NHL TV deal is Canadian business story of the year
The Canadian Press has chosen the new television deal between Rogers Communications and the National Hockey League (NHL) as the 2013 business story of the year (Toronto mayor Rob Ford is not a business story). Few in the United States would care, but in Canada, hockey is a religion so the deal has received much press. Rogers is also an owner of MLB’s Toronto Blue Jays and its stadium, Rogers Centre, as well as a large network of local and satellite television stations, radio stations and print and on-line magazines and newspapers. Besides Canada’s obsession with the “national sport”, the deal itself is staggering. Rogers agreed to pay the NHL $5.2 billion for the exclusive television rights to the Canadian market for 12 years. To put this in perspective, NBC signed a 10-year TV rights deal with the NHL in 2011 for about $2 billion. Of course the new deal pales in comparison to the ESPN-NFL 10-year TV deal signed in 2011 for $15.2 billion, but the NHL and Gary Bettman are still very pleased.
The Canadian market was definitely undervalued by the NHL previous to the Rogers deal. It was served by a number of different networks (TSN, SportsNet, CBC) that each received a share of games that would not be sold to other networks. Only a handful of games were televised that appealed to Canadian markets, so many games between U.S. based teams cannot be viewed in Canada without purchasing the leagues Center Ice subscription package. That will all change with the new Rogers deal where virtually every NHL game will be made available at various tiers of subscription prices. The much loved Hockey Night in Canada broadcasts every Saturday night by the CBC (broadcast since 1952) will be made available to the CBC by Rogers gratis for a period of five years, however Rogers will retain all revenues from the broadcasts. It is unclear how and if Rogers plans to sell broadcasting rights to games to other networks. Rogers already digitally streams some games to its cell-phone subscribers and this could be expanded to computers and third-party streaming services.
Economists understand the strategy by Bettman and the NHL to sell all of the rights in an “all or nothing” type auction. An all or nothing package extracts some of the monopoly surplus from Rogers that the NHL could not with a larger number of smaller bidders. Rogers earns a larger surplus (including profit) than it would if it were not the sole provider of NHL games in Canada, so it still has plenty of surplus left. The NFL follows a different business model, selling its television rights to 3 major networks (ESPN, CBS, NBC) and broadcasting some games itself on its NFL Network. However the sheer size of the NFL television market insures very competitive bidding – not the case in the NHL with its much smaller U.S. market. One could say that the Canadian market is subsidizing the U.S. market in the case of hockey giving Rogers a major toehold in NHL business decisions.
The loser will be the Canadian hockey fan who will pay a hefty price to watch games on exclusive Rogers SportsNet channels. And Don Cherry.