The NHL has informed the NHLPA that it anticipates the Coronavirus outbreak and subsequent sports shutdown will cost the league’s teams at least “a couple of hundred million dollars” this season. In a worst case scenario (see: cancelation of the season) that figure could reach “one billion dollars.” The league is reportedly working on a plan that would allow for games to resume (sans fans) this summer, but even if the majority of the slate is played many NHL clubs will take a loss on the year.
Team financials may not improve much next year, either. There is almost certainly going to be restrictions on fan attendance until/unless a COVID-19 vaccine emerges and with buildings at less than full capacity there are likely to be holes in budgets around the league for at least the next 12-18 months. NHL teams (with the exception of Las Vegas) are scheduled to receive the balance of a +/- $21.5 million payment next season when the remainder of Seattle’s record $650 million expansion fee is paid. With several other markets interested in playing home to an NHL club (think: Houston, Kansas City, Oklahoma City, Milwaukee and Quebec City) and so much uncertainty surrounding the future of live events, it’s fair to wonder if the league should consider further expansion as a potential solution to cover the anticipated revenue short-fall.
Howie Long-Short: On the surface, the idea of offsetting lost ticketing, concessions and parking revenues with expansion fees makes sense, but a pair of long-time sports executives say that growing the league’s footprint is not the panacea it appears to be. Steve Ryan (the former President NHL Enterprises, Pittsburgh Penguins and Commissioner of Major Indoor Soccer League) said that while “expansion fees can serve as a one-time flash in the pan for the teams,” it’s really not a solution that can help in the short-term. “If you look at the NHL’s track record, there’s been at least a two year ramp up period between the franchise being awarded and the league paying out expansion fees to team owners.” Even if the NHL was to grant a new market a team today, unless the owner was willing to pre-pay a percentage of the expansion fee there’s no way the newfound revenue would hit top lines in ’20-’21.
David Bonderman, Jerry Bruckheimer and Tod Leiweke agreed to pay +30% more for the rights to the Seattle franchise than William Foley paid just 24 months prior in Las Vegas ($500 million). If the NHL could command a comparable increase for the rights to a 33rd market one must believe the existing owners would agree to expand further (they would each net more than $26.5 million on the deal), but former A’s, Grizzlies and 49ers senior executive Andy Dolich doesn’t believe there’s a line of investors waiting to write a check for more than a half billion dollars with the economy on the verge of sliding into a severe recession – at least not one nearly as long as there was just 6 weeks ago.
There’s an argument to be made that franchise relocation – which could also command a sizable fee – makes more sense than expansion. “There are teams (see: Arizona and Ottawa) that both need a new building and struggle with attendance. The NHL would be better off long-term if it eliminated those weak links – particularly if they moved downtrodden teams into larger television markets.” Dolich explained that by “strengthening the overall product, the league would ultimately be able to drive increases in national broadcasting and sponsorship revenues.” It’s worth mentioning that the league’s current media rights agreement with NBC Sports expires following the ’21-’22 season.
The implementation of new technology is one way that NHL clubs could create incremental value and lessen a revenue shortfall over the next year or two, but “there simply aren’t a ton of other viable options with the safety constraints that are likely to be in place.” Ryan says “the impact of social distancing in arenas might suggest the league explore a series of outdoor games whereby restricted attendance translates to average arena attendance.” Of course, outdoor games have much higher expenses. One former team President and General Manager we spoke to didn’t think the concept could work saying that the outdoor showcases are “more of novelty than a revenue generator [for the league].”
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