First noted by Travis Hughes of SBN, who spent a portion of his Saturday night reading the available parts of the NHL Constitution online, there’s an interesting measure in that document:

2.2. The League shall be operated not for profit

This is under the big title text on Page 1 of the Constitution, titled as the “CONSTITUTION OF THE NATIONAL HOCKEY LEAGUE” (An Unincorporated Association Not For Profit). The NHL’s now-expired CBA available on Capgeek in its preamble calls the league “a joint venture organized as a not-for-profit unincorporated association”.

When league V.P. Bill Daly has discussed economics in depth, he’s been partially reserved, not talking about the guaranteed profitability of franchises, but he wants to ensure 30 healthy franchises “having an opportunity to make money”.

It’s about that time when you realize why the NHL owners are preferring to become majority owners of arenas and outside ventures relating to hockey, as to not make money directly through the league. “Everyone knows a good accountant can turn an $8-million profit into an $8-million loss, especially when owners have more than one business”, then NHLPA executive Bob Boughner suggested to the media at the time of the Levitt Report in 2004 that suggested the NHL as a whole lost $273M in 2002-03.[1]

But teams kept being bought. Teams will always have owners. For 10 seasons the NHL had 30 teams in identical markets, all competing against one another to get the best players and the best deal, all of them tying up big money in player contracts, all of them making the playoffs at some point and having a chance to win the Stanley Cup. It’s only now that the league can’t find an owner for the troubled Phoenix franchise and couldn’t find an owner for the troubled Atlanta franchise, but with two relocations, that will fix the issue.

So NHL owners are looking for outside ventures. Nine NHL arenas share real estate with an NBA team. Of those nine arenas, six, in Boston, Denver, Los Angeles, Manhattan, Philadelphia, Toronto and Washington, are owned by the NHL team. That’s half of the Chicago arena as well. Only in Dallas’ American Airlines Center is the cost of the NHL team (Tom Gaglardi) the NBA team (Marc Cuban) and the arena (City of Dallas) split between three parties.

From Elliotte Friedman’s meaty column on Thursday on CBC:

It’s complex stuff. But what it comes down to is that when NHLPA executive director Donald Fehr says the players don’t really get 57 per cent of HRR, these cost exemptions are what he’s talking about. As revenues rise to last season’s record of $3.3 billion, the value of those direct costs increases as well because they’re all percentage-based. I’ve seen the NHLPA use 51 per cent as the actual number.

When Bettman says the owners only have 43 per cent of the revenues to pay their costs, it drives the NHLPA insane because it feels the league’s already subtracted enough from the equation and any further issues are simply mismanagement. Clearly, the NHL and its owners feel otherwise.

Indeed, there are lots of things that the owners get to deduct before the players’ share of 57% is calculated. That includes, Friedman notes, things like “jet fuel and massages” that commissioner Gary Bettman discussed at the league’s last press conference.

That’s why simply slicing the owners’ and players’ share of hockey-related revenue at 50-50 creates issues. “Put more into the pie, and we’ll take 50-50,” Kevin Bieksa suggested. But the league is trying to construct a system where owners can make money independent of what’s related to hockey, so when Bettman decries the increased costs in jet fuel and massages he’s really lamenting increase of costs non-related to hockey that are really explicitly related to owning a hockey team. That’s all just less money the owners can take away without saying they’re directly profiting off the NHL, which is theoretically against the NHL’s constitution.

Dig up this old CBC bit from the days lamenting the commercialization of the sport. Then-Nashville owner Craig Leipold, in an effort to get more people hooked on hockey, created a whole entertainment division around his Predators to bring people into the building. In an interview with Leipold in the piece, he addresses the CBC interviewer’s concern from Canadians about the way hockey is going:

Maybe that’s their problem, because it’s not our problem. We come, and we say that we have a “sports entertainment product” that we want to sell to this community. And that’s how we treated it. We didn’t treat it necessarily as a ‘sports team’, it was entertainment. And particularly for the first year and second year we didn’t know how good our team was going to be. So we had to ensure that we had a value of entertainment that when the consumer came to the arena and we weren’t winning the games, they were still going to leave at night saying “this was a lot of fun” or “kids had a great time” so that’s the way we approached this.

Notably, the word “fans” isn’t used. It’s “consumer”. The current NHL may be a terrific market for consumers, with the principle buyers of big money tickets also owning deals on luxury suites or premium seating for concerts and NBA games and everything else the arenas have to offer and owners can provide for them. This isn’t so much a sports league as it is part of an entertainment industry. Operating not just as a sports team, but as an entertainment franchise that will draw people into the city, Leipold got a sweetheart deal from the City of Nashville on the arena.

Leipold now owns the Minnesota Wild, a team that spent millions of dollars on acquiring Ryan Suter and Zach Parise this summer, including signing bonuses that will be paid out even if the entire season is missed. But Leipold, like many rich owners, has a stake in the arena or another team that allows him to create revenues even if the NHL isn’t in session.

What broke the owners in 1994-95 was a split in owners who saw the league as a sports league and a growing fraction of owners who saw the league as just another vehicle in their own business empires. There’s prestige and competition involved with owning a winning sports team, and while you heard Red Wings’ VP Jim Devellano discuss the “30 to NONE” vote in favour of the lockout, that wasn’t necessarily all about slicing enough costs. Even the owners who crave victory and spend millions and risk millions on players like Ed Snider and Jeremy Jacobs, ensuring the right allocation of hockey-related revenue is important to keeping their own sports enterprises profitable.

[1] Boughner quote taken from Bruce Dowbiggin’s Money Players

Comments (1)

  1. The NHL may be a not-for-profit unincorporated association, but NHL Enterprises is a separate entity, a limited partnership which is where all the money is made (broadcast revenues, marketing, the Winter Classic, etc.).

    http://www.sportsbusinessdaily.com/Daily/Issues/2009/06/Issue-192/Sports-Industrialists/NHL-Enterprises-Broadcasting-And-Communications-Restructured.aspx

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