When the National Hockey League opened training camps last week for the 2003-04 season, it was already standing on wobbly skates. TV ratings are minuscule, franchise values are plunging and two teams recently spent time in bankruptcy court.
Now add record financial losses to the lineup. According to a report prepared by the league for its club owners, the NHL's 30 teams posted combined operating losses of nearly $300 million last season. That was an increase of more than 35 percent from $218 million a year earlier, according to the report, and a more than sevenfold increase from losses of $40 million in 1993-94, when the league had 26 franchises.
The report, distributed to owners this summer and recently reviewed by The Wall Street Journal, depicts enormous revenue growth over the past decade that has been wiped out by even bigger jumps in player costs. Last season, the report says, the NHL spent 76 percent of $1.93 billion in revenue on player salaries and benefits -- a higher percentage than in the National Football League, National Basketball Association and Major League Baseball. "This is a level at which no business can survive," says Bill Daly, the NHL's chief legal officer. "The league will lose teams and players will lose jobs if we can't fix this."
The NHL's ice-is-melting portrayal comes as the league gears up for battle with its players union over a new collective-bargaining agreement. The current contract doesn't expire until September 2004, and talks on a new one haven't yet begun. But the league has amassed a $300 million war chest over the past four years to prepare for a possible work stoppage, and union officials have told players to expect a shutdown of 18 to 24 months.
The NHL wants an economic system ensuring "cost certainty," such as the salary caps in the NFL and NBA that allocate a certain portion of league revenue for players. NHL executives privately suggest a desire to reduce salary costs by as much as 40 percent. The union wants to retain a predominantly free-market system in which the average player's salary has soared to $1.79 million last season from $558,000 in 1993-94.
The NBA won the first salary cap in 1984 when it was in financial crisis. The NFL negotiated its cap when a flood of television revenue made labor peace desirable for both sides. By contrast, the NHL is trying to extract concessions from players who have grown rich thanks to team owners who willingly escalated their pay. "What you seem to have in hockey is some teams that are spending stupidly or spending unnecessarily," says Stephen Ross, a sports law professor at the University of Illinois, Champaign.
The National Hockey League Players' Association says it won't accept a salary cap. "We believe in letting the market system operate and letting (owners) pay players what they're worth, not a penny more or a penny less," says Ted Saskin, senior director for business affairs for the union.
Union officials say franchises that own arenas, concessions or local cable-TV networks siphon some hockey-related revenue from their teams. That would inflate both losses and the percentage of revenue being spent on salaries. "It's very hard to take those bar charts seriously without the whole picture," Mr. Saskin says. The NHL's Mr. Daly says the league's accounting is thorough.
Distrust between the NHL and its players dates to the early 1990s, when the union staged a 10-day strike, the first since it was formed in 1967. A 103-day lockout by management cost the NHL much of the 1994-95 season. The two sides now argue over everything including the minimum distance between a player's chin and his chin strap.
To be sure, the growth in NHL player salaries owes partly to the current labor contract. Player agents used loopholes to skirt pay limits for incoming players. Rules governing free-agency allowed high-revenue teams, such as the New York Rangers, to bid up the price of better players, raising the bar for everyone else.
The temptation to spend was made possible by leaguewide revenue growth of 163 percent over the past decade under NHL Commissioner Gary Bettman. The league added four teams, boosted sponsorship, licensing and TV revenue, and increased average ticket prices 81 percent, to more than $48, according to the league financial report.
Now, there is little room to grow. With regular-season TV audiences in the U.S. smaller than those for bowling, the NHL is unlikely to match the $140 million a year it gets from Walt Disney Co.'s ABC and ESPN. That contract, already far smaller than those of other major sports, expires after the coming season. Teams also have maxed out on ticket increases: More than half of NHL teams are lowering prices or leaving them unchanged this season.
The league has other problems. Ownership difficulties forced the Buffalo Sabres and Ottawa Senators into bankruptcy court last season. Both teams found buyers, but at the sport's lowest prices in a decade: around $45 million for the Sabres and $60 million for the Senators, not including arenas or debt, sports finance executives say.
Even more alarming: The four-year-old Atlanta Thrashers appear to be worth little or nothing. Industry executives say the sale of sports assets that AOL Time Warner Inc. announced Tuesday values the Thrashers and the NBA's Atlanta Hawks together at around $110 million. Given basketball's lucrative national-TV deal, "an NBA team on a stand-alone basis is worth at least $110 million," says franchise consultant Marc Ganis. He says the price indicates the Thrashers have "little value and perhaps even a negative value." Turner Broadcasting, now a unit of AOL, paid an $80 million expansion fee for the Thrashers in 1999.
Declining franchise values hurt because they typically are the basis on which sports teams borrow to finance operating losses or acquisition debt. In the past two years, several NHL teams have been rejected for loans, executives say.
More than two-thirds of NHL teams reported losses last season, people familiar with the league say. And the biggest losers were the winners: The New Jersey Devils claimed some $30 million in losses despite taking home the Stanley Cup.
League executives hope the players are persuaded by the gloomy overall picture. "I'm not looking for a fight," Mr. Bettman, the NHL commissioner, told a sports conference in Canada last week. "I'm looking for a solution to the economic issues confronting our game."
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Now add record financial losses to the lineup. According to a report prepared by the league for its club owners, the NHL's 30 teams posted combined operating losses of nearly $300 million last season. That was an increase of more than 35 percent from $218 million a year earlier, according to the report, and a more than sevenfold increase from losses of $40 million in 1993-94, when the league had 26 franchises.
The report, distributed to owners this summer and recently reviewed by The Wall Street Journal, depicts enormous revenue growth over the past decade that has been wiped out by even bigger jumps in player costs. Last season, the report says, the NHL spent 76 percent of $1.93 billion in revenue on player salaries and benefits -- a higher percentage than in the National Football League, National Basketball Association and Major League Baseball. "This is a level at which no business can survive," says Bill Daly, the NHL's chief legal officer. "The league will lose teams and players will lose jobs if we can't fix this."
The NHL's ice-is-melting portrayal comes as the league gears up for battle with its players union over a new collective-bargaining agreement. The current contract doesn't expire until September 2004, and talks on a new one haven't yet begun. But the league has amassed a $300 million war chest over the past four years to prepare for a possible work stoppage, and union officials have told players to expect a shutdown of 18 to 24 months.
The NHL wants an economic system ensuring "cost certainty," such as the salary caps in the NFL and NBA that allocate a certain portion of league revenue for players. NHL executives privately suggest a desire to reduce salary costs by as much as 40 percent. The union wants to retain a predominantly free-market system in which the average player's salary has soared to $1.79 million last season from $558,000 in 1993-94.
The NBA won the first salary cap in 1984 when it was in financial crisis. The NFL negotiated its cap when a flood of television revenue made labor peace desirable for both sides. By contrast, the NHL is trying to extract concessions from players who have grown rich thanks to team owners who willingly escalated their pay. "What you seem to have in hockey is some teams that are spending stupidly or spending unnecessarily," says Stephen Ross, a sports law professor at the University of Illinois, Champaign.
The National Hockey League Players' Association says it won't accept a salary cap. "We believe in letting the market system operate and letting (owners) pay players what they're worth, not a penny more or a penny less," says Ted Saskin, senior director for business affairs for the union.
Union officials say franchises that own arenas, concessions or local cable-TV networks siphon some hockey-related revenue from their teams. That would inflate both losses and the percentage of revenue being spent on salaries. "It's very hard to take those bar charts seriously without the whole picture," Mr. Saskin says. The NHL's Mr. Daly says the league's accounting is thorough.
Distrust between the NHL and its players dates to the early 1990s, when the union staged a 10-day strike, the first since it was formed in 1967. A 103-day lockout by management cost the NHL much of the 1994-95 season. The two sides now argue over everything including the minimum distance between a player's chin and his chin strap.
To be sure, the growth in NHL player salaries owes partly to the current labor contract. Player agents used loopholes to skirt pay limits for incoming players. Rules governing free-agency allowed high-revenue teams, such as the New York Rangers, to bid up the price of better players, raising the bar for everyone else.
The temptation to spend was made possible by leaguewide revenue growth of 163 percent over the past decade under NHL Commissioner Gary Bettman. The league added four teams, boosted sponsorship, licensing and TV revenue, and increased average ticket prices 81 percent, to more than $48, according to the league financial report.
Now, there is little room to grow. With regular-season TV audiences in the U.S. smaller than those for bowling, the NHL is unlikely to match the $140 million a year it gets from Walt Disney Co.'s ABC and ESPN. That contract, already far smaller than those of other major sports, expires after the coming season. Teams also have maxed out on ticket increases: More than half of NHL teams are lowering prices or leaving them unchanged this season.
The league has other problems. Ownership difficulties forced the Buffalo Sabres and Ottawa Senators into bankruptcy court last season. Both teams found buyers, but at the sport's lowest prices in a decade: around $45 million for the Sabres and $60 million for the Senators, not including arenas or debt, sports finance executives say.
Even more alarming: The four-year-old Atlanta Thrashers appear to be worth little or nothing. Industry executives say the sale of sports assets that AOL Time Warner Inc. announced Tuesday values the Thrashers and the NBA's Atlanta Hawks together at around $110 million. Given basketball's lucrative national-TV deal, "an NBA team on a stand-alone basis is worth at least $110 million," says franchise consultant Marc Ganis. He says the price indicates the Thrashers have "little value and perhaps even a negative value." Turner Broadcasting, now a unit of AOL, paid an $80 million expansion fee for the Thrashers in 1999.
Declining franchise values hurt because they typically are the basis on which sports teams borrow to finance operating losses or acquisition debt. In the past two years, several NHL teams have been rejected for loans, executives say.
More than two-thirds of NHL teams reported losses last season, people familiar with the league say. And the biggest losers were the winners: The New Jersey Devils claimed some $30 million in losses despite taking home the Stanley Cup.
League executives hope the players are persuaded by the gloomy overall picture. "I'm not looking for a fight," Mr. Bettman, the NHL commissioner, told a sports conference in Canada last week. "I'm looking for a solution to the economic issues confronting our game."
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