This is a guest post by our bud Miles H., a man who enjoys a nice stiff drink… in the morning.
|Sparse crowds in weak markets are commonplace in the NHL this year|
The professor began with the premise that,
“the NHL has excess capacity, their ability to produce hockey and hockey merchandise exceeds the demand for these products in the market.”
And the following points were made by both students and the professor:
- The NHL needs to either achieve an Apple-esque marketing miracle and convince everyone that they need to watch hockey the same way Apple was able to convince everyone they need an Iphone/ Ipod, or, the NHL needs to reduce its supply to match demand. It is very costly to have excess capacity / too little demand for an NHL Team because their revenue streams are mostly short term (ie. ticket sales, beer sales at games, merchandise sales, etc.) but their expenses are long term (multi year player contracts, and huge lease obligations for arenas).
- It is unlikely the NHL is going to pull off a marketing miracle and successfully break into the southern United States market when competing against the well-established sports of Football, Baseball, Basketball, and of course NASCAR.
- The Original Six teams, as well as teams in other strong hockey markets, turn a healthy profit nearly every year. However, it is only in years when teams in weak hockey markets have a winning record that they make any real profit. As in all sports, assembling a team that can be successful in successive seasons is very challenging, which means that over and over again these teams in weak hockey markets with low fan loyalty are going to run into financial problems.
- The NHL has teams too tightly clustered; Anaheim, Los Angeles, San Jose, Phoenix are all home to teams, and can all be fit into a region roughly the same size as southern Ontario, which makes one wonder (a) why have a team in Phoenix at all because it just adds to excess supply of hockey in the region, and (b) why are there only two teams in southern Ontario? There is too much hockey being crammed into a small region, it’s oversaturated with a sport that residents only have a mild interest in. This is why companies don’t sell snow tires in Havana.
- Much the same can be said of the south-east region of the United States. Florida is home to the Panthers and the incredibly nearby Tampa Bay Lightning. Even with a fairly impressive offensive lineup and a recent Stanley Cup win, the Lightning struggle to fill the stands and turn a healthy profit. If you make a bit of a stretch and include the Atlanta Thrashers in the neighbouring state, the logic for these team locations only gets worse. In weak markets like the southern states, NHL teams need many millions of local residents to find tens of thousands of loyal fans needed to fill a hockey arena. When there are two or three teams competing for fans there will be no successful franchise. The exact same scenario takes place in New York as well. Two teams is one too many.
- The solution to this problem is simple: strategically reduce the number of teams in the NHL. The Lightning, Islanders, and Coyotes should be eliminated; they are geographically too close to longer standing franchises. They’re elimination would allow fewer teams to share a larger percent of a given region’s hockey fans and make the remaining teams more profitable. However, there is a secondary and hugely beneficial reason to take this approach: the talented players from the disbanded teams would relocate to better hockey markets, or be added to teams in weak hockey markets which would help them win more games, have more successful seasons and in turn draw larger, more consistent crowds to home games. Among these three teams rosters are: Vincent Lecavalier, Martin St. Louis, Steven Stamkos, Simon Gagne, Victor Hedman, Shane Doan, Ed Jovanovski, Ilya Bryzgalov, Keith Yandle, and John Tavares, not to mention many other lesser known talents. These would all be strong additions to most teams in the league, and a massive boost to teams in markets where they have to have a winning record to make a profit. Talent in the NHL is far too diffuse. There are too many predictably awful teams that won’t make the playoffs – imagine how much more interesting and engaging the narrative of a season would be if there was less than five points between the second and last place team in the league.
- If these players from dissolved teams were in strong hockey markets sales for merchandise of rising young stars alone would be a windfall for a franchise (Stamkos playing in Toronto? Lecavalier in Montreal?) There is a massive return on investment being ignored or lost currently. Brilliant players in strong hockey markets equate to millions of dollars in jersey sales, extra beer sales in winning games, and if the talented players can help a team get into the playoffs then even more profits from playoff ticket sales and ad revenue.
- This theory also holds true for teams that are in a weak hockey market, but not geographically close to another team (Nashville and Atlanta). There is no point in having extra franchises in a league if they perennially struggle to break even and dilute the talent pool in the league. The Maple Leafs have an abysmal record, but contribute financially to the league, and to the game of hockey in many ways. (If your going to have more franchises, put them in markets where the games will at least sell out, not in weak markets.)
Anyhow, the NHL, like every business, is governed by basic economic principles that cannot be ignored. For failing franchises it’s good old supply and demand, and the fact remains that sports teams need a regional monopoly to survive if there is only mild interest in the sport to start with.