Agreement that includes a salary cap is essential to the game's survival. Players, imbued with mistrust stemming from long periods when their salaries were not comparable to other major sports in America, view the salary cap as an artificial means to reduce salaries. Such diametrically opposed views have made negotiations unsuccessful.

"While there was a candid discussion," the NHLPA's Ted Saskin told the Washington Post on the eve of the NHL finals, "it would be misleading to suggest that there was any progress made, or to characterize our discussion as productive."

Both sides fully expect the owners to lock the players out at the expiration of the agreement and suspend league operations for one or even two seasons. This, many owners say, is a better alternative to losing millions of dollars a season. The players, especially those from Europe, are prepared to wait the owners out playing professional leagues abroad.

Yet, if this happens the damage to the game may be far reaching. If there are no games, what happens to the fans in cities like Atlanta and Nashville, where interest is already waning? Surely they will find other sports to capture their interest, and equally important, their dollars. When the NHL does come back, will it find that fans have shifted their attention to NASCAR or women's golf, or lacrosse, or any of the other sports elbowing their way onto the scene?

Throughout the summer, the NHL's labor situation has remained unresolved. Throughout several rounds of meetings at NHL headquarters in New York there has been little progress made on the central issue of a salary cap, as owners continue to insist that the league cannot survive without one and players continue counter that it is an artificial barrier on salaries.

Because of this uncertainty, the future of the league remains precarious, and by the time both sides agree to a business model that they can live with, fans may not care. To those who were watching the Lightining celebrate their championship in June, it was not lost that the end of a fast, brutal and athletic postseason was a moment to savor. It might be a long time until they witness a scene like that again.

© 2004 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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