Business Decisions in the NHL
This semester, I’m taking both Economics 101 and Sport Management 203 (Intro to Sport Business) among other classes at the University of Michigan. My SM 203 professor has taken shots at the NHL every single class (we meet Mon, Wed, and Fri). He doesn’t have a problem with the sport mind you, just that it has now become a mid-major sport in his eyes because of the league’s decisions. Of course it doesn’t help with the business decisions that the league has made of late, but when you actually look at the NHL and compare it with the other three leagues it really opens your eyes.
I’m a huge hockey fan as you all know. I wouldn’t be running a blog covering the Red Wings if I wasn’t passionate about the team and the sport. I got to say that I’ve realized how far behind the NHL is in comparison to the other leagues (NFL, MLB, and NBA) since I started taking this class. Before this year, I knew that the NHL wasn’t on the same level as the other three leagues but I had not realized that it had gotten this bad.
Yes, the league is now making money after the lockout, but I think the NHL could be doing a lot better than they are right now. This post will essentially consist of me ranting about poor decisions the NHL has made recently and over the past 14 years (yes, during commissioner Gary Bettman’s reign).
Anyone who doesn’t think hockey can work in America is forgetting this era [the early 1990s]. All of a sudden, hockey was challenging, if not beating, the NBA in a number of major U.S. markets – including New York. It’s almost impossible to imagine now, but it happened.
As the conspiracy theory goes, Stern sensed the potential trouble in 1993 while the NHL was in search of a new commissioner. So he looked around his own office for someone so incompetent that if they got the job, the NHL would be marginalized by their mismanagement and never again be a threat to the NBA.
Naturally, Stern recommended one of his assistants, Gary Bettman, for the job.
True story or not, it worked.
The list of bad ideas…
Note: These bad ideas (in my opinion) are not in any particular order.
1) Moving the All-Star game to a weeknight.
Sure the primetime tends to draw more ratings, but when your game is shown on Versus AND going against American Idol, the most popular TV show in America, it’s not such a smart idea. While the ASG ratings for the 2007 game initially sounded like an improvement, when you compare it to prior years (the last ASG was before the lockout in 2004) you will find out that the ratings sucked.
This year’s ASG brought in a 0.7 rating, which is about 474,298 viewing homes and 672,948 total viewers. Compared to the Versus’ programming average rating of 0.2, it was a 250% increase which sounds all nice and dandy. However, the 2004 ASG drew in 1.985 million viewers on ABC. That is a huge drop in ratings over three years. Personally, I think there still would have been a big drop in the ratings even if the ASG had remained on the weekend, but it probably wouldn’t have been this bad.
2) Staying with Versus.
First mistake, the NHL decided to sign a contract with Versus instead of ESPN following the lockout in 2005. The reasons? Versus would be able to give the NHL the coverage and care it felt it deserved. Plus, Versus was going to pay a lot more than ESPN. ESPN wasn’t going to offer a lot of money because the NHL ratings were so low (even worse than poker, a non-sport) and they believed that the NHL’s product did not warrant a bigger offer. Obviously I have the advantage of hindsight, but I think the league would have been much better off with a smaller TV deal with ESPN than their current one with Versus.
I’m one of those people that believe ESPN has gotten worse over the years and covers more entertainment crap than actual sports. However, I do believe that ESPN is critical to a sport’s success. When you can’t advertise on ESPN (and I’m assuming ABC as well since they are owned by the same company), you have a problem. When ESPN barely showcases the NHL in SportsCenter, you have a problem.
Now that the NHL and Versus have extended their deal into 2011, it’s going to be incredibly hard to return to ESPN. If and when they do, that TV deal is going to be quite small but it will provide the league with the necessary exposure to succeed in the sporting world. According to James Mirtle, it appears that the league really didn’t have a choice in the matter.
The interesting thing is that the decision was entirely in Versus’ hands, as the fledgling network had the option to decide how long they wanted to be the NHL’s broadcaster regardless of ratings and/or the number of subscribers.
It appears Gary Bettman’s plans to expand the league’s television footprint in the U.S. rests solely with Versus’ ability to attract new subscribers, something that seems questionable at best. You have to wonder if this means four more years of miniscule ratings like those reported from last week’s all-star game.
The only good thing about Versus is that the NHL and the Tour de France (a cycling race which happens in July) are their two main draws to their station so they are willing to put a lot of money and time for those two sports/events. According to the Sports Business Daily, Comcast “is contracted to spend $20[M] worth of promotion per year on the league.”
3) Staying status quo with the schedule.
I’ve made my feelings on the current schedule well known over the past year, but I had to mention it in this list.
The column I linked to at the beginning of this post had this to say about the current schedule and the new rivalries it was supposed to create:
Bettman claimed it would spawn “new” rivalries. Of course, old rivalries such as Detroit-Toronto – two hockey-mad towns separated by a single highway that actually has an exit for Wayne Gretzky Blvd. – no longer play a home-and-home series each season. It’s like killing Red Sox-Yankees so Blue Jays-Diamondbacks might catch on.
4) League expansion in the 1990s.
One of the league’s biggest mistakes, in my opinion, was allowing the dramatic expansion in the 1990s. From 1991 through 2001, the NHL added nine teams. During the same time, the NBA added two teams while the MLB and NFL added four.
Five of the nine NHL expansion teams in that time frame brought in only $50 million each as their franchise fee. The other four (Nashville, Atlanta, Minnesota, and Columbus) had $80 million as their franchise fee. This doesn’t seem too bad, but then you compare to the expansion fees in the other three big leagues.
When the MLB added Colorado and Florida in 1993, it cost the new team owners $95 million each. Only a short time later when the league expanded to Arizona and Tampa Bay, the expansion fee jumped to $130 million.
The NBA only allowed two teams to enter the league in the 1990s. Both Vancouver and Toronto joined in 1995 after each paid $125 million expansion fees.
Now we all realize that the NFL is a different beast in the sense that it’s TV contracts are so much better than the rest of the leagues allowing demand for teams to rapidly increase. In 1995, the NFL allowed Carolina and Jacksonville to join the league at the cost of $140 million. In 1999, Cleveland paid $530 million to become an NFL franchise. When Houston joined the league in 2001, they paid a whopping $700 million. Wow.
One of BtJ’s readers, Chris at the Checking Line, brought up a very valid point that many of those expansions had been agreed upon before Bettman came into play.
Contrary to popular belief, Bettman did not expand to Florida or California. The league had made the decision to expand to 26 teams before he became commissioner. Under Bettman’s watch, the league has only expanded to Minnesota, Columbus, Nashville, and Atlanta. Both Minnesota and Columbus are looking to be good markets while that remains to be seen in Nashville and Atlanta. You can’t expect these new hockey markets to support their teams after 8 seasons like markets that have been established for years. Oh, and the Board of Governers approves expansion.
After being appropriately corrected, I changed my bad idea #4 from Gary Bettman to quick league expansion. I still don’t like Bettman and believe there has to be someone out there better for the job, but the expansion cannot be entirely blamed on Bettman.
Chuqui at Two for Elbowing also has her thoughts on Bettman’s reign as commissioner and how it hasn’t been as bad as we like to think.
John Ziegler ran the league from 1977 to 1992 (and left in disgrace). Gil Stein from 1992-1993. Gary Bettman arrived in June, 1993.
Average attendance per game in 1992-93, the year before Bettman arrived, was 14,046, a total attendance of 14 million.
Average attendance per game in 2005-2006 was 16,954, total attendance 20.8 million.
This “disaster” (to use Tom’s infamous “quotes”) is an 18% increase in attendance per game, and a total attendance increase of 6 million bodies, since he took over the league.
End of my rant…
I would like to thank everyone who has commented thus far and I encourage any readers to share their viewpoints. Even if it’s proving my faulty logic, I appreciate it and a healthy debate can only help improve my knowledge of economics and sport business.
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10 Responses to “Business Decisions in the NHL”
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January 29th, 2007 at 10:56 pm
I agree with almost all those points, except for having the All-Star game on a weekday evening. Having it on Versus is definitely a problem, but prime time during the week is better than a daytime weekend slot by a long ways.
Good luck with Econ (that was my major at Michigan)!
January 29th, 2007 at 11:31 pm
Christy, I feel you’re mostly right, for mostly wrong reasons
Like the comment above, I also feel the All-Star game works well during the week. It failed ratings-wise for non-timeslot reasons IMO. They didn’t move it for ratings though, they moved it to not lose the revenue weekend games bring in.
January 30th, 2007 at 12:29 am
I’m taking a similar Economics class as well. My professor being Canadian doesn’t so much hate NHL as he’s disappointed by how much in peril it seems to be in.
January 30th, 2007 at 9:42 am
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January 30th, 2007 at 11:57 am
Christy… I think you made your points worse by quoting the Yahoo article. That article was horrific but in particular the part you quoted particularly bad. Besides the fact that one of the franchises that went bankrupt had an owner that is no in prison for his shady business practices, how is Bettman to blame for Pittsburgh not having a new arena?
And as far as expansion, the league had already made the decision to expand to 26 before Bettman took over. He (and his BOG) is only responsible for Minnesota, Columbus, Atlanta, and Nashville.
Ultimately, Bettman’s biggest failure is that he didn’t take the necessary actions to get a salary cap before 2005.
January 30th, 2007 at 3:04 pm
The Forechecker- I think that a weeknight might be able to work, but I would’ve suggested a night that doesn’t cause the ASG to go up against American Idol. And obviously the ratings were better when the game was on ABC because it was a broadcast channel rather than a cable channel. And thanks for the good luck w/ econ- my first exam is in two weeks.
David- You were definitely right in bringing up the potential loss of revenue from weekend games had the ASG stayed on the weekend. I had totally forgotten about that and it definitely makes the decision more understandable.
Sherry- My professor doesn’t hate the NHL by any means, he just thinks that league decisions has caused the league to go from one of the top three leagues to the worst “major” league.
Chris- Thanks for your comment. I will be updating this post and I’ll include some of what you said.
January 30th, 2007 at 4:59 pm
Nice ran’t Christy! That yahoo article was excellent. Incredible read. Perhaps the best anti-New NHL or anti-Bettman article I’ve read yet. Great explanations, and great exmaples backed up even better points.
Now all we have to do is convince the owners/board to read this - and understand it - and we’ll be looking good.
The problem is having the All-Star game on VS, a cable channel MANY cable providers don’t offer. Also- a week night? Everyone truly believes having it on a weeknight vs a weekend is better? As far as Bettman goes-If Wayne Gretzky was in charge of the NHL do you think any of the owners would be questioning him? Would they be side stepping the greatest hockey player who ever lived and do things their way as far as hockey decisions go? What about Gordie Howe? Steve Yzerman? Mark Messier? It comes down to Gary Bettman having no credibility, not taking his job seriously, and not knowing anything about hockey.
The owner of my company always tries to get involved in day to day operations, and rightfully so the General Manager steps in and tells him to take a hike. Owning something does not make you a connoisseur on the subject. Gary Bettman is the comissioner of the NHL and it is HIS job to grab the reigns from the owners and steer the wagon. If he is letting them bully him into decisions that are killing the game, then that only proves even more that he isn’t the right guy for the job. Nice job, Christy!
January 30th, 2007 at 5:18 pm
Great job, Christy. I agree with you. Versus and the rotten schedule are the worst things to happen to the NHL in years. It is sad that the Predators have a great on ice product but still can not attract the fans. Put this team in Portland or any Canadian city and you would have a different situation.
February 1st, 2007 at 4:45 pm
Andy Griffith doubles ratings of the All-Star game
“The NHL faced tough counterprogramming. And not just from Fox’s American Idol. Other Wednesday prime-time shows outdrawing the NHL stars included HGTV’s Design on a Dime, Discovery’s Myth Busters, Bravo’s Top Chef, the Food Network’s Ace of Cakes and — attracting 85% more households than hockey’s stars — TV Land’s Andy Griffith Show.”
How can ANYONE possible stick by Bettmans decision to move the All-Star game to a weeknight, and isn’t on a major broadcast network?? ANDY GRIFFITH for crying out loud! Good thing there wasnt a episode of Matlock on! But-wait-everyone will be thirsty for Bettmans kooliad-trying to convince everyone and wants us to believe that revenues are up and the game is doing fine?
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January 1st, 2008 at 6:19 pm
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