In Professor Vic’s post yesterday afternoon, he had a few questions regarding the Phoenix Coyotes’ filing for bankruptcy. You might recall that the Coyotes filed for bankruptcy shortly before the NHL was going to essentially take control of the team to prevent team owner Jerry Moyes from selling his franchise to Jim Balsillie who would then move it to southern Canada (here is my earlier post on the subject). Here’s an important question that Vic asked:
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:
“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.
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.
Here’s a WSJ article on the subject.