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

[TheOnlyBilko]

As more of us get old and die, pro sports become less popular. I'm talking a generation or 2 away. Kids these days just don't care about sports like they used too. Back in the 70s and 80s that's what we did. We played sports or watched them on TV or went to games. Kids/teens/young adults don't have the interest in sports like they used to and have basically been priced out of attending live games.

[Hockey Fan #751]

Originally Posted by TheOnlyBilko

As more of us get old and die, pro sports become less popular. I'm talking a generation or 2 away. Kids these days just don't care about sports like they used too. Back in the 70s and 80s that's what we did. We played sports or watched them on TV or went to games. Kids/teens/young adults don't have the interest in sports like they used to and have basically been priced out of attending live games.

I would argue that pro sports have never been more popular. In the 80s and 90s teams like the Oilers and Flames couldn't even sell out first round playoff games. Now the demand is off the charts (which is why the prices are so high).

[TheOnlyBilko]

The Flames and Oilers wouldn't sell out home games in the playoffs? I'd love to see something to back that up. In the mid 80s we were on a season ticket waiting list for several years before we finally got ours.

[GirlySports]

I heard books are making a comeback. Amazon just opened a brick and mortar store.

Don't know about kids not caring about sports. Flames and Jays just got new fans in 2015

[TheOnlyBilko]

There will always be new "fans" when a team does good. Those new "fans" the Jays pulled in last year, will for the most part, be long gone if their success doesn't continue this year. Kids/teens these days would rather play video games then watching a 3 hour baseball game on TV.

[GirlySports]

Originally Posted by TheOnlyBilko

There will always be new "fans" when a team does good. Those new "fans" the Jays pulled in last year, will for the most part, be long gone if their success doesn't continue this year. Kids/teens these days would rather play video games then watching a 3 hour baseball game on TV.

Enough will stay. We all did.

[TheOnlyBilko]

Originally Posted by GirlySports

Enough will stay. We all did.

Touche

[Hockey Fan #751]

Originally Posted by TheOnlyBilko

The Flames and Oilers wouldn't sell out home games in the playoffs? I'd love to see something to back that up. In the mid 80s we were on a season ticket waiting list for several years before we finally got ours.

The Oilers in the 80s wouldn't sell out first and second round series.

April 18, 1985 vs. Jets - 16,236 (capacity at the time was 17,498)
http://www.flyershistory.com/cgi-bin....cgi?O19850035

April 4, 1990 vs. Jets - 16,423
http://www.flyershistory.com/cgi-bin....cgi?O19900004

April 11, 1980 vs. Flyers - 15,423
http://www.flyershistory.com/cgi-bin....cgi?O19800017

For the Flames, the problem was more in the 90s.

April 18, 1993 vs. Kings - 18,605
http://www.flyershistory.com/cgi-bin....cgi?O19930006

April 18, 1994 vs. Canucks - 17,764
http://www.flyershistory.com/cgi-bin....cgi?O19940007

May 7, 1995 vs. Sharks - 15,624
http://www.flyershistory.com/cgi-bin....cgi?O19950007

April 21, 1996 vs. Chicago - 15,229
http://www.flyershistory.com/cgi-bin....cgi?O19960017

Still don't believe me? Just go to:

http://hsp.flyershistory.com/

And choose a random year, say, 1986 and go game-by-game. You'll be shocked at some of the attendances you see. Crowds as bad as 8,000 (Flames/Jets) and plenty in the 11,000 to 14,000 range. Even dynasty teams like the Islanders.

[Jay Random]

Originally Posted by Enoch Root

That's not demand, that's distribution. Demand is defined by viewership.

Uh, wrong. Demand is defined by who is bidding to buy the product. Cable companies bid to pay for ESPN, and then jack up subscription fees to cover the cost – whether or not the viewers want that channel, because they are not given any method of opting out.

I agree that the current cable model is going to be under increased pressure. But that is the nature of the industry - outmoded models constantly getting replaced.

I would submit that the entire model of TV being distributed on channels is outmoded.

You said yourself you have personally watched new technologies replace old, over and over. No reason not to think the same isn't going to continue to happen again and again.

And why do you think it is guaranteed that major-league North American professional team sports is always guaranteed to benefit financially from whatever changes occur?

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

Strawman. Nobody is predicting that. What people are predicting is that the amount of money in the business will not increase forever, and that people who own sports franchises in the expectation that the value will always increase are liable to take a bath.

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.

Non sequitur. Just because something is on the Internet does not make it free.

[calgarygeologist]

All aspects of sports have been growing in terms of cost to the consumer which I think is driving away younger generations. Just look at the massive price increase for hockey or football equipment over the years. When I was playing as a kid, started 20 years ago, hockey equipment was pretty expensive but relatively speaking the price of equipment is significantly more today. As a result, fewer kids are getting involved with sports and the leagues will see their loyal fan base decreasing in size.

[Tinordi]

So long as there is demand for people to pay to watch sports there will always be a market for pro sports. There is no question about that.

Whether this current model which is dependent on two fundamental components, public subsidies for arenas and giant cable television contracts, to drive revenue is sustainable is another question entirely.

Should there be changes to the two components, the market will rebalance, salaries and franchise values will adjust. The only question is how successful ownership will be in continuing to extend the current model.

[Lanny_McDonald]

Originally Posted by Tinordi

So long as there is demand for people to pay to watch sports there will always be a market for pro sports. There is no question about that.

Whether this current model which is dependent on two fundamental components, public subsidies for arenas and giant cable television contracts, to drive revenue is sustainable is another question entirely.

Should there be changes to the two components, the market will rebalance, salaries and franchise values will adjust. The only question is how successful ownership will be in continuing to extend the current model.

Completely disagree with this thesis. The professional sports marketplace does not rebalance itself. Not without systemic changes that place controls on how contracts are structured or can be disposed of. I challenge you to find an example of a major professional sports league where salaries came down to match revenues without controls agreed to by both the owners and the players. It just doesn't happen. The NHL has gone through two different systemic changes that were designed to control inflation, one of which included an unprecedented clawback, or reset, of the salary structure league wide. Neither has prevented salaries rising beyond reasonable levels for star players. When a player like Antze Kopitar is getting $10M a season in a year when the cap is more than certain to drop, there is no hope for the system to rebalance itself. For the NHL to fix this problem they need to have an out like they do in the NFL. Sign a player for as much as you want, but you can release him and nullify the contract any time you like. That is the best control and limits the damage these hyper-inflationary contracts have system wide.

On the side of new facilities, this is going to continue to be a problem. There will always be some city without a team that is willing to throw money after the hope of attracting a team. When NFL teams move to Los Angeles, it will leave a hole that other teams can exploit. Those cities that once had a NFL team will do everything they can to get a team back. That will include putting up the money for a new stadium. Of course this is different for basketball and hockey, as they are niche sports. But the problem will still exist, only on a smaller and less public level. There will always be a Quebec City, or Hamiliton, or Markham that will follow the Field of Dreams approach. There will always be owners that will hold their markets hostage for a new building and get it (hello Edmonton). There will always be prospective owners that will try to smooth talk their way into getting a city to foot the bill or find creative ways to finance the project (hello Calgary). There will always be threats of a possible move (hello Phoenix). This is just a component of the professional sports game and the chase of the big dollars and prestige that comes with having a team.

[Itse]

Originally Posted by New Era

I challenge you to find an example of a major professional sports league where salaries came down to match revenues without controls agreed to by both the owners and the players.

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.

When a player like Antze Kopitar is getting $10M a season in a year when the cap is more than certain to drop, there is no hope for the system to rebalance itself.

http://www.nhl.com/ice/news.htm?id=791523

This is from a week ago.

The NHL's salary cap for the 2016-17 season could go up approximately $3 million, Commissioner Gary Bettman said at the Board of Governors meeting on Monday.

[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?

[Enoch Root]

Originally Posted by New Era

When a player like Antze Kopitar is getting $10M a season in a year when the cap is more than certain to drop, there is no hope for the system to rebalance itself.

This has been stated many times before, but clearly needs to be repeated...

Individual contracts are irrelevant with respect to having an effect on the salary cap. The cap is defined by revenues, and is an aggregate for all players.

If the total of all player contracts exceeds the cap limit, then all contracts are reduced, pro rata, back down to the cap (this is the purpose of the escrow).

When a player signs a huge contract, that has no bearing on the cap or on total salary inflation. It does do two things however:

1) it takes money away from other players
2) it causes inflation for top players, which simply means even less money for other players

[Cappy]

I think much of the growth of the sports industry has (as with most industries) been based on the foundation of public subsidies.

Whether in terms of "not-for-profit" leagues and public funded stadiums/arenas, the economics have always been skewed in favour of profit and growth. If these are corrected, then the whole market itself will be.

[Enoch Root]

The thread is supposed to be about the article, which posits that the business model of professional sports is a house of cards and a bubble that is about to burst.

There is no question that the cable industry (call it what you like) is in for huge, and fundamental changes.

But the question is: will this materially affect the professional sports industry? Is it an unsustainable bubble?

[Enoch Root]

Originally Posted by Cappy

I think much of the growth of the sports industry has (as with most industries) been based on the foundation of public subsidies.

Whether in terms of "not-for-profit" leagues and public funded stadiums/arenas, the economics have always been skewed in favour of profit and growth. If these are corrected, then the whole market itself will be.

lol

If professional sports isn't a trillion dollar industry, globally, it's getting there.

These subsidies you refer to have nothing to do with revenues, they simply affect where the industry takes place.

[Textcritic]

Originally Posted by Enoch Root

...If the total of all player contracts exceeds the cap limit, then all contracts are reduced, pro rata, back down to the cap (this is the purpose of the escrow)...

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/

In case you don’t remember, the NHL has added a financial component to the All-Star Game this year, awarding the team that wins the 3-on-3 tournament a pot of $1 million to split among 11 players. That comes out to a tidy sum of $90,909.09. If you’re Jonathan Toews and you’re pulling down $10.5 million this season, that might not seem like much. But if you’re Scott and you’re making $575,000 minus 16 percent escrow, and you don’t have a contract beyond this season, that is a very significant sum of money.

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.

[GirlySports]

the cap floor probably hurts the bottom line more than the cap itself.