Winners and Losers under the current CBA (Part 1)

Graphic Comments
September 12 2012 03:07PM

 Winners and Losers

(This was originally published at NHLNumbers, but I felt it warranted wider distribution. The rest of the series will be published at NHLNumbers.)

So, just why are we on the brink of yet another NHL lockout? This graph provides a pretty good explanation.

But not many are really digging into the financial ins and outs of the NHL's internal economy. Instead, there's plenty of finger pointing going on between the two sides, by the media, and among the fans. Especially the rabble on Twitter, whose "uninformed ramblings" are inconsequential to the outcome, according to NHL deputy commissioner, Bill Daly. And in truth, he's quite right. He just doesn't have to be so rude about it.

But that's for another post on another day with altogether more amateurly hand-drawn charts. Today we're sticking with good old Excel as we go inside the NHL's finances; or at least a reasonable facsimile thereof, as compiled by our good friends at Forbes in their annual list of NHL team valuations. What do the financial performance metrics tell us about what differentiates the winners from the losers in today's NHL?

First, a note on the Forbes numbers. They are most certainly wrong. Some are collected from publically available documents and filings and some are estimates. Even then, there are many things that can get counted in a variety of ways when it comes to corporate finances, so comparing them is never going to be an exact science. This is even more true when we get to Operating Income, because any well-run company with a semi-competent CFO is going to try and use accounting methods to minimize the bottom line as much as possible in order to reduce the tax burden. All that being said, these are the best numbers I have, and at the very least provide a proxy for the real numbers. If anyone wants to send me the NHL's actual financial reports, I'll be happy to look through them.

With that non-trivial caveat in mind, the data presented here all comes from Forbes, and covers the period from 1998-99 to 2010-11. That gives us six years prior to the lockout and six years after. Forbes updates their NHL valuations in November, so there is no detailed team data available for the 2011-12 season. There were three teams that joined the NHL during the period but this has little effect on the graphs presented below since most of them are on a per team basis.

Financial Terminology 

Revenues: Forbes presents only their estimate of total revenues and does not distinguish them from Hockey Related Revenues, so that's what we're using here.

Player Expenses: Again, Forbes reports actual dollars spent on player salaries and benefits. Thus the Player Expenses numbers are going to be quite different that what you'll find on CapGeek.

Gross Income: I'm calculating this as Revenues - Player Expenses. This represents how much cash teams have left over to spend on running the hockey team, interest charges, taxes and taking some kind of profit out at the end.

Operating Expenses: Forbes does not report this this explicity, but they do report Operating Income. Since Gross Income - Operating Expenses = Operating Income, some simple algebra allows us to calculate this as well.

Operating Income: This is what's left over from the Revenues once the Player and Operating Expenses have been spent. Typically this would not include ammortization, depreciation, interest or taxes, but it's not clear to me that those first two items really are excluded from these numbers in all cases.


Plotting every team on these charts would create a spaghetti-like mess, so I've grouped the teams together in two different ways. The first is by a subjective assessment of how they were doing under the previous CBA:

  • Five teams were Profitable: Toronto, Montreal, NY Rangers, Detroit and Minnesota
  • Six teams were Losing Money: Washington, Buffalo, Carolina, St. Louis, Anaheim and Phoenix
  • The rest were more or less Breaking Even, i.e. they were within $10 million or so per year of the break-even mark

I also classified the teams by how their finances changed pre-lockout to post-lockout:

  • Seven teams performed noticeably Better after the lockout: Toronto, Montreal, NY Rangers, Detroit, Vancouver, Dallas and Edmonton
  • Four teams improved, but were still losing money, so they were Less Bad: Washington, Anaheim, Buffalo and St. Louis. These were all Losing Money teams pre-lockout, so I guess this is good. Sort of.
  • Ten teams performed noticeably Worse post-lockout: Boston, Minnesota, San Jose, Tampa Bay, Atlanta, Nashville, Florida, Columbus, NY Islanders and Phoenix. These were all teams that were Breaking Even pre-lockout, with the exception of Minnesota, which had been profitable, and Phoenix which has been losing money since forever. This probably explains why Minnesota's Craig Leipold is on the NHL's bargaining committee this time around.
  • The remaining nine teams stayed about the Same, which is fine from an altruistic perspective since all but one were breaking even (Carolina was the one team that was Losing Money pre-lockout and lost about the same post-lockout). But for any of these owners that were hoping to extract a little cash out their team, the CBA didn't work out quite as intended.

By grouping the teams in these two ways it's much easier to look at how the various financial measures changed over the course of the new CBA. However, as discussed above, there is pretty good correlation between the two classification methods:

  • The Profitable teams generally did Better after the CBA.
  • Most of the Losing Money teams were Less Bad post-lockout.
  • The Breaking Even teams were almost evenly split between staying the Same and doing Worse.

As a result, looking at the changes in the financial metrics over time looks pretty much the same under both systems of classification. So in most cases I'm going to present the Profitable, Breaking Even and Losing Money classifications for the sake of simplicity.

With that bit of housekeeping out of the way, let's get to the data.


It's fairly obvious from this chart why the Profitable teams are that way: they generate more revenue. There was a significant separation pre-lockout and not only did it continue post-lockout, it noticeably widened. And as has been pointed out before, this widening gap in revenue distribution when combined with the salary floor, which is directly linked to aggregate revenues, keeps the Money Losing means in the fiscal hole they're unable to dig themselves out of.

(In essence, as in the real economy, costs are socialized while profits are privatized. Maybe I should have labeled the top group as the 1%...)


The other interesting point that stands out is how steady the growth rates are. There are no major up and down swings. Pre-lockout, there was a distinction in revenues between the Profitable teams and the rest, but the Breaking Even teams were slowly closing the gap, growing revenues at an 8% clip, compared to 6.8% for the Profitable teams. The Losing Money teams were falling farther behind at just 3.7% growth.

Then we had a lockout and a new CBA designed and imposed by the league. This was supposed to be the CBA to end all CBAs. The owners got their holy grail: a salary cap and cost certainty. The CBA also included a token amount of revenue sharing, which seems to have had an immediate impact. In the first year after the lockout, revenues dipped for the Profitable and Breaking Even teams, but jumped significantly for the Losing Money teams. Hooray! Success!

Not really. This appears to have been a short-lived, one-time gain.

After that first post-lockout year, the Breaking Even teams dropped to 6% growth rate, while Losing Money teams continued along at the same-old 3.8%. But the Profitable teams really took off, jumping to 9.5% annual compound growth from 2006 to 2011. Some of this can be attributed to the rising Canadian dollar during this period since Toronto and Montreal represent almost 50% of the total post-lockout revenues of the five teams in this grouping. And indeed, growth revenue growth has slowed somewhat for the Profitable teams in recent years, but this can be attributed to the effects of the 2008-9 financial crisis on Detroit and a plateauing of revenues in Minnesota. In general, though, the higher revenue growth rates have continued apace.


The conclusions we can draw from the revenue data are as follows:

  • Other than the one-time shift in revenues following the lockout, the CBA has had little to no positive impact on the structural problems with the NHL's internal economy. The Profitable teams continue to capture a larger piece of the pie. The five Profitable teams collected 20% of the total NHL revenues in 1999 and 23% in 2011. Conversely, the six teams Losing Money dropped from a 20% to 17% share of revenues, and fittingly, the Breaking Even teams stayed at about 60%.
  • The recent increases in total NHL revenues have been driven in large part by the Profitable teams. It is unclear if this is simply due to their market sizes or just better management or some other factor. Hmm, well since Toronto is such a large contributing factor here, I'm thinking we can rule out better management. What this says to me is that all these new revenue streams at the league level that everyone keeps talking about are not having as large of an impact as we might think. Most revenue growth still appears to be generated at the local franchise level, and thus accrues to individual teams.
  • While aggregate NHL revenues have grown significantly over the last 11 years, the extremely unequal distribution of revenues among franchises has not enabled the struggling teams to climb out of their fiscal holes to reach profitability. At best, the CBA as implemented, as slowed the descent into bankruptcy for the Money Losing teams and maintained the status quo for those Breaking Even.

In Part 2 of this series on the CBA's winners and losers, I'll look at how Player Expenses have changed over time and how they relate to the Gross Income available to fund hockey operations and generate profits.

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