Is the NHL Poised to Make a Northern Migration?

June 9, 2011 | Fox Business

Matt Egan

After more than two decades of pushing into non-traditional hockey towns in the Sun Belt, last week the National Hockey League did a 180 and transplanted a floundering U.S. team to a hockey-starved Canadian market.

The decision to move the Atlanta Thrashers to Winnipeg may represent a partial retreat for the NHL, but it’s been applauded by many as the right one even though the Canadian city has a much smaller population and tinier corporate presence.

Some believe the Atlanta move may also foreshadow a more widespread northern creep by the NHL out of struggling Sun Belt cities and back into small and medium-sized markets that truly love the sport.

“They moved away from what were places where hockey was part of the fabric of the country. They moved to these big markets – but it got lost,” said Marshall Glickman, a former president of the Portland Trailblazers, who isn’t sold on the northern migration idea.

The NHL shouldn’t feel too bad its Atlanta experiment went up in smoke as the city is a notoriously tough market to crack. For a variety of reasons, including the area’s transient population, even successful franchises like baseball’s Braves have struggled to make money there.

“Nobody wanted to own a club in that market anymore,” NHL commissioner Gary Bettman told reporters last week.

Unable to find another option, the NHL approved the sale of the Thrashers to the True North Sports and Entertainment for $170 million, returning hockey to Winnipeg.

The NHL is betting a smaller market that truly loves the sport and has a committed business community is better than a larger one that doesn’t seem to care. In support of that theory, Winnipeg successfully completed a drive to sell 13,000 season tickets mere days after the move was announced.

Did Sun Belt Strategy Fail?

The Thrashers entered the league as an expansion team in 1999, continuing a push by the NHL into warmer weather markets in an effort to grow the sport’s popularity and increase its value to national television advertisers.

That strategy simultaneously gave northern cities, especially in Canada, a smaller footprint in what had been a decidedly northern sport. The Winnipeg Jets left for Phoenix, the Minnesota North Stars moved to Dallas and the Hartford Whalers became the Carolina Hurricanes. The NHL also approved expansion teams in Nashville, South Florida, Tampa and Anaheim.

The Sun Belt strategy has not exactly been an unqualified success as many of those southern franchises — especially the Phoenix Coyotes and Florida Panthers — are struggling badly today.

Michael Cramer, a former president of the Dallas Stars, said he believes the Sun Belt strategy has “failed,” calling Florida a “disaster” and the situation surrounding the Coyotes a “mess.”

Despite pockets of trouble, there have been benefits to pushing into the South, including creating new fans, expanding youth hockey and bolstering the NHL’s case for a lucrative TV deal.

“The fact they’ve taken some teams into some markets that in the end didn’t work economically doesn’t mean they haven’t at the same time created new fans,” said Glickman, who called Bettman “incredibly forward-thinking.”

Revenue, Ratings Rise

Indeed, the latest metrics show the NHL has recovered very nicely from the 2004-05 lockout, emerging with a significantly better business model, a more entertaining product and an energized fan base.

Last season, NHL teams combined to bring in a record $2.9 billion in revenue and the average franchise value grew 2.2% from the year before to $228 million, according to Forbes.

The NHL says it is on pace this year for a fifth-straight year of record revenue and sponsorship revenue soared 33% to a new record as the league signed or renewed deals with big companies like McDonald’s, Research in Motion, Cisco Systems and Discover.

TV ratings are also up. Regular season viewership on Versus jumped 17% this year and Game 1 of the Stanley Cup Finals drew a record 10.9 million North American viewers – a 36% leap from 2010.

“I think they are in a very stable situation and they have a nice platform to continue to grow,” said Neal Pilson, a former president of CBS Sports. “I think the league is in good shape.”

The NHL was awarded a favorable 10-year TV deal worth $2 billion with NBC and Versus, both of which are now owned by Comcast.

Pilson predicted the NHL will benefit from being televised on two networks owned by the same company because they have a real interest in cross promotion and the same production teams and studio talent.

“You have a far better coordinated coverage of the game, which will benefit the NHL,” said Pilson.

While it’s hard to argue with the NHL’s recent successes, there does appear to be a widening gap between the league’s rich and poor. Forbes said seven teams combined to make $241 million last year, while a whopping 16 were stuck in the red, dropping an aggregate of $63 million.

To fix that problem, Cramer believes the league needs to slash its salary cap to adjust for the economic realities of being the fourth (or some say fifth) major sport in the U.S.

“You have to bring the game to the level people can afford it given the fact it’s not the highest thing on their list to see,” said Cramer, who is a professor at the University of Texas at Austin.

Will Other Teams Follow Atlanta Northward?

While the players would likely resist a significantly lower cap in the next Collective Bargaining Agreement, Cramer said the move would open the door to small and medium-sized markets that have a natural affinity to hockey.

“I think the NHL is headed toward a restructuring of its teams with more of a northern creep again,” said Cramer. He pointed to Seattle, Portland, Hartford, Milwaukee, Salt Lake City or even Boise as possible target cities.

Today’s economics also make further relocations to Canada a possibility, including putting a franchise in Hamilton or a second one in Toronto.

Canadian teams, which must pay their players in U.S. dollars, previously suffered a steep penalty due to the relative weakness of the Canadian loonie versus the greenback. After slumping to nearly 60 cents on the U.S. dollar early last decade, the Canadian currency has rebounded significantly and is now worth more than its counterpart.

“I don’t think it’s a bad thing to get back into Canada,” said Robert Boland, a professor at NYU and former player agent. “It gets the sport back on the footprint where it’s popular, where the teams are beloved and where it’s more than a regional sport — it really is a national obsession.”

To be sure, it’s clear for now the NHL would prefer to avoid abandoning the south as Bettman showed by strongly resisting efforts to move the Coyotes to Hamilton.

Moving out of struggling franchises in the Sun Belt could alienate millions of fans and hurt the league’s standing with national advertisers who prefer big markets.

“I don’t think there’s a grand plan here – let’s move back to Canada,” said Glickman.

Yet Cramer believes the league may need to adjust that plan.

“You’re bringing the game back to the people who are interested in it the most. We don’t have a hockey team in Mexico City for a reason,” he said.