NHL Lockout Could Benefit Small Market Teams in Short-Term

One of the narratives giving hope to NHL fans and players during the inexorable march to a lockout is that there are financial chasms separating some circles of NHL ownership.

NHLPA Executive Director Donald Fehr specifically aimed to exploit this split in ownership in the NHLPA's first CBA proposal, including language that called for a significant boost to revenue sharing. The proposal tried to pit the "poor" owners of teams which turn little or no profit (roughly 20 of 30 NHL teams) against the 10 or so owners whose clubs post considerable operating profits year-in and year-out.

A good thought, but it won't work. The league's small-markets will benefit from a month or two of work stoppage, too.

During league lockouts (note that no other major sports league uses the plural of "lockout" so casually), players aren't paid. Player salaries are one of the biggest annual expenses franchises have to wrestle with. In April, Nashville Predators-turned-Minnesota Wild owner Craig Leipold said as much:

"We’re not making money, and that’s one reason we need to fix our system. We need to fix how much we’re spending right now ... And so the revenue that we’re generating is not the issue as much as our expenses. And [the Wild's] biggest expense by far is player salaries."

This is the same Craig Leipold who a few months later signed off on nearly $200 million in contracts to Zach Parise and Ryan Suter. By comparison, the Xcel Energy Center in which the Wild play cost $175 million to build (in inflation-adjusted dollars—it cost $130 million when it was completed in 2000).

Regardless of owners' blatant hypocrisy, player salaries indeed remain one of their biggest expenses.

Consider what two months of cancelled payments to players would represent, and start with the assumption that the season will resume in early December—just in time for HBO's 24/7 (one of the league's biggest producers of fan interest) to resume ahead of a Winter Classic in which the Toronto Maple Leafs, the NHL's most profitable and most influential franchise, are participating.

The HBO deal and Winter Classic are two gravy trains the league did not stand to lose in 2004. They simply will not jeopardize them this time around.

So if the season resumes in December, about one-quarter of the schedule will have been cancelled—20 or so games. What are the owners forfeiting for those 20 games? Certainly not fan interest. The NHL competes directly with playoff baseball in October and the NFL in October and November. Ticket revenue will be lost for those games, but the Maple Leafs, Canadiens and Canucks—two of the top-three and three of the seven-most valuable franchises in hockey—were the only clubs whose gate receipts exceeded their payrolls last season. Most owners make their money off non-hockey events held in their arenas, too.

The Penguins, for example, would save some $15 million in payroll expenses during a two-month lockout. There will be some loss in gate receipts and merchandise sales, but the biggest revenue fish—season tickets (after reimbursements) and television contracts—will be scarcely affected. At least not in proportion to the amount of money that will be saved on payroll.

Even the league's $200 million per season television rights agreement with NBC won't be affected unless the season is cancelled entirely.

As much as the NHLPA wants to drive a stake between rich and poor owners, a brief lockout is going to save owners in all markets a considerable amount of money. Only the players, whose locked-out salaries will not be recouped, stand to lose money during a shortened work stoppage. It will be interesting to see how their resolve and Fehr's negotiating tactics will work to address that.

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What's up you guys? I'm James, this is my first post at Pensburgh and on the advice of LauraZ and others here I'll introduce myself very quickly. I've been a contributor to The Hockey Writers since 2011 and I founded my own Pittsburgh sports site, Slew Footers, in 2010 (we just redesigned it from the ground up, give it a look!). I hope you enjoy my work at Pensburgh and if you follow me on Twitter then God help you, I hope you enjoy tweets about drumming and jokes about my Dad.