The Airing of Grievances
Tuesday, June 08, 2004
Hell Freezes Over
Well, Gary Bettman, you have finally done it. You have ruined the NHL. The Stanley Cup is in Tampa Bay, one of your beloved "expansion cities". Not that I don't love Dave Andrychuk, Marty St. Louis, Vincent LeCavalier, and Khabibulin... But Tampa Bay? The Stanley Cup?

Seriously, one of these things is not like the other - you decide...

1. 2. 3.

Hockey mad Calgary; with the games greatest player (Jerome Iginila, who is black, no less), and home of fans like this [EDIT: NOT WORK FRIENDLY], was a worthy champion. But in Gary Bettman's world, Tampa Bay is the more appropriate place for sports most coveted and traveled prize.

Bettman's career is beset with different ways to dis Canada and other traditional hockey strongholds. Let's take a look at Bettman's record as Commissioner on a pro vs. con basis.
1994 Rangers Win Stanley Cup

- 1994-95's crippling lockout directly after the sport's surge in popularity from the Rangers' Stanley Cup run. To make matters worse, there were no real gains made during the lockout, which set the stage for the CBA Armageddon to come.
- Moved Minnesota North Star Franchise to Dallas (supposedly for Star - name synergies) and they won the Stanley Cup in 1999.
- Moved The Quebec mortgages to Colorado, Colorado wins two cups (1996 & 2001) with the core of players built in Quebec.
- Moved Winnipeg Jets to Phoenix? Let them have the worst major league uni's in modern sports for two years.
- Created an environment in which an average franchise loses $12 million in cash yearly

Seriously, is their a sports executive in history worse than Gary Bettman? I think not.

Fittingly, Tampa's Stanley Cup could be the last awarded by the NHL as we know it. Hockey is in for a long, cold war of a strike. Basically, hockey owners are losing their shirts on a yearly basis, their TV contract is going away, and their players make 6 times what they did ten years ago.

In summing up the NHL's Strike Issues, I will quote a great sports writer ... namely, Yours Truly, from another website about three months ago. Check it:

"[After working] on the financing of professional sports franchises, and I can't stress this enough - The NHL as it is currently constituted is insolvent - plain and simple. The league and almost all of its teams are hemorrhaging cash. It comes to a point where people won't buy the franchises, and owners can't get new money from banks or other sources to continue to fund the losses. Another thing, part of the problem is that most NHL franchises were receiving franchise fees every year in the amount of $5-$6 million from its expansion franchises (Atlanta, Nashville, Minnesota, Columbus, etc.) Teams used that money to pay players more money, which amounted to an artificial increase in salaries of 10-12%. When the franchise fees ran out ('01-'02), there is no way to correct salaries down for that 10-12% increase, and teams were just negotiating new salaries on the inflated rates. There is no way for the league to increase revenues by that factor so that revenues can keep up with salaries. As it is currently constituted, the NHL is in a death spiral, so that contraction doesn't fix their problem, only a rational CBA ("Collective Bargaining Agreement") will.

That said, let me give the [AofG] a little Finance 101. Businesses are generally valued based on a multiple of their current earnings. A hypothetical company making $10 million in positive cash flows may be worth up to $60 million dollars to another buyer, depending on how much the buyer believes he can increase those cash flows in the future (Maybe more, maybe less). As cash flows go down, so do values. This does not mean, however that the price for a business goes to zero. Businesses retain a positive value in most cases because of a marginal opportunity for future upside, (kind of like Ricky Davis...but I digress). Some businesses look to sustain minimal cash losses and then sell their assets at a future date for more than the combination of what they paid for them and what they lost along the way (Kind of like a house...you have mortgage costs, electricity, capital improvements, and you hope that you get those costs back when you sell it to another person at a future date). A good example of this is that if a franchise were to be purchased for $100 million, lose $5 million a year for 5 years, and then be sold for $150 million, the owner would make an implied return of $25 million. This is an inherently flawed situation though, as future cash flow has to be able to support the higher value. A lot of times, as in the internet bubble, earnings never catch up with values, and values plummet. Today, the NHL is full of franchises that have been purchased for $150 million, and are now worth south of $100 million and falling, while losing over $10 million a year. The implied loss of these franchises, if you take their market value of these , is even worse than the NHL states on its CBA website.

To top this off, ABC & ESPN are the current national TV contract for the NHL in the United States. They have publicly stated that they are going to lower their contract amount by at least 50%. This just means that each team's cash hole is at least $3 million per year larger.

Actually, the internet bubble is a great parallel here. You have a lot of companies in one "space" losing a great deal of money, and spending money based on bad assumptions(Franchise income, noted above, would continue forever, - a new TV deal for more money would be struck) had inflated values for a period of time, then crashed when it became clear that those assumptions were untrue and companies like eToys or the Pittsburgh Penquins were bottomless pits of expense and cash losses.

Anyway, short story long, don't expect much professional Hockey in North America in 2004 & 2005. The NHL is prepared for a long work stoppage and I can't see it not enforcing a lockout if they don't strike a bargain that the NHLPA can never deliver. If you like hockey, you better enjoy this year's playoffs or plan a trip to Sweden and Prague next winter."

I guess all I really wanted to say was, Lord Stanley, Fare Thee Well. It's been fun being a hockey fan for the first 29 years of my life. I hope to see you again soon.

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