Sep 042012

Last week the NHL CBA negotations too a turn for the worse as both sides basically agreed to disagree and have temporarily walked away from negotiations.  Despite that I am still reasonable optimistic that there will not be a lock out or work stoppage anywhere close to as long as the 2004-05 lost season and I believe that any lockout will be measured in weeks and not months.  The reason is, the NHL is not losing money this time around as they were in 2004-05 and if there was a lost NHL season there would most certainly be significant lost profits at the hands of the owners.

If you recall back in 2004 the NHL hired Arthur Levitt to take an independent look at the financial state of the NHL.  You can read the report here but basically Levitt concluded that the NHL lost $273M on $1.996B in revenues during the 2002-03 season.  He also concluded that the players salaries worked out to 75% of total revenues during the 2002-03 season, or $1.494B.  With that knowledge, let’s crunch some numbers.

If total revenues were $1.996B and player salaries were $1.494B and total losses were $273M that would mean that non-player salary expenses totaled $775M.

The projection for the 2012-13 season was that revenue would be about $3.2B and under the old CBA agreement players were to be owed 57% of that, or about $1.824B.  The 43% that the owners get to keep would amount to $1.326B.

So, at this point we have the NHL owners share of league revenues totaling $1.326B and in 2002-03 non-player salary expenses totaled $775M.  Assuming no inflation in those non-player salary expenses and we have the NHL posting a league-wide profit of about $551M.  That is over a half a billion dollars in profit.  Of course, in the 10 years since 2002-03 non-player salary expenses have probably inflated as well.  I don’t know what the average inflation rate has been over the past 10 years but I suspect it is in the 2-2.5% per year range.  Now, for argument sake, lets assume non-player salary expenses inflated 1.035% per year.  This would equate to approximately a 41% increase in non-player salary expenses over the 10 year period which would estimate non-player salary expenses to be $1.093B for 2012-13.  Subtracting that from the $1.326B which is the owners share of the $3.2B in revenue and we could estimate owners profits next season to be a combined $283M, or close to $10M per team per year.  Now, not all owners will be posting a $10M profit next year, but as a whole the league will do quite well.  This is why I don’t believe the NHL owners will have the same resolve to sustain a lengthy lockout.

In the owners latest proposal they proposed the players get a 46% share of revenues while the owners themselves get to keep 54% of the revenue.  Plugging these numbers into the equations and we could forecast the NHL owners combined profit to be closer to $635M, or about $21M per team per year.  Think about that when the owners decide to lock out the players on September 15th.  They aren’t locking out the players to minimize league losses, they are locking out the players because they would rather pad their own pocket books to the tune of $20M/year instead of a mere $10M/yr.