Two interesting and contradictory stories today that muddy the waters when we try to understand just how profitable it is to own a hockey franchise.
First is this North Texas news story, which features an interesting (and short) audio interview with a sports economist who claims that overall league sustainability sags because of hockey in non-traditional markets. Makes sense conceptually, though he doesn’t offer up much more evidence than “Hockey country in South Florida? No.”
I don’t disagree that building a sport in a non-traditional market is challenging and requires a billionaires’ equivalent of the welfare state in the meantime, but we are talking about huge media markets with mad sports cultures. If hockey is sustainable in cities with a population base like Winnipeg’s, it’s hard to understand how it couldn’t be sustainable in a city where even a fraction of its sports consumers would equal the same number of people.
More to the point, though, is how the angle of this story continues to calculate hockey profitability on a strict hockey-related-revenue-to-hockey-related-expenses ratio. That simply doesn’t reflect the manner in which value is derived from sports franchise ownership.
(One other point made during the interview that resonantes with me more, though, is that owners are emboldened by how strong the fan support was after the last lockout, and how fans are only damaging the long-term stability of the league if they welcome their teams back with open arms. We need to vote with our dollars. End aside.)
Now look at this tellingly contradictory story from South Florida, which says precisely what I and many others have been writing about for some time: those who own their own arenas or have favorable arena deals have a number of non-hockey related events and revenues to buoy their teams. “So what?” you might ask. That’s not hockey related revenue, and so shouldn’t be included when we talk about hockey’s profitability. Except that in many cases you simply can’t get your hands on that revenue without an arena, and you can’t get your hands on an arena without a regular tenant, and that your tenant then eats up a huge amount of your fixed expenses. Simply put, a hockey team might lose money, but your investment still gains.
We start to get a picture of an overall investment strategy: You don’t necessarily want a sports team, you want a sports arena. With an arena you can inflate real estate and land prices in the area, where you can strategically invest beforehand, and/or charge for retail space, and/or derive value from businesses you own nearby. To get an arena, you need a sports team, the cheapest of which is an NHL team in a non-traditional market. Even if you don’t have the arena, get the team and you can agitate for the local government to build you one with public tax dollars.
Once you’ve got your arena and team, your direct hockey-related revenue in-out ratio might produce yearly operational losses – you probably don’t make enough on ticket sales to pay for salaries and arena expenses. But your overall portfolio, made possible by owning the team, is producing value. You may even make a short term profit when you consider revenue sharing, merchandise sales, and television revenues, much of which is not reported. And if you’re lucky, maybe your team goes on a run, wins some playoff games, and you make some bonus short term profit. Meanwhile, your franchise is increasing in value year over year. If it’s in the middle of the pack, that means a 4%-11% return on your $200MM investment every year. All you have to do is have the money to cover any operational losses in the meantime, which some owners (remember those two guys in Tampa?) have trouble doing when all of their other speculative enterprises crumble in a crashing economy.
In the meantime, you can limit your operational losses by slashing payroll and agitating for a lockout to remove player rights. In the end, this narrative of non-traditional teams dragging down the league is only accurate if we continue to look exclusively at hockey related revenue. But owning a sports team isn’t about whether or not the team makes money. It’s about whether or not all of your investments, made possible through the ownership of that team, make money. Which is why the owners’ line about how broken the economics of the game are is so disingenuous.
I don’t doubt that some owners are actually losing money, and some owners’ investment strategies haven’t panned out. (Wang on Long Island hasn’t had as much luck getting a new arena as Katz in Edmonton.) But that players and fans should repeatedly pay for the unrealized strategies of various billionaires is asinine. The reason the Coyotes don’t have potential owners crawling all over them isn’t because there’s no appetite for hockey in Arizona. It’s because a state with an economy that runs on real estate sales has crashed and is near bankrupt. No one has any money to spend on anything, so real estate speculation has flatlined. As the economy recovers, look for more potential owners to start sniffing around these supposedly doomed outfits in non-traditional markets.
All of which to say that the owners of sports franchises are looking quite villainous lately. The Senators’ owner, Eugene Melnyk, is fairly mild in comparison – though he does have a tendency to make shitty, misleading statements about relocation right before tickets go on sale, or claim that his club is the second largest employer in Ottawa, which is ridiculous. But when we see the repeated manipulation of fan sentiment to get concession from the public purse, to drive down individual rights in the form of player arbitration (from guys who I would assume are staunch anti-state-interventionist Republicans to boot), and the plainly misleading reporting of franchise values, then I don’t know how anyone can be pro-owner in all of this mess.