A Look at Other Potential Revenue Streams For the NHL to Counter Financial Losses Associated With COVID-19 Pandemic Shutdown

Its been widely reported that the NHL could face financial losses of up to $1 billion this year if the league is unable to finish the 2019-2020 season. However, $500 million of that could be saved if the league can find a way to finish the 2019-2020 season, primarily due to television contracts. Whatever the final outcome, the league and teams are looking at a minimum of losses of several hundred million dollars.

To put that into perspective, let’s take a look at last years financial numbers for each NHL team. The team with the highest reported operating income for the 2018-2019 season was the New York Rangers. At the other end of the scale, the Florida Panthers reported an operating loss of 21 million U.S. dollars in the same season.


[National Hockey League operating income by team 2018/19 season via Statista]

It’s easy to see that a league loss of even $300 million (the low end of the estimate) would mean an additional $10 million in losses for each team. That would mean half of the teams would potentially operate at a loss for the season. For the high end of the estimated losses, each team would lose over $32 million, or 20 teams that would be operating at a loss. For teams that were already anticipating a loss, that size of a fiscal loss could be a death blow.

So what could the league potentially consider to lessen the financial blow for the 2019-2020 season? Here are a few atypical options being discussed:

Expansion
A number of industry experts have suggested that by adding an expansion team, the league  would cover most fiscal losses incurred during the 2019-2020 season. The expansion fee for Seattle was $650 million and for Las Vegas was $500 million. By adding another team the NHL could receive an infusion of $750 million.

On the surface, the idea of offsetting losses with expansion fees makes sense, but a pair of long-time sports executives say that growing the league’s footprint is not the panacea it appears to be.

In an interview with Sports Illustrated, Steve Ryan (the former President NHL Enterprises, Pittsburgh Penguins and Commissioner of Major Indoor Soccer League) said that while “expansion fees can serve as a one-time flash in the pan for the teams,” it’s really not a solution that can help in the short-term. “If you look at the NHL’s track record, there’s been at least a two year ramp up period between the franchise being awarded and the league paying out expansion fees to team owners.” Even if the NHL was to grant a new market a team today, unless the owner was willing to pre-pay a percentage of the expansion fee there’s no way the newfound revenue would hit top lines in ’20-’21.

Relocation
Similar to expansion fees, relocation fees would also add a one time infusion of significant cash into the league’s coffers. There’s an argument to be made that franchise relocation makes more sense than expansion. “There are teams (see: Arizona and Ottawa) that both need a new building and struggle with attendance. The NHL would be better off long-term if it eliminated those weak links – particularly if they moved downtrodden teams into larger television markets.” former A’s, Grizzlies and 49ers senior executive Andy Dolich explained that by “strengthening the overall product, the league would ultimately be able to drive increases in national broadcasting and sponsorship revenues.” It’s worth mentioning that the league’s current media rights agreement with NBC Sports expires following the ’21-’22 season.

Partial Attendance
As we mentioned last week, gate revenue is approximately 36.6% of the NHL’s entire net revenue for a season (30% in baseball, 22% in NBA basketball, and 15% in the NFL). So is there a way to address the losses at the gate? Last week Florida officials were discussing a phased approach for getting fans back into arenas, starting with 25% capacity, allowing social distancing to continue.

Miami Dolphins President and CEO Tom Garfinkel made an appearance on “Good Morning America” to showcase Hard Rock Stadium’s social distancing guidelines including:

– A maximum of 15,000 fans rather than 65,000
– Different time slots for entry
– A row-by-row exit process
Fans having to wear masks
– Fans required to order concessions in their seats before picking up in the concourse

Whether partial attendance model is a smart thing to do with regards to health concerns is up to health and government officials to decide, but the option does shed light on an approach that might be feasible at some date. 25% gate revenues is better than nothing.

The Long Haul
The return to hockey will take time, but the time to recover from the financial hit will take much, much longer. The league is looking at all of their options, and will likely apply a wide array of financial measures to recover from the COVID-19 stoppage.

By Jon Sorensen

About Jon Sorensen

Jon has been a Caps fan since day one, attending his first game at the Capital Centre in 1974. His passion for the Caps has grown over the decades, which has included time as a season ticket holder, social media and community organizer, and most recently led to the founding of NoVa Caps in 2014. Jon earned a Bachelor's of Science in Engineering at Old Dominion University, and is a Systems Engineer during intermissions, which has been instrumental in supporting his Capitals habit.
This entry was posted in News and tagged , , , . Bookmark the permalink.

Leave a Reply