Monday, October 13, 2008

On the current geographical realities of the NHL

The opening week of the 2008-09 National Hockey League regular season has now come and gone, and already promises to be more interesting off the ice than on. While the NHL is the most popular professional sports league among Canadian spectators, and while a good chunk of the league's players are Canadians, most of the league's team are based in the United States (only 20% of teams are based in Canada). In the US where it is often called "ice" hockey, it is at best a second-tier professional sport. Even in America's self-proclaimed "hockeytown" of Detroit, general interest among residents in the day-to-day actions of the Red Wings falls behind that of baseball's Tigers, basketball's Piston's, university of Michigan sports teams and even the embarrassing-bad NFL Lions. 

Over the course of my lifetime the NHL has expanded from six teams to thirty. If you accept that the modern sport of hockey originated somewhere in eastern Canada (several Canadian communities claim to be the "birthplace of hockey" even though Dutch paintings from the 17th century clearly show it being played out of doors there in winter) the Original Six NHL franchises were based at or near the geographic heartland of the sport: Boston, Chicago, Detroit, Montreal, New York City and Toronto.  The teams traveled by train, most players' salaries weren't much different from your average blue collar worker, and the game was played before enthusiastic, knowledgeable crowds of men (for the most part; the Boston and Chicago franchises often struggled to sell tickets in year when their teams were losing).

In the late 1960s the league's managers undertook an ambitious program of expansion that has continued on and off until the end of the 20th century. I say ambitious because the league added teams not only in places where one would expect professional hockey to be popular (e.g. Minnesota, which has strong participation in minor and college hockey) but also in cities like St. Louis, where there was no natural affinity for the game. Indeed, the league expanded well beyond its northeastern base to the Pacific coast (Los Angeles, Oakland and Vancouver) and to the south (Atlanta).

In terms of success or failure of that first era of expansion, the geographic pattern was fairly predictable. Teams tended to survive in the northeastern US, where winters can at least occasionally be cold and snowy and where people are generally familiar with the sport; franchises tended to struggle or fail in places where ice (let alone ice hockey) tends not to occur naturally. The success of the franchise in St. Louis could not be replicated in muggy Missouri's other large city, Kansas City, where the Scouts quickly wound up moving to Denver and later to New Jersey. The Atlanta franchise moved north to a much more logical home in Calgary, while the Oakland franchise tried Cleveland, where it again failed and was eventually subsumed by the Minnesota franchise.

During this same period, a competing league called the World Hockey Association came onto the scene with its own quixotic assemblage of teams in the most likely of locations (e.g. Edmonton, Quebec City, Winnipeg) and the more unlikely (e.g. Birmingham, Houston, San Diego). When the WHA inevitably collapsed in 1979, the NHL took on its most stable surviving franchises (not surprisingly, all in the hockey heartland: 3 in Canada and 1 in New England). The failures of its own ill-placed franchises and those of the WHA have not deterred the NHL from placing and maintaining franchises in geographically illogical locations. Since 1979, only two new NHL franchises have been established in places where there is a natural affinity for hockey: Ottawa and Minnesota. The Minnesota franchise was actually the second one awarded to that state; the owner of the first one (the North Stars) sold the team to new owners in Dallas, a city where scrimmages by the NFL's Cowboys generate more calls to sports-radio phone-in shows than do the Dallas Stars in years when they are in the hunt for the Stanley Cup.

Instead of taking advantage of hockey's strong regional support in Canada and the northeastern US, the NHL persisted with its policy of expansion/franchise relocation into new regions. It was driven by economics, not geography.  The final decades of the 20th century saw widespread economic decline throughout much of hockey's heartland. The state of Michigan, once among America's richest and home to Hockeytown, is now among America's poorest.  Cleveland and Hartford lost their franchises; Buffalo and Pittsburgh struggled to keep theirs.  At one point in the 1990s the Canadian franchises (with the exception of Montreal and Toronto, the old Original Six stalwarts) were in financial trouble. Team revenues in Canadian dollar were worth 1/3 less than their US dollar players salaries, and well-supported franchises in Quebec City and Winnipeg moved to wealthier Denver and Phoenix respectively.

As America's population and economic growth moved to sunnier climes, the NHL followed. Cities like Anaheim, Miami, Nashville and San Jose had glistening new arenas and deep-pocketed owners looking for "entertainment" to showcase in them.  Professional sports franchises increasingly became sub-components of larger media and entertainment enterprises. By the end of the 1990s, there were as many NHL teams in California (3) as in New York State, and as many in Florida (2) as in Ontario. 

In the middle of the present decade a new economic reality emerged. The Canadian dollar had appreciated to the point where Canadian franchises were suddenly the new cash cows of the NHL. The league was never able to make significant headway into US television markets, and so Canadian TV revenues continue to be the NHL's single biggest source of income. Revenue-sharing agreements that were designed to prop up Canadian and small-market Northeastern US teams a decade ago are now used to prop up illogically-situated franchises in the US sun belt. American franchises, which generate considerably less gate and merchandising revenue than do their Canadian counterparts, are struggling particularly with the fallout from a player lock-out and bizarre subsequent collective agreement with the players union. While the league has a salary cap to prevent the few financially-successful franchises like Toronto from spending too much, many more franchises are having trouble finding enough revenues to meet the minimum threshold for team salaries.

The current situation will not continue much longer. The current US financial crisis has brought a sudden end to the easy credit and whirlwind real estate deals on which many US franchises have relied. Unlike most professional sports leagues operating in the US, the lack of TV revenues means NHL franchises depend heavily on tickets sold at the arena, and attendance of fair-weather fans in sun belt cities will fall this year, you can bet your mortgage on that. The multi-million dollar salaries being given to niche players, whose replica jersey sales could not buy a hockey stick, are unsustainable. In the next few years we will almost certainly see a steady reassertion of geography over economics in the case of the NHL, as franchises start relocating back to that part of the world where the word "hockey" does not need an adjective to describe where it is played.  

1 comment:

Anonymous said...

Unfortunately, this is a highly flawed argument, and suggests the author has a narrow view of hockey's historic popularity in Western Canada, and little knowledge of the history of professional hockey in the United States.

Going back to the 1950s, the Western Hockey League and Central Hockey League had solid fan bases in cities like Phoenix, San Diego, Houston, Fort Worth, and Salt Lake City to name a few.

The Central Hockey League, for example, had a 21 year history, playing in 25 cities in 17 different states.

The Western Hockey League was a minor pro ice hockey league that operated from 1952 to 1974. Created out of the merger of the Pacific Coast Hockey League and the Western Canada Senior Hockey League, the WHL, during the 1960s, moved into large west coast markets like Los Angeles and San Francisco. Fears that the WHL would become a rival major league that finally convinced the National Hockey League to expand for the 1967-68 season.

The expansion of the NHL into new geographic areas was in line with sound marketing principles that dictate the need to grow new markets for any product.

One of the corollaries of the NHL's multi-geographic strategy has been the development of hockey for kids, which continues to thrive.

Some of these markets have developed more successfully than others, a normal consequence of any business growth strategy.

In some cases, the management of certain teams proved unsuited to the task, but again, this is the result of 'natural selection' in business.

The author would do well to undertake further research.