How About a Depression-Led Realignment?
By pucksandbooks -
January 11, 2009
If you caught last night's "Hot Stove" on HNIC, you heard the words "dispersal draft" associated with the Phoenix Coyotes. Also: the belief articulated by the Ron MacLean-led roundtable that other NHL franchises are also seriously hurting. And why not? American businesses by the thousands are contracting and consolidating and going out of business altogether in these remarkably depressed economic times. Which are expected to last some while. Why should NHL hockey be immune from the forces of global economic correction?When I was in Toronto last month I picked up a copy of the Globe and Mail on Saturday morning and found the first detailed account of the duress in the Arizona desert:
"The Phoenix Coyotes are expected to lose between $25- and $35-million this year, and with his primary business under financial duress, the question is whether owner Jerry Moyes is able to continue underwriting the NHL franchise's losses. After an encouraging spike in paid attendance over the first five games this season, thanks to a young and exciting hockey team, the crowds have decreased as the Coyotes faltered on the ice. But even with the small increase in attendance, the Coyotes are still near the bottom of the NHL in revenue. Consequently, Moyes may be looking to sell the team or he could be forced to put it into bankruptcy if he cannot persuade the city to alter leasing terms on Jobing.com Arena. The Coyotes signed a 30-year lease with the City of Glendale when they moved into the arena in December of 2003. The lease calls for large financial penalties if the agreement is broken, but if the club is placed into bankruptcy, it can break the lease through U.S. bankruptcy laws."
To illustrate the extent of the potential plight the league could be staring at, consider that the NHL's flagship franchise, the Detroit Red Wings, resides in a state that's endured five straight years of economic constriction. 2009 will be its sixth. A big headline this past week was national unemployment figures reaching 7.2 percent, the highest in 16 years. In Michigan unemployment is approaching 9.5 percent. And growing.
It's inconceivable to imagine a Wings-less NHL, but there were scores of empty seats in the Joe during the playoffs last spring. Meanwhile, it's much more plausible to imagine a handful of non-traditional NHL markets -- particularly some in the Southeast -- relocating to greener pastures, and specifically to northern markets that have a track record of supporting hockey while weathering tough economic times.
Our good friend Lyle Richardson has been following the macro-economic story and its potential impact on the NHL. Last month Richardson quoted the Toronto Star's Kevin McGran and his claim that NHL owners were looking to "the game's hotbeds as an economic salve," which front and center includes the specter of struggling U.S. clubs moving way north, over the border.
"Hockey is the most vulnerable and that's primarily because of the lack of a TV contract in the United States," said Richard Powers, associate dean of Rotman School of Business at the University of Toronto. "I really do think we're going to see some contraction and/or relocation. And it's very likely we're going to see another franchise in Canada."You can make a compelling argument that there aren't just one or two seriously struggling franchises in the Southeast but indeed three. The third-place Florida Panthers, Richardson points out, "have been staging ticket giveaways for some time and this season cut some of their business services." They are also staring at the looming unrestricted free agency for their best player, Jay Boumeester, after dumping their best forward and captain, Olli Jokinen, last season. Tampa's attendance, Richardson notes, "is currently in free fall." On HNIC last night the Hot Stovers were prattling about 'Bolts' ownership trying to move Vinny Lecavalier and his new mega-deal.
With their best players still here, the Southeast's bottom feeders can't seem to make much of a go at it. What will the gates for those teams look like if their rosters get star-gutted?
And we aren't talking moderate belt-tightening with the present economic recession. This one is global in scope and therefore, many economists believe, far longer in duration. At the heart of the American economic misery is credit malfeasance, and specifically with home lending. Guess which state ranks among the hardest hit? Try one with two clubs in the NHL's Southeast division: "Florida has consistently been among the Top 5 states with the highest foreclosure rates ever since the sub prime mortgage mess exploded."
The story in last month's Toronto Star sagely noted the revenue reality confronting the NHL:
"The NHL is much more dependent on gate revenue than TV revenue," said Phillip Miller, an associate professor of economics at Minnesota State University. "That makes it more susceptible to the ups and downs of the economy . . ."
"The Florida Panthers have laid off staff, the Tampa Bay Lightning are said to be a financial basket case, the Phoenix Coyotes are believed to be hanging on by a thread.
"I don't see how you can build long-term support for an ice hockey team when you are located in markets where your fan base can't play hockey," said one broker who arranges the sale of sports franchises. "I would say all of the southern teams are somewhat at risk."
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