On October 13, 2008 Gary Bettman stated the NHL is still in growth mode despite the global economic downturn. While the rest of the world has been rightfully nervous about the months ahead, Bettman seemed pretty confident. If his statement seemed odd to you, you were not alone. Bettman came off as either naïve to expect that his league will not be affected by the harsh economic realities or purposely evasive in not giving a true statement of what the NHL was actually expecting from the 2008-2009 season.
While the NBA admitted to likely exposure and cut costs including laying off employees, the NHL did not make similar moves. However, in comparison with other major sports leagues across North America, the NHL might find itself to be in an even worse situation. In Bettman’s October 13th address he claimed season ticket and individual game sales were up. Using the stats from ESPN.com on attendance, it is apparent that attendance is actually slightly down compared to the average of last year. In the NHL’s defense, it is possible that attendance strengthens as the year goes along and the numbers are higher than at this point a year ago. Certainly, it remains to be seen if attendance and sales revenue will close the year higher or lower but unless they increase significantly, the NHL will not make as much money as last year.
According to the Nashville Predators, Canadian hockey teams account for approximately 33% of the league revenues (http://www.predsnews.com/?p=71). Last year, the Canadian dollar was gaining value on the American dollar in thanks to the weakening of the latter currency. The NHL was seemingly happy about this as when the CDN dollar rises relative to the American Dollar, and all figures are reported in American dollars, revenue and profit increase. While the gains came from a depreciating currency in the American dollar rather than true gains from an appreciating Canadian dollar relative to a global basket of currencies, it was largely ignored and used to support the success of the league. The league did in fact improve greatly on sales and revenue but the gains in the Canadian dollar relative to the American dollar exaggerated the true success of the 2007-2008 season.
In the coming months, the NHL faces two major issues that will result in decreased revenues and profit. First, an admittedly weak argument on my part as it is purely speculation, the reality of the current economy will lead to decreased revenues. Corporate sponsorship was likely harder to come by this year with corporations attempting to be more fiscally responsible. Those in long term deals will remain a constant revenue source; however, those whose contracts expired may have been reluctant to provide big dollar deals to NHL teams this year. Also, with the recession facing NHL fans, attendance will possibly dip after years of growth despite Bettman’s stated optimism.
Even if the above argument proves entirely wrong, the NHL will still face economic hardships. While the NHL made profits from the soaring Canadian dollar relative to the American dollar last year, the Canadian dollar has entered into a nosedive thanks to the dependency on commodity prices. Last year for large parts, the Canadian dollar was above par with the American dollar. Today it stands at just over 81 cents to the dollar. With a decrease of over 20% on the Canadian revenues that account for about 33% of the league total, this alone will count for losses of 6-7% of total league revenues depending on the financial maneuvering and strategy the NHL took when the Canadian dollar was near that of the US. According to Patrick Laforge, president of the Edmonton Oilers, Canadian teams tried to hedge against the falling Loonie (the Canadian dollar) earlier in the year but in a few months that protection will be gone.
If in fact the NHL strongly hedged their position on the large Canadian national television deals and revenue from Canadian sponsors and is able to achieve growth while the rest of the economy shrinks, the top brass deserves not only applause and our respect but lengthy and rewarding contract extensions. However, that seems unlikely and GMs should be warned by the financial experts within their organizations to expect league wide revenue to decrease this year. By planning ahead and limiting their commitments expecting the salary cap to drop next year, smart GMs may be in an advantageous position to assume unwanted players and their contracts, receiving draft picks and desired players in return for their help. While Bettman speaks optimistically now, the true revenue figures will emerge when announcements are made on the expected salary cap for the 2009-2010 season.