Despite three work stoppages in the past twenty years and the fact that it’s played at sub-freezing temperatures, the NHL is a vibrant, growing product. Its most recent lockout, which shaved 34 games per team off the 2012-13 season, threatened to wipe out the entire thing before a spirited series of negotiations in December saved the league from the extreme embarrassment of losing two seasons in 10 years.
That lockout – and the negative press it generated – undoubtedly had a negative impact on a sport that was finally recovering from the last lockout. Revenues were rising, audiences were turning in at record numbers (since the proliferation of cable sports) and the game had an influx of young talent – led by Sidney Crosby, Alexander Ovechkin and Patrick Kane, each drafted first overall and each representing a different country. But greed, the scourge of those already with so much, turned a rising stock into post-Qwikster Netflix, recovering from its own mistake.
And like the little red envelope before it, the NHL has significantly rebounded on the grounds that it can distribute its product. Today, the league announced a deal to broadcast its games in Canada for a staggering $5.2 billion over twelve years. While it pales in comparison to what ESPN pays to show a single football game each week ($1.2 billion per year for its Monday Night Football broadcast), $433 million beginning in 2014 to basically cater to seven Canadian teams is a significant expenditure. Consider that NBC pays the NHL $200 million per season (they agreed to a 10-year/$2 billion contract that began this season) and this new deal looks like a huge win for the NHL.
While the league now has four years of labor peace and ten years of broadcast agreements, the focus shifts towards overall revenue. Since the lockout significantly robbed the league’s coffers last year, the collective bargaining agreement put in place a stopgap that would see the salary cap – at $70.3 million in 2012-13 – freeze at $63.4 million in 2013-14, instead of what would have been a much lower number calculated by revenue. And it seems that in agreeing to such a measure, teams and general managers understood that there was potential for a dramatic increase once the lockout year was removed from the calculation.
While no evidence directly supports this, the contracts players signed this offseason clearly hinted at this. Tuukka Rask received an eight year deal worth $56 million. Corey Crawford got $36 million over six years and Brian Bickell – a third line player who made less than $600,000 per season on his prior contract, netted $16 million over four years. Teams knew that the league had rebounded from the lockout, and with these massive new television rights deals, the money would start rushing back.
What this means for the future of the sport is less defined. While big market teams should expect the salary cap to go up – and with it their opportunity to sign and resign major players – small market teams may be at somewhat of a disadvantage. In the NHL, no team may go over the salary cap ceiling, currently at $64.3 million for the 13-14 season. However, there is also a salary cap floor, a minimum amount each team must spend as mandated in the CBA.
For the current NHL season, the floor is $44 million, which is about $2 million per player. But if the cap increases, the floor must rise as well. For teams struggling in attendance and revenue, this presents a double edge sword. Many teams don’t have the ability to sign marquee free agents without dipping into the red for the season, and are therefore extremely cost-adverse. But sign too many cheap players and you run the risk of not fielding a legal team, thus necessitating an expensive signing that may harm your team’s future and take away playing time from a younger (and likely less expensive) player. While revenue sharing exists – meaning that teams that lose money receive a kick back from those that gain and spend the most – roster construction can often be disastrous when up against a mandated floor.
Teams that struggle to ice competitive teams are able to justify expensive contracts to high-priced players, but for some – especially the Florida Panthers – a player will only sign for a losing team if the money is large enough.
The other main contention with the new Canadian licensing deal is its length. In twelve years, the media landscape will likely be drastically different as viewers contemplate cord cutting, mobile streaming and time shifting. Sports have been said to be one of the few remaining DVR-proof blocks of air time, insanely popular for advertisers (which is why the NHL was able to extract $433 million per year from the broadcast conglomerates, who will in turn make the money back through selling advertising and licensing fees). If the NHL continues to grow at its current state, which was better than expected last year, despite the lockout, hockey related revenues can turn hockey into a multibillion dollar sport quite easily.
But it could just as easily lose its mainstream appeal. A concussion lawsuit was just filed alleging the league withheld vital information about head trauma. The ensuing legal battle may take years and cast a black cloud over the game, just as it did (and still does) over the NFL.
While security for the league certainly helps it grow its brand, a long-term pact leaves additional revenue on the table if the current ratings trajectory continues. While the NBC deal with the NHL looked great at the time, it already may be somewhat of a bargain, even if ratings remain rather small (compared to the NFL, or even hit network shows). The league could have forced NBC to bargain against other networks – the Peacock did such a poor job for the Olympics that the league was foolish not to see if the same dog and pony show would work twice – though it’s possible a company like FOX would have publicly denounced any speculation as just that. Also, while the two look similar, the NBA is in a much more stable American position. The basketball broadcasting rights will be up shortly, at which time its current valuation just ahead of the NHL will be a distant – perhaps very distant – memory.
For hockey and hockey fans (except those working at TSN), this new Canadian rights deal shows that the NHL will continue to grow and teams will have even more money at their disposal. While it may not be a win-win-win, it’s as close to one as anyone should expect for a league that almost hung up its skates for the second time in a decade.