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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, and NHL revenues.

Small Market Teams, Revenue & The Cap

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Old
12-04-2013, 03:19 PM
  #26
Riptide
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Quote:
Originally Posted by Grudy0 View Post
I think this is being looked at entirely incorrectly...

Meanwhile, every other North American sports league had some form of revenue sharing. And all other North American sports leagues have a better revenue sharing plan than the NHL.
I'll address the rest of you post (and others) later. But I want to address this specific point immediately.

The other leagues do not have a better revenue sharing plan (wealth transfer/distribution or whatever you want to call it).

The NFL has a 4B tv deal that basically covers most of their expenses. Sure they share the gate, but that actually re-distributes very little money overall. And if they didn't have that TV deal as central revenue that is distributed equally, they'd be screwed, because what is shared is peanuts.

The NBA (from what I can tell) has a luxury tax where teams that exceed a soft cap are heavily taxed. Do you honestly think that this would produce ~150-200m in RS that the NHL is redistributing? The benefit to this, is that teams wouldn't be forced to spend as much (in theory) and thus wouldn't need as much. Which would be a good thing... because they're be **** all to give them.

The MLB's model doesn't seem so bad (every team puts 31% into the pot and currently each team receives 1/30th of that pot). Right? I mean they're all sharing 31%?

I grabbed some numbers from Forbes (clearly they're old as they total around 2.63B for teams revenues - but they'll still work). In the old model, the NHL took 150m from the top 10 teams and gave it to the bottom 10 teams. In the new model they take what... 15-300m (depending on how much teams earn)? and give it to the bottom 10 teams - so each team receives what... ~15-30m?

If the NHL switched to the MLBs model using the numbers above, each team would give between 21m and 44m to the RS pot, and each would receive 27.1m. Which means the guys on the bottom? Yeah, they still only get ~5-8m in additional funds. For the 815m that goes into the pot... only 77.7m actually goes from the rich to the poor. Great model.

Now come 15/16? the MLB will change things up, and only the bottom 15 teams actually receive anything. If the NHL tried this (using the same old numbers), the bottom teams would receive between 29 and 35m each. In which case every team on the bottom moves to the top of the league (revenue wise) while the team in 16th is now crying poor.

If the NHL tried splitting the gate (even at 50%), they would need the AVERAGE TICKET PRICE to be in excess of $300 to come anywhere near what's being shared now. If I remember correctly, it's closer to 350, but it's been a while since I got right into the numbers for this.

So basically it's this. I think there's a lot more the NHL can do, and there's more I'd like to see them do. However, what is currently being done (and actually re-distributed) is pretty damn good all things considering, and far and above what other leagues are doing. Despite the big numbers thrown out.

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Last edited by Riptide: 12-04-2013 at 03:24 PM.
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12-04-2013, 03:33 PM
  #27
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Originally Posted by JetsFlyHigh View Post
But Hockey isn't Starbucks, or Mcdonald's that can sprout wherever they can. I myself is a new hockey fan, and new to Canada. I don't believe Canada is that saturated to the point where there is virtually no one to introduce hockey to. There are a number of immigrants and even locals don't follow hockey, and it's not like Canada's population isn't growing. When you grow a business you don't just plop down a franchise and expect things to come, you assess if this location has the demand for your product. The number one thing in business is when you're earning a profit, not because this market has no Yoga equipment stores. Maybe this certain market isn't into Yoga. And franchises like the NHL and North Face can't sell winter stuff to the Caribbean because there's use of those in that place. See, supply and demand, it's not that complicated.
Here's the theory behind this (no/little new fans in Canada). You can put a team in Toronto and/or QC. That team will make money. However, how much money are those people already spending on NHL merchandize, and how much time are they already spending watching hockey (which increases TV deal)? Then add new teams... how much more money and time is getting spent then what would already be spent with the NHL brand?

Now take put a team in Seattle... how much more people will get exposed to the game, and spend money and time that the NHL wouldn't have already been receiving?

Odds are, the NHL would get more new fans from going into a place outside of Canada, then they would going into Canada, where most are already fans.

Basically I think it comes down to what the goals of the NHL are. If they're trying to "grow the game" they put a team in Seattle first (assuming only 1). If they're trying to make money, and have very healthy franchises, they put a team in Toronto or QC. But don't get me wrong... the Canadian in me would love to see a few more teams in Canada.

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12-04-2013, 04:08 PM
  #28
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Quote:
Originally Posted by Riptide View Post
I grabbed some numbers from Forbes (clearly they're old as they total around 2.63B for teams revenues - but they'll still work). In the old model, the NHL took 150m from the top 10 teams and gave it to the bottom 10 teams. In the new model they take what... 15-300m (depending on how much teams earn)? and give it to the bottom 10 teams - so each team receives what... ~15-30m?
The league didn't really take that much from the top 10 teams. Under the prior CBA the target revenue sharing pool was 4.5% of all league revenue. So $3.3B the last full season would have been $148m.

However that $148m isn't all funded by the top 10 teams.

- Up to 25% could come from Centrally Generated League Revenues
- Then up to 33% of the remaining could come from an Escrow overage attributed to top 10 revenue teams. (Net of 25% to 33% total)
- Then 50% of the remaining comes from assessing a % of each playoff teams home ticket sales.
- Then whatever funding obligations remain comes from the Top 10 revenue teams.

So the Top 10 revenue teams could end up contributing between 25% and 50% of the total pool depending on the totals from central revenue and escrow. Using the $148m example from 2011-2012 that would be between $37m and $74m total.


In the new CBA the revenue pool size has been changed to 6.055%. Which on revenues of $3.3B would be $200m.
- 50% comes from the top 10 revenue teams
- Up to 50% from assessing 35% of Playoff ticket revenue
- Any remaining funds from Centrally Generated League Revenues.

So the top 10 team contribution is now fixed at 50%, which would be $100m with the example $3.3B in league-wide HRR.

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12-04-2013, 04:50 PM
  #29
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Quote:
Originally Posted by mouser View Post

However that $148m isn't all funded by the top 10 teams.

- Up to 25% could come from Centrally Generated League Revenues
AIUI, Centrally Generated League Revenues never hit the $300M threshold under the old CBA to be used for revenue sharing.

Quote:
Originally Posted by Old CBA Article 49.5
(a) Funding From Centrally Generated League Revenues. The first source
of funding, if applicable, shall be from centrally generated League revenues. To the
extent central League revenues (e.g., NHL Broadcast revenues, net revenues generated by
NHL Enterprises, etc.) increase to a level of $300 million or more on account of any
League Year, the League shall be entitled to use up to fifty (50) percent of such centrally
generated revenue dollars in excess of $300 million to fund up to twenty-five (25) percent
of the League's Player Compensation Cost Redistribution commitment for that League
Year
(such amounts to be taken equally from each Club's 1/30th share of such revenues).

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12-04-2013, 05:25 PM
  #30
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Quote:
Originally Posted by Riptide View Post
I'll address the rest of you post (and others) later. But I want to address this specific point immediately.

The other leagues do not have a better revenue sharing plan (wealth transfer/distribution or whatever you want to call it).

The NFL has a 4B tv deal that basically covers most of their expenses. Sure they share the gate, but that actually re-distributes very little money overall. And if they didn't have that TV deal as central revenue that is distributed equally, they'd be screwed, because what is shared is peanuts.
Correct. The NFL is the 800-ton gorilla in the room. However, over the past couple of decades, club and luxury seating, which was always exempted from revenue sharing, grew substantially. That's why the Cowboys and Redskins are so high in franchise valuation; they've been able to keep much more locally-generated revenue.
Quote:
Originally Posted by Riptide View Post
I grabbed some numbers from Forbes (clearly they're old as they total around 2.63B for teams revenues - but they'll still work). In the old model, the NHL took 150m from the top 10 teams and gave it to the bottom 10 teams. In the new model they take what... 15-300m (depending on how much teams earn)? and give it to the bottom 10 teams - so each team receives what... ~15-30m?

If the NHL switched to the MLBs model using the numbers above, each team would give between 21m and 44m to the RS pot, and each would receive 27.1m. Which means the guys on the bottom? Yeah, they still only get ~5-8m in additional funds. For the 815m that goes into the pot... only 77.7m actually goes from the rich to the poor. Great model.
I could be wrong about these points, but I don't believe I am:

1) if you are basing this off of the Forbes valuation list, the revenue numbers might be correct. They are based off of last years' revenue, and of course it's the shortened, lockout season

2) I believe the revenues assigned per team are final, including the revenue sharing piece being distributed, i.e., the Leafs' revenue at $142m and the Islanders' revenue
at $61 million is after the revenue sharing has been transferred. That means the Leafs actually earned more and the Islanders less, accordingly.

3) And most importantly, if the $2.6b total revenue is to be believed, you have to back out the League-generated revenue first, then put 31 percent of all locally-derived revenue into the pot. That revenue sharing assigned to the MLB model is only based on locally-derived revenues; they don't count the league-generated revenue towards the revenue sharing agreement

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Old
12-04-2013, 09:04 PM
  #31
Riptide
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Quote:
Originally Posted by Grudy0 View Post
I could be wrong about these points, but I don't believe I am:

1) if you are basing this off of the Forbes valuation list, the revenue numbers might be correct. They are based off of last years' revenue, and of course it's the shortened, lockout season

2) I believe the revenues assigned per team are final, including the revenue sharing piece being distributed, i.e., the Leafs' revenue at $142m and the Islanders' revenue
at $61 million is after the revenue sharing has been transferred. That means the Leafs actually earned more and the Islanders less, accordingly.

3) And most importantly, if the $2.6b total revenue is to be believed, you have to back out the League-generated revenue first, then put 31 percent of all locally-derived revenue into the pot. That revenue sharing assigned to the MLB model is only based on locally-derived revenues; they don't count the league-generated revenue towards the revenue sharing agreement
None of those really matter that much (and the last one just makes the RS fund and # shared even smaller). I pulled the numbers from Forbes. But irregardless, the point I was making, was that whatever numbers are used (and I just needed something that was somewhat realistic - TO making the most, CBJ/Phx near the bottom, etc), the amount re-distributed in the MLB model isn't all that it's cracked up to be. Even if you adjust the numbers by 20 or 30%, the fact still remains that out of a massive revenue sharing pot, very little (less than 10%) is actually re-distributed from the rich to the poor. The NFL model is the same (splitting the gate). So while they (those leagues) brag and the NHLPA *****es that the NHL isn't doing enough, by only sharing 6% (or whatever), the fact is the NHL is almost certainly re-distributing more proportionately than those other leagues.

I focused mainly on the MLB model as I've looked in depth (with numbers) at the splitting the gate model, and found that like the MLB model, it just doesn't work. The amount re-distrusted is always significantly less than what the NHL is currently doing. Even looking more in depth at where the money comes from (thanks Mouser), the NHL is still re-distributing more under this model than if they used that of the MLB or NFL.

I tried to work in what would happen if the teams pooled local TV deals into central revenue, however I just couldn't pull enough data to make it work (there's maybe data for half the teams).

Mouser, regardless of where the money comes from... (the other 50%) a large portion does come from the top teams. Central revenues, escrow, playoff revenue, whatever. It's money that would be going to one team that ends up going to someone else - the brunt of which is felt by the top teams.

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12-04-2013, 09:24 PM
  #32
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^^ How do you know, Riptide, that the NHL is doing as much as the NFL or MLB? Doesn't the NHL keep those numbers close to home. We can only try and scrap subtle clues as to how much revenue sharing there really is.

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12-04-2013, 10:29 PM
  #33
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^^ How do you know, Riptide, that the NHL is doing as much as the NFL or MLB? Doesn't the NHL keep those numbers close to home. We can only try and scrap subtle clues as to how much revenue sharing there really is.
First off... I say re-distributed vs shared as I'm looking at what teams put in, and what they get back... and the "redistributed part" is the difference. Eg, if Nashville puts in 20m, and gets 27m back... really only 7m was re-distributed.

That said...

In the NFL/MLB or the NHL? The NHL is actually pretty explicit in how much is being shared. ~6% (~200m), of which 50% of that comes from the top 10 teams. When I googled it earlier today, they actually had a breakdown in what % each position (1-10 in revenue ranking) would have to give up to the pool.

But even getting away from that, you can run the numbers and see that while the RS pool is huge depending on the model, the amount that's actually "new money" to a poor team is very little. As I pointed out above, that if the NHL pooled 31% of local money it would total around 850m. Now even if my revenue numbers are off by 20%, and the real number is 1.02B, when you look at how little is changing hands in that model (77m of 850m, or 9%), that means that even if the number is 1.02B, that's only ~92m that's changing hands - so we're still not at the 100m mark which is what the NHL is currently taking from the top 10 teams.

But we're close... and I'm just using ballpark math right. So I could be wrong... BUT that's assuming that 31% of local revenues adds up to 1.02B. But that would mean that local revenues for all teams add up to 3.06B, and that the central revenues is only ~240m. Which we know is false, as the TV deals alone account for ~350m (CND and US). Then there's the money from league merchandize sales, league advertising, etc. Which then sinks the idea that this could re-distribute more money then what the NHL is currently doing.

Basically while in theory it looks nice... it just doesn't hold water. The same goes for the NFL model when I looked at that during the CBA talks (I also probably still have the spreadsheet somewhere - maybe). But again... it quickly showed that unless the average NHL ticket price was up over well $300 that the number re-distributed was still less than what the NHL claimed to be doing. So... while I could have been off slightly (again I'm going from memory here), the NHL average ticket price still has to be well above what most would say is realistic for that model to accomplish much of anything. I mean we all know that best case, the NHL average ticket might be what... $150? And in a 50% split, that just doesn't come close.

Edit, Just so you know where I'm coming from. When discussing the CBA, and trying to model a RS system that was better than what was being proposed, at first I was all for splitting the gate. I mean everyone was screaming that the NFL does more because they split the gate, and their RS pool is huge. So I was like yay, solution. Till I did some math on it... then it was painstakingly obvious that splitting the gate alone would never come close to doing much of anything. Now, that model is flawed as I originally depending on the TMR report that we all know is inaccurate and completely wrong... so I started screwing with the data... and as I mentioned above... unless the average ticket price was brutally high, it actually did very little to help teams. Like the MLB pool above, it had a massive number in the pot... but a very little number that was re-distributed.


Last edited by Riptide: 12-04-2013 at 11:56 PM.
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12-05-2013, 11:01 AM
  #34
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Originally Posted by zidell View Post
The NHL isn't keen on more teams in Canada for the simple reason that doesn't create any new hockey fans. See, it's not that complicated. You grow a business by getting new customers. There is no point opening another Starbucks right next to a current Starbucks. Canada is a saturated market. Another NHL team might make money for the team, but it does not help the league overall. Actually, it hurts other Canadian teams the most because they have to split TV revenue into thinner slices.
You're kidding me. Do people actually believe this crap?

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