The business of hockey
The 2007-08 season was the National Hockey League's most successful since Forbes began tracking team values 10 years ago.
Fueled by higher ticket prices and a stronger Canadian dollar, revenue increased 13 per cent, to an average of $92 million US per team, while operating income (earnings before interest, taxes, depreciation and amortization) rose 48 per cent, to $4.7 million per team.
A stronger loonie helps teams north of the border, because they take in revenue in Canadian dollars but pay their players in U.S. currency. Last season the value of the Canadian dollar increased 15 per cent relative to the U.S. dollar. The average team value rose 10 per cent during the past year, to $220 million. Five of the six Canadian teams — Montreal Canadiens, Vancouver Canucks, Ottawa Senators, Calgary Flames and Edmonton Oilers — rose in value more than the league average.
Hockey teams, on average, are worth 2.4 times revenue, so the more money teams can rake in from selling tickets to games (43 per cent of the league's revenue) without sacrificing attendance, the more valuable they are. The average non-premium ticket cost $49 for an NHL game during the 2007-08 season, 8 per cent more than the previous year. Meanwhile, attendance increased 2 per cent, to 21 million for the NHL's 30 teams. NHL arenas are filled to 93 per cent of capacity.
There are two reasons why hockey teams have been able to increase ticket prices. For one, their customers have the highest average household income ($88,000) in sports. For another, emerging superstars like Sidney Crosby (Pittsburgh Penguins), Alexander Ovechkin (Washington Capitals) and Henrik Zetterberg (Detroit Red Wings), who can skate fast and have the skills to create exciting plays, are exactly the type of players who connect with fans. That said, the economic slowdown is going to make it much more difficult for the NHL to post a gain in ticket revenue this season.
Toronto Maple Leafs worth $448 M
But then how to explain that the financial monster of the NHL, the Toronto Maple Leafs, which has no superstars and has missed the playoffs for three straight years? One word: scale. The Ontario Teachers' Pension fund, which owns the Maple Leafs, Toronto Raptors, Leafs TV and the Air Canada Centre, pumps so many events and sponsorships through their assets that they are able to squeeze 41 cents of operating profit from each dollar of revenue. The Leafs are worth $448 million, tops in the NHL.
The league is certainly a lot healthier today than it was before the 2004-05 owners' lockout. But it is not as healthy as Commissioner Gary Bettman, who claims there is not a team worth less than $200 million, would have you believe. Media reports saying the Edmonton Oilers and Nashville Predators were sold for $200 million and $193 million, respectively, are not accurate. The enterprise values (equity plus net debt) of these deals for the franchise and arena leases were really $170 million and $174 million, respectively.
And there are at least two teams that need new ownership and perhaps even to relocate. The biggest mess is the Phoenix Coyotes, who lost $9.7 million last season. Hardly anyone shows up for their games. The team was recapitalized two years ago when Jerry Moyes, the big money behind the franchise, took over the team and Steven Ellman got the nearby real estate that was supposed to be developed in a huge retail and residential success. Pipe dream.
It is time for the Coyotes to get out of town. The same for the New York Islanders, who have a lucrative cable television deal but are being suffocated with an onerous lease at the NHL's second-oldest arena.