As NHL Salaries Rise, So Do Owners’ Profits

When the NHL locked out its players in September of 2004, it was purported to be a necessary step to save the sport. As reported by the former chairman of the Securities and Exchange Commission, Arthur Levitt, in the months leading up to the lockout, the NHL was on a “treadmill to obscurity” due to its rapidly rising player salaries. At the NHL All-Star Game in 2004, commissioner Gary Bettman said “I believe we owe it to our fans to have affordable ticket prices. … More than a majority of our teams would use the opportunity of economic stability to lower their ticket prices.”In reality, ticket prices haven’t lowered very much following the lockout, despite the economic stability guaranteed by the new salary cap-powered collective-bargaining agreement. In the season following the lockout, with the owners facing the very real concern that the fans wouldn’t return, ticket prices were reduced by 7.54% (as reported by Team Marketing Report). But in 2006–07, the cost to attend a game either increased or remained flat in 27 of 30 NHL cities. A similar upward trajectory is expected for the 2007–08 season.During the lockout and the decade that preceded it, former NHLPA head Bob Goodenow was typically characterized as a money-hungry vulture who did irreparable damage to the game. Many have speculated that the lockout’s surreptitious purpose was to remove Goodenow from power.Given all that, it’s more than a little ironic that the new CBA effectively eliminates the need for an advocate on the players’ side, at least where their compensation is concerned. In fact, the owners have inadvertently cast themselves as the players’ staunchest advocates where salary hikes are concerned.By fixing player values as a percentage of overall league revenues in a gate-driven league, it leaves only one way for the owners to raise profits: to increase ticket prices. If revenues remain flat, profits will shrink, because the other fixed costs will rise due to inflation. And of course, raising ticket prices will ensure not only that player salaries continue to rise, but that owner profits will as well. Furthermore, by inextricably linking ticket prices to salaries, the owners have all but guaranteed that the players will be the villains in all future labor negotiations.Fans of the Buffalo Sabres — the NHL’s prototypical small-market team — are outraged at forward Thomas Vanek’s new contract and with good reason. Vanek was the best restricted free agent forward in the marketplace at a time when the Edmonton Oilers were desperate to land a quality forward, and by inking him to a seven-year, $50 million offer sheet, Oilers GM Kevin Lowe did serious damage to the Sabres’ payroll balance while effectively increasing the price of third-year forwards across the board. Having lost both Chris Drury and Daniel Briere via free agency, the Sabres were left with little choice but to match the offer and retain Vanek. And as a result, talented forwards who have completed only two NHL seasons can point to Vanek as a “comparable” player.From the fans’ perspective, the Vanek deal would appear to have made a rise in ticket prices a necessity. But in reality, while the onerous contract can justify and explain their inevitable rise, the Sabres owner actually wants ticket prices to go up. Indeed, Buffalo owner Tom Golisano’s only concern is whether there will be a resulting decrease in ticket sales that offsets the benefit of the desired price hike. Vanek’s salary may perhaps provide an excuse, but increasing profits would be the only real reason behind the maneuver.Goodenow’s long gone and the NHLPA is in shambles, yet the owners are still acting as though he has a gun to their heads, getting them to pony up with huge dollars to sign the likes of Vanek. When in reality, every dollar more that Vanek gets effectively means nearly another dollar in profit for the owner who’s paying him. And while the players may serve as excellent scapegoats when ticket prices rise, the system works to perfection where the owners are concerned, at least for those at the top of the food chain.The NHL’s lack of real revenue sharing actually affords largemarket teams more economic stability than those operating in smaller markets, making the real purpose of the lockout even more dubious. The well-heeled Rangers will likely see their profits rise, this despite the costly additions of Drury and former Devil Scott Gomez. Meanwhile, ticket prices in Buffalo have historically been far lower than in New York, but Jeremy Jacobs (the new chairman of the NHL’s Board of Governors and the owner of the Boston Bruins) thinks that needs to change.“We’re still driven very much by our ticket revenue,” Jacobs told the Buffalo News earlier this week. “The attendance in Buffalo is strong. Buffalo has had a very low ticket price for a number of years. As long as the interest is strong as it is, it may be painful, but people may have to pay more for tickets… On a comparative basis, when you’re paying comparative salaries, you need comparative income.”Of course, it’s worth pointing out that Jacobs’s recommended strategy isn’t working particularly well in Boston, where the area’s priced-out blue-collar hockey fans have been replaced by scores of empty seats. But we should still expect to see prices rise across the league, and more and more empty seats where those prices aren’t sustainable, while the gap between the league’s haves and have-nots continues to grow. And although this doesn’t bode well for the league’s small-market teams in the short term, it makes it more likely than ever that teams in the most critical markets will enjoy more consistent success.During the week they aired the Stanley Cup Finals, NBC suffered through its worst ratings week since Nielsen’s introduction of “people meters” set-top devices during the 1987-88 season. But if the Rangers enjoy the expected on-ice resurgence, taking advantage of the edge provided them by the CBA to emerge as perennial Cup contenders, then the NHL’s (and NBC’s) prayers will be answered. For nothing would be so quick-acting a panacea for the NHL’s television ratings woes as an appearance by the star-studded Rangers on theleague’s grandest stage.Of course, in what is perhaps the greatest ironic twist of all, the resulting windfall of national revenues the league would enjoy as a result of the Rangers’ success would be shared among all 30 teams equally, thus reducing the Blueshirts’ considerable edge over their small-market rivals. It’s certainly difficult to imagine the Sabres’ fans rooting for the Rangers to succeed, but in the grand scheme, that’s exactly what they should be doing.Mr. Greenstein is the editor in chief of InsideHockey.com.

As NHL Salaries Rise, So Do Owners’ Profits

As NHL Salaries Rise, So Do Owners’ Profits

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