The NHL Money Machine: How Does It Break Down?

The NHL Money Machine: How Does It Break Down?

The NHL Money Machine: How Does It Break Down?

TV Contracts: The lifeblood of the major sports leagues, whether it be MLB, NBA, NFL or NHL, is the television contract. If fans think teams make all their money on ticket sales or concessions, or merchandise sales, it’s not all true. A huge chunk of income is based on the television deal. TV ratings are more important to a team than ticket sales, because that is what will drive the next contract.

The NHL has a deal with NBC that runs through the 2020-21 season that pays over $200,000,000 annually. That’s just the USA. The Canadian TV deal is worth a whopping 5.2 billion dollars for 12 years beginning in 2014. That breaks down to approximately 500,000 annually. Divide nearly 700,000,000 dollars by 30 and that comes to over 20,000,000 per team. The salary cap per team in the NHL is 75 million. So TV revenue pays a huge chunk of the player’s salaries.

This does not include local TV revenues. Tampa Bay for instance has local games broadcast of Fox Sports Florida, San Jose on Comcast etc.

Ticket Sales: Television alone doesn’t cover all of the expenses of operating an NHL franchise though. Ticket sales are still a big part of the equation. In fact, unlike other major pro sports leagues, NHL teams still make most of their money on ticket sales. Teams in Canada routinely sell out and those teams can charge high prices for tickets, because Canadians love their hockey. These revenues are kept by the teams.

Merchandise and Concession Sales: Merchandise sales do not directly go to the teams. However, they do make a lot of money on licensing fees. So whenever someone buys a t-shirt or hat with the team logo on it, the NHL teams got paid by letting the manufacturer use that logo. Of course, the more they sell the more companies want to produce their merchandise, which in turn means they can negotiate higher licensing fees in the future.

Now, the teams also will make money of each item sold on their team websites or at the team stores as well. It’s difficult to know the breakdown of each team and how much they make on merchandise sales per item.

Royalties from Game Developers: The NHL earns a packet from licensing the brand to game developers like EA Sports. NHL 2K and other games yield not only up-front licensing income, but also royalties that are payable for things like live content. With the growth of live gaming and ESports this can only be a growing revenue stream in the future. One area which has not been explored much seems to be casino gaming. Whilst other sports like soccer has seen elaborate licensing deals with slot machine manufacturers, the NHL has for now stayed away from this. For example, FIFA has licensed its brand to a slot machine manufacturer as has big soccer teams like Chelsea and Liverpool. There are many sites offering “free demos” of these games and they are worth checking out, as they are immensely popular with fans. This space will no doubt develop in future.

Popular as ever, NHL2K means big bucks for doing little

Expenses: Player salaries are the largest expense for the NHL teams. Player salaries can be as much as 70% of the team income in some cases. A team with a payroll of around 50% is on the low end. The salary cap for NHL teams is around 75 million per team this season.

Salary Caps: Why should the average fan care about any of this? How many times have you heard someone complain about how mush athletes get paid to play a game as opposed to soldiers, school teachers, policemen, etc? This helps to explain why athletes get paid what they do. A school teacher doesn’t have millions of people watching him/her do his/her job on television. A soldier, police officer, or construction worker doesn’t have people willing to plunk down hundreds of dollars to watch them work.

So while this is the free market system at work, what can happen to a pro sports league if it isn’t careful is the largest markets with the biggest fan bases will drive the competition out of business. While Wal-Mart is quite happy to put K-Mart out of existence, the Montreal Canadians need the Phoenix Coyotes, the Florida Panthers and the Carolina Hurricanes to come play against them. So to try and maintain some sort of competitive balance, most professional sports leagues have instituted salary caps.

Pure capitalists will state this isn’t fair because the leagues are essentially putting a cap on how much a superstar player can earn instead of letting the market decide. But if there was no cap, the large market teams would spend all the others out of any chance they have to compete.

The salary cap is around 75 million per team in 2017. While some teams spend the entire 75 million and some even have gone over a bit, others are as much as 20 million below the cap. Reasons for being under the cap are probably economic ones. Some teams don’t make a profit unless they stay under a certain figure. So if you are a fan of let’s say, the Arizona Coyotes, and your team is about 20 million below the cap, it is probably because Arizona is not a hockey hot bed and ticket sales, merchandise sales and local television revenue is not high enough for them to spend the entire 75 million on players.

The Pittsburgh Penguins have one of the highest payrolls in the NHL. They have also won the last two Stanley Cups. Coincidence? Hardly. Winning creates wealth, which in turn means they can afford to keep their star players from leaving via free agency, which keeps them competitive.

So if the typical NHL team spends nearly everything they make on getting better players, building nicer arenas, etc. and are doing well to break even in many cases, why own a team?

Here is why billionaires buy pro sports teams.

The New York Rangers were purchased by Madison Square Garden sports in 1997 for 195 million dollars. Today according to Forbes, the team is worth 1.250 billion dollars. That’s about a 600% mark-up in 20 years. So if you can buy a team, break even for a decade or two, then sell the team, you will turn a huge profit.

The Molson family paid 575 million for the Montreal Canadians in 2009. Less than a decade alter the team’s selling price would be somewhere near 1.120 billion.

What about a low end team? The San Jose Sharks were purchased in 2002 by Hasso Plattner for $147 million. Today the team is worth 470 million dollars. They make about 63 million a season from gate receipts which nearly covers the entire team payroll. So most of the television money is profit. The teams’ nets about 50 million in profit per year.

The Winnipeg Jets were purchased in 2011 for 170 million by True North Sports and Entertainment. Today the Jets are worth 340 million.

The St. Louis Blues were bought for 180 million by Tom Stillman in 2012. Today the team is worth an estimated 310 million.