On February 5th 2004, the NHL released Arthur Levitt’s review of the financial status of the NHL during the 2003-2004 season. While short on detailed data, we were told that eleven clubs made a profit, nineteen clubs were losing money, and perhaps most alarming, the average NHL team was losing $9.1 million.
The NHL cancelled the 2004-2005 season in an effort to resolve the issue of competitive balance and change the financial health of the league. Although we do not have another study from Levitt to tell us how the league is doing financially today, we can do some back of the envelope calculations with just the information gleaned from the media. First, as NHL Commissioner Gary Bettman stated, "… revenues will be at an all-time high for this league…" As we argue in The Wages of Wins, labor disputes have not been found to harm league attendance. With record attendance in 2005-06, the NHL experience this past season supports that story.
Profit is not just about revenue, but costs. And for a sports team, the primary cost is the players. The Levitt report stated that total player costs in 2003-04 were $1.494 billion. Team payroll data for 2005-06 has yet to be released, but we can estimate what the total payroll picture looks like. Let’s say that each team spent its entire $39 million cap limit. Okay, we know they didn’t, but let’s just say the teams did. With $39 million spent per team on players, total payroll costs would only be $1.17 billion. Taking Levitt’s payroll number as gospel, this tells us that teams saved an average of almost $11 million on player costs with the new agreement. So that move alone turns the reported loss before the lockout into a profit. Couple this with growth in revenue, and the NHL did quite nicely this past season.
Now making money for NHL owners was not the purpose of canceling a season. Fans were supposed to see improvements in competitive balance. As I explained in an earlier blog, the new CBA has not changed competitive balance as of yet. Clearly, though the average NHL team has improved its financial picture, and in the end, that is the real bottom line on the NHL’s cancelled season.