HOW MUCH OF A HIT CAN NHL OWNERS TAKE?

Franchise values decline for first time in 20 years, with more financial pain to come

Mike Ozanian, who describes himself as a “traffic cop at the intersection of money and sports,” has been calculating NHL team values at Forbes magazine since 1998.

During that time, he's seen NHL franchises follow an upward trajectory that would make any stock market analyst smile. It doesn't matter if you own the Toronto Maple Leafs or the Ottawa Senators; purchasing a hockey team is about as safe an investment as buying gold.

Well, it was until the pandemic hit.

Teams lost a lot of money last year. Holding the post-season in two neutral sites, without any fans in the buildings, prevented owners from not only selling playoff tickets, but also robbed them of revenue generated from parking, as well as beer, food and merchandise sales at the concession stands. For a gate-driven league that relies on its ability to put butts in the seats for 70 per cent of its total revenue, the losses were significant.

And they are about to get worse.

With the league proposing a 56-game schedule for next season and no guarantee that fans will be allowed in the buildings, Forbes calculated the average team value declined for the first time in 20 years.

The Vancouver Canucks, which were worth US$740 million in 2019, suffered a two per cent drop to $725 million. Ottawa (down three per cent) went from $445 to $430 million. Calgary, Edmonton and Winnipeg each dropped four per cent. And while the value of the Montreal Canadiens and Toronto Maple Leafs remained flat, the fact that they didn't increase in value was just as troubling as the Arizona Coyotes and Florida Panthers — two franchises that were struggling even before the pandemic — dropping five per cent.

“How are teams that are hemorrhaging cash going to survive this?” Ozanian said in an interview with Postmedia News. “We'll see how long it goes. But the most immediate question for some teams that are bleeding cash is, are they going to sell?”

Maybe we won't get to that point.

Maybe this is all temporary. Maybe by this time next year, when fans are allowed back in the buildings and the NHL officially welcomes Seattle as its 32nd team, things will be back to normal and teams will be profitable. But a year is a long time, especially for owners who may be incurring significant COVID-RElated losses in other businesses they are running.

“Hockey fits the bill for relocation or calls for some of the teams to fold if this prolongs beyond next season,” said Rodney Paul, a sports economist and professor of Sport Management at Syracuse University.

Andy Zimbalist, a sports economics professor at Smith College in Massachusetts, echoed that sentiment.

“When you take a league that's already fragile financially and you add COVID-19, it's going to have a dragging effect for four or five years and the threat of bankruptcy,” Zimbalist said. “The league will be able to patch that up with revolving loan funds, but nonetheless it's a problem. When there's an owner with incredibly deep pockets, it's not an issue. But that's not always the case.”

There is talk that some owners would rather scrap the 2020-21 season than pay out salaries in a year where they won't be making money in tickets sales and other in-game revenues. There is also concern that things won't get back to normal — or rather the normal that existed before the pandemic hit last March.

COVID-19 has already changed how we consume sports and other entertainment. There are no guarantees that people will flock to arenas or theatres once it becomes safe to do so. Watching from home might not be the same as the real thing, but the more we are forced to do it the more normalized it becomes.

For the NHL, which does not have nearly as rich a TV deal as the NFL or other leagues, losing those fans could damage how much money teams are able to generate.

“COVID is giving us a glance into our future,” said Zimbalist. “People's habits that are forming under the virus might be with us for a long time. Will fans want to come back, or have they adjusted to a life where you watch on television?”

If it's the latter, the NHL better find new ways to make more money off the broadcasting and streaming of games. At the same time, don't bother starting a Gofundme for owners just yet. The value of their franchise may have dropped, but it doesn't mean another billionaire won't pay top dollar for the chance to own a hockey team.

After all, casino owner Alex Meruelo reportedly coughed up $300 million last year for an Arizona Coyotes team that had somewhere in the neighbourhood of $300 million in debt. That was $10 million more than what Forbes had valued the franchise at.

Today, it looks like he's lost money on his investment. But check back five years from now.

“It's a very short-term problem for them,” said Duane Rockerbie, a sports economics professor at the University of Lethbridge in Alberta.

“Owners are in the game of buying and selling. They buy a franchise and hold onto it for a long time and then sell it. For most of them, losing or gaining a few million dollars is pretty small.

“Are they hurting in terms of franchise values? No, they're not hurting. They're not in it for the year-end profitability.”

When you take a league that's already fragile financially and you add COVID-19, it's going to have a dragging effect for four or five years and the threat of bankruptcy.