The Hockey News - Money & Power
A REVENUE- GENERATING MEGALITH
With rinks jammed and ticket prices nearing new highs, can the NHL maintain its growth pace?
HOTLY CONtested playoff spots and impressive performances by a range of stars are keeping fans’ and players’
attention riveted on the ice as the NHL all-star break approaches. However, the January weekend also gives those on the business side the chance to take stock of a game whose
prospects appear better than ever. “I see hockey’s popularity continuing to grow,” said Gary Bettman, the league’s longtime commissioner and the person who is most often associated with its successes. “We’re clearly in a new era where digital technology is giving fans new, different and exciting ways to connect.”
Bettman, whose time at the helm has coincided with the league’s evolution into a revenue-generating megalith, has a point. The sheer dollars the NHL now produces means that business issues increasingly dominate key aspects of its development. “Sports is the most important content that you can have on any platform,” Bettman said. “Our rights, as will other sports’ rights, will continue to increase in value.”
THE LEAGUE, OWNERS AND PLAYERS ARE GETTING RICHER
The key metrics speak for themselves. The recently announced team that will be located in Seattle will cough up a $650-million franchise fee, up a stunning 30 percent from the $500 million that Las Vegas paid when it joined the league in 2017-18. Late last year, Bettman reportedly told the NHL’s board of governors that hockey-related revenues for the 2017-18 season were projected to increase by 8.2 percent to
$4.5 billion (the league does not publish financial data and declined to confirm the total).
Furthermore, according to Mike Ozanian, a researcher at Forbes, the average value of NHL franchises continues to rise. The New York Rangers and Toronto Maple Leafs led this year’s edition of Forbes’ annual rankings. Valuations of the two bellwether organizations at the end of 2018 hit $1.6 billion and $1.5 billion, respectively, increases of more than 20 percent over the past two years. These are huge gains, far ahead of growth in personal incomes and consumer spending.
The players aren’t doing too badly, either. Edmonton Oilers star Connor McDavid’s eightyear, $100-million contract ex- tension, which he signed in July 2017, works out to an average annual salary of $12.5 million. The NHL’s collective bargaining agreement, which allocates 50 percent of revenues to the players, ensures that even third- and fourth-line grinders will share in the gains. The salary cap’s upper limit for team payrolls in 2018-19 increased to $79.5 million, compared to $75 million in 2017-18. Yet, the scale of hockey’s recent successes raises questions about whether the trend can contin-
ue, and, if so, what steps will be needed to ensure that growth?
A GREAT GAME, PARITY, STAR POWER
Experts cite a range of factors for the NHL’s growing success. The league is brimming with stars, and the game itself is increasingly faster and more exciting. Furthermore, America’s economy remains relatively strong. Consumers in the league’s key demographics thus have more money to spend on tickets, hats, beers, hot dogs
and all the other accessories that come with fandom.
Washington’s long-awaited Stanley Cup championship last year brought a burst of national prominence to the league in America’s capital, which provided momentum heading into this season. The relative labor peace that has existed for the past several years has also helped. What Bettman calls an “extraordinary competitive balance” has also been a factor. “The fact that (playoff races) go right down to the wire doesn’t
happen without the system we have,” he said.
Goal-scoring, a perennial bugbear of a key hockey demographic, has hit a 13-year high this season, bringing added excitement into many arenas.
However, storylines about why the league is performing so well are almost all inextricably linked with Bettman, whose career and decisions tie in so closely with that growth. Bettman, who was inducted into the Hockey Hall of Fame in November, took on his current role nearly 26 years ago. A lawyer by training, Bettman, who cut his teeth in the NBA, moved over to hockey at a perilous time, just as North America was coming out of a tough recession.
The outlook was far from promising, to say the least. For example, the San Jose Sharks, who joined the league in 1991,
paid a $45-million franchise fee. That’s a far cry from the $500 million the league received from Vegas. Job 1 was thus a complete reassessment of existing methodologies and goals. “I needed to ensure that the NHL and (hockey) at all levels had a solid foundation, that our franchises were healthy and the product was entertaining, exciting and competitive,” Bettman said. “I figured that if we could grow the game, the revenues would take care of themselves.”
GROWTH OUTSIDE THE RINK: DIGITAL, MILLENNIALS
The NHL’s success forms part of a larger trend, with sports grabbing an increasing share of the consumer wallet during recent years. However, the NHL’s growth is increasingly tied to revenues that are generated outside the arenas. “Ticket prices are getting very close to what consumers are willing to pay,” said Christian Bourque, a vice-president at Leger Marketing, which has done market research for teams in a variety of sports, including work on bids to bring hockey to Quebec City and baseball to Montreal. “That applies doubly to millennials. The younger generation is very much attracted to experiential activities, so getting them into arenas will require continued rethinking of ingame experiences.”
NHL teams played to 102-percent capacity during the 2017-18 playoffs and 95-percent capacity during the regular season, according to data provided by the league. However, experts say there is still some juice to be squeezed from game activities. “That (peak ticket prices) argument has been around ever since I have,” said Bill Daly, the league’s deputy commissioner. “However, arenas are constantly creating new types of inventory, whether it be amenities, lodge offerings or dynamic pricing.”
Daly may be right. But there are also clear limits to millennials’ potential as future clients. Much of the generation is broke, stuck in entry-level McJobs, living in parents’ basements or overloaded with student debt. Building audiences in this demographic will thus require creative strategies, many of which will center on
online efforts or subscription services such as DAZN.
TARGETING THROUGH DIGITAL EXPERIENCES
Despite the clear challenges, Brian Jennings, for one, is a strong believer in hockey’s ability to attract younger fans. “The (fast) pace of play is very much in line with what millennials are looking for,” said the NHL’s executive vice-president of marketing. “While we are seeing a decline in the number of millennials that participate in team sports, there are other ways we can attract them.”
The league’s television contracts with NBC in the U.S. as well as Rogers and TVA in Canada are one example. “The bedrock of entertainment is quality storytelling,” Jennings said. “We are blessed because our broadcasters show what unique ath- letes (hockey players) are and demonstrate what they do in their communities.”
A longtime partnership with EA Sports, which introduces many new fans to hockey through its highly popular NHL video game, also helps.
That said, the league’s successes with its digital offerings have extended well beyond millennials. In fact, research by McKinsey shows that older generations (Gen Xers in particular) are adopting digital technology almost as fast as millennials, and fans’ online behaviors are effective signals of their purchase intent. The NHL’s data bears this out. During 2017-18, the number of fans following the league, its clubs and players on social media platforms such as Facebook, Twitter, Instagram and Snapchat increased by 13 percent to an all-time high of 160 million.
Digital platforms will also increasingly provide another potential easy access point for new fans in the wake of last year’s U.S. Supreme Court’s decision that facilitates legalized sports betting at the state level. In October, the league announced a sports-betting partnership with MGM Resorts. More such deals are likely to follow. “It’s about putting the fan at the cross-center and making sure they’re being served in ways they demand,” Jennings said. “The Winter Classic is the best embodiment of that. In Canada, people grew up playing pond hockey. But the concept enabled us to inspire a new generation of (U.S.) fans who all of a sudden saw
GETTING MILLENNIALS INTO ARENAS WILL REQUIRE CONTINUED RETHINKING OF IN-GAME EXPERIENCES – Christian Bourque
hockey being played and snowflakes falling.”
GROWING THE GAME AT THE GRASSROOTS
Jennings remains a big believer that, over the longer term, the NHL’s success is inextricably tied to efforts to grow the game at the grassroots level. One example: the Learn To Play partnership between the league and the NHL Players’
Association that was formed during the last round of collective bargaining negotiations. The initiative provides support
to help introduce kids in the league’s 31 markets.
According to one expert, the efforts are paying off. “More people are playing hockey than ever before,” said Dave Fischer, a spokesperson for USA Hockey, which has also been working to bring new players into the game. “Collaboration between all of the key stakeholders is as good as it’s ever been.”
For example, USA Hockey runs a Try Hockey For Free Day, which, in 2019, will take place in late February. More than 350 local rinks and associations are expected to take part in this national effort to introduce kids between the ages of four and nine to youth hockey. USA Hockey will supply sanctioning and online registration services to host locations, as well as jerseys, promotional items and
Efforts such as that are bearing fruit. The number of players, coaches and officials who are members of USA Hockey – a measure of the game’s popularity – has grown by 30 percent over the past two decades, from 497,000 during the 1998-99 season to 646,000
in 2017-18. This has outpaced population growth, which has increased by 19 percent during that time. The trend is expected to continue. “We always see an uptick in interest following the Olympics,” Fischer said. “They bring us far more exposure, by multiples, than any other hockey-related event, even the Stanley Cup.”
That success is likely to be magnified this year among women – one of hockey’s fastest-growing demographics – following the U.S. women’s goldmedal performance at the 2018 Pyeongchang Olympics. Indeed, the number of registered female players at USA Hockey has increased more than tenfold since the early 1990s to nearly 80,000 as of 2018. This rising number should generate increased interest in the NHL itself, believes one pioneer of this key trend. “Growth in any sport creates a fan,” said Brenda Andress, president of SheIS, which helps women’s sports leagues pool their efforts to increase resources, viewership and attendance. “That fan’s interest then often rubs off on others.”
Women who play and watch
– Brenda Andress GROWTH IN ANY SPORT CREATES A FAN. THAT FAN’S INTEREST THEN OFTEN RUBS OFF ON OTHERS
– Enrico Ciccone IT MAKES NO SENSE THAT A KID PLAYING MIDGET AAA COULD COST HIS FAMILY UP TO $10,000 A YEAR
women’s hockey are more likely to register their own kids in the sport and to support significant others who play and watch the game.
Andress, who was the first woman to play on a men’s college varsity hockey team in 1978 and who later co-founded the Canadian Women’s League, suggests that hockey’s growing popularity among both sexes could generate network effects. For example, the increased number of female hockey players would increase public pressure on politicians and governments to support and fund hockey-related programs.
NOT ALL SMOOTH SAILING
Yet, despite recent successes, the game faces considerable headwinds to future growth, says Enrico Ciccone, a former NHL journeyman who was elected to the Quebec National Assembly in October. “It makes no sense that a kid playing midget AAA could cost his family up to $10,000 a year,” said Ciccone, who developed a strong feel for ground-level hockey during more than three decades as a player, analyst and agent. “My parents would never have been able to afford that.”
Experts cite the increasing cost of equipment and lack of available facilities as key barriers to future growth. While a range of new sports complexes are coming online in Las Vegas, St. Louis and California, progress is slow. For example, the Montreal suburb of Lachine that Ciccone represents has been angling to get a modern hockey complex for decades, an issue that he has made a priority. But Ciccone has nothing but praise for the quality of the players entering the game, who he says are increasingly faster, skilled and better at leveraging and marketing themselves. “Agents are now approaching kids as early as just 13 or 14 years old, so they know their value,” Ciccone said. “However, kids today are more demanding. In my day, when a coach would say, ‘Jump,’ we would ask, “How high?” while we were on the way up. Today’s kids ask why they need to jump.”
EXPANSION: SEATTLE, THEN WHAT?
One of Bettman’s most enduring successes has been his role in helping the league discover and develop new markets. The new franchise in Seattle will ensure continued revenue growth in the coming years. It will also bring new digital content, customers and ticket revenues into the league’s collective pool.
Seattle, which will begin play in 2021-22, brings the NHL up to 32 teams, up from 24 the year Bettman took office. The league’s franchises, according to Daly, are all in relatively good shape and unlikely to relocate. The new alignment – with Seattle joining the Pacific Division and Arizona moving to the Central – will create a symmetry of 16 teams in each conference and four divisions of eight teams each. Daly, however, has refused to rule out the addition of new markets, and for good reason.
The increased revenues from adding the recently approved franchises will keep the league under considerable pressure to continue that process during coming years. Houston, Quebec City and a second team in Toronto have been mentioned as candidates. But over the longer term, the NHL’s biggest opportunities may come from overseas. More than one in four NHLers already comes from outside the continent. This suggests the existence of a large potential pool of international fans who could follow the NHL through digital platforms the same way soccer fans the world over watch European teams. “We are the most international North American major sports league,” Bettman said. “We want to continue to encourage growth everywhere.”
To help accomplish that, the league has scheduled preseason games in China the past two years, plus exhibition contests in Switzerland and Germany and regular-season games in Sweden and Finland.
WHAT ABOUT THE OLYMPICS?
Hockey’s international potential raises the thorny issue of the Olympics. Participants at the ground level are convinced of the quadrennial event’s potential to help grow the game.