NHL--On the Treadmill to Obscurity
Those are the words of Arthur Levitt, former chairman of the Securities and Exchange Commission, after overseeing an audit of the National Hockey League's finances two years ago. Bargaining between the NHL owners and the players' union has reached a stalemate and the owners have locked the players out. The 2004-2005 season is all but over before it has even started.
According to the owners, the NHL has lost about $500 million over the past 2 seasons and the newly signed TV contract with ESPN and NBC is only worth $130m plus some profit-sharing (compare that to the $600m deal with ESPN and ABC over the previous five years). Of the roughly $2 billion in annual gross revenues that the league pulls in, about 75% goes to player salaries. The average NHL player earns $1.8 million a year. [How much do you think the average NFL, NBA, and MLB player earns?]
The owners are demanding that player salaries be reduced to about 53% of league revenues and that team payrolls be capped at no more than $33 million--equivalent to an average player salary of $1.3 million. The average payroll last season was $41.6 million.
For their part, even though the players' union believes that players should be paid whatever the market is willing and able to pay, the union has proposed a 5% cut in player salaries, imposition of a luxury tax on every dollar above a $50 million payroll, and more league-wide revenue sharing.
Will the two sides see that their mutual welfare depends on coming to an agreement? The owners are apparently willing to ride out a rather lengthy lockout--up to 18 months if need be. The players, on the other hand, are already looking for alternative employment. A number of NHL players have already signed on to play in the European leagues.
For an excellent overall look at the economics of the NHL (and the other major leagues) see the words of Matt Witting.
1 comment:
What this looks like is that the NHL and the team owners are feeling the effects of a decline in the popularity of the sport among the public, resulting from the publics lowered interest in watching hockey, buying tickets to hockey games, and instead having an increase in the popularity of football, basketball, and baseball in comparison to hockey. The demand from the public for hockey has decreased, and the amount of money the NHL and owners bring in has thus decreased as well.
In the owners attempt to compete in their market they want to have the best team with the best players as possible. The owners are competing with other teams for their team to be good, popular, and sell out arenas to increase their revenue in relation to other teams.
Because of this the demand for good players allows teams and owners with more money to pay good players more money in their competition with other teams to increase their revenue.
While this has occurred, and players are making more and more money, the NHL and the teams owners have failed as a whole to increase the popularity and interest of fans and the public, or at the least failed to sustain their previous level, and thus are losing more money. This is the fault of the NHL in their marketing of the NHL, and hockey among other sports of fan interest.
Because of their failure, they now want to take it out on the players by placing restrictions on their salaries. Because they have been unable to market their sport effectively in the sporting market with other sports, they now want to impose restrictions on the players who have marketed their selves effectively.
The outcome from this is that the NHL and owners will need to increase their marketing and interest of sports fans in competition with other sports, yet the NHL has been unable to do this in many years. Because of this, the NHL will restrict player sallaries as a band aid to their problem in the immediate future, but this will only further exacerbate the problem in the long run, as hockey teams will be less competitive with the restrictions, and interest in hockey will decline even greater.
The players marketing themselves currently in the NHL can move to other markets, for example leagues in Europe where their is greater interest in the sport, and in the long run could regain their current level of salaries or even increase it. Yet this will take a while.
The NHL on the other hand can not move their market. They have to sell their sport in their current market, and don't have the luxury that the players have.
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