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Tuesday, December 28, 2004

NHL revenue sharing

Now that Christmas is over, we can get back to groaning about the NHL lockout. It appears that the season will be officially over as of January 14th, although realistically, not many would have bet money on the likelihood of a season a month ago.

It appears that the NHL will get the “cost certainty” that it is seeking. And it also appears that the league’s elite teams are on board. The Detroit Red Wings president Jimmy Devellano has this to say:

"I think the league is doing the right thing. I really do. The other sports that are much bigger, with better revenues, have some type of cost certainty system, and we don't. I agree with the league we do need some type of system," Devellano told the Detroit Press. "We were preparing for a new deal. That's what we're waiting on now. We know that things have to change, we want things to change."

As we have all been told, the new NHL system will include some form of revenue sharing – which is in grave need. The problem is, the plan seems to harvest the majority of the funds from playoff revenues, which is something I’m not sure that I agree with.

For example, why should the Calgary Flames be forced to dish out a chunk of their hard earned playoff revenue to the Carolina Hurricanes just because they had a successful playoff run (for the first time in 8 years no less)? Shouldn’t it matter that the Flames have been, and will probably continue to be in, a similar financial predicament to the Hurricanes?

In my humble opinion, the revenue sharing should not seek to punish the success of teams. Instead, the money should be based upon teams that perpetually generate large revenues – regardless of playoff performance. Case in point: the New York Rangers. The last time the Rangers made the playoffs, Clinton was the U.S. President and Y2K was years away. Yet during that time, they still managed to generate revenues (profits) that rank at the top of the league. To me, it makes the most sense to play Robin Hood with teams such as the Rangers as opposed to hindering the teams that manage responsibly and only manage to generate any semblance of revenues from the post season games.

To further my point, according to Forbes magazine, the top 5 revenue generating teams – which will probably come as no surprise to anyone - are as follows (revenues in millions of dollars in 2003/2004):

1. NY Rangers $118
2. Toronto $117
3. Philadelphia $106
4. Dallas $103
5. Colorado $99
6. Detroit $97

Where do the Calgary Flames rank on Forbes’s list? The Flames rank 15th in terms of total revenue generated at $70 million. Also according to Forbes, the Flames total expenses were $67.7 million. So, even with their lengthy playoff run, they managed to turn a measly profit of roughly $2.3 million. Does it really make sense to force them to divvy up the same amount (or more) dough than the above teams because they had more playoff revenue? Maybe I’m being naïve, but that doesn’t really work for me.

And why not throw all of the national TV revenue into the mix? Or how about the teams that have monstrous local or regional TV deals be forced to share with those who have no hope of such lucrative revenue generating methods?

Because the NHL is primarily a gate driven league, with some thrown in from local TV deals and sponsorships, some may ask the question: “why should the teams with good attendance and strong management have to give up their gate revenues to help a team like the Coyotes and Hurricanes who constantly fail to draw fans?”

The answer lies in the fact that you cannot look at each team as an individual business entity. You must consider that the actual business is the NHL itself. To illustrate, here’s Tampa Bay Lightning president Ron Campbell:

"Every league is a business. It should be a business model, and it should be a partnership of sharing the fruits of the business among owners and employees. A business has all these divisions. It would be nice if they all are going to make money. It would be nice if they did and shifts (in team strength) were made on competitive reasons."

For example, when the Vancouver Canucks host the San Jose Sharks, the Sharks are a part of the NHL product offered for sale to the fans and as such, they should be entitled to their share of Vancouver’s gate receipts and vice versa.

I would not want the task of trying to define the rules for an NHL revenue sharing plan. However, on the surface, it appears that what the league has planned to do may not be the most effective method for effectively leveling the economic playing field. As the lockout drags on, we can count on one thing – every nook and cranny of every aspect of the CBA will be analyzed to death in newspapers, television spots, and forums like these.

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