Kansas City vs Hamilton: Saving Bettman's Babies

I just heard Doug MacLean be interviewed on Team 1200 here in Ottawa. He said Columbus was top 10 in attendance, top 10 in corporate support but near the bottom of the league in local TV revenue. He said that what he made all season in local TV revenue, the Leafs make in 3 games. That’s crazy. He then talked about advertising rates. A 30 second TV ad in Columbus nets $220, in Detroit $1250. He mentioned that he believes that the average TV ad rate for Kansas City is below that of Columbus. That means, even if the people of KC fans and corporation support the team to death, they will at best be a low-mid revenue team. If they only get luke warm fan support they will quickly look like another Nashville.

In a league where the majority of the revenue is locally generated, the only viable locations are where local revenue can be generated. This is different from the NFL where revenues are largely league revenues from a multi-billion dollar TV contract where having a team in Green Bay is viable (and not in Los Angeles oddly).

And this all gets back to the failure of the NHL to generate a large American TV contract. As Bettman’s theory went, if we stick teams in all the major (and mid-level) U.S. markets, the networks will be desperate to sign a national TV contract. But honestly, that is the stupidest theory around because the national networks have no interest in showing the Columbus Blue Jackets or Carolina Hurricanes on TV. They want the Philadelphia Flyers, New York Rangers, Detroit Red Wings, etc. The big market teams. In total NBC broadcast 18 NHL games over a 7 week period and despite having a horrific team, Philadelphia was featured in four of these games and the almost equally inept Blackhawks were featured three times. The reigning NHL champions from Carolina only saw one NBC game but they were playing the NY Rangers who NBC showed a total of four times. Nashville was never shown, nor was Phoenix or Florida. Small market teams don’t generate national TV contracts, large market teams do.

So the best case scenario that I can envision by having a team in Kansas City is another low-mid revenue team that does next to nothing in developing a larger national TV contract in the U.S. The best case scenario is another team like the Columbus Blue Jackets. Pretty scary but that seems to be the truth. It seems to me that the only reason there is any interest in moving a team to Kansas City is because the city is offering an arena with free rent and not because it is a good or viable hockey market. In fact when the International Hockey League folded in 2001 several teams from that league joined the AHL but the Kansas City Blades weren’t accepted. The AHL didn’t even want Kansas City but now the NHL is considering it?

But all of this creates an interesting dilemma for some teams in the NHL. The way the NHL is currently set up, the salary cap (and minimum) is determined by league wide revenues. The strange thing is that for some of these small revenue teams having league wide revenues go up is a bad thing because it means they have to increase their payroll, a payroll that might already be causing them to lose money. Last year the Florida Panthers probably had a payroll of no more than $30 million, but this season they are going to be forced to increase that to meet the league minimum. But, the Panthers revenue is not likely to increase by the same rate, if at all, and thus the team becomes less profitable, or more likely sustain greater losses. With this in mind, the Panthers likely prefer to have the Nashville Predators move to small market Kansas City instead of Hamilton as Hamilton almost assuredly will have the greater revenues of these two locations. Maybe this is what is provoking the anti-Hamilton sentiment at NHL headquarters because a team in Hamilton means teams like Florida, Atlanta, Phoenix and others suddenly become a little bit less viable and might cause another team to more. Or maybe more importantly, makes potential expansion teams less viable meaning either the price tag for an expansion team drops or maybe interest in expansion teams drops altogether.

I really wonder if what we are seeing happening with the Nashville Predators, Kansas City and Hamilton is really a (short sighted) power struggle between the low revenue teams and the larger revenue teams with Bettman firmly on the side of the small market teams because he brought those teams into the league. Those are his babies and their success or failure will form the foundation of his legacy as commissioner. On the flip side, if the NHL expands that benefits the small market teams because the salary cap will drop since the league revenue will be divided by more teams and the new teams are likely to be below average in revenue). Small market teams want expansion as it will help preserve their viability and they will get a chunk of money to put in their pockets. Large market teams do not want expansion because it means more teams will spend up to the lower cap meaning they will get a smaller competitive advantage.

I really believe that the NHL is in a mess right now and Nashville is just the tip of the iceberg. The core problem with the NHL is that the revenue difference between the big revenue teams (Toronto, Detroit, NY Rangers, etc.) and the small revenue teams is huge and getting larger because the league is a local revenue league, not a national TV revenue league. This problem can get resolved in one of two ways. Either the large revenue teams anti up more money for the revenue sharing system or more teams (Atlanta, Florida, Phoenix being likely candidates) go the way of the Predators and end up moving and maybe even folding altogether. I don’t see greater revenue sharing happening any time soon so that means look for teams to move. A team in Hamilton is likely going to hasten the demise of those low revenue teams and Bettman is going to fight that if he can through forcing the Predators to Kansas City and through expanding to other small revenue locations. It will be horrible for the league in the long term but it might just save Bettman’s teams.

This article has 8 Comments

  1. Another quality column, DJ but…

    but this season they are going to be forced to increase that to meat the league minimum

    or more likely more indebted

    …you gotta re-read these things before you post em 🙂

  2. …you gotta re-read these things before you post em

    Why? I have you as my proof reader. 🙂

  3. I’m not sure, but does revenue sharing not quit amongst teams in the near future? If so, it may help weed out a few franchises that are not able to meet standards and also help negate teams from trying to use it to their advantage. If new teams are introduced, how long will they have to maintain a standard of income? This may be what shows the Bettman era.

  4. I don’t know the exact rules of revenue sharing but I believe low revenue teams can participate in revenue sharing so long as they meet certain standards such as attendance levels and maybe corporate support etc.

  5. To participate in revenue sharing, a team has to increase its revenues by a certain percentage every year. I’m not sure of the exact number. The idea is that after a few years, a team will either grow its revenues to the point where it is no longer eligible for revenue sharing, or disqualify itself by proving to be a hopeless case.

    Count me in the minority, but I don’t think Bettman’s preference for Del Biaggio over Balsillie has anything to do with the relative merits of Hamilton and Kansas City as markets. I think it has more to do with Balsillie’s blunt refusal to play by the NHL’s rules. He has already threatened to sic the Competition Bureau on the NHL over territorial rights.

    If the antitrust officials of either the Canadian or U.S. government start poking their noses into the NHL’s affairs, it is highly unlikely that they will stop with an investigation of territorial rights. MLB exists in its present form only because it has a specific written exemption from U.S. antitrust laws. The NHL has no such legal protection. Balsillie’s strong-arm tactics could result in the end of the NHL as we know it.

    Legally, there is no reason why anybody who wants to pay a bunch of hockey players to compete for the Stanley Cup should not be allowed to play against NHL clubs. Practically and from a business standpoint, such a situation would be a nightmare. I don’t think Balsillie is consciously trying to destroy the NHL’s whole business model, but his actions could do that merely as a side effect.

    Since the NHL’s franchise rules are only enforceable as long as nobody challenges them, the league would be very wise to avoid any potential owner who openly announces his intention to launch such a challenge.

  6. The problem with your argument is that the quickest way to stop an investigation is to give Balsillie what he wants. Balsillie wants a team and if the NHL isn’t going to allow him to get a team, what more incentive would he need to challenge it in the courts?

  7. The problem with your counter-argument is that you assume Balsillie doesn’t want anything else. I’m sure 29 other owners would rather have him on the outside, even at the risk of a single lawsuit, than on the inside where he can make demands backed up with legal threats on alternate Tuesdays and Thursdays.

    I strongly suspect that if Balsillie ever gets a team, the things he’ll do will be far worse for the league than the stunts he pulled trying to get a team.

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