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The Business of Hockey Discuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, NHL revenues, relocation and expansion.

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11-03-2010, 12:54 PM
  #351
Jeffrey93
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Originally Posted by Doctor No View Post
That's not true - if you want to minimize costs, you wouldn't even start a business (no cost at all).

Business maximize profit (revenue minus cost). To take a very simple example, if you had a way to increase revenue by 10% for every 5% increase in cost, you'd want your costs as high as possible.
If you had a way to increase your revenue by 10% for every 5% increase in cost....you wouldn't go looking for a way to make that a 10% increase in revenue for a 10% increase in cost. Therefore, you have minimized costs (5%) while maximizing revenues (10%).

Minimizing cost while maximizing revenue doesn't mean no cost at all....and it doesn't mean not taking on more cost to get more revenue. It's getting the most revenue for the least cost. Change revenue to 'value' and people basically do this every time they shop.

Anyway....was just a small point I noticed that I thought was odd. To think that maximizing revenue and minimizing costs is impossible to do at the same time (in any business)...well I thought that was pretty absurd.

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11-03-2010, 12:58 PM
  #352
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Jeffrey, you're either not reading what I'm saying correctly, or I'm not saying it right in the first place. Businesses don't have a singular goal of "minimizing costs".

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11-03-2010, 01:00 PM
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Originally Posted by Fidel Astro View Post
If this is the case, do you think it's still necessary for those markets to hold on to their NHL teams, or do you think it would make more sense to move them to markets where hockey is the primary sport and kids grow up playing it anyway?
Fidel I'm with you on this one. Again IMO the Sun Belt markets are probably peaked out today. We can talk about grow the game all we want, but IMO the market is saturated with of the hockey it can take. In other words if you have a 1x1 sponge it can only hold so much water vs 10x10 sponge.

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11-03-2010, 01:03 PM
  #354
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Originally Posted by Doctor No View Post
Jeffrey, you're either not reading what I'm saying correctly, or I'm not saying it right in the first place. Businesses don't have a singular goal of "minimizing costs".
Doc I go meetings everyday and in MOST meetings below is most popular question. "What can we do cut costs or reduce costs"? If I had a dollar everytime that question has been asked I be pretty close to retirement.

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11-03-2010, 01:17 PM
  #355
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Originally Posted by CC Chiefs View Post
Doc I go meetings everyday and in MOST meetings below is most popular question. "What can we do cut costs or reduce costs"? If I had a dollar everytime that question has been asked I be pretty close to retirement.
In those questions, there's an understood "while", and you know it.

If the real goal were to cut costs (and only to cut costs), then companies would just fire everyone. No more variable costs.

I'm not sure if you and Jeffrey are being deliberately obtuse, but I'm done playing.

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11-03-2010, 01:30 PM
  #356
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Originally Posted by Doctor No View Post
In those questions, there's an understood "while", and you know it.

If the real goal were to cut costs (and only to cut costs), then companies would just fire everyone. No more variable costs.

I'm not sure if you and Jeffrey are being deliberately obtuse, but I'm done playing.
I think the more accurate term would be "do everything in our control to control cost". We all know that costs are part of doing business. But to make the bottomline better you try everything you possibly can to reduce cost.

Again I've said this before the NHL is not a real business like some would like to claim. Real business DOES NOT tolerate failure for very long without making changes.

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11-03-2010, 04:30 PM
  #357
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Originally Posted by Doctor No View Post
Jeffrey, you're either not reading what I'm saying correctly, or I'm not saying it right in the first place. Businesses don't have a singular goal of "minimizing costs".
Everywhere I've said it 'minimizing costs' was linked to 'maximizing revenues'.

Your costs might go up to increase your revenues...but you always want them to go up the least amount possible to get the most revenues.

I can't believe this has gone on for more than a single post. Bottom line...you can maximize revenues and minimize your costs at the same time. Minimizing your costs doesn't mean reducing them...or cutting them out completely.

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11-05-2010, 05:53 PM
  #358
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Quote:
Originally Posted by Doctor No View Post
In those questions, there's an understood "while", and you know it.

If the real goal were to cut costs (and only to cut costs), then companies would just fire everyone. No more variable costs.

I'm not sure if you and Jeffrey are being deliberately obtuse, but I'm done playing.
That's why economists talk about marginal costs and marginal revenues - i.e., the incremental, per unit costs of producing and revenues from selling one more unit. Profit is maximized where marginal costs = marginal revenues.

When people talk about reducing costs, they generally mean marginal costs.

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11-05-2010, 08:50 PM
  #359
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There's also the scenario where companies willingly forgo profit and decide to maximize market share-- as an investment towards the future. They do this if they believe the future profit will be greater than what they'd gain by maximizing profit today.

This is what I believe the league's intent has been in expanding in the first place and supporting its footprint. This is commonly accepted management ideology today, having competitor-oriented objectives vs strictly maximizing revenues or preferably, maximizing profit. At least in academia, there is some question (now that sufficient examples are available for study) as to whether or not this is the best course. Some studies suggest that market share maximization rarely yields the profit that would have been gained if businesses had simply focused on being the best/most profitable they can be -- irrelevant of what their competitors are doing.

I'd suggest that the NHL, as a league, has not focused on maximizing profits. This may also be relevant to the original discussion about the optimal league size. US sports leagues are considered to be profit maximizing ventures, while the European club model (namely soccer/football) is win-maximizing (according to academics).

This distinction is important in order to decide if revenue sharing works, and is obtaining an optimal league size at least as a function of economics. (I'll post some links later for those interested in the research.)

Finally, if you have big market teams that are maximizing wins instead of profit, it might explain why its difficult to design an economic system that actually works. And if my point that the league itself is focusing on market share and not profit, it muddies the waters even further in trying to understand why the economics are out of whack.

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