Bubble bubble, toil and trouble (Business of hockey/sports article)

[Lanny_McDonald]

Originally Posted by Itse

That system is called the salary cap. It means that the players can only make a certain percentage of team revenues. If the cap goes down, so do the salaries.

Hence the inclusion on the word systemic. Salaries will no rebalance themselves without systems in place to guarantee such balance is forced.

Also, if you believe the salary cap is going to go up with a 65 cent Canadian dollar, you're delusional. Canadian teams account for 35-40 percent of league revenues (depending on source) and that revenue is earned in Canadian dollars. Take that 35-40 percent and decrease it by 40 percent. That is a big chunk of coin. Based on a $1.2B marketplace, that would account for $480M in revenues. With a hit of 40 percent on the dolllar those revenues drop to $288M. That's a substantial hit that is going to also hit the cap.

Originally Posted by Tinordi

My thesis is that should there be some fundamental changes to the market like a hollowing out of cable revenue or a moratorium on publicly financed stadiums then the pro sports business will rebalance.

How is this a disagreeable concept?

I don't disagree with your concept, and that it should happen, its just that there is no historical data to support such claims. The business will not rebalance by itself. There has to be some mechanism that forces balance otherwise the rich will continue too plunder the poor.

On the Kopitar salary, that is a number that will hang around the length of the contract, even if the cap drops. He's not getting paid a percentage of the cap space available, the team is responsible for dealing with that cap hit through other salaries. Escrow comes into play, but not enough to impact the hit on other salaries. The stars will still get paid because of Kopitar's salary. This means the lesser players just have to take a bigger hit to their salaries, even though Kopitar is a mid-range star in the league.

[Enoch Root]

Originally Posted by Textcritic

This is beside the point, but it really aggravates me how little some people seem tho understand escrow, which Enoch Root has accurately identified as a control mechanism to ensure the correct distribution of League revenues.

This, from another thread:
http://www.thehockeynews.com/blog/nh...-scott-fiasco/


This supposedly knowledgable hockey writer from THN seems to think that escrow is a black hole of disappearing cash which the players invariably lose every year, and nothing could be further from the truth as it has played out in the salary cap era. No, John Scott is not earning -16% of his salary because of escrow. Based on projections of league revenues for this year, he will receive every cent of that figure once the season ends.

It is truly amazing how many sports writers - who are paid to at least have a working knowledge of the things they are writing about - are completely clueless as to what the escrow is, and believe it to be some kind of tax.

[CroFlames]

Something that I think is important, and that hasn't been mentioned, is the fact that the north American population continues to grow; and almost certainly will continue growing for the foreseeable future. People from other parts of the world will continue flocking to Canada and especially the USA.

I don't think pro sports will continue growing as fast as it did in the last 20 years, but I don't think I buy that doom and gloom article in the OP. Are 60 team leagues even desirable? Maybe we see the advent of the NFC and AFC becoming totally separate 32 team-leagues down the line if the N American population reaches 700 million, 800 million or a billion or more.

With population growth, I think that necessarily means more fans. Sure other things like e-sports and such will have more fans, but so will traditional sports. I can't fathom baseball salaries, but then again, Americans lap that stuff up like crazy.

[GirlySports]

Some baseball (or soccer) owners are not in it to necessarily make money. They are in it to win. An Owner can spend $200 million in salary or $40 million in salary. A salary cap ensures a teams makes money but harder to win.

[GirlySports]

Originally Posted by CroFlames

Something that I think is important, and that hasn't been mentioned, is the fact that the north American population continues to grow; and almost certainly will continue growing for the foreseeable future. People from other parts of the world will continue flocking to Canada and especially the USA.

I don't think pro sports will continue growing as fast as it did in the last 20 years, but I don't think I buy that doom and gloom article in the OP. Are 60 team leagues even desirable? Maybe we see the advent of the NFC and AFC becoming totally separate 32 team-leagues down the line if the N American population reaches 700 million, 800 million or a billion or more.

With population growth, I think that necessarily means more fans. Sure other things like e-sports and such will have more fans, but so will traditional sports. I can't fathom baseball salaries, but then again, Americans lap that stuff up like crazy.

they need to get rid of the trapezoid first.

[CroFlames]

Originally Posted by GirlySports

they need to get rid of the trapezoid first.

I love when I get to use this.

[PeteMoss]

Meh - the cable/tv deals may drop but people will just move to online streaming.

You'll either end up in a situation where Netflix is battling with YouTube/Shomi/Crave for these rights (watch what the NFL gets for streaming of its UK games next year which will also be on broadcast TV) or the leagues will start up a WWE Network/UFC Fight Pass type streaming service.

[Itse]

Originally Posted by New Era

Also, if you believe the salary cap is going to go up with a 65 cent Canadian dollar, you're delusional.

Quoting Bettman is a reason for you to throw around words like "delusional"?

[Fire of the Phoenix]

The biggest obstacle to continued growth in the North American sports model is the ever widening gap between the rich and the poor. As the middle class gets steadily eroded, there will come a time when the impact will be felt by all non-essential facets of the economy, especially entertainment. Add in economic downturns and massive job losses to it's customer base, and it's inevitable that the ripple effect will hurt all professional sports. IMO, it's pretty easy to see we are on the precipice of a changing world, the only question is how bad will it get? Even now, I consider my family as middle class, but there is no way we would ever be able to afford Flames seasons tickets without sacrificing all other discretionary spending.

[Lanny_McDonald]

Originally Posted by Itse

Quoting Bettman is a reason for you to throw around words like "delusional"?

You'll note he said "could." I doubt he has seen the impact of the Canadian buck.

[Itse]

Originally Posted by New Era

You'll note he said "could." I doubt he has seen the impact of the Canadian buck.

I'm pretty sure he can do the math as well as you do.

[Lanny_McDonald]

Originally Posted by Itse

I'm pretty sure he can do the math as well as you do.

Obviously not based on exchange rate. That isn't even taking the piss poor performances of the Canadian teams. Attendance will drop as the teams fade, especially in fair weather cities like Vancouver and Ottawa. The revenues are going to take a substantial hit, no matter what picture he tries to paint.

[nfotiu]

Originally Posted by PeteMoss

Meh - the cable/tv deals may drop but people will just move to online streaming.

You'll either end up in a situation where Netflix is battling with YouTube/Shomi/Crave for these rights (watch what the NFL gets for streaming of its UK games next year which will also be on broadcast TV) or the leagues will start up a WWE Network/UFC Fight Pass type streaming service.

That's not the point. The bubble has been created by ESPN and RSNs currently collecting between $20-$30 on every single cable/dish subscriber whether they care about sports or not. ESPN collects around $10 for their whole package of ESPN channels right now. Probably only 30% of subscribers actually watch ESPN an local sports channels. How many of those 30% would actually pay that $10/month to keep ESPN if they had a choice? But that's even the real question. But that's not even the real question. $10/month isn't going to come anywhere near matching their revenue if only 30% of their current subscribers buy it. So to have a standalone streaming service, they'd likely need to charge $33 a month. And there's no way they are getting 30% of subscribers to pay that much.... so $100 a month?? They milked an unsustainable gravy train as long as they could, but it is going to come to an end over the next decade.

My guess is we see standalone ESPN at $15/month and they are going to have to accept that their subscriber fee revenue is going to drop by about 80%, and it is really going to be a bloodbath for them. Disney can probably weather the storm, but it's going to mean huge cuts on their sports league deals next renewal. The RSNs are where it is going to get really ugly. I don't know how some of these $100 million local tv deals will even get paid when that revenue stream dries up. The ugly truth is that some of those local deals are paying 100 million a year and having less than 100,000 viewers watching their games. Without forced subscriber fees being paid by all the people not watching their channels, the real value of those tv deals is more like 5-10 million per year.

The NFL will be fine, because everyone actually watches their games, and their revenue is well diversified between tv contracts that rely on advertising on free tv, some cable tv revenue, gate revenue, etc.. Baseball and basketball salaries have spiked recently with all the big local TV deals, and should be in for a big, nasty correction over the next 5-10 years. Hockey is going to be in for a big correction too, and it will be interesting to see how it all plays out.

[Benched]

oh we're getting 'ala cart' billing for cable (the things you learn on this forum )! oh man, bill going down, content I want going up!

good days ahead!

[PeteMoss]

Originally Posted by Benched

oh we're getting 'ala cart' billing for cable (the things you learn on this forum )! oh man, bill going down, content I want going up!

good days ahead!

I'd wait to celebrate. I suspect the sports channels will be mighty pricey.

[Benched]

[CroFlames]

Literally the only reason I have cable is because it was cheaper to do a package (phone, internet, cable) then to just do internet. Once the promotion is up, I'm canceling phone & TV altogether.

I'm in my late 20s and I think that most people my age are trending that direction. Kids younger than that are definitely going to be cable-free.

I think big TV deals will exist with pro sports leagues in the future, they'll just be geared more towards internet broadcasting, whatever that may mean.

[Coach]

Originally Posted by Enoch Root

Disruptions? Turmoil? Maybe. But the death of sports? Not a chance IMO.

And if anyone thinks sports is going to be free on the internet for everyone... well, I think those people are in for a surprise and disappointment.

Interesting. Ever since cutting the cord, I haven't missed a single game I wanted to watch by just googling Flames vs _____ stream.

Quality is not always best, but it's free.

I think sports will eventually just move to broadcasting their own games through apps ala Netflix or Gamecenter, and have every game be PPV.

[curves2000]

Here is my take on this particular article and for hockey in general.

I do agree that the players salaries and TV contracts have gotten out of control but I don't think we have reached the point of a retraction coming anytime soon.

As for the NHL, the game is a gate driven league as people have said in this thread. Now this does pose a little bit of a risk in the sense that ticket prices, concession prices and merchandise at games can't continue to increase at the rates they have without it affecting their business.

I am as hardcore hockey fan as anyone but sooner or later the price for these games will become a hindrance from a value perspective. Fast forward 8-10 years where NHL superstars are making $15 m AAV's and the cap is $85+ mil. Are you as a Flames fan really going to drop $150 a ticket on a Tuesday game in January to watch Columbus?

Even corporations are taking a harder look at their expense accounts for items such as client entertainment. Its a fairly known fact that companies like Wal-Mart and Costco have incredibly strict rules regarding entertaining and the costs associated with them. In their view SOMEONE is paying for the costs of this event be it be them or the other companies and that added expense does lead to higher cost structures which leads to higher prices.

For anyone who works in downtown Calgary, just take a quick look at the restaurant and bar scene downtown. Gone are the days where people discussed "business" over a steak lunch and a $150 bottle of cabernet. Starbucks is just as suitable for business chats along with custom coffee's for $4 each.

One last point is that this perception I have is coming from a single 31 year old Calgarian. If I had a family of 4 and wanted to take them to see as many games as I do now (20+) I can't see how it would be financially possible without needing to cut back in other areas.

In any event something will have to give one way or another. A quick look at the Florida Panthers site and some of these other teams and you see $14 tickets. Sooner or later the cap increases and other costs are going to have to be borne by the entire league, not just the Canadian teams and the original 6.

[Enoch Root]

Originally Posted by MattyC

Interesting. Ever since cutting the cord, I haven't missed a single game I wanted to watch by just googling Flames vs _____ stream.

Quality is not always best, but it's free.

I think sports will eventually just move to broadcasting their own games through apps ala Netflix or Gamecenter, and have every game be PPV.

I think live streaming is still available (and free) for 3 main reasons:

1) they still generate their revenue from the big cable deals
2) there hasn't enough of it to be a major concern - yet. Obviously that is about to change.
3) they haven't exactly figured out how they are going to charge for it

However, once the scales tip from cable deals to direct viewership, you can bet their focus will tighten on this and you won't be streaming it for free any longer (well, at least not legally).

The NHL - like most businesses - is not in the business of giving their product away for nothing.