The NHL in 2025

The NHL’s southern expansion strategy may be doomed; here is what could happen if the league looked north.

CB Staff 0

On May 31, throngs of screaming Winnipeg hockey fans poured into The Forks, a popular park and retail area in the city, to hear the announcement for which they had waited 16 years: the NHL was returning to Winnipeg. But after the last reveller left the giant outdoor party one big question lingered for the NHL. Would Winnipeggers, a notoriously cheap bunch, pay thousands of dollars for seasons tickets?

Four days later the league got its answer when 13,000 season tickets were sold in a matter of hours.

While most hockey watchers figured the new Winnipeg Jets would sell a lot of tickets, the speed of the sales surprised pretty much everyone, including Tony Keller, a Canadian journalist who has written a report saying Canada can support up to 12 NHL franchises.

An interactive look at the NHL in 2025 >>

 

“That was pretty remarkable,” says Keller about the Jets’ season ticket drive. “It tells us that these underserved Canadian markets have very high fan demand for hockey.”

Keller, who uncannily made the business case for Winnipeg’s reentry into the NHL before events proved him right, says it’s not just fan support but also the economics that are in place for more Canadian franchises.

His April 2011 report, “The New Economics of the NHL,” published by Toronto’s Mowat Centre for Policy Innovation, paints a dramatically changed future for the league.

In it he envisions an NHL with a dozen more Canadian teams and far less American ones, especially in the U.S. Sunbelt, where the likes of the Phoenix Coyotes and Florida Panthers are in significant financial trouble. Already one team has moved from the U.S. to Canada since Keller’s report came out and it’s likely more are on the way. How many and to where is anyone’s guess at this point, but Keller thinks that by 2025 the NHL’s transformation could be in full swing.

Much has changed since the original Winnipeg Jets franchise moved to Phoenix in the mid ’90s. Then, a low Canadian dollar, combined with rapidly increasing player salaries, pushed the team out. But now, a strong buck means Canadian teams can afford those high salaries. In fact, when the loonie is above par they’re getting a deal since wages are paid in U.S. dollars. Additionally, the 2005 collective bargaining agreement instituted a salary cap and floor, making payroll more predictable. “Hockey, from a cost perspective, became far more manageable after the work stoppage,” says Mark Chipman, president of True North Sports and Entertainment, the company that now owns the Winnipeg Jets. “You’ve also seen very strong growth in [fan demand] for hockey in Canada.”

Chipman has known for more than a decade how good of a hockey town Winnipeg is. For the last 15 years he’s owned the AHL’s Manitoba Moose, and while they didn’t haven’t sold out, the team has led the league in revenues for the last several years. “It wasn’t as though there wasn’t a strong base of support here,” he says. When the new 15,000 seat MTS Centre opened in 2005, all the corporate suites were quickly scooped up.

But Winnipeg  isn’t the only city with a strong desire for pro hockey—interest is increasing across the country. While Hockey Night in Canada viewership has remained steady since the Jets left in 1996, TSN in particular has successfully become an alternative source of TV games, on the back of unquenchable fan interest.

Another reason Keller thinks Canada could be home to many more franchises is that Canadian teams make more money and sell more tickets (at higher prices) than American locales with more people. Six of the top seven revenue leading teams are Canadian—Edmonton, seventh on the list, generated $1.2 million a game in ticket revenues, more than every other U.S. team except the New York Rangers. In the 2009-10 season almost every Canadian team sold out each game; only Ottawa failed to make the cut at a mere 98.8% of arena capacity. By contrast, 11 teams, all American, had under 16,000 people a game.

And yet teams aren’t moving north.

Keller says the structure of the NHL is partly to blame. The 2005 collective bargaining agreement may have made the economics better for Canadian squads, but it’s hurt the struggling U.S. teams. The salary cap/floor rises and falls depending on league revenues. If teams make a lot of dough, the floor goes up. Since Canadian teams make a lot more money than their American counterparts, the league’s revenues will increase as more teams relocate to Canada. That means the floor will rise, putting money-losing U.S. teams in even worse shape than they are in now. It sounds strange, says Keller, but it’s in the majority of the owners’ best interests to keep successful Canadian teams out of the league.

There are other barriers—the league’s constitution states that no NHL team can be located within 50 miles (80 km) of each other, but that rule’s been broken—the New York Islanders and Rangers play less than 25 miles apart and only 30 miles separate the Anaheim Mighty Ducks from the Los Angeles Kings.

The lack of arenas in Canada is also an issue, but one that can be solved. Keller thinks Toronto, Montreal and Vancouver could all support more teams, but to do that they’d likely have to share a building, as creating a new one would be incredibly costly. Some might laugh at the notion of two Toronto teams sharing a building like the Air Canada Centre, but it’s been done before. Just look at the Leafs and Raptors who both play out of the ACC. “A replay of the Leafs’ partnership with the Raptors, and the maintenance of a one-arena city, would almost certainly be the best way, and perhaps the only way, for a second NHL team to come to Toronto, Vancouver or Montreal,” Keller writes in his report.

These issues will have to be addressed soon, because it looks like the NHL may have little choice but to come to Canada. Stateside, the Coyotes eke out a precarious existence via taxpayer dollars from host city Glendale; other American teams are losing millions of dollars a year. A struggling U.S. economy may also prove a catalyst for American owners to sell to Canadian cities. Keller points out that one of the reasons to own a franchise in the first place is because owners almost always make money when they sell; but in the U.S. most teams aren’t making profits from attendance and TV revenues are small compared to other leagues, all of which dampens buyer interest. With the NHL limiting expansion, the only way to get a team is to buy an existing one—it’s basic supply and demand. If a city wants a team badly enough it will pay up. In Atlanta, says Keller, the Thrashers were worth nothing. But in Winnipeg it was worth $110 million, plus $60 million to the NHL.

If American businesspeople don’t step up to the plate, there’s likely a Canadian one that will give a team owner the return they’re looking for.

It’s also hard to deny the fact that if Winnipeg can support a team, many other Canadian cities can, too. In Keller’s report, which ranked each city’s likelihood of getting an NHL team, Winnipeg received a B-, lower than many other locales on his list. He said a small and slow-growing population, low median after-tax household income and a tiny group of high-income earners made it a less desirable place for the NHL to relocate than, say, Hamilton or London, Ont. And yet Winnipeg landed a team, which means other wealthier Canadian cities could be cheering on new teams as well. But which municipalities are best?

The March Northward

The Greater Toronto Area

The most obvious choice for a new NHL team is somewhere in the Greater Toronto Area—Keller gave the GTA an A+ rating. With 6.1 million locals and another 2.8 million just outside of the region, there’s no shortage of people from which to draw. And the area is growing—between 2001 and 2031, the GTA will see population growth of 89%. There are also plenty of corporations, many wealthy residents and, says Keller, an NHL calibre arena in the Air Canada Centre. Yes, it’s already home to the Toronto Maple Leafs, but, again, Keller points out that teams in other sports share a building. True North’s Chipman agrees. “It’s an even more logical market than Winnipeg,” he says.

Hamilton

The next best location in Keller’s report is Hamilton, with an A- score, mostly because it’s so close to the GTA. It draws on much of the same and growing population base, and is home to plenty of high-income residents and numerous corporations. Its one drawback is its arena, which, while league sized, needs a reported $150 million in renovations before it’s NHL ready.

Kitchener-Waterloo

About 100 km (62 miles) away from Toronto, Kitchener-Waterloo gets a B+ from Keller. Like Hamilton, he thinks a Kitchener-Waterloo team will draw heavily from the GTA, but with one advantage over The Hammer: it’s located outside of the 50-mile zone. It has a major drawback, too: no arena. And that’s significant, says True North’s Chipman. No team will move to a city without at least a modern 15,000-seat arena.

London

The last southern Ontario city on Keller’s list is London, which received a B score. It’s the “sleeper candidate,” he writes. Again, a large population—it would likely bring in people from the GTA—is its biggest advantage, and arena issues are its biggest challenge. The John Labatt Centre is modern, but seats less than 10,000. And, if a team moves to Hamilton or Kitchener-Waterloo first, London’s out of the running. “Most of the people and wealth counted as part of London reside in or near Hamilton and KW,” he writes.

Quebec City

Most people believe Quebec City is next in line for a team. Like Winnipeg, Keller gave Quebec City, the former home of the Nordiques, a B- rating. It has the population—about 1.3 million in the region—but the growth rate is just 1% annually. With 21 corporate head offices, it’s well below Winnipeg’s 33, but the median after-tax income and high-income earner numbers are similar. The biggest drawback is that its small arena, about 15,200 seats, is outdated and needs more corporate boxes and upgrades. However, the Quebec government has been working with Quebecor media to get a new arena project off the ground.

Montreal and Vancouver

Keller also says Montreal (A- score) and Vancouver (B to B+ score) could each support a second team. Both have large populations and the growth to accompany it, lots of corporate offices, and do better than average by household income and number of high-earners. The caveat is that they’d have to share arenas. It’s an interesting thought, says Jean-Patrice Martel, vice-president of the Society for International Hockey Research, but there’s no way it’ll happen. “[Keller] shouldn’t forget that until the early 2000s the Canadiens were struggling to fill seats.”

If more teams are to move to Canada, it’s likely some American teams will have to relocate. And there are a number of candidates:

Southern Withdrawl

Phoenix

Currently the most troubled American team, the Phoenix Coyotes are owned by the NHL and efforts by locals to purchase the team have failed. The city of Glendale is forking over to the NHL US$25 million to cover the team’s losses for the 2011-12 season, and at about 12,000 (2009-10 season) nightly, average attendance is lowest in the league. Ditto for ticket revenue per game. “This whole Phoenix situation is amazing,” says Richard Powers, professor of business law at Toronto’s Rotman School of Management. “The club keeps going and they lose millions and that’s coming out of other teams’ pockets.”

Florida

With the sixth lowest attendance in the league, and second lowest ticket revenue per game, Keller believes Florida is high on the list to move. CBC hockey analyst Scott Morrison says the team was selling seats when it went to the Stanley Cup in 1997, but only making the playoffs once in the last 12 seasons has hurt attendance. “Building [an arena] in the boonies (it’s a 40-minute drive from Miami) and not having a winning team is not a sound business plan for success,” he adds.

New York Islanders

It’s not just the Sunbelt teams having problems. The New York Islanders desperately need a new arena and asked the public to help fund it. The city held a referendum August 1, but it failed by 9,000 votes. With the Isle’s lease up in 2015, no one’s sure what will happen to the team after that. “The owner is considering his options,” says Martel.

Dallas Stars

In September, the Dallas Stars declared bankruptcy—fallout from a 2009 debt default by owner The Hicks Group. Tom Gaglardi, a Vancouver-based businessman, has submitted a bid to by the team for $267 million. Unfortunately for Canadian hockey fans, Gaglardi has said he plans to keep the Stars in Dallas. The wait for another NHL team to move north continues.

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Tables courtesy of Tony Keller, The New Economics of the NHL

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