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How does a hard cap increase team revenue?

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Old
09-11-2004, 11:46 PM
  #1
Goulet17
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How does a hard cap increase team revenue?

I've read quite a few posts (and that is an understatement) that at least implicitly argue that the proposed hard cap concept will be the magical elixir that solves all of the league's problems.

But I have to ask how the hard cap will increase team's revenues. Perhaps it will increase the revenues of teams like the Rangers, Toronto, Detroit, etc. who are virtually guaranteed to bring in certain levels of revenues.

But what about team's like Edmonton, Pittsburgh, Nashville, Florida, Carolina, etc. The truth is many of the league's struggling franchises have operated for years under a self-imposed cap. It certainly won't increase the team's revenues (except for the large market teams).

I think many of the fans on this board have bought into the hard cap notion because they think it will serve to make their favorite "downtrodden" team an immediate contender due to parity. But the reality of the league's survival depends on other concepts (at least if want to see a 30 team league continue).

What is going on behind the scenes is a power struggle between the large market teams and the smaller markets over some form of revenue sharing.

I challenge anyone to present a logical argument as to how a small market team like say Nashville will be able to generate more revenues under a hard cap system. It caps expenses, but how does it increase revenue?

In the end this whole battle won't be so much a war between the owners and the NHLPA but rather one between the large market owners and the small market owners.

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09-11-2004, 11:57 PM
  #2
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Quote:
Originally Posted by Goulet17
I've read quite a few posts (and that is an understatement) that at least implicitly argue that the proposed hard cap concept will be the magical elixir that solves all of the league's problems.

But I have to ask how the hard cap will increase team's revenues. Perhaps it will increase the revenues of teams like the Rangers, Toronto, Detroit, etc. who are virtually guaranteed to bring in certain levels of revenues.

But what about team's like Edmonton, Pittsburgh, Nashville, Florida, Carolina, etc. The truth is many of the league's struggling franchises have operated for years under a self-imposed cap. It certainly won't increase the team's revenues (except for the large market teams).

I think many of the fans on this board have bought into the hard cap notion because they think it will serve to make their favorite "downtrodden" team an immediate contender due to parity. But the reality of the league's survival depends on other concepts (at least if want to see a 30 team league continue).

What is going on behind the scenes is a power struggle between the large market teams and the smaller markets over some form of revenue sharing.

I challenge anyone to present a logical argument as to how a small market team like say Nashville will be able to generate more revenues under a hard cap system. It caps expenses, but how does it increase revenue?

In the end this whole battle won't be so much a war between the owners and the NHLPA but rather one between the large market owners and the small market owners.
It won't necessarily raise revenues, but it's the best idea to lower costs.

Let's say there's a cap, and the Flames are trying to sign Iginla. He wants $8 million, but the cap only allows $5 million, which happens to be as good a deal as he'd get anywhere else.

Then when in negociations with their own players, other teams can say, "Yeah, we can give you $7 million, but Iginla's one of the best in the game, and he's only getting $5 million."

That's just one example of what might happen.

It could keep salaries down, even among the big spenders.

Teams like Edmonton bring in a good amount of revenue, but that's not the complaint. The complaint is that all their revenue goes to salaries.

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09-12-2004, 12:46 AM
  #3
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Quote:
Originally Posted by Seachd
It won't necessarily raise revenues, but it's the best idea to lower costs.
It won't increase revenues for anybody. To increase revenues, the NHL has to sell more tickets at higher prices or entice more television viewers.

Quote:
Let's say there's a cap, and the Flames are trying to sign Iginla. He wants $8 million, but the cap only allows $5 million, which happens to be as good a deal as he'd get anywhere else.
Unless there is a team with $6 million in cap room. Or $8 million. The salaries for the best players won't go down with a salary cap. It will very probably go up. The salaries for the older players will go down and the salries of role players will go down, but Iginla will probably get more. Right now only Calgary can bid for him.

Quote:
It could keep salaries down, even among the big spenders.
It would artificially keep salaries down. That's the whole point.

Quote:
Teams like Edmonton bring in a good amount of revenue, but that's not the complaint. The complaint is that all their revenue goes to salaries.
Crap. If all the Edmonton revenues goes to salaries, they sure don't generate much in the way of revenues because their payroll is only $30 odd million. On the other hand, if they do generate a good amount of revenue, they are making money because their payroll is so low.

Even if we accept the NHL definition of revenue, the average team turns about $70
million US in revenues. If Edmonton was generating the average amount of revenues they would be laughing.

Tom

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09-12-2004, 06:21 AM
  #4
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Quote:
Originally Posted by Tom_Benjamin
Unless there is a team with $6 million in cap room. Or $8 million. The salaries for the best players won't go down with a salary cap. It will very probably go up. The salaries for the older players will go down and the salries of role players will go down, but Iginla will probably get more. Right now only Calgary can bid for him.

Tom
That is fairly obviously false. It might take 3 years but it will flatten salaries at the top end, and quite a bit. Jagr got $11m, you seriously think he'd get that again if there was a $31m cap, or even $4m cap? Is Iggy really worth 20-25% of a cap, I don't think so.

A cap is going to nail UFA salaries hardest. When you are a club rich enough you can choose between trading prospects for a player or throwing meaningless amounts of money, you tend to throw money. A cap is going to make teams think twice about old UFAs, because its not just money its cap space and you can't afford to waste it.

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09-12-2004, 09:09 AM
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The general idea is that a cap should also narrow the gap between the haves and have nots. From an attendance view point, the strong markets should continue to be strong and draw great attendance while the weaker teams should be able to grow their attendace because they are icing a more competitive squad. Attendance goes up - so does revenue.

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09-12-2004, 09:21 AM
  #6
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Quote:
Originally Posted by Top Shelf
The general idea is that a cap should also narrow the gap between the haves and have nots. From an attendance view point, the strong markets should continue to be strong and draw great attendance while the weaker teams should be able to grow their attendace because they are icing a more competitive squad. Attendance goes up - so does revenue.
Who are the have's in this business at this time aside from Toronto? Please do not write New York, Philadelphia, St.Louis, Chicago, Dallas, Detroit, Los Angeles because all those teams are reportedly losing revenue and many of these teams lose tens of millions. Their owners are rich and could care less but this created the current player market and led the sport to where it is now.

A hard cap for these teams will be very interesting and some of these teams that do not sellout among this group will lose even more revenue when the name players have to leave and the teams are not as competitive or laden with name players as they once were as the days of them rumored to add stars comes to and end. Will the money saved on cutting payroll translate in the stands without a veteran name player team or will they take big hit from fans already angry at a lockout.

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09-12-2004, 09:37 AM
  #7
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Quote:
Originally Posted by Tom_Benjamin
Unless there is a team with $6 million in cap room. Or $8 million.
That's why I said, "which happens to be as good a deal as he'd get anywhere else."


Quote:
Originally Posted by Tom_Benjamin
Crap. If all the Edmonton revenues goes to salaries, they sure don't generate much in the way of revenues because their payroll is only $30 odd million. On the other hand, if they do generate a good amount of revenue, they are making money because their payroll is so low.
Well, they sell out pretty much every game, so what are they doing wrong? Yeah, I know, the dollar, but what else?

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09-12-2004, 10:05 AM
  #8
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Originally Posted by Seachd
That's why I said, "which happens to be as good a deal as he'd get anywhere else."
Thats a pretty big if. If star player's salry comes down to $5 million, its pretty conceivable one of the other 29 teams will have $6 million in cap space.

To answer the question, a hard cap will decrease revenue. The NHL has to rely on ticket sales. If there's 30 average teams, ticket sales will decrease. Detroit usually draws aboput 3,000 fans in Phoenix. How many of those fans go to see Detroit if they're an average team? I can see it now: "Dad, we have to go see Calgary! They're a game over .500!!". Please.

Secondly, if there's a cap, fans will demand decreased ticket prices. If Phoenix draws an average of 14,000 now with a $50 average ticket, thats $700,000 per game, $28.7 million for a season. If they draw 16,000 under a cap with a $40 average ticket, thats $640,000 per game, $26.2 million for the season, a difference of $2.5 million. If that happens across the league, revenues go down by $75 million. I think it would actually be alot more than that, because the high revenue teams are generally selling out now, and their tickets would have to go down alot. Detroit for instance nets about $1 million per home game. If their tickets went down by an average of $10, it would be $200,000 per game, $8,200,000 for the year. If that happened league wide, revenues would decrase by $246 million. Obciously, these figures are estimates. I don't know Phoenix's average ticket price, but I think a $10 average reduction across the league is pretty conservative.

Thirdly, there are only a couple teams that draw any kind of national Tv rating. Again, they would not draw that rating if they were an average team. A national TV deal under a cap will be worse than it is now.

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09-12-2004, 10:35 AM
  #9
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Quote:
Originally Posted by hockeytown9321
To answer the question, a hard cap will decrease revenue. The NHL has to rely on ticket sales. If there's 30 average teams, ticket sales will decrease. Detroit usually draws aboput 3,000 fans in Phoenix. How many of those fans go to see Detroit if they're an average team? I can see it now: "Dad, we have to go see Calgary! They're a game over .500!!". Please.
Where's this "average team" stuff coming from? Lowering a player's salary doesn't automatically make him a worse player.

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09-12-2004, 10:55 AM
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Quote:
Originally Posted by NYIsles1
Who are the have's in this business at this time aside from Toronto? Please do not write New York, Philadelphia, St.Louis, Chicago, Dallas, Detroit, Los Angeles because all those teams are reportedly losing revenue and many of these teams lose tens of millions
Link?

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09-12-2004, 11:05 AM
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Originally Posted by Seachd
Well, they sell out pretty much every game, so what are they doing wrong? Yeah, I know, the dollar, but what else?
I guess the answer would be that ticket prices are too low?


Last edited by speeds: 09-12-2004 at 11:08 AM.
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09-12-2004, 11:08 AM
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Originally Posted by Seachd
Where's this "average team" stuff coming from? Lowering a player's salary doesn't automatically make him a worse player.
the average team stuff comes about because in a hard cap world a great team can't keep all its great players due to the cap, so they lose some of them to the free agent market and some other team (probably a bad team with cap room) will sign that player as a UFA, Creating parity through the league

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09-12-2004, 11:14 AM
  #13
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Originally Posted by Goulet17
I challenge anyone to present a logical argument as to how a small market team like say Nashville will be able to generate more revenues under a hard cap system. It caps expenses, but how does it increase revenue?
Hard cap = Lower player Salaries

Payroll of X purchases better players post Cap than Pre cap, meaning that smaller market teams will be able to field a better team.

Better team means:

a) More hope which results in higher season ticket sales
b) More wins which results in more in season ticket sales
c) Higher TV ratings which results in more money from local Tv deals.

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09-12-2004, 11:15 AM
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Originally Posted by speeds
the average team stuff comes about because in a hard cap world a great team can't keep all its great players due to the cap, so they lose some of them to the free agent market and some other team (probably a bad team with cap room) will sign that player as a UFA, Creating parity through the league
That parity means that any team can win the championship in any given year. That in itself is GOOD for attracting fans.

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09-12-2004, 11:31 AM
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Quote:
Originally Posted by Stich
That parity means that any team can win the championship in any given year.
And that's a good thing? This form of parity cheapens the ability to draft well and build a team. Spreading the talant out over the league so every team has a chance should not be the goal of the CBA. The goal should be to build a team and then keep them together over a long period of seasons.

I can understand the complaint from small market/canadian teams that they can't keep their teams together and I can agree that the NHL should look into a method to fix this problem. Teams should be able to build themselves up from drafts and smart player acquisitions.

But a low hard salary cap does not achieve this. What a cap does is ensure that no one can keep their teams together. It cheapens the ability to draft well and it cheapens the ability to manage assets well. It just makes the world easier for teams with piss poor management. So while there might end up being more parity in the league, it will not be a parity of several very good teams. It will be a collection of mediocre teams playing mediocre hockey.

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09-12-2004, 11:41 AM
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Quote:
Originally Posted by speeds
the average team stuff comes about because in a hard cap world a great team can't keep all its great players due to the cap, so they lose some of them to the free agent market and some other team (probably a bad team with cap room) will sign that player as a UFA, Creating parity through the league
But that doesn't mean all teams will be the same. If so, the whole concept of scouting, for example, will fly out the window. I don't see that happening.

I'm not even completely confident that a cap will increase parity. Lower salaries and earlier free agency could lead to players choosing where they want to go, since they're making the same money anyway. This could lead to just as many stacked teams, but it would be on the part of the players, not the management.

To me, that's not even the point. Right now, I don't care if my team is good, bad, or mediocre. I just want my team to be in the NHL, which won't be the case if changes aren't made.

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09-12-2004, 11:47 AM
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Originally Posted by speeds
I guess the answer would be that ticket prices are too low.
"Our gross revenues have exceeded $80 million. Now, if we cannot run a hockey team of 23 players, there's something drastically wrong here."
(Edmonton Oilers chairman Cal Nichols, Toronto Sun, October 12, 2003)


http://nhlcbanews.com/reaction/ownerquotes.html


I think the ticket prices in Edmonton probably are too low, and the Oilers business plan through their next ten year lease in Rexall Place seems to be to increase sponsorships and corporate support . At the same time, the Oilers have a huge season-ticket base of non-corporate fans, some who have been with them since the WHA days, and the team isn't going to jack up prices on these people who kept the team alive through the lean times.



Frankly, I don't see a new CBA as a "magic elixer" either. Not only will it do nothing for revenues, it will not create any new hockey talent. One of the Edmonton writers said that even if the NHL gets every thing it is asking from the players under a new CBA the Oiler lineup would be pretty much unchanged from the team that finished in ninth place and missed the playoffs for the second time in the past three years.

It's a 30 team NHL, and star players are a scarce resource - there just are not enough to go around. Stanley Cup winners are scarce - only one a year.

Money is a scarce resource, too, but $ 2 billion in total revenues is still a pretty good pile of money. I can't side with the owners or the players, because there should be a way to distribute these kinds of dollars so that the teams can be financially secure and the players rich for the rest of their lives. Shame on every last one of them if they can't all feast on the $2 billion dollars that all of us fans give them eagerly every year. Trevor Linden says the players have given and given and can't give any more, and the owners have hired the former Chairman of the SEC to report that the NHL loses $ 300 million a year. I shrug my shoulders at both and say, "So what?"

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09-12-2004, 12:05 PM
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Originally Posted by GabbyDugan
Frankly, I don't see a new CBA as a "magic elixer" either. Not only will it do nothing for revenues, it will not create any new hockey talent. One of the Edmonton writers said that even if the NHL gets every thing it is asking from the players under a new CBA the Oiler lineup would be pretty much unchanged from the team that finished in ninth place and missed the playoffs for the second time in the past three years.

It's a 30 team NHL, and star players are a scarce resource - there just are not enough to go around. Stanley Cup winners are scarce - only one a year.
Of course. It doesn't mean small market teams that are bad now will instantly become elite. It takes time, and it all goes in circles anyway. Ask the Rangers.

Does the Edmonton writer realize that the Oiler lineup is pretty small potatoes if there's no team?

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09-12-2004, 01:14 PM
  #19
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Originally Posted by Seachd
Of course. It doesn't mean small market teams that are bad now will instantly become elite. It takes time, and it all goes in circles anyway. Ask the Rangers.

Does the Edmonton writer realize that the Oiler lineup is pretty small potatoes if there's no team?
The Edmonton Oilers ARE pretty small potatoes in an NHL where teams can generate up to $ 113 million in gross revenues.

http://www.andrewsstarspage.com/8-1-04cba.htm

Frankly, I think Edmonton's revenues were understated by Forbes even then.

I think it is some of the smaller US-based teams that need relief through a revised CBA, luxury tax, salary, cap, revenue sharing, or divine intervention much more than the Edmonton Oilers.

Cal Nichols himself admitted to revenues "in excess of" $ 80 million a year ago. At the current rate of exchange of .7769 cents, the Oilers could be generating the equivalent of more than $ 62 million US. With a payroll in the ballpark of $ 35 million, I would think the Oilers were destined to make money in 2004-05 if the old CBA had lasted one more season.

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09-12-2004, 02:12 PM
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Quote:
Originally Posted by hockeytown9321
To answer the question, a hard cap will decrease revenue. The NHL has to rely on ticket sales. If there's 30 average teams, ticket sales will decrease. Detroit usually draws aboput 3,000 fans in Phoenix. How many of those fans go to see Detroit if they're an average team? I can see it now: "Dad, we have to go see Calgary! They're a game over .500!!". Please.
I don't think a hard cap (which is not an idea I like) would automatically create a league of 30 average team. It just makes the financial side of things an equal playing field.

Quote:
Originally Posted by hockeytown9321
Secondly, if there's a cap, fans will demand decreased ticket prices. If Phoenix draws an average of 14,000 now with a $50 average ticket, thats $700,000 per game, $28.7 million for a season. If they draw 16,000 under a cap with a $40 average ticket, thats $640,000 per game, $26.2 million for the season, a difference of $2.5 million. If that happens across the league, revenues go down by $75 million.
Which is why, obviously, this will not happen across the league. Frankly, rarely do you see customers banding together to "demand" decreased prices anyway. It's all about demand.

EVERY competent company in EVERY field out there does just what the NHL is trying to do: lower costs, maximize profits, make money. Day after day, the companies that serve you and me find ways to lower costs. And nobody gives a damn about it. Very few people band together to ask for the increased profit margin to be passed on to them.

People (and companies/corporations) will either be interested in buying hockey tickets or they will not. If they are not, individual teams adjust by changing marketing or doing promotions or adjusting prices. If the tickets always fly, then one day the team might even raise the price.

Ticket prices really won't be affected much by a decrease in salary structure across the league, as unfortunate as I think this may be. It may give the ability to teams to try new things to bring new people, thanks to a looser budget and ultimately bring more people and ultimately lower ticket prices. I don't know. Depends on each team's marketing and long term strategies. But that is highly theoretical.

The LOCKOUT (not the decreased salaries) may affect the NHL as far as attendances are concerned. Again, that's not unusual and sometimes it's worth it for long term gains elsewhere. We'll see if the NHL thinks it is worth it and for how long.

In short (generally): there will probably be reduced ticket prices only if it means same profits or increased profits. New cost cutting measures only give a business a greater margin to play with and try new things to prosper and grow.

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09-12-2004, 03:58 PM
  #21
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Originally Posted by Vlad The Impaler
I don't think a hard cap (which is not an idea I like) would automatically create a league of 30 average team. It just makes the financial side of things an equal playing field.



Which is why, obviously, this will not happen across the league. Frankly, rarely do you see customers banding together to "demand" decreased prices anyway. It's all about demand.

EVERY competent company in EVERY field out there does just what the NHL is trying to do: lower costs, maximize profits, make money. Day after day, the companies that serve you and me find ways to lower costs. And nobody gives a damn about it. Very few people band together to ask for the increased profit margin to be passed on to them.

People (and companies/corporations) will either be interested in buying hockey tickets or they will not. If they are not, individual teams adjust by changing marketing or doing promotions or adjusting prices. If the tickets always fly, then one day the team might even raise the price.

Ticket prices really won't be affected much by a decrease in salary structure across the league, as unfortunate as I think this may be. It may give the ability to teams to try new things to bring new people, thanks to a looser budget and ultimately bring more people and ultimately lower ticket prices. I don't know. Depends on each team's marketing and long term strategies. But that is highly theoretical.

The LOCKOUT (not the decreased salaries) may affect the NHL as far as attendances are concerned. Again, that's not unusual and sometimes it's worth it for long term gains elsewhere. We'll see if the NHL thinks it is worth it and for how long.

In short (generally): there will probably be reduced ticket prices only if it means same profits or increased profits. New cost cutting measures only give a business a greater margin to play with and try new things to prosper and grow.
So if salaries go down in some markets by 50% or more, fans aren't going to question why they're paying the same ticket prices? I sure would.

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09-12-2004, 04:17 PM
  #22
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Quote:
Originally Posted by hockeytown9321
So if salaries go down in some markets by 50% or more, fans aren't going to question why they're paying the same ticket prices? I sure would.
If salaries decreaseed by 50%, you can bet tickets would go down as part of a strategy.

But to answer your question: yes, some fans are going to question why they are paying the same ticket price.

The real question, though, is: what are they going to do about it?

In our economy, it's about the perception the customer has of a product and how much he's willing to pay for it. The rest is pertinent but really inconsequential.

You think all products that sold for $20 USD have an equal production cost? Not at all. But they're perceived as $20 USD products and sold as. If people don't like the price or find a better product, they buy it.

But they don't go around analyzing every $20 product and asking for adjustments because this product only costs $2 to produce and that product costs $6.

Companies adjust to offer and demands and long term gain strategies. Stuff like that. They don't bend over because regular Joe thinks he's getting screwed. And regular Joes rarely band together successfully unless there is some kind of breakthrough.

For instance, file sharing was the breakthrough for CD prices. Nobody was EVER going to stop listening to music if he loves music. So they had to continue and buy CDs at outrageous prices. With file sharing, prices of CDs have mysteriously gone down.

Unfortunately, in hockey, there is no shortcut to attending a game except those already in places (like waiting for corporate tickets or crap like that). So I don't know what regular Joes would do *differently* next year if salaries decreased.

They might choose not to attend but I doubt there would be a mass mouvement toward that. It just doesn't appen historically in any type of market. An increase in profit margin by a company has rarely had a negative sale impact.

As I said, it happens everyday. I bet right now you have dozens of products in your house that have been bought at the same price but with VERY different profit margin and production costs.

Have you complained about that? What are you doing about it?

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09-12-2004, 04:24 PM
  #23
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Originally Posted by Vlad The Impaler
If salaries decreaseed by 50%, you can bet tickets would go down as part of a strategy.

But to answer your question: yes, some fans are going to question why they are paying the same ticket price.

The real question, though, is: what are they going to do about it?

In our economy, it's about the perception the customer has of a product and how much he's willing to pay for it. The rest is pertinent but really inconsequential.

You think all products that sold for $20 USD have an equal production cost? Not at all. But they're perceived as $20 USD products and sold as. If people don't like the price or find a better product, they buy it.

But they don't go around analyzing every $20 product and asking for adjustments because this product only costs $2 to produce and that product costs $6.

Companies adjust to offer and demands and long term gain strategies. Stuff like that. They don't bend over because regular Joe thinks he's getting screwed. And regular Joes rarely band together successfully unless there is some kind of breakthrough.

For instance, file sharing was the breakthrough for CD prices. Nobody was EVER going to stop listening to music if he loves music. So they had to continue and buy CDs at outrageous prices. With file sharing, prices of CDs have mysteriously gone down.

Unfortunately, in hockey, there is no shortcut to attending a game except those already in places (like waiting for corporate tickets or crap like that). So I don't know what regular Joes would do *differently* next year if salaries decreased.

They might choose not to attend but I doubt there would be a mass mouvement toward that. It just doesn't appen historically in any type of market. An increase in profit margin by a company has rarely had a negative sale impact.

As I said, it happens everyday. I bet right now you have dozens of products in your house that have been bought at the same price but with VERY different profit margin and production costs.

Have you complained about that? What are you doing about it?

OK, but people stayed away from baseball for a long time after their last strike. Paying $20 is different for different people and different depending on what they're buying. I have a good feeling most people in Carolina don't feel hockey is a necessary expenditure.

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09-12-2004, 04:53 PM
  #24
Vlad The Impaler
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Originally Posted by hockeytown9321
OK, but people stayed away from baseball for a long time after their last strike.
True, and that's part of the effect of strikes/lockouts. There's no doubt such a thing may happen in hockey but that has little to do with the new margin of profits or the new costs in salaries.

It's really just the general loss of interest after too little activity.

Certainly, the break has to be faactored while they are fighting over this.

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09-12-2004, 05:00 PM
  #25
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Originally Posted by Vlad The Impaler
True, and that's part of the effect of strikes/lockouts. There's no doubt such a thing may happen in hockey but that has little to do with the new margin of profits or the new costs in salaries.

It's really just the general loss of interest after too little activity.

Certainly, the break has to be faactored while they are fighting over this.
And baseball is supposed to be America's pastime. 80% of the country couldn't care less about hockey. The casual fans are the ones who won't be back after a long lock out. The league will always have Canada and places like Detroit, Boston and New York. Maybe LA, just because there are so many people to draw from. Colorado, if they remain competitive. Other than that, I really do fear what its going to look like. It could get down to WNBA level attendance in some places, and the WNBA already beats hockey in TV ratings.

And one of the ways to get some of those fans back is through lower ticket prices.

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