August 23, 2019

Big Business: The Finances of Hockey

Hockey is a big business, although its reach is less widespread when compared to association football (soccer), tennis or Formula One.

Special to California Business Journal.

All top-flight sports are big business in the 21st century, with some of the most recognized brands around the world being sports teams. Go to almost any corner of the globe, for example, and you will find a Manchester United Football Club fan, with many others wearing the jerseys from other English Premier League teams, including Liverpool, Arsenal and Chelsea. The Super Bowl has become an international event as well, with National Football League (NFL) games now also played outside of the United States, and Major League Baseball’s (MLB) New York Yankees’ clothing is common in many regions, too.

Hockey is a big business too, although its reach is less widespread when compared to association football (soccer), tennis or Formula One. Hockey is quite popular in the Northern European countries like Russia and Sweden as well as the United States and Canada. In these latter two countries, the National Hockey League (NHL) is the elite competition for ice hockey, and therefore, has become the most successful financially.

NHL Profits

The NHL has enjoyed a period of financial growth, with rising profitability and opportunities for more money to sell the television rights looking strong. Average operating income (net profit) has increased more than 300 percent between the 2011–12 and 2017–18 seasons, with the 2017–18 season delivering an increase on the previous year of 39 percent. That means that each team, when averaged across the entire league, made around $25 million in profit last year, meaning the whole NHL made more than Amazon and Facebook.

 Photo by Markus Spiske

Photo by Markus Spiske

Profit Sharing

An agreement signed in January 2013 splits the share of the revenue from hockey-related activities between owners and players evenly, with a 50-50 split. That meant players made seven percentage points less than in previous years.

TV Revenues

NBC currently has a 10-year television rights deal with the NHL in which it agreed to pay $2 billion over the period. That isn’t split completely evenly over the period though, as it paid 10 percent of that up-front, so it averages at around $180 million per season. This deal ends in 2020, and many believe that the NHL could command as much as $400 million per year in its next deal.

Such is not an absurd prediction, as there is a precedent for such increases. In 2015, NBC agreed to pay double what it had paid to secure the rights to televise the English Premier League in the United States, an increase from around $85 million per year to just under $170 million. In 2016, ABC and ESPN managed to retain the TV rights for NBA games but also with a significant increase in fees, and Fox retained MLB rights two years later by also paying a significant sum.

In addition to this, teams also have deals with local television networks and sponsors that can even exceed their share of the NBC rights revenue. One example is the Toronto Maple Leafs who have a $41 million deal with local TV networks Sportsnet, TSN and Leafs TV. In the 2014–15 season, this generated $700,000 of revenue per game. The New York Rangers have a similar deal valued at around $35 million for games to air on the Madison Square Garden Network.

TV rights outside of the U.S. also provide significant revenue streams, with the rights to air NHL games in Canada valued at$ 5.2 billion (CAD) over 12 years from 2014. Online streaming and TV rights deals in many other countries provide further revenue, with games aired in the U.K., Australia, Czechia, Brazil and several other countries across the globe.

Valuing Teams

NHL teams are significant in size, but there is huge variance between the biggest (and oldest) and the smallest teams. For instance, the smallest team, the Arizona Coyotes, is valued at $290 million, with an $11 million net loss generated from the revenue of $96 million in the last season. Meanwhile, the largest team, the New York Rangers, is valued at five times more at $1.55 billion, and in the last season, generated $107 million of net profit from $253 million in revenue.

In comparison, even the biggest NHL teams are relatively small when up against other sports. Manchester United recently valued at $4.12 billion, more than double that of the New York Rangers, with other famous teams, including the Dallas Cowboys and Real Madrid, who valued at $4.8 billion and $4.09 billion, respectively. The New York Rangers are valued more than the Scuderia Ferrari Formula One team, which is the biggest team in the sport and valued at $1.33 billion in 2017.

Can they buy success?

Several of the most successful NHL teams are also some of the most valuable and profitable teams. For instance, the Montreal Canadiens have won the second most regular season titles and the third most playoffs, and they are also the third most valuable team. The Boston Bruins and Philadelphia Flyers also sit in the top 10 of each of these three tables.

However, success isn’t always achieved by spending the most money. Tampa Bay ranks 21st on Forbes’ list of hockey teams in overall club value, yet they won the Presidents’ Trophy last year. According to an odds comparison website, Oddschecker, this victory makes them the current favorites to win the Eastern Conference next season. Similarly, the Vegas Golden Knights are the most decorated NHL team in the league’s history but rank only 12th on the Forbes list with one-third of the balance sheet of the New York Rangers.

Overall, the NHL has been quite successful in developing valuable teams and brands. The 50/50 split between owners and players also seems to distribute the profit generated from these big brands more evenly. In following the trend of sports, the revenue from TV rights seems set to skyrocket over the next few years, so expect the profits to continue to grow. While it isn’t a guarantee, it seems more than plausible that the TV rights deal in the U.S. could double in value, with other regions and local deals to follow suit. If this big increase does happen, then expect the values of the teams to increase significantly, too.

[Lead Photo by Alex Korolkoff / License]

 

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