NHL finances remain strong

Posted: Wednesday, January 15, 2003

NEW YORK -- On the day the Buffalo Sabres became the second NHL franchise in a week to declare bankruptcy, the league signed a $1 million sponsorship deal with the Kellogg Company.

So how bad can things be?

Jim Andrews, editorial director of IEG Sponsorship Reports, which monitors corporate sponsorship of sports, sees the Kellogg buy as a sign of a healthy league.

''In terms of marketers, it takes more than those bankruptcies to disrupt interest in a league,'' he said. ''The NHL is still a good buy. If you take a three, four, five-year view of its health, there might be serious questions. But most sponsors look short-term.

''Until the ratings plummet and people stop buying tickets -- and at this point there's not a compelling reason to do that -- it remains solid.''

Commissioner Gary Bettman endorses that perspective. Following the Sabres filing, he addressed the state of his league.

''Overall, we're coming off five years in a row of record attendance,'' he said. ''We have unprecedented exposure and, in fact, we have unprecedented revenues.

''In the last decade, we have managed to grow revenues from a little over $400 million to $2 billion. So in some respects, the business side, as it relates to revenues, has never been stronger.''

There are, however, other issues like spiraling salaries, poor business decisions in individual markets, limited revenue streams from broadcasting and perhaps an overambitious expansion to 30 teams. Half the teams reportedly lost money last year. Ottawa filed for bankruptcy protection from more than $160 million in debts. Court papers indicate the Sabres owe their 40 largest creditors more than $206 million.

''In retrospect, the league probably expanded too fast with the result that for an industry without a major television contract, it was probably predictable that in the current economic environment some teams would run into problems,'' said Ed Edwards, chairman of the financial and commercial law department at Western Michigan University.

Yet the league has no trouble attracting sponsors with more than 20 in the fold. Corporate spending increased from $350 million last year to $400 million this year. Eleven of 13 sponsors renewed and five new sponsors have signed on over the last two years.

''It's the No. 4 sport but there are a million fans and it's reasonably priced,'' Andrews said. ''You can't get major league baseball, the NBA or the NFL for anything below $2 million a year and here Kellogg got two years for $1 million.''

Still, $1 million is small change for a company the size of Kellogg, which had $8 billion in sales in 2001. And unfortunately for the league, the small change image surfaces in its television contracts.

Each NHL team gets about $5.7 million for TV rights in the United States and Canada. Compare that with each NFL club receiving $77 million. And yet, the average salary in the NFL in 2001 was $1.1 million compared with $1.64 million in the NHL.

Michael Spence, former dean of the Stanford School of Business and a winner last year of the Nobel prize in economics, sees the problem as big cities vs. small ones.

''As hockey gets more popular in terms of geographic coverage, there are more teams in big cities that can bid up salaries,'' he said. ''The television contracts do not spread the revenue out sufficiently to overcome the disadvantage of the smaller cities. So cost pressures increase and the smaller cities can't compete with their revenue. They either have deficits or players who aren't competitive, leading to revenue problems over time.''

The problems of the Sabres and Ottawa Senators are the latest financial hits for the league. In 1998, the Pittsburgh Penguins filed for bankruptcy and were rescued by retired star Mario Lemieux, who converted $25 million in deferred salary and cash into an equity stake to lead a new ownership group of more than a dozen investors and returned to play.

The Los Angeles Kings filed for bankruptcy in 1995 to allow the purchase of the team to proceed.

Bettman does not think any team will fold because of money problems.

''I anticipate making it to 2004 with 30 clubs, all where they are currently located. But it will be a struggle for some of them,'' he said following the Sabres filing.

There was speculation that the filings might create a crisis atmosphere that would speed negotiations on a new collective bargaining agreement. The contract expires in September 2004.

Bob Goodenow, executive director of the NHL Players Association, does not see that happening.

''While we have discussions with the league from time to time on a wide range of hockey and business topics, we have not received any proposal from the league concerning a new collective agreement,'' Goodenow said in a statement.

''The bankruptcy filings by both Ottawa and Buffalo are difficult for fans and anyone not closely connected to the business of the sport to analyze, but in the end the bankruptcies are appropriate steps in positioning both franchises for successful futures.''

With two NHL teams in bankruptcy, one more would mean a hat trick that neither Bettman or Goodenow really wants.



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