When will the thinking begin? – From The Rink

December 9th, 2008 by chuq

When will the thinking begin? – From The Rink

When will the thinking begin? – From The Rink:

I have a hard time believing the NBA and NFL are going to have to cut back considerably and the NHL will escape unscathed, but at this point, that’s where we’re at in the commissioner’s eyes.

I don’t for a minute think it’s fair to interpret what they’re saying they’ll escape unscathed. Bill Daly today noted the league’s put in a hiring freeze, and in fact, Bettman said this:

“The sense is that we are doing OK this season, but there is a great deal of uncertainty about the future, particularly next season.”

“Probably a good indication for us will be how playoff ticket sales go. But while there is concern, there is also hopeful optimism.”

In reality, the business cycles for these leagues are all different phases and the leagues aren’t easily compared. In hockey, most of the revenue for the league is in for the year — the next time significant revenues come in will be in the playoffs, and Bettman clearly sees that as a bellwether for things moving forward, but right now, they know roughly what the revenue situation is going to be. They have, in fact, telegraphed their thoughts by indicating they think the cap will be roughly flat this season and they’re more or less guaranteeing it goes down the season after that.

So there’s no pretending going on in the league that they’re going to avoid this. What the reality is, though, is that the major pain won’t come until later, going into next season. There’s no reason to lay off now — and I expect they hope they’ll be able to limit future layoffs through the hiring freeze and the attrition that can be expected between the end of this season and next. But if there are layoffs, and there probably will be, expect them to happen off-season.

What happens if revenues go down next year while the cap stays flat? Less than you might think; remember one aspect of the CBA is the escrow account. In past years, the escrow money’s been sent on to players. If the revenues decline, then some (or all) of that escrow money will be held back by the owners — this scenario being the reason the escrow account was put into the CBA in the first place.

So things may potentially be ugly, but the league’s got things in place to adapt to it, at least to some degree. Players could potentialy find themselves with 10-12% pay cuts if the entire escrow account is returned to the owners next season, even if the cap stays flat. And it’ll be interesting to see how much of the escrow goes to players this season; I wouldn’t expect a 100% payout.

So the thinking has been going on for a while. What the league isn’t doing is panicing; revenues seem sustainable now and they can use other methods than layoffs to handle reduced revenue issues when they finally hit — which they probably won’t for another six months or so. And the CBA was designed to help here, and my guess is, it will.

The NHL’s rapid revnue growth the last few years also helps, because it makes the downturn somewhat easier to handle; most companies don’t hire as quickly as they grow, which reduces the need to layoff when things turn.

So to me, this is more about some journalists crying wolf than the league whistling in the graveyard. What I’m seeing is a league being very aware and proactive, and getting yelled at for things not being as negative as people seem to expect them to be.

Life could be a lot worse. A few days back, James Mirtle posted attendance numbers for the NHL, showing them down about 1%. Even given some teams like the Panthers pushing free and discounted tickets like crazy, paid attendance is likely down no more than 2-3%. Taht’s not all that bad, and from the numbers, only four teams are playing below 80% full (Atlanta, carolina, tampa, columbus), and four more below 85% (Phoenix, NY Island, New Jersey, LA). Eight teams below 85% full may seem bad, but that leaves 22 teams playing above 85% full, and frankly, when you look at the teams suffering attendance, they are also teams suffering from bad play, except for New Jersey, which is having problems filling its new building, but always seems to have fought attendance issues.

To some degree this just reinforces that winning hockey sells tickets, good markets or bad. And losing hockey just encourages fans to sit on the sideline; the bad economy just amplifies those changes.

Some fuss has been made of the cities with significant attendance drops: Tampa and Atlanta around 12% down, Carolina around 11%, Nashville, Los Angeles, Buffalo down 7% or so. Not minimizing that, but do you blame fans in Tampa and Atlanta for staying away after the off-season owner-fun (in Tampa) and the horribly disappointing season last year after finally making the playoffs and convincing fans maybe things were getting better? Or in columbus, still without a playoff series? Bad teams SHOULD suffer in attendance, or what motivation do they have to get better? (snide side glance at the Toronto fans injected here). Lost in the noise of all this are teams like Washington and Chicago, where reinvented ownership (with the hawks) and a really good, up and coming team (in washington) have gotten people excited again, with 25% and 15% increases. So it balances out; teams getting better get fans on board, teams getting worse lose them. It’s easy to focus just on the bad news, but the reality is, it’s not all bad out there.

Compare that to, say, the NBA. 30 team league, and currently, four teams are playing at 70% or below capacity, and a total of 13 teams are playing at 85% or below capacity. No wonder they’re laying off, but where the NHL has been growing since the end of the lockout, the NBA’s been struggling, and it’s showing this year. Last year, they only had 2 teams under 70% and six teams at 85% or below. Compared to those numbers, the NHL is staggeringly successful this season being down only 1-3%.

Or consider Nascar, which only a couple of years ago was being seen as one of those sports taking the NHL out behind the shed and giving it a wedgie (not without some justification, either); the current feeling seems to be that if the automaker bailout doesn’t happen, NASCAR won’t be laying off, it could well simply cease to exist.

Then there’s the KHL, which in the preseason some were thinking was going to hurt the NHL; now, a few months later, teams are missing payrolls (or barely making them) and there seems a good chance the league won’t make it to season two. How things change.

In the ECHL, we’ve seen the first franchise failure.

And over in europe, one of the major soccer leagues has come out and said it needs — well, basically, a salary cap and escrow system just like the NHL built, or it’s likely in deep trouble.

Oh, and it looks like Arena football is going to fold, period. Can’t get financing.

We tend to over-focus on the issues around the league, and some media types seem to get off predicting the worse (and we, as fans, don’t hold their feet to the fire when they prove, time and again, to be woefully inaccurate…). But when you look around the pro sports industry globally — honestly? The NHL is in for some rough times, and some of those times are going to be painful — but in the larger context of other leagues, it seems like it’s done what it can to minimize the pain, before it had to do so in panic mode. So now that those bad times are here, surprise, the league isn’t panicing. And some folks seem to see that as a bad thing…