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It turns out
that concerns of Svechnikov being picked up off the waiver wire were “much ado about nothing”. The Winnipeg Jets actually took the “brunt” of pickups losing 2 players in Comrie and Sbisa. Ottawa lost a piece of the Karlsson trade in Balcers and Anton Forsberg is moving from San Jose to Carolina. Detroit’s Taxi Squad remains intact.
It’s difficult not to “over value” a player because of where they were drafted. With the reality that any team that picked up Svechnikov would have to have him on the roster for 30 days (taking up a valuable spot) no one was willing to take that deal. The only “known” characteristics of Evgeni as an NHL player is his injuries. His “unknown” potential is up in the air. Even Jesse Puljuljarvi found himself viewed as a third line winger when he demanded a trade. It’s a cold cup of coffee in pro sports.
All of you regulars and many of you who stop by know that I spent a good deal of time going over my own thoughts on the league’s financial picture. Some of you liked the process, some of you thought I was blowing things out of proportion. A big indicator for how serious things are comes when the league (aka. Bettman) make an announcement. They try to soften the blow to keep a positive outlook on fans and investors. Yesterday, he admitted that the deficit for this year’s season will begin with a b. It is already in the billions, and I’ll go over that one more time.
Go back to March of last year. Soon after the suspension of the season, it was recognized that there was a 1.5 billion dollar shortfall at that point. The budget for the 19/20 season was based on a high water mark of 5 billion set in 2018/2019. There was hope that by going into the playoffs would help recover some of that damage. Playoff gate revenue goes straight into the owner’s side of HRR as player salaries are kept in a “bonus pool” that is set aside. The playoffs make up almost 25% of the total HRR for a season.
In June, the MOU (memorandum of understanding) was agreed to by the NHLPA to place a locked 20% escrow for this season and next with an eventual drop to a locked 6% escrow for three season. The players would defer 8% of their salaries (10% calculated after escrow) to be paid back over the next three seasons. Essentially, they would be paid 72% this year and recover that 8%.
After all of this, the real damage started piling up. Local affiliates, after the last CBA, have a refund clause that states the NHL will refund a portion of their programming revenue if fewer than 82 games are played in a regular season. That means that last season and this season those revenues have been cut. It was also made clear that 50% of HRR comes from ticket sales. That’s when you have to do your own number crunching. If player salaries are at 20% escrow based on a 5 billion dollar HRR, then roughly 3 billion is earmarked for salaries, which is then reduced by escrow. In the case where HRR is higher than projected, escrow would be refunded accordingly.
And then, the bubble playoffs went into action. Numbers leaked out here and there with tens of thousands of dollars daily needed for the additional sanitation and COVID tests. The league did a first rate job setting up beautiful accommodations for 24 teams. All at an added expense with no ticket revenues. According to most figures, an average NHL game takes in 1.7 million in combined tickets and concessions. The playoffs lost around 250 million in ticket revenue alone. The hat and jersey sales that go nuts were also greatly depleted. And, overall, viewership was down 60%. (The NBA was down over 70%). Those numbers include “non traditional viewing” stats of “multi viewing venues” and streaming. That would indicate that actual television viewership was down a bit more than that. Many of you are using streaming as your preferred viewing, and the revenues are much lower for leagues.
My best estimate is that, after the playoffs, the 1.5 billion dollar deficit looked a lot more like a 2 billion dollar deficit. It was soon after that the league wanted to alter the MOU. When that was first presented, it was based on the belief that there would be a full 82 game season with fans in attendance. That would mean that 2.5 billion in ticket revenues would be available. The players wouldn’t budge, and representation insisted that “nothing had changed” since June. Everything has changed.
It was then announced that “not fewer than 62 games would be played” which turned into 56 soon after. With the current status, players are receiving 72% of their salaries or roughly 2.16 billion in revenue. Even if fans were in attendance for all 56 games, based on full capacity, that would bring in roughly 1.475 billion. That would mean that ticket revenues would fall almost 700 million short of paying the reduced player salaries. And, there will be a refund coming. For now, there are no fans in attendance, and several payments have already been made. With signing bonuses included, as much as 50% of salaries may have been paid at this point. Meaning, add that 1 billion+ to the current deficit. Teams haven’t had any revenue influx since last March. Along with that, the taxi squads will add roughly 5-6 million per team in salary as well (another 150 million to keep those six players available). We’re now at over 3 billion in debt, going back to last March.
Some of you remember the Forbes release for team revenues. 15% of teams posted a significant loss in operations budgets. The wealthiest teams (Toronto, Montreal, New York, Chicago, Boston) valued at over a billion posted near a break even. Those top teams can survive a chunk of down revenues for another season. There are four or five that may not make it on this projection.
Helmet ads are now in place, which is certainly a benefit. However, TV revenues will be reduced due to the shortened schedule. Fan viewership would need to bounce back in a big way to maximize ad revenues. The large revenues the league redistributes to smaller markets aren’t available currently. If the big 5 don’t turn a profit, the shortfall by the bottom 10 to 15 to their debtors/bills won’t be covered. Arizona currently has more debt than value (debt ratio 105%).
So, where do I think this will land? Any revenue that comes in to the owners is going to be working against that 3 billion dollar estimated loss. Every pay period is going to add to that as long as fans aren’t in attendance. Ad revenues based on last year’s numbers are going to be lower, much lower in some markets. If/when fans return in attendance, it will likely be in a reduced capacity that would vary state by state (province by province less likely to allow without 100% consensus). Optimistically, 28 games at 50% capacity could become available. Based on 15.5 venues (31 venues but only one venue at a time hosts a game) that would bring just shy of 370 million. Just over half of the existing deficit based on players receiving 72% of their pay. That would mean that 330 million in additional shortfall will be added to the current deficit assuming that the league can generate enough revenue for the ownership side to break even. So, optimistically, a total deficit of 3.3 billion dollars by the time the playoffs roll around.
There are many, many unknowns on how the playoffs will move forward. If the bubble is replicated (the extended format will not be) it will mean additional losses. Hockey in North America can’t make it on Television and streaming. With roughly 3 billion in shortfalls (some of you are going to say they owners should just take loans, but some franchises don’t have enough value to cover the amounts) and bills piling up, interest based on late payments for stadiums and utilities will also be adding to the mess. In essence, until fans can be in attendance, the deficit will be added to with every game played.
My final guess is that an optimistic total debt of 3.3 billion all the way to a worst case scenario of more than 5 billion are the two roads we’re staring down. Based on the high water 5 billion dollar mark, the players would have to forfeit salary for an entire season to get the 50% make even laid out in the CBA. The MOU doesn’t override that, it just forestalls repayment. With escrow dropping to 6% locked in one or two seasons, it’s completely untenable.
Well, there you go. My best stab at everything based on everything we know. There is a lot more that we don’t know, and not on the positive. Good news flows like water out of the communications rooms. Once the new revenues for NBC and local affiliates are concerned, weigh it against the number 2.16 billion. That is the break even point for player salaries, meaning that is what the league would have to make to get to 50% of HRR. That doesn’t cover the deficit at all, but it will slow the bleeding.
If you’ve hung in there for this, thanks! I look forward to your thoughts, and more importantly, I look forward to hockey being played.