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Equity’s What The Lockout Was All About

By George Malik: As one peruses the Forbes report on NHL franchise values, something stands out immediately--21 of the league's 30 teams made less than $5 million in operating income, and most barely broke even--before taxes. The Atlanta Thrashers and New Jersey Devils lost over $5 million apiece, and yet their teams experienced 21% and 19% increases in value, respectively. Why? Larry Brooks, love him or hate him, was right about one thing: the NHL's owners don't get make their financial hay from gate receipts and operating profits. It's all about equity.

The perceived bank value of an NHL team is what counts.  Sports franchises don’t actually make a lot of money in terms of an operating profit unless they’re in the biggest of markets; they make money because they have a large economic impact upon their markets, regardless of market size. 
It’s like owning the most valuable house on the block; you increase your neighbours’ home equities, and, thus, the neighbourhood becomes a desirable one.  If your home is well-maintained, you make money.
Like homeowners, team owners can cash in on part of that equity.  They can build new rinks, start their own networks, and some teams, like the Leafs and Rangers, their teams become the linchpins of economic empires.
With a salary cap, costs are, theoretically, anyway, fixed There’s a certain amount of money you have to commit to salaries, and as such, franchise equity increases on an exponential scale.  That’s magnified if you own your own rink, get a cut of concessions or parking, or if your team happens to have a good TV deal. 
If teams increase in value in the tens of millions over the first year of the CBA alone, the long-term projections in terms of NHL team values just skyrocket right off the charts.  The Penguins were sold for somewhere between $85-95 million three years ago, with a rink in place.  The Pittsburgh Penguins cost $171 million with nothing more than a strong possibility that a rink will be built mainly from casino funds. 
With double-digit increases in franchise equity over the next few years, some teams are going for broke, so to speak: the Bruins are planning on opening a consulting firm, and some teams are even considering offering loans to big corporations, all backed by their franchises’ equitable values.

Bill Daly said it himself:

The underlying theme of Forbes’ piece is that the NHL has rebounded extremely well from the lockout.
During the 2003-2004 season, the last before the lockout, an NHL team was worth $163 million on average and lost $3.2 million. Now the average franchise is worth $180 million and makes an average operating profit of $4.2 million, thanks largely to big revenues for the Leafs, Rangers and Montreal Canadiens.
Those numbers have the NHL smiling.
“While I’m not in a position to attest to the magnitude, we do believe that the new CBA has generally increased franchise values around the league, and increased them substantially,” deputy commissioner Bill Daly wrote in an email response to the Star.
“We have received a renewed enthusiasm from people who want to own, invest in, and lend capital to the NHL and NHL franchises. That’s not unexpected. That’s what the CBA was intended to accomplish.”

The league’s desire for a salary cap, and the owners’ resolve in killing a year of hockey to get one, had nothing to do with helping out your or me by stopping the economic hemorrhaging of the big-spending NHL. 
It had to do with lining their own pockets, and the fact that 17 of the league’s 30 teams said “Thank you, fans!” by raising their ticket prices after claiming that the cap would do the opposite proves it
The next time you thank Gary Bettman was so intent on taking the NHL away from its fans for a year, and each and every franchise owner followed suit, because they knew that they stood so much to gain from a capped landscape that they could throw multiple seasons away to secure one. 
The lockout also had nothing to do with those “greedy” millionaire players.  It was about billionaire owners, and their quest to make sure that they could use the bank values of their sports teams to make real money in business ventures that cash in on the financial clout a professional sports team generates.
Empty promises about affordable tickets and a quest for franchise stability that resulted in a wiped-out season and the premature ends to the careers of over 100 NHLers were just part of the plan, and, given the results thereof, the lockout was a worthwhile investment.

Ask Gary Bettman about his favourite HOF’er:

In NHL circles, [Harley] Hotchkiss is best known for his leadership abilities in the board room. Hotchkiss has served as chairman of the NHL Board of Governors for the past 13 years.
He played an instrumental role in ending the recent lockout and getting the game back on its feet in record time, a feat that shocked even the most optimistic hockey fan.
“We don’t survive as a league without Harley Hotchkiss,” Gary Bettman, the NHL commissioner, has said recently. “When it came to keeping 30 owners unified, it was unheard of. But nobody questioned his motives because they were genuine.
“We have worked close together. I have been fortunate in my job in the people I have met and dealt with from presidents and prime ministers to businessmen. I can say, without provocation, that Harley is the finest human being I have ever met, period.”

You bet, Gary.  Fine gent who helped you convince the league’s owners to burn down the village to save it.

“Thank you, fans!” indeed.

Filed in: NHL Talk, George James Malik, | KK Hockey | Permalink
 

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Paul Kukla founded Kukla’s Korner in 2005 and the site has since become the must-read site on the ‘net for all the latest happenings around the NHL.

From breaking news to in-depth stories around the league, KK Hockey is updated with fresh stories all day long and will bring you the latest news as quickly as possible.

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