Why NHL expansion makes sense
There is an article in the Globe and Mail today discussing the possibility of the NHL expanding to 32 teams, and more specifically Seattle being one expansion possibility. To many expansion seems counter intuitive considering there are a lot of teams that are already in financial distress that can hardly keep their heads above water as it is. Some people are actually suggesting contraction is the much better option and on the surface that makes sense. At least to us the fan. Drop off the weak teams that can’t support a strong fan base and in the process improve the average talent level among the remaining teams and presumably make the product more enjoyable to watch. The thing is, from the owners perspective that is the completely wrong way to solve the problem of weak teams. The solution is rather, bring in more weak teams and collect a hefty fee while doing so.
Let’s put aside the fact that the owners will probably collect $300-400M, possibly more, from expansion fees to say Seattle and Quebec City and lets take a look at the impact such an expansion will have on the financial viability of the other weak teams in the league.
The 2012-13 league wide revenue is/was projected to be $3.3B, or about $110M per team. But, a sizable portion of that revenue (National TV contracts, league licencing, etc.) is not team generated but league generated. Let’s suggest that that amount is a mere $300M to make some numbers easy (it is probably significantly higher). This would make team generated revenue $3B or an average of $100M per team. Some teams most certainly bring in closer to $150M in revenue and maybe more, the weak teams probably bring in closer to $50M, maybe less. Lets, for argument sake, suggest the NHL expands by 2 teams that are in markets that will generate slightly below average revenue. Say $75M/yr. Now, let’s crunch some salary cap numbers using the old CBA where the players get 57%.
At $3.3B in league revenue, the revenue per team average is $110M and the players allocation is 57%, or 62.7M which makes the salary cap $70.7M and the salary floor 54.7M.
Now, if we add in to $75M revenue generating teams the league-wide revenue rises to $3.45M but the team average revenue falls to 107.8M. 57% of that comes to $61.45M making the salary cap 69.45M and the salary floor 53.45M.
Expanding to 2 smaller markets just caused the salary cap and salary floor to drop $1.25M which essentially cuts the expenses of weaker teams such Coyotes by $1.25M per year. That is not insignificant to a team losing money. If you were a salary floor team you can cut your player expenses from $54.7M to 53.45M, about 2.3%, all while collecting $10-15M (per existing team) in expansion fees. On top of that, you can do it without making the NHLPA mad because the NHLPA will be all for expansion because it means more jobs for them. The only complaint the NHLPA may have is, why not expand to a big market like a second team in Toronto.
Now, the only loser in all of this is us, the fans. We get a more diluted product and potentially more diluted rivalries (likely fewer games and less chance of playoff meetings against true rivals) but since when did the NHL ever care about the fans more than the dollars.