THE ECONOMICS OF SPORT AND THE NHL LOCK-OUT

1 THE ECONOMICS OF SPORT AND THE NHL LOCK-OUT Chapter 11 Marc Lavoie … and a weak and desperate Goodenow was compelled to make major concessions in the new CBA in order to salvage what was left … Bettman took his pants Gil Stein, NHL president 1992-1993, Power Plays: An Inside Look at the Big Business of the National Hockey League (1997, p 115) While both sides lost heavily from the lockout, however, the owners clearly won the overall war Paul D Staudohar, Playing for Dollars: Labor Relations and the Sports Business (1996, p 152) The owners were worried that the players’ share of league revenues had reached 61 percent… It looks like owners won this round Rodney Fort, Sports Economics (2003, p 294) Photographs: We need a photograph with Gary Bettman and Goodenow shaking hands or looking at each other That would be the first page picture We could also a nice picture with one of the newer Canadian arena in NHL hockey, the Air Canada center, or the ones in Montreal or Ottawa, where the name sign would be in the limelight That picture could appear where indicated in the manuscript The economics of sport is a rather wide field It spreads across analyses of the demand for sport, cost-benefit analyses of sporting events and sporting venues, the local public finance implications of these same events and venues, sporting governance (meaning labor-management relations, organizational models of team or individual sports events as well as professional leagues), the business and finance of professional leagues, wage determination, labour market discrimination, trade in the sporting goods industry, media coverage, sponsoring, endorsements, and numerous related issues such as the economics of performance inhencing drugs Broadly speaking these themes have developped from two traditions in sports economics, a Continental European one and a North American one, although there is now a trend for both traditions to merge North Americans and their colleagues from Britain and Australia have applied the standard tools of supply and demand analysis to model the behaviour of the various participants to the world of sport They have focused most of their attention to professional sport, more specifically men’s team sports, using advanced statistical methods such as regression analysis On the other hand Continental European sports economics is more of the Institutionalist sort, relying more on descriptive statistics, with tables of numbers and the computation of various ratios, while sometimes applying economic theories alternative to the standard supply and demand analysis Continental Europeans are also concerned with professional teams, but they devote more attention to the sporting goods industry (manufacturing and world trade patterns) and to the economics of amateur and recreational sport, in particular the Olympic Games An attempt to deal with all these issues within a single chapter would yield a rather superficial analysis The agenda of this chapter is driven by the fact that most of the academic research on the economics of sport in North America, both at the theoretical level and in data gathering, actually deals with team sports, in large part precisely because of data availability Within the Canadian context, it seems best to focus on one sport, ice hockey, more specifically the economics of the National Hockey League As much as we would like to deal with other Canadian sporting traditions – the Canadian Football League, lacrosse indoor leagues or all sorts of minor leagues – very little can be said, due to an absence of data As to Olympic sports, while the funding of amateur athletes raises important questions of public policy, these are not questions that readily lend themselves to economic analysis The Olympic Games today clearly involve big money and invite questions about the costs and benefits of staging them, but estimates related to their net economic impact are mired in fantasies and hard to assess The interested reader is referred to an easy-to-read introduction to the economic issues arising from holding the Vancouver 2010 Winter Olympics, such as transportation costs, speculation in the real estate market and the impact on low-income housing, high-skill labour demand and possible inflationary repercussions, and the possible cost underestimation and net impact overestimation (Fromm 2005); all these topics are examined in more detail by Preuss (2004), for all the Olympic Games staged since 1972 The substantial transformation of the (team) sports business over the last decades is most obvious in the way sports news are being reported since the early 1990s In the past, sports reporters and columnists were primarily concerned with players’ performances, statistics, team gossip and human interest stories Today, good sports journalists need to understand the economics of professional sports as a business If they are to explain to their readers the intricacies of trades and the manager’s likely motivations, reporters must have knowledge of team budgets, the length and structure of individual players’ contracts, and the collective agreement This knowledge will be ever more important in NHL hockey with the advent of payroll ceilings, as players will be traded or offered on waivers (and then sent back to the minors) to keep the team payroll below the ceiling, and only incidentally because of their poor playmaking performance When sports journalists are not discussing players’ salaries, moreover, they are often trying to explain the implications for sports teams of a variety of other financial and fiscal issues They have to help fans understand concepts like earnings before interest, taxes, depreciation and amortization (EBITDA, or operating income); gross economic impact and income multipliers when discussing team venues or major sporting events; as well as fast tax write-offs inducing new owners to purchase endangered franchises, like the Edmonton Oilers’s In the next few years, as Canadian cities like Hamilton, Winnipeg or Quebec City will attempt to gain or regain an NHL franchise, while others will make sure that they preserve it, and as the construction boom induced by the the Vancouver 2010 Olympics will come to the forefront, the discussion is most likely to stretch to include sporting facitilites building costs and who will get what revenues, as well as the contributions that sports venues are alleged to make to city core redevelopment Although disillusioned Expos baseball fans could certainly argue otherwise, the biggest event in Canadian sports economics over the last few years has been the 2004-2005 NHL lockout It made the headlines and was the source of an uninterrupted flow of stories for 300 days! Nearly any Canadian, whatever his or her ethnic origin, had an opinion about who to blame for the lockout, and many voiced their views about possible solutions The present chapter intends to put the hockey lockout and the arguments of those involved in proper economic perspective Once you will have read this chapter, you should be able to explain the economic motives and constraints that rule NHL hockey, and you should be able to understand the main dynamics of any future labour conflict in team sports While studying the implications of the NHL lockout, we will also examine the changing fortunes of the Canadian NHL teams, comparing the economics of NHL hockey with those of the other three major leagues in North America – namely the National Basketball Association (NBA), the National Football League (NFL), and Major League Baseball (MLB) We will conclude by analyzing the impact of professional franchises and the possible involvment of the public sector BACKGROUND INFORMATION The root cause of the 2004-2005 NHL lockout The quotes that open the chapter seem to be distorted by some time-warp On first reading they would seem to apply quite well to the denouement of the 2004-2005 lockout that team owners imposed on players of the National Hockey League (NHL) After more than 300 days of lockout (a lockout is the mirror image of a strike, with the employer stopping its employees from working, to put pressure on the labour union), the negotiations ended in July 2005 with players taking an overall 24% pay cut, along with the imposition of the revenue-tied payroll ceiling that the NHL players association (the NHLPA) had vowed never to accept [see Staudohar (2005) for a history of the lockout] But in fact, as is obvious from the publishing dates of these quotes, all three authors purport to analyze the impact of the collective agreement signed following the previous NHL lock-out, that of 1994-1995 As the above quotes show, and as Staudohar (2005, p 24) reports, “the owners appeared to get much the better of the settlement, which was reported in the media as a solid victory on their part” Most experts initially thought that the 1995 agreement had put in place structures that would abate salary inflation in the NHL, by twisting bargaining power towards the owners and out of the hands of the players’ agents Indeed, still persuaded that the 1995 deal was a good one, the NHL owners decided to renew the agreement a few years later, when they could have asked for a new one But by 2004, when it was clear to all that the NHL owners and players were up for a major clash and a long dispute, all hockey experts were claiming that the 1995 collective agreement had been a clear win for the players, bringing NHL owners collectively on the brink of bankruptcy, and that something entirely new was needed But this new financial arrangement could not just be imposed upon players, as it would be in a firm deprived of a labour union It had to be negotiated through collective bargaining Collective bargaining agreements In the North American major leagues, the relations between owners and players are regulated by a collective bargaining agreement (CBA), which is freely negotiated between representatives of the employer (the league commissioner) and the employees (the players’ union) There is some irony about industrial relations in sports In other industries, capitalists usually advocate free markets without restrictions and rigidities, arguing that unrestricted competition and flexible labour markets will bring about the best of possible worlds, while employees ask for protection against the consequences of free markets In sports, where often owners are billionnaires while their player employees are millionnaires, players’ unions ask that salaries be freely determined and that players be free to move from one team to another; team owners, by contrast, propose revenue sharing and argue that all sorts of impediments on labour movements and salary determination should be imposed, for the sake of the sport This has given rise in the past to the perpetual reserve clause, whereby a player was forever forbidden to change teams without being traded by the owner, a clause which was successfully challenged in court, forcing team owners to negotiate CBAs with temporary reserve clauses (Barnes, 1996) With current rules, only a subset of players are bona fide unrestricted free agents, being able to move freely from one team to another; most players are restricted free agents, that is they can move to some other team but only at the end of their standard-length contract, and only if that other team pays some hefty penalty – up to five first-round draft choices Other league rules designed to impede free labour markets include the draft of amateur players, whereby rookies can only negotiate with one team; caps on the individual salaries of rookies or those of star players; payroll ceilings, whereas salaries (adding or not benefits and bonuses) paid by teams cannot exceed a certain amount; luxury taxes, whereby teams that spend more than a certain amount on salaries must pay back a tax to the league which is proportional to the excess amount Revenue sharing, which as all other restrictions is officially designed to ensure that all league teams can compete fairly on the sporting scene, is another labour-market impeding mechanism, since its effect is to discourage owners from competing with each other to acquire the best talent In some cases, there are rules that provide countervailing power to the players, such as the possibility of going to salary arbitration in the case of restricted free agents, or the existence of exceptions in the case of salary or payroll caps Different leagues have arrived at different mechanisms, for historical reasons While economics has a lot to say about income distribution between capitalists and workers under competitive conditions, economic theory is rather silent when a monopoly is facing a monopsony – which is the case in the labour market of major leagues, and particularly in the NHL The monopoly is the players union, the NHLPA: it is the sole supplier of hockey talent; the monopsony is the NHL: it is the sole source of demand for talented hockey players (European leagues put aside, as we saw during the lockout) What share of revenues hockey players depends on the abilitities and the bargaining power – whatever that means – of the two negotiating teams Salary inflation In the case of the NHL, as early as 1999, it was argued by Gary Bettman, the league commissioner, that the restrictions put in place in previous CBAs were no longer appropriate and that entirely new rules had to be put in place Bettman pointed out that in the past NHL clubs had sought to negotiate restrictions embedded in the CBA that would slow down the inflation of players’ salaries In 1995, this had been done by a three-prone approach: by maintaining restrictive free agency rules (the most restrictive of the four major league sports); by introducing salary caps at the entry level, that is on the salary of rookie players; and by reducing arbitration rights, either by restricting its access, or by allowing teams to avoid the rulings of arbitrators Table clearly shows that, from the point of view of the NHL owners, the 1995 CBA did not achieve its objectives While the salaries of all major league sports did increase in the 1990s, those in hockey rose even more quickly INSERT TABLES AND ABOUT HERE The incredible increase in the purchasing power of NHL hockey players is highlighted in Table 2, where the average salary is put into Canadian dollars and compared to the average salary of Canadian employees The ratio of these two averages reached its apex in 2001-02, in part due to the misfortunes of the Canadian dollar which dropped to its all-time low in January 2002 (see Figure further on) The evolution of this ratio also might explain why most Canadians blamed players for a lockout that had been imposed by owners Today, many Canadians are disenchanted with NHL hockey because players’ salaries are out of touch with their own reality – 86% of Canadian hockey fans believe hockey players are overpaid, whereas only 41% of the American fans believe the same (NHL 2004b) – although this may be a misperception as the most popular rock or pop stars earn much more than NHL stars In addition, CEOs earn many times the average salary of their employees In the United States, while CEOs earned only 42 times more in 1982, they earned 525 times more at the apex of the stock market in 2000, and this ratio was only down to 431 in 2004 (Desrosiers, 2005) Higher salaries in major leagues are just a reflection of the income distribution consequences of the current star system, where the winner takes it all Why did NHL salaries grow so much? Salaries were well under control before the creation in 1972 of the rival World Hockey Association that broke the monopsony power of the NHL, and for the decade that followed its disappearance and partial merger in 1979, when the NHL regained its monopsony position In December 1989, however, players decided to make their salaries public information, and this, with a new and more aggressive NHLPA, led by Bob Goodenow in replacement of owner-friendly Alan Eagleson, set off a new round of salary inflation There were also key events that drove salaries upwards, such as the 1988 trade that sent off superstar Wayne Gretzky to Los Angeles at double his previous salary, and an unprecedented three million dollar deal obtained by a rookie, Eric Lindros, in 1992 After the 1995 agreement, many absurd contracts awarded to journeymen restricted free agents and to rookies, granting huge bonuses to get around the newly-imposed rookie salary cap, contributed to salary inflation In addition, attempts to raid restricted free agents led to huge salary increases, such as that of Joe Sakic in 1997, when Colorado was forced to match the offer of the Rangers The NHLPA took full advantage of this by making a clever use of salary arbitration hearings General managers also started to find ways to evade some of the restrictions that had been put in place to stop largemarket teams from raiding more than once the rosters of small-market teams This may be attributed to foolish management, but also to a change in the structure of ownership, whereas some newly rich American owners (e.g., Tom Hicks of the Dallas Stars, Ted Leonsis of the Washington Capitals, Bill Laurie of the St Louis Blues) aimed at winning championships at great cost, even if this did implied substantial financial losses They did this to indulge in a fantasy or because winning generates profits in their other related operations – nine of the owners are among the richest 400 Americans (Staudohar, 2005) Revenues and operating losses In contrast to the wisdom that attributes rising ticket prices to rising salaries, salary inflation was fueled by the increased ability of teams to extort larger revenues, through increases in ticket prices, new arenas, and corporate sponsorship Teams get a few million dollars per year from ‘naming rights’ with arenas taking the name of their corporate sponsors [Air Canada Centre, Rexall Place, Scotiabank Place (ex Corel Centre), General Motors Place, Bell Centre (ex Molson Centre)] Licensed merchandise, for example team logos printed on jerseys, shirts, caps, cups and other souvenirs, has generated revenues that have grown at a phenomenal pace, not to speak of food and drink sales or parking fees Another factor in salary inflation was the additional funds, 570 million dollars altogether, that existing teams collected in the form of expansion fees in the 1990s, from the nine new teams that were added to the league But the latter were non-recurrent revenues, whereas the higher salaries granted were imbedded in the salary structure, and hence NHL expansion, retrospectively, had some features of Ponzi or pyramidal financing, where the profits of present firm owners are financed by selling shares to new owners, without the firm making any revenue of its own SECOND PICTURE, WITH PHOTO OF SOME NHL ARENA COULD BE HERE OR ELSE TOWARDS PAGE 21-22 But the most disappointing feature of NHL revenues was the inability of the NHL to contract a substantial national broadcasting deal in the USA This had been the strategy upon which Gary Bettman and the Board of Governors had strived through, attempting to be part of all large television markets, including those of the Southern states But whereas the other major leagues have been getting huge revenues, shared equally by all teams, the NHL national television contracts are as small as ever, with only a few individual teams, like the Toronto Maple Leafs, pocketing large sums of money for local broadcasting rights, as show in Table Thus one can say that the expansion towards the Southern states has been a failure, since the league has been drawn into markets where hockey is an ephemeral fad rather than an ever-lasting cultural trait, without benefiting from any broadcasting bonanza Perhaps related to this, attendance at NHL hockey games started to stagnate and even to drop during the two seasons preceding the lockout, as shown in Table INSERT TABLES AND ABOUT HERE The discrepancy between salary costs and recurrent revenues became ever more pronounced and worrying over the post 1995 agreeement years The NHL owners launched their campaign for a new CBA regime in February 2004, when its consultant, Arthur Levitt, a former chairman of the United States Securities and Exchange Commission, released his report on the 10 financial woes of the NHL He claimed that only one-third of the teams had been profitable, with team owners overall having lost no less than $273 millions over the 2002-2003 season, a claim that was further reinforced when the NHL later found out that its team owners had lost an additional $225 millions during the 2003-2004 season Levitt himself commented that ‘the league is on a threadmill to obscurity’, adding that ‘I would neither underwrite as a banker any of these ventures, nor would I invest a dollar of my personal money in a business which to me appears to be heading south’ (Globe and Mail, 13 February 2004, p B7) This led the media to offer support to the owners contra the NHLPA Are NHL owners really losing money? How reliable are the Levitt figures? This is a difficult question to answer As we learned from the scandals that rocked the world of finance and auditing with companies as large as Worldcom and Enron, there is always some room for creative accounting From the very start the NHLPA challenged the accuracy of the NHL figures, claiming that an audit of four individual teams had left them convinced that net revenues were underestimated by an average of 13 million dollars per team Notwithstanding the huge tax breaks provided by the ownership of a sports team (Fort, 2003), club owners pull various tricks to reduce their apparent profits First, they charge themselves hefty fees for running the team This was reportedly done for several years by Barry Shenkarow, owner of the Win nipeg Jets, allowing him to earn substantial annual management fees, while at the same time whining about the huge financial losses of the Jets, until the team departed to Phoenix (Silver, 1996) Another strategy, for team owners who also happen to be the owners of the cable company that broadcasts the team games, is to set low fees for television rights, thus lowering the revenues and profits of the team and increasing those of the cable company Thirdly, a variant of this is available when club owners own their team arena, which is the case for 22 of the NHL clubs The company owning the venue may set high rents and keep most of the revenues from events, thus lowering the profits of the team while raising those of the venue In this manner, team owners can argue that the franchise is losing money, and ask for public funding, under the 26 Critical thinking questions Imagine that you are the advisor of the provincial prime minister Draw out the pros and cons of subsidizing or granting tax breaks to NHL teams in your province Imagine that you are the advisor of the mayor of a large Canadian city Draw out the pros and cons of subsidizing the construction of a new venue to regain an NHL team It was suggested by the Mills Committe in 1999 that major league athletes playing in Canada ought to receive a tax credit so as to harmonize their income tax rates with those that they would have paid in the United States What you think of the merits and the ethics of this proposal? It was also proposed by the Mills Committee to grant a tax credit to cover the costs encountered by the parents of kids involved in amateur sport Such a proposal was also made by the Conservative leader Stephen Harper during the 2006 election campaign What you think of such of proposal, in light of the fact that recreational sport brings large health benefits, and in light of the fact that parents of kids taking art or music lessons also can encounter large costs? Should parents with kids pay less income tax (or more) than identical parents without kids? Corporations or self-employed workers that purchase opera or hockey game tickets can use 50% of the cost of these tickets to reduce their taxable income In the case of NHL hockey, it is estimated that this federal tax expenditures amounts to more than 20 million dollars per year Should such tax deductions be sustained? What you think NHL team owners should be looking for when bargaining for the next collective agreement if they wish to improve their financial situation? If they want to improve competitive balance in the NHL? Imagine that you are advising a business intending to bring back an NHL team to Winnipeg What possible financial risks would you highlite? Major league hockey players earned, on average, 1.7 million Canadian dollars in 2005-2006, while Canadian high school teachers earned on average slightly more than $50 000 per year Discuss whether you believe this to be fair Discuss the advantages and the drawbacks of an economic system that leads to such discrepancies What benefits, and drawbacks, you see in the 2010 Olympic Winter Games in VancouverWhistler? 27 Suggested readings Andreff, W & Szymanski, S (eds) (2006) Handbook on the economics of sport Cheltenham: Edward Elgar Cagan, J & de Mause, N (1998) Field of schemes: How the great stadium swindle turns public money into private profit Monroe (ME): Common Courage Press Edge, M (2004) Red line Blue line Bottom line Vancouver: New Stars Fizel, J (ed.) (2005) Handbook of sports economics Armonk, NJ: M.E Sharpe Fort, R (2006) Sports economics 2nd edition Upper Saddle River, NJ: Pearson Education Fort, R & J Fizel (eds) (2004) International sports economics Westport, CT: Praeger Leeds, M & von Allmen, P (2002) The economics of sports Boston: Addison-Wesley Rosentraub, M.S (1997) Major League losers: The real cost of sport and who is paying for it New York: Basic Books 28 Weblinks The economics of sport http://wps.aw.com/aw_leedsvonal_econsports_1/ A site set up by the authors of the first undergraduate textbook on the economics of sport, with quizzes and several other links to sports economics web sites Rodney Fort’s web pages http://users.pullman.com/rodfort/ Fort is also the author of a textbook on the economics of sport This is probably the most complete website on the business of sports, with extensive data sets and plenty of information HockeyZonePlus www.HockeyZonePlus.com This bilingual site ran by Franỗois Coulombe is devoted to hockey It contains a large business section on hockey, including a large historical data bank on the salaries of all NHL players, but part of the site has not been updated The National Hockey League Players Association www.nhlpa.com This site provides the latest salaries of all NHL players, as well as their year-by-year statistics Patricia’s basketball web site http://www.dfw.net/~patricia/ This site contains the most complete data banks on basketball 29 INSERT BOX ANYWHERE IN THE TEXT, PERHAPS IN THE BACKGROUND SECTION Box 1: The economics of the Canadian Football League While Canadian football is most popular in the Western part of Canada, as attendance numbers and the greater financial stability of the Western franchises demonstrate, the game itself has an increasing number of participants in Quebec high school and colleges, leading to an influx of French Canadian players into the CFL over the last few years This notwithstanding, the economics of the CFL have been on the downside since the golden days of the 1960s and 1970s Average attendance, as shown in Table B1, is much lower than it used to be 25 or 30 years ago, despite fairly low ticket prices, and there has been no television bonanza, in contrast to the NFL, since gate revenues still make for almost 75 % of total revenues (O’Brien 2004, p 336) On the one hand, the CFL has managed to survive for a long period, despite a lack of consistent marketing efforts and an aborted expansion into the USA in the 1990s, whereas many other similar American minor football leagues – such as the USFL or the WLAF – have uprisen and folded over these same years On the other hand, CFL revenues and payrolls have dwarfed, relative to those of major league sports, as can be deduced from Table B2 This may be because of the current star system, whereby stars or star organizations catch all the attention, with televised NFL and all the new Canadian NHL or NBA franchises competing for the entertainment expenditures and the time of Canadian sports fans There seems to be some improvement in the financial state of the league, however, as the payroll cap, which had dropped to as low as $2.1 million per team in 1996 (Barnes 1996, p 164), later moved up to $2.5 million and then to $3.8 million in 2006 But the financial woes of the Ottawa Renegades, and their hypothetical survival, show that, even though operating a CFL franchise only costs about $10 millions per season, it can be a dicy venture INSERT TABLES B1 AND B2 30 Table B1: CFL per game attendance, per period of years Average for 5-season period Per game attendance 1975-1979 29,600 1980-1984 29,240 1985-1989 25,625 1990-1994 24,070 1995-1999 Not available 2000-2004 25,330 2005 Source: author’s computations from data compiled by: www.kenn.com/sports/football/cfl Table B2 : Average CFL player salary, in Canadian dollars, as a ratio of NFL salary Season CFL average salary, C$ CFL/NFL salary ratio 1975 24,000 50% 1985 62,000 35% 1995 50,000 5.0% 2004 58,000 3.6% 2006 75,000 ? Source: Longley (2004, p 211), O’Brien (2004, p 458), and author’s estimate based on 2006 new payroll cap (January 18, 2006) 31 Table 1: Average player salaries, four major sports, various years, US $ Season MLB Baseball NBA Basketball NFL Football NHL Hockey 1970, 1970-71 29,000 40,000 34,500 25,000 1980, 1980-81 143,000 190,000 69,000 110,000 1990, 1990-91 600,000 824,000 365,000 247,500 1993, 1993-94 1,076,000 1,250,000 683,000 543,000 2000, 2000-01 1, 895,000 3,241,000 1,169,000 1,484,000 2004, 2003-04 2,372,000 3,783000 1,250,000 1,830,000 2005-2006 1,460,000 Source: Associated Press, Patricia’s website, Hockey News (Nov 2005), Lavoie (1997) Table 2: Average NHL player salary, average Canadian employee salary, all in Canadian dollars, and ratio, various years Year 1970-71 1974-75 1979-80 1984-85 1989-90 1993-94 1999-2000 2001-02 2003-04 2005-06 Average NHL player salary, C$ (2) 26,000 60,500 118,000 173,000 233,000 709,000 2,163,000 2,720,000 2,358000 1,683,000 Average Canadian employee salary (3) 6,050 8,600 13,700 20,800 24,950 28,400 31,600 33,500 35,050 37,180 Ratio (2)/(3) 4.3 7.0 8.6 8.3 9.3 25.0 68.5 81.2 66.4 45.0 Source: Lavoie (1997), Table 1, Statistics Canada (table 282-0069, and V37426) 32 Table 3: Broadcasting national and local contracts for each major league, amounts per year per team, in US dollars MLB Baseball NBA Basketball NFL Football NHL Hockey National broadcasting revenues ESPN, FOX, until 2006 $18.6 millions per team/year ABC, ESPN, AOL until 2007 $31.7 millions per team/year CBS, ABC, FOX, ESPN until 2005 $68.7 millions per team/year CBS, NBC, ESPN 2006-2011 $115 millions per team/year Comcast (OLN) until 2008 $2.2 millions per team/year CBC, TSN until 2010 $2.7$ millions per team/year Local broadcasting revenues Huge revenues for some teams, often underestimated for tax purposes ? Spread unequally None Local revenues are about $12 millions per team on average overall Each Canadian teams gets between C$10 (small-market) and C$40 millions (the Leafs) per year Source: Merrigan and Trudel (2004: 193, 200), http://www.rodneyfort.com/SportsData/BizFrame.htm and inferences from other data Table 4: NHL average attendance per game, 1975-2004, various years Season Attendance per game 1975-76 12,640 1985-86 13,835 1995-96 15,985 2000-01 16,550 2003-04 16,530 2005-06 16,955 Source: www Hockeyzone.com, and data calculated from http://sports.espn.go.com/nhl/attendance 33 Table 5: NHL Revenues, payroll costs and profits per team, comparision of Forbes and NHL data Season Source Revenues (millions) Player costs (millions) Player costs share Operating profit (millions) Profit share Forbes $31.4 1993-94 NHL 2002-2003 NHL $28.2 Forbes $70.0 $13.0 $15.9 $47.3 $48.6 41.3% $3.8 56.5% ($1.5) 67.5% ($4.1) 75.5% ($9.1) 12.1% (5.3%) (5.9%) (14.2)% $64.2 Source: Negative numbers (losses) are in parentheses Data obtained from various issues of Forbes; NHL data released by the NHL in 2004 (http://www.nhlcbanews.com/historical_results.html) 34 Revenue imbalance Payroll imbalance Year Coefficient of variation Range Coefficient of variation Range 1989-1990 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Average 0.23 0.23 0.31 0.34 0.35 0.37 0.33 0.28 0.28 0.28 0.27 0.26 0.29 0.27 0.27 0.290 0.84 0.84 1.29 1.08 1.24 1.54 1.24 1.07 1.08 1.14 0.94 1.01 1.06 0.96 0.90 1.12 0.17 0.24 0.23 0.21 0.28 0.27 0.24 0.27 0.28 0.25 0.32 0.31 0.37 0.32 0.35 0.278 0.75 0.81 0.82 0.80 1.02 0.94 1.04 1.02 1.00 1.16 1.36 1.13 1.34 1.39 1.24 1.05 Source: Wakeford (2003) and author’s calculations from data found on the website: http://www.rodneyfort.com/SportsData/BizFrame.htm The coefficient of variation is defined as the ratio of the standard deviation to the mean; the range is the differential between the maximum and the minimum values, divided by the mean The range for 2005-06 is only 0.50 since the payroll ceiling is $39 millions and the payroll floor is $21 millions, while the average payroll was $36 millions [0.50 = (39-21)/36)] 35 Table 8: Dispersion measure of winning percentage, NHL, 1920-2003 (the higher the ratio, the larger the performance imbalance within a season) Time period Ratio 1920-1929 1930-1939 1940-1949 1950-1959 1960-1969 1970-1979 1980-1989 1990-1994 1995-1999 2000-2003 1.61 1.53 1.69 1.88 1.90 2.54 1.91 1.93 1.71 1.68 Source: Fort (2003, p 155) for decade ratios, except the period after 1989, which comes from Wakeford (2003) 36 Table 9: Evolution of NHL ticket prices and fan cost index, 1995-2006, in US dollars Average ticket price Fan cost index 1995-96 2003-04 2005-06 $34.70 $43.50 $41.20 $203.30 $253.65 $247.30 Change 2005-06 relative to 2003-04 -8.4% in USA cities -2.0% in six Canadian cities Source: www.teammarketing.com and authors’s calculations Fan cost index includes the cost of four average tickets, hot-dogs, soft drinks, beers, programs, caps and parking Table 10: Attendance rank and average attendance per game, and ticket price rank, Canadian NHL franchises, 2005-2006 City Montreal Ottawa Toronto Calgary Vancouver Edmonton Attendance rank 1st 5th 6th 7th 8th 15th Average attendance 21 273 19 473 19 408 19 289 18 630 16 832 Ticket price rank 7th 17th 6th 15th 3rd 12th Source: http://sports.espn.go.com/nhl/attendance?year=2006, http://teammarketing.com 37 Figure : The value of the American dollar in Canadian dollars (when the Canadian dollar appreciates, this exchange rate falls), 1970-2005 Source: Statistics Canada website 38 Table 6: Evolution of various financial measures, 1990-2004, in American dollars League NFL Football Season 1990 1998 2003 1990 1998 2004 89-90 99-00 03-04 89-90 99-00 03-04 Revenues (millions $) 46.9 115.6 166.5 51.7 88.8 142.3 22.5 79.9 101.1 20.9 60.6 74.6 35.2 12.2 24.2 34.1 Gates (millions $) MLB Baseball 39.3 NBA Basketball 50.0 NHL Hockey Profits (millions $) 8.9 19.7 26.6 7.0 2.0 4.4 4.8 5.6 9.6 3.0 1.9 -3.2 Wage bill (millions $) 19.3 59.0 91.6 17.3 41.1 83.8 9.1 49.1 59.6 6.0 34.6 49.2 Salaries as % of revenues 41.2 51.0 55.0 33.5 46.3 58.8 40.5 61.5 59.0 28.7 57.0 66.0 Profit share % 18.9 17.0 16.0 13.5 2.2 3.0 21.3 7.0 9.5 14.3 3.1 -4.3 Source: Various issues of the magazines Financial World, now defunct, and Forbes 39 Table 11: The financial bottom line of Canadian major league franchises: operating income (profits and losses), 1990-2004 19891990 19901991 19911992 19921993 1993-1994 19941995* 19951996 19971998 19981999 Hockey 19992000 2000-2001 2001-2002 20022003 20032004 1.9 2.1 -0.3 -4.1 -3.2 Calgary 3.2 4.7 2.9 2.5 −0.3 2.7 7.8 0.6 0.7 −2.1 2.3 -3.7 -5.8 2.3 Edmonton 3.7 3.2 1.1 −2.3 −0.9 2.7 −0.1 2.3 2.7 3.6 2.5 -0.8 3.3 Montreal 4.9 6.9 5.5 4.9 6.6 −2.3 −0.4 8.3 5.8 12.7 12.2 6.4 -5.4 7.5 4.5 2.8 −2.6 0.1 1.2 1.4 −2.1 −4.5 2.0 -2.0 -5.0 Ottawa Québec 0.3 3.3 2.7 1.2 2.6 xx xx xx xx xx xx xx xx Toronto 3.4 6.4 8.6 10.2 7.1 3.5 3.4 6.8 2.5 17.5 15.4 24.2 13.7 14.1 Vancouver 0.9 −0.8 0.4 0.8 1.4 0.9 −0.3 −10.4 −13.7 −11.3 −3.0 -0.8 0.7 1.3 Winnipeg −0.4 −1.5 −2.5 −2.6 −3.6 −3.2 −11.7 xx xx xx xx xx xx xx 5.6 5.0 Basketball ** 20042005 20052006 xx xx xx xx 9.5 Toronto 14.4 1.6 −8.0 1.2 5.1 4.5 10.6 5.4 Vancouver 7.1 1.3 −12.4 −8.5 −13.3 xx xx xx xx xx 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 4.3 2.5 1990 1991 1992 1993 1994 *** 1995 Baseball 7.0 2.0 Montreal 6.4 −4.2 11.8 12.4 −3.8 7.1 6.2 −3.7 5.6 1.9 −8.1 -2.4 -9.1 -8.3 -3.0 Toronto 13.9 26.3 −1.3 1.3 1.4 −1.6 14.5 −20.5 −9.5 −2.8 −5.9 -17.6 -23.9 7.8 Source: Data taken from various issues of Financial World and Forbes Positive numbers are profits; negative numbers are losses *NHL lockout in 1994-1995 reduced season from 84 to 48 games ; no play in 2004-2005 **NBA lockout in 1998-1999 reduced season from 82 to 50 games *** MLB player strike in 1994 cut off season by one month and a half, as well as the series 3.0 xx 40 ...2 The economics of sport is a rather wide field It spreads across analyses of the demand for sport, cost-benefit analyses of sporting events and sporting venues, the local public... studying the implications of the NHL lockout, we will also examine the changing fortunes of the Canadian NHL teams, comparing the economics of NHL hockey with those of the other three major leagues... and particularly in the NHL The monopoly is the players union, the NHLPA: it is the sole supplier of hockey talent; the monopsony is the NHL: it is the sole source of demand for talented hockey