Tuesday, November 24, 2009
I was especially amused by the comments made by Patrick LaForge, president of the Oilers, about me, and my well known anti sports subsidy position:
Yep, that's me. Slavishly devoted to sucking the joy and happiness out of urban life as we know it in North America, one article and blog post at a time. I'd like to write more about this, but I am busy trying to get the Edmonton Opera shut down.
LaForge says Humphreys and economists like him have it all wrong, that their fixation on certain economic measures misses the bigger picture of what makes a city thrive.
"To a large degree, it's people with Humphrey's view that prevents us from building the next Eiffel Tower, the next Peace Arch, the next CN Tower, because people who think like him can't find the economic rationalization to do it.
"I think that sports and entertainment is a unique industry and it adds value to a city. ... You can't replace it with a refinery or a pulp mill. They might have similar economic impact, but it's not a substitute for entertainment for the masses.
"It's people like him (Humphreys) that are going to prevent the world from being a place of entertainment, arts and culture. And I said that to him. It's not that people have to buy into my thinking 100 per cent, either, but he represents a view that I just 100 per cent disagree with."
Thursday, October 01, 2009
Judge Rejects Jim Balsillie's Offer for the Pheonix Coyotes, Reaffirms Single Entity Status in Franchise Location Decisions
Judge Redfield Baum has rejected Jim Balsillie's offer to buy the Phoenix Coyotes. The NHL was adamantly against Balsillie's offer because of his desire to abandon the Phoenix market and move the Coyotes up to Hamilton, Ontario. Not only would that put an NHL team in a smaller media market, but it would also move a team within 60 miles, more or less, of two existing NHL franchises, the Buffalo Sabres and the Toronto Maple Leafs.
As noted above, it's not a complete victory for the NHL because its offer was also rejected. But Judge Baum did affirm that the NHL can be treated as a single-entity when it comes to franchise locations. That's a huge victory for the NHL. I'm not sure the same can be said of the average hockey fan.
Cross-posted at Market Power
Friday, September 04, 2009
Now, two media packagers, DirectTV and Comcast, are deuling over the Comcast-owned Versus network -- home to NHL games, the Tour de France, and a variety of other sports. As of September 1, DirectTV dropped the network. In this case, Comcast is the vertically integrated firm not only serving as packager but also as upstream media source.
The "Puck Daddy" blog (via Yahoo Canada) provides a very thorough discussion of this dispute, drawing out the quite convoluted analytics -- negotiation strategies and posturing, intracompany marketing strategies, comparable or not-so-comparable deals with other packagers like Dish, and so on. One of the ironic features of this dispute vis-a-vis the NFL Network case is the role of the NHL. To date, it has stayed out, but as Puck Daddy notes
the NHL isn't stepping into this minefield until it needs to at the end of September. Even if we all know where their loyalties are; it's not exactly DirecTV who owns the Philadelphia Flyers ...That last tidbit highlights another twist in the tale -- Comcast owns the Flyers. This makes me think that PD may have misconstrued the NHL's role. While their loyalties may rest with the Flyers, so does their leverage.
Friday, June 12, 2009
All parties in the Coyotes court challenge are waiting for a ruling from Judge Redfield T. Baum on a process for determining what additional amounts Balsillie may be expected to face on top of his $212.5-million purchase fee in relocation/indemnification costs. Noll believes the figure could be $60 million, but there has been some suggestions it could be as much as $400 million, which would include compensation for the Maple Leafs and Buffalo Sabres.The notion of a $400m relocation fee -- in the NHL? in this economic environment? -- strikes me as patently ludicrous, but who knows, the NHL could have strong contractual language protecting quasi-exclusive territories. Does anyone know where the $400m figure comes from?
Baum has indicated he expects the relocation fee to be "reasonable and fair."
Noll believes that Balsillie's lucrative offer will be the only one on the table on June 22 when the bankruptcy court is set to determine who the bankrupt franchise should be sold to. The NHL has stated there are four other interested groups, including the Toronto Argonaut owners, who are considering making bids that would keep the team in Phoenix.
"If (Balsillie) really is the only bidder, he is going to get the team. And it's going to be in Hamilton," Noll said.
Thursday, May 07, 2009
Second, it's also unclear why the NHL would want to force a team to remain in an unprofitable market when it seems clear that fan demand in Ontario could easily support another franchise in the area.The Finance Professor writes:
As a Sabres fan, this also hits to home as the potential owner (Jim Balsillie) wants to move the team close to Buffalo (Southern Ontario). Which will likely hurt the Sabres as well as the Toronto Maple Leafs. From the Buffalo News:I think this makes sense. Of the many things leagues (i.e. collections of individual teams) do is maintain league members' profits by helping enforce each team's exclusive territory. In so doing, they help enforce a cooperative solution to the cartel game, a type of prisoner's dilemma game, in which cooperation is very difficult to maintain."Buffalo Sabres minority owner Larry Quinn … who said 20 percent of the Sabres' revenues come from southern Ontario …."Obviously, the southern Ontario market is part of our [area of dominant influence]. It's very important to our fans. It's something we have the right to promote and market as only the Buffalo Sabres'. If we were to sell our team by promising somebody the rights in another market, we wouldn't be able to do that, so I'm assuming that other people in the league will follow those same rules.
Here's a WSJ article on the subject.
Wednesday, May 06, 2009
However, all may not be as it appears in Phoenix. The current owner has received a bid of $212.5 milllion from Jim Balsillie, co-CEO of BlackBerry maker Research In Motion, contingent on the team moving to southern Ontario, a move that the league normally might block. By filing bankruptcy, current Coyotes owner Jerry Moyes may simply be trying to enlist the court's help in forcing the league to accept the move to satisfy creditors. Ironically, the NHL itself is one of the team's largest creditors.
This would not be the first time an owner attempted to enlist the courts to prevail over a league's franchise location wishes. Al Davis successfully sued the NFL for the right to move the Oakland Raiders to Los Angeles in the 1980s. Many observers also believe the the ill-fated USFL's attempt to form a rival football league an subsequent antitrust lawsuit against the NFL during the same time period was a backdoor attempt to force an eventual merger between the NFL and the upstart league in order to get a handful of expansion franchises on the cheap.
Several comments: first, it's not clear at all that a bankruptcy court can force an unrelated party like the NHL to do anything just to help the creditors of the Coyotes. Second, it's also unclear why the NHL would want to force a team to remain in an unprofitable market when it seems clear that fan demand in Ontario could easily support another franchise in the area. Finally, while the Canadian jurisdiction may confound a simple answer, it's also not clear why Balsille and Moyes don't think that they would ultimately be successful in court in their bid to move the franchise even without the league's approval.
(Thanks to my student Shane McAdam for the heads up.)
Less than an hour before the National Hockey League commissioner planned to broker a deal to sell the and strip team owner Jerry Moyes of his duties Tuesday, Moyes filed for bankruptcy to sell to his own buyer.
Moyes, as part of a Chapter 11 reorganization filing, agreed to sell the team for $212.5 million to a BlackBerry wireless magnate who plans to move the team to a yet-to-be determined location in southern Ontario, Canada.The move is not a certainty. Already, the NHL and Glendale, which leases Jobing.com Arena to the Coyotes, have objected to Moyes' tactics. And other investors could outbid BlackBerry executive Jim Balsillie's PSE Sports & Entertainment LP.
But the Coyotes, who have played in metro Phoenix since 1996, habitually have lost money in the desert, first when they shared an arena with the Phoenix Suns in downtown Phoenix and most recently in Glendale.
Moyes, who since 2001 has invested more than $310 million in the team, declined to be interviewed. Earl Scudder, his financial and legal adviser, said Moyes had no option but to file for bankruptcy because that was the only way to void the team's lease with Glendale.
"He didn't have a lot of choices," Scudder said. "He had gone through extensive marketing efforts and was unable to get offers for the team that would take care of the creditors." The move shocked Glendale, which contributed $180 million for the $220 million arena that opened in 2003. For the city's hefty investment, the team signed a 30-year agreement with an early-termination penalty of more than $700 million.
I agree with this assessment from Meyer:
Several years ago, Phoenix suburb Glendale paid about $180 million to build a hockey stadium for the Coyotes. The Coyotes had already been in the Valley for several years, losing money all the while, and had shed one ownership team for another fronted by Wayne Gretzky. It was shear madness to build them a stadium, as their chances of financial success were almost non-existant. It was already clear at this point that hockey was not going to be a big draw in Arizona. For this reason, Scottsdale and Phoenix both ended up passing on subsidizing the team before Glendale, out to prove it was a “real” city, stepped up to the plate with a wad of taxpayer money.This is one of the problems with using other people's money to finance risky projects: investors take risks that they otherwise would not. If the project doesn't pan out, it's the taxpayers who are on the hook.
Addendum: I see that Victor Matheson has posted on the bankruptcy as well. As I mentioned to him in an email, I think it's pretty clear that the Coyotes are not in danger of completely folding. Instead it seems that the bankruptcy filing is strategic - a way for Moyes to at least buy himself a little more time in his attempt to sell the Coyotes to Balsillie.
Another addendum: according to this AP update, the NHL questions whether Moyes has the power to file for bankruptcy.
Another addendum: The Chicago Tribune reports that White Sox owner Jerry Reinsdorf is working with the NHL on a deal to buy the Coyotes and keep them in Glendale.
Monday, March 02, 2009
Why has something so glaring not been addressed? The selection of on-the-field rules is a relatively unplowed field in sports econ. We usually just assert that rules are chosen to maximize profits (or revenues). That assertion is easy enough to make but is it accurate? Are there a bunch of existing customers loyal to a given set of rules making changes likely to be unprofitable or is it something else such as league "political economy"? The NHL finally ditched the Red Line in is application of the "2-line pass" only after such an idea had long been floated. It's hard to believe that a lot of fans were tied at the hip to the Red-line, 2-line pass rule. Where rules changes require a supermajority, relatively risk averse owners are the deciding votes and may be the choke point for new ideas. Maybe it is TV contracts with relatively short lengths that make the networks unwilling to gamble on payoffs that might build over the longer term. A bunch of related questions crop up. Do leagues experiment at about the same rate or different rates, and if different, why? My guess is that sports leagues, like industries differ considerably in their willingness to experiment with altered play formats.
The biggest head scratchers for me are sports, such as water polo or soccer, where the incentive problems are glaring or sports lacking in popularity. Why not experiment? As I have written before, why doesn't the NBA try different, shorter playoff format?
Tuesday, February 24, 2009
I wonder if Glendale ever made back the money they spent on getting the Super Bowl. Well, you know what they say about other people's money.
The city of Glendale has been quietly bailing out the money-losing Phoenix Coyotes for several months, according to documents obtained by 12 News.
A record of lease payments by the Coyotes shows the city has been letting the team play virtually rent-free at Jobing.com Arena for seven months. Based on past payments, the break could be worth up to $4 million over the course of a year.The city is giving the team the multimillion-dollar break even as it tries to plug a multimillion-dollar hole in its own budget.
HT to Kip.
Thursday, November 06, 2008
There's no question the NHL is now riding high, bolstered by increased co-operation among players and owners, which was cemented in the text of the CBA.Here's more, in a great story by David Staples in the Edmonton Journal. Staples argues that the NHL is currently better prepared for a serious downturn given the existence of long term contracts, and the increased sharing of gate revenue. Let's hope so!
Revenues, profits, attendance and franchise values are all at record highs, says writer Kurt Badenhausen of Forbes business magazine, which issued its annual report on the NHL's economics last week.
The average value of an NHL team rose 10 per cent to $220 million US this year.
According to Forbes, the Toronto Maple Leafs are the league's most valuable franchise, worth $448 million US. The Montreal Canadiens are worth $334 million, while the Vancouver Canucks are at $236 million; the Ottawa Senators are at $207 million; the Calgary Flames are at $203 million and the Edmonton Oilers are valued at $175 million.
"Hockey is on a growth cycle in North America," says Oilers team president Patrick LaForge. "There's reason to be happy or excited about some of our larger markets."
It's worth nothing, however, that the NHL was also riding higher than ever in the 1920s before it faced its greatest contraction, when the league lost 40 per cent of its franchises in the period 1931 to 1942.
It's a widely held belief in the modern world of sports that professional leagues managed to thrive during the 1930s because folks needed an escape from the gloom and drudgery of their lives. While this was true of Major League Baseball, which lost not one franchise during the 1930s, it didn't work that way for the NHL.
In the mid-1920s, the NHL had moved from its small Canadian base of Toronto, Montreal, Ottawa and Hamilton to become an international league with new franchises in Boston, New York, Pittsburgh, Chicago and Detroit. It was a time of escalating franchise values. In 1920, an NHL franchise could be had for $5,000, but by 1926 the NHL decided that $50,000 was the new asking price, writes John Chi-Kit Wong, a University of Washington State sports business professor in The Lord of the Rinks: The Emergence of the NHL, 1875-1936.
In the years following the 1929 crash, four teams went into receivership: the Ottawa Senators, Pittsburgh Pirates, New York Americans and Detroit Red Wings. Only one of those teams, Detroit, found a new owner and survived.
One problem was that there was almost no revenue-sharing among NHL owners of that time. Teams got almost all of their revenue from game-day ticket sales, but just three per cent of the box office went to the visiting team.
Ottawa had to sell its top players. Its revenues dropped 36 per cent from 1927 to 1933. On average, NHL revenues dropped 31 per cent from 1929 to 1933, with the average box office take from an NHL game falling from $11,000 to $7,600.
In the end, Ottawa moved to St. Louis, while the failed Pittsburgh Pirates moved to Philadelphia, but the St. Louis Eagles and the Philadelphia Quakers survived only one year each.
The Montreal Maroons and the New York Americans also went under, leaving the NHL with just six teams.
Wednesday, June 04, 2008
A secret NHL report detailing the ticket revenues of its 30 teams reveals [that]... The six Canadian teams account for 31 per cent of the $1.1 billion (U.S.) in league ticket revenue, and have gone through league-leading double-digit increases over last season, according to the internal NHL report.Twenty percent of the teams account for 31% of the ticket revenue, which doesn't seem all that surprising to me — some markets are more lucrative than others.
Overall, the league has seen its ticket revenue rise almost 10 per cent, but 11 of the 24 U.S.-based clubs were either revenue-flat or lost ticket income.
Nevertheless, some people are using these data to argue that there should be more Canadian teams in the NHL. From the same source,
"This really makes the case for another team in Canada, whether it's Hamilton, Winnipeg or Quebec City," says former Vancouver Canucks owner Arthur Griffiths.It might very well be the case that an NHL franchise in Hamilton, Winnipeg, or Quebec City or even Halifax would do better, in terms of ticket sales, than, say, the Phoenix Coyotes, who lost something like $30m last season. But the appropriate comparison is franchise-to-potential-franchise, and the fact that, on average, Canadian franchises brought in more ticket revenue than US franchises is entirely irrelevant.
"I think Hamilton has the best facility, but obviously faces challenges in what it would have to pay Toronto and Buffalo. Winnipeg is a good possibility, but the market there has shown a resistance to paying top dollar for tickets, and you wouldn't want to add a team that was going to be in the middle-of-the-pack for revenue, while Quebec City needs a huge infusion of investment for a new facility."...
NHLPA executive director Paul Kelly has reviewed the document and said it highlights the importance of placing more franchises in Canada, instead of potential expansion cities such as Las Vegas, Houston or Kansas City.
"I think it would be a huge error not to relocate one of the existing franchises to Hamilton or Winnipeg," Kelly said.
Remember how, just a few years ago, many sports writers and others were decrying the state of hockey in Canada and worrying that perhaps only three or four franchises could survive in Canada? Remember how NHL teams left Winnipeg and Quebec City, not just because they received better offers from other cities but also because of the comparatively low fan turn-out in those cities? In fact the Canadian average revenue is so high for two big reasons:
- The largest revenue generator in the league is the Toronto Maple Leafs [despite their relatively poor performances of late] with Montreal a close second. Still from the same source,
Atop the list of income winners is the Maple Leafs, who nudged out the Montreal Canadiens to lead the league this past season with $1.9 million worth of ticket revenue per game. Based on 41 home games, that's $77.9 million a year – not counting revenue from pre-season games. A year ago, the Leafs generated $1.5 million a game, according the report obtained by the Star from several league sources.
- And keep in mind that these figures are all in terms of US dollars. The appreciation of the Canuck Buck during the past few years has played a major role in the rise in Canadian ticket-sale revenues. Even with no increase in Canadian dollar revenues, the Canadian teams would, cet. par., be reporting 20 - 30% more revenues in US dollars.
The increase in the value of the Canadian dollar may be responsible for as much as half of the league's revenue gains since the NHL went through the lockout of 2004-05, say several sources familiar with NHL finances.
"If you take out the Canadian teams, which have done so well since the lockout largely because of the Canadian dollar, the league's revenues are actually only growing at a 2 per cent clip per year," says an executive with a U.S.-based NHL team, who requested anonymity.
I, personally, would be thrilled to see a franchise in Hamilton or in Kitchener-Waterloo. And it might well be the case that even considering the losses that would inevitably be suffered by the Toronto Maple Leafs (and quite likely the Buffalo Sabres) if a team were to locate in one of these cities, a franchise in Hamilton or in K-W would do better than the franchises currently located in, say, Phoenix or Atlanta or Columbus or....
But if so, that has nothing to do with comparisons of average revenue per game in Canada vs. the US.
Cross-posted at EclectEcon
Wednesday, May 07, 2008
Five CFL teams – the Montreal Alouettes, Winnipeg Blue Bombers, Hamilton Tiger-Cats, Saskatchewan Roughriders and the ownership of a conditional Ottawa franchise – are aggressively pushing plans to build new stadiums or drastically alter and refurbish old ones.It's the overdue question that intrigues me. The article notes that no stadium has been built for football since the 1960s, although some teams play in venues built for another purpose. Some are dilapidated.
Factor in the anticipated makeover of Vancouver's B.C. Place Stadium, which could add a retractable roof to the facility, and a potential redesign of Toronto's BMO Field to accommodate the Argonauts, and the CFL could be looking at well over a half-billion dollars invested in stadium infrastructure during the next five years.
Many would suggest it's long overdue.
Why the lack of public investment? The CFL, like other prominent North American leagues, is a closed set of teams that controls entry. The incentive to obtain a stadium subsidy that derives from the league structure and the relocation threat thus exists. The view of Canadian government as fairly liberal with the checkbook would imply public-private "cooperation" on stadium ventures.
The article suggests at one point that "local and provincial governments are wary about investing in pro sports facilities of any kind," but that doesn't wash with me. Brad knows all about the current subsidy issue over a hockey arena in Alberta, for instance ;)
I can see two possibilities.
It is possible that the CFL makes so little money and has such a small impact that the relocation threat is not operative. There is in fact relatively little demand for football stadiums, public or privately financed.
Second, the political distribution of power differs in Canada from the U.S. This renders the execution of a relocation threat pointless, since (by assumption) there is not a significant source of local public revenue. [bleg: Anyone know the facts?]
I lean towards the first. But the second is testable: hockey arenas should have a greater fraction of public funding south of the U.S. border, despite the fact that hockey is Canada's national sport.
Friday, February 29, 2008
According to the CIA World Factbook, PPP adjusted GDP per capita in Russia was $14,600 in 2007. I have trouble believing that a country with income per capita that low can generate sufficient revenues from fans to support NHL-level salaries, no matter how expensive crude oil gets.
(HT to Brian Soebbing)
Saturday, February 02, 2008
The US dollar has depreciated significantly against other currencies over the past several years. Currency depreciation has a differential effect on an economy. For example, manufacturers who export their products abroad benefit, as their goods are cheaper in foreign markets, while manufacturers who purchase raw materials from abroad are hurt because they face higher input prices.
Currency exchange markets seldom affect the sports world. North American professional sports leagues that have teams in both the
The financial environment is quite different now. The chart below shows the Canadian dollar-US dollar exchange rate over the past five years. The Loonie has been trading roughly at par with the US dollar since last fall, and some analysts predict that this exchange rate will persist for some time.
A recent New York Times article points out that the value of Canadian NHL teams surged in the latest Forbes franchise value estimates, and that Canadian NHL teams appear to be attractive purchases for foreign investors. These events are not surprising, given that Canadian NHL teams have seen their payroll costs drop significantly relative to their US competitors.
Wednesday, October 24, 2007
The rhetoric of the Rangers, and their parent, Madison Square Garden, features phrases like "unrestricted power," "illegal cartel," "seizure," "crackdown" and "blatant expropriation of team assets."Sandomir has some useful facts and analysis as well. Recommended.
There is a Marxist twist to this. Not Karl, but Groucho. The Rangers could well have cited in their legal papers the far funnier Marx, who once said, "I wouldn’t belong to any club that would have me for a member."
Saturday, September 29, 2007
The NHL violated antitrust laws and is acting like "an illegal cartel" by monopolizing control of team promotions, Madison Square Garden claimed in a lawsuit Friday.The NHL appears to be copying major league baseball's approach to managing team websites. Surely there are significant economies derived from MLB running astros.mlb.com, padres.mlb.com, etc. for the team. Baseball's internet operations have turned into a significant revenue generator for the league and its teams, and this revenue growth is surely not derived from restricting competition.
MSG, which owns the New York Rangers, said it filed the suit in U.S. District Court in Manhattan because the NHL would begin fining the organization $100,000 per day starting Friday if the company did not give the league complete control over the Rangers' Web site and other promotions.
The league is seeking to control the licensing of teams for all commercial purposes and to stop teams from marketing apparel, merchandise and memorabilia, the suit said. MSG asked that a judge order the league to stop limiting team promotions, and it also wants the court to clarify the boundaries of the league's rights.
The company said the NHL had once worked with teams in a legitimate joint venture but had more recently "veered into unlawful behavior."
"By seeking to control the competitive activities of independent businesses in ways that are not necessary to the functioning of that legitimate joint venture, the NHL has become an illegal cartel," the suit said.
In 2006, Chris Isidore wrote:
One of Selig's greatest legacies might end up being MLB Advance Media, the joint Internet operations for all the clubs. Besides being a leader in things like Web casts and mobile updates for fans, Selig was able to get the owners to agree in 2000 to equally share their Internet revenue, a move that might one day be comparable to Pete Rozelle getting the NFL owners to agree to share their national television revenue.These facts suggest to me that the NHL's website operations can be cast in a joint venture framework. MSG's real complaint could be with the manner in which the venture is produced or, more likely, how the revenues are distributed.
Both newyorkrangers.com and rangers.nhl.com claim to be the "official site of the NY Rangers." They are built from a similar template and look equally crummy, although the Rangers' own site has a "Rangers Account Manager" tool that is lacking on the league-produced page.