The Stanley Cup finals have just concluded, which makes it the right time to take stock of where Canada fits within today's National Hockey League business model. Even though yet again there were no Canadian-based teams in the finals, Canada's franchises and fans continue to have a prominent impact on professional hockey.
First things first: Canada continues to supply the largest national share of NHL players, coaching and management talent. The Canadian share of NHL players finally dipped just below 50 per cent in 2016, but that is still four times the second-largest group, players from the U.S.
Next, in a league that has not always prided itself on solid owners or markets, Canadian NHL franchises are among the most stable financially.
NHL franchises are privately owned businesses, so their financial results are not publicly available, but Forbes does an annual estimation of NHL franchise values, revenues and net income. In the most recent Forbes assessment, Montreal is second in estimated franchise value at $1.12-billion (U.S.), with Toronto in third ($1.1-billion) and Vancouver seventh ($700-million). Edmonton and Calgary are in the middle of the pack, and Ottawa ($355-million) and Winnipeg ($340-million) rated 20th and 21st in franchise value.
Much was made of a couple of non-sellouts for Ottawa Senators playoff games. To some extent, it is a league-wide issue: Anaheim also failed to sell out playoff games, and even Pittsburgh had seats available the day of their seventh game against Ottawa. More than other major North American leagues, local market conditions matter for the NHL.
As Mario Lefebvre and I wrote in on our 2014 book Power Play: the Business Economics of Pro Sports, the success of pro sports franchises is determined first by objective factors: market size, incomes, the presence of head offices that buy corporate boxes and advertising, and variables like the exchange rate and taxes. These factors vary considerably among Canadian hockey markets – Toronto is five times larger than Ottawa – but all existing Canadian markets are large and affluent enough to sustain an NHL team.
In a relatively new departure, many Canadian NHL franchise owners are engaging in actual or potential property development as a complement to core team operations. Franchises have anchored themselves in modern downtown sports facilities (Edmonton and Winnipeg) or propose to do so (Ottawa and Calgary). This approach should improve franchise values and financial sustainability, and provide a cornerstone for further property development. It should also give Canadian teams greater financial capacity to compete on a level playing field with the richest U.S.-based teams.
Moreover, the passion (and demand) for hockey burns bright in all Canadian NHL markets. And we should not forget the $5.2-billion Canadian TV contract that Rogers holds until 2026 – a nice added revenue bonus for the league.
But the Canadian market for NHL franchises also has limits. The loonie's fall to around 75 cents raised the Canadian dollar-cost of a new NHL franchise, an important business factor. Based on our previous analysis, the only other Canadian markets that could sustain an NHL team are Québec City, which just spent $400-million in taxpayer dollars on a new building, along with a second franchise in Southern Ontario – Hamilton, Markham, Kitchener-Waterloo-Cambridge or elsewhere in the region.
The NHL's overall business strategy under Commissioner Gary Bettman – notably reinforcing a hard cap on player salaries by team, and steady expansion into Southern U.S. regions and markets – remains firmly in place. Limiting the players' share of league revenues to 50 per cent has no doubt improved the financial results of franchises. Despite weak attendance in some parts of the Sunbelt and several franchises sales, only one Southern team has left the region in the past two decades – Atlanta to Winnipeg in 2011.
Moreover, Las Vegas – arguably the furthest thing from a hockey hotbed – has become the newest NHL franchise, with an owner willing to pay an ambitious expansion fee of $500-million (U.S.). This price becomes a useful new reference point for the value of existing franchises, although market conditions will ultimately determine the actual price paid for any franchise.
Despite a passionate fan base and modern building, Québec City did not gain a franchise when Vegas did. Would a U.S.-based franchise ever consider moving to Quebec City? The many empty seats in places like Florida, Carolina, Arizona and even Brooklyn suggest prima facie that current owners could be open to alternatives. But would the league embrace an existing U.S. franchise moving to become the eighth team in Canada – or even to gain leverage with Canadian cities such as Calgary in discussions around a new arena? The danger for Quebec City is that they will be used as a stalking horse for other franchises, helping to keep the asking price high.
Overall, Canada and its seven franchises remain central to NHL business success. But having been passed over for expansion this time, adding another Canadian franchise to that core won't get any easier.
Glen Hodgson