Gauging the value of an NHL team in Winnipeg
The news last week that the National Hockey League was returning to Winnipeg sent local fans into fits of rapture.
In the days since that fateful announcement, more sober minds have begun to separate the raw emotion from the cold data to assess the financial success of a Winnipeg team.
It’s been 15 years since the Winnipeg Jets left to become the Phoenix Coyotes. The move was largely due to soaring NHL operating costs and a lopsided exchange rate (at the time, one American dollar cost about $1.40 CDN). A small-market team like the Jets couldn’t continue to pay its high-priced talent in U.S. dollars while earning revenue in Canadian dollars.
The Canadian dollar’s current parity with the U.S. greenback is one of the reasons True North Sports and Entertainment Ltd. was able to acquire the floundering Atlanta Thrashers and bring them to the Manitoba capital. The deal is worth $170-million US, which includes a $60-million relocation fee split among all NHL teams.
What is the value of the Winnipeg Jets brand?
"‘Winnipeg Jets’ is the iconic name there," says sports marketing professor Richard Powers. "We’ve seen that before, where companies have almost gone under and tried to rebrand. It’s much more successful, in my view, when it’s a known quantity. And the Winnipeg Jets — this is a natural."
Cary Kaplan of marketing firm Cosmos Sports says he appreciates the public affection for the Jets name, but thinks the team’s owners should think more broadly.
"I think people have a tendency, short-term, to be excited about [legacy names]. My preference would be to call the team Manitoba," he says.
"Yes, Winnipeg is the heart of the province, but you have a unique opportunity to tie yourself to [places like] Brandon and Portage La Prairie. I don’t know if they’ll do that, but Manitoba would be a much better use of the brand."
The question is: how much will this new team be worth?
According to Forbes magazine, the average value for an NHL franchise in 2010 was $228 million US. The Toronto Maple Leafs were the most valuable team ($505 million), while the Phoenix Coyotes were the least valuable ($134 million). The Atlanta Thrashers were second last, at $135 million.
A new Winnipeg team can’t compete financially with a legendary franchise like the Leafs, which lives in a hockey-crazed city of 5.7 million people; Winnipeg has only about 750,000 residents. But it’s unlikely that a Winnipeg team will be as weak as Atlanta, a city that’s about as big as Toronto, but has never been terribly receptive to the good ol’ hockey game.
Richard Powers, a sports marketing professor at the University of Toronto’s Rotman School of Management, says it’s better to compare the new team to similar markets like Ottawa, Calgary or Edmonton, which each have populations of a little over a million. Based on the Forbes survey, the Ottawa Senators were worth $196 million, the Calgary Flames $206 million and the Edmonton Oilers $183 million.
According to Powers, a professional sports franchise has four main revenue sources: tickets, rent from concession stands, merchandising and corporate sponsorships.
The foundation for a healthy team is strong box office, a fact underscored recently by NHL commissioner Gary Bettman, who said that the Winnipeg move "isn’t going to work very well if [the arena] isn’t sold out every night."
To that end, True North started a campaign to sell 13,000 season tickets to the 15,000-seat MTS Centre in downtown Winnipeg.
About half of the tickets were sold in pre-sale last week to season-ticket holders of the AHL’s Manitoba Moose (also owned by True North). Within 17 minutes of opening the box office to the general public on Saturday, True North had reached its goal.
Based on its ticket prices, the new Winnipeg team stands to make about $1.3 million in revenue per match, or about $53 million over the course of 41 home games.
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Ticket sales are key, but so is corporate sponsorship — namely, the advertisements that festoon the boards inside the rink.
"For a [corporate] sponsor, you’re looking at reach," says Powers. The new Winnipeg team will have "the smallest venue in the league, so that’s not going to help, but it’s an NHL property, so that has a certain cachet, plus you have national TV exposure."
Merchandising — from jerseys to caps to mugs to bobbleheads — is another important profit area. While it’s impossible to predict how much money this will bring in, it’s fair to assume that Winnipeg hockey fans, ravenous for an NHL team of their own, will buy with abandon.
"If they do an updated version of the Jets, they’re going to sell a tremendous amount of merchandise. If they do a new team name, they’re going to sell as well. The honeymoon period is hard to repeat," says Cary Kaplan, president of Cosmos Sports, a Toronto-based sports marketing firm that has consulted for a variety of professional teams and leagues.
"I would say they will sell more jerseys in Winnipeg in the next six months than they will in any six-month period in the next 20 years."
An NHL franchise obviously generates a large amount of revenue, but it also has some more intangible benefits.
"It’s very difficult to put a hard dollar value on a sports team," says Kaplan. "But by having a hockey team in Winnipeg, it identifies Winnipeg as a major Canadian city."
He points out that one of the advantages of having a major-league sports team is that it familiarizes large companies with that city.
"If a president of a company, or a vice-president or senior management, becomes more cognizant of a city and its value, it affects their decision to have a head office or relocate there," says Kaplan.
"I think Winnipeg, not having had a team, has been marginalized a bit for the last decade and a half, where it’s a second-tier Canadian city [in the eyes of] the corporate community. I think this helps reinstate it with the likes of Edmonton and Ottawa."