| || ||Glen Hodgson |
Senior Vice-President and Chief Economist
Forecasting and Analysis
The NHL player lock-out is now heading into its third month. More than $250 million in possible revenue has been foregone by the industry as the parties continue to squabble about the transition from the existing system to a new one. So who are the biggest losers? And was anyone a winner?
To begin, and perhaps surprisingly, the lock-out will have limited negative impact on overall GDP in Canada, the US and most of the cities and regions hosting NHL franchises. Here, it is important to separate the immediate financial impacts from the larger economic impacts. No doubt, there will be financial losses from the lock-out for the league and its stakeholders—the owners and their franchises, the players, and all of the leagues' various suppliers. But there will not be much of an impact for the entire economy.
Why? Because the money that would have been spent by consumers on NHL games, either directly via ticket purchases or indirectly through the purchase of related services, will largely be re-directed to other forms of consumption in the economy. There will be some "leakages" from this reallocation—like season ticket holders who don't seek a return of their payments already made. (The Ottawa Senators are paying me 5 per cent annual interest on such funds, to "buy" my loyalty as a Sens fan, so they have kept my money.)
But overall, for every financial loser, there is likely another business winner that is experiencing increased sales as consumers redirect their purchasing power away from the NHL and its suppliers during the lock-out.
So beyond the fans, who have lost the opportunity to see top-notch hockey, who are the financial losers? First, the players, who are giving up an ever-growing portion of their pay this year as the lock-out drags on. The more a player makes, the more they will lose, with no guarantee of ever making it up. Some older players are certain to be displaced after the lock-out by younger and cheaper talent, so they will be permanent losers. And of course, the players will have to live with what will likely be a 50-50 split in future NHL hockey-related revenues, once an agreement is reached and play begins again.
Owners of profitable franchises are the next set of losers. This group includes nearly all of the Canadian NHL teams, according to NHL business data produced by Forbes. The Leafs, Habs and Canucks are the Canadian teams that make the largest profits, and are therefore the biggest losers in the short-term. They and the other Canadian teams will have a chance to make this money back in future years under a new revenue-sharing formula that favours the owners, since Canadian fans will inevitably return and demand for tickets exceeds the available supply in many Canadian markets. However, in the near term the negative financial impact of the lock-out will be flowing directly to the bottom line of Canada's NHL teams.
For the half of NHL franchises that apparently lose money, according to the Forbes numbers, the lock-out could reduce their losses and even allow them to operate profitably down the road. They could thus become winners from the lock-out—which is the entire point of the exercise.
However, that result is subject to two important conditions: the expected roll-back in the players' share of revenues to 50 per cent is sufficient to bring these teams' operating costs into line with potential revenues; and, their disgruntled ticket-buying fans, corporate supporters and advertisers actually return to future games. The longer the lockout drags on, the more likely that at least some (US) fans will not return.
Mass media that broadcast games, led by TSN, RDS, CBC and NBC are also financial losers, since they are not getting the additional advertising revenue from NHL games they expect when compared to their normal programming. In some cases, there may be make-whole clauses in their contracts with the NHL, which requires the league to supply an equivalent number of games at the current contract price to replace those that were lost. For NBC, this means the owners would have to wait for the benefits of a larger future contract, which jumps from $200 million annually to $350 million—costing the league and owners more lost revenue today.
And then there are all the league's suppliers of labour and services—team and league employees, including game officials, staff in the arenas, restaurants and bars frequented by fans, air services, hotels and restaurants used by teams for away games, parking and other ground transportation to the game, suppliers of team sweaters and caps, etc etc. Again, few of these suppliers will ever fully replace the income lost.
Finally, there are some clear winners, as noted earlier—the many businesses that are capturing the reallocated spending by consumers. Various forms of entertainment in particular will likely see a bump in revenue, including other hockey leagues like the AHL and CHL.
There may also be broader impacts on society, since NHL fans now have more discretionary leisure time to spend on other activities. Whether this increased leisure time will have an impact on general levels of fitness, or even on alcohol consumption is hard to predict.
The conclusion? The GDP impact of the NHL lock-out will not be significant, since many consumers of hockey will simply shift their discretionary leisure dollars, and time, away from NHL hockey and spend it elsewhere. But like so many other industrial relations disputes, almost everyone connected to the NHL will be a net financial loser in the near term, and many will likely be losers for years to come.