Revenue Sharing in the National Hockey League

[Irishjim]

The National Hockey League implemented a new revenue sharing system in the aftermath of the lockout that forced the cancellation of the 2004-05 season. About.com's hockey guide, Jamie Fitzpatrick, takes us through the basics:

• The top ten money-making teams contribute to the pool. The bottom 15 money-making teams are eligible to collect from it.
  
• The amount of money contributed by the top ten teams is set by a formula that includes a percentage of overall league revenues and some playoff revenues. The exact number isn't worked out until the season is over and all revenues have been counted.
  
• For a bottom-15 team to collect a full revenue sharing cheque, it must reach at least 80% capacity in home attendance (last year that meant averaging about 14,000 per game) and show revenue growth that exceeds the league average. Missing either threshold means a cut in the share.
  
• In 2010, a full share of revenue sharing was about $10 million.
  
• Teams in markets with more than 2.5 million television households cannot qualify for revenue sharing. By my unofficial estimate, that means the Rangers, Islanders, Devils, Flyers, Blackhawks, Ducks, Sharks, Stars, and Kings are ineligible.
  

It seems reasonable to expect any new NBA revenue sharing system to borrow heavily from the NHL's; there are several voices in management that own teams in both leagues, including James Dolan (Knicks/Rangers), Ted Leonsis (Wizards/Capitals), the Kroenke family (Nuggets/Avalanche) and Maple Leaf Sports and Entertainment (Raptors/Maple Leafs). Plus,NHL commissioner Gary Bettman is a protege of David Stern, having served as the NBA's senior vice president and general counsel.

Below are two graphs I’ve put together that highlight how vastly different revenues are for the high and low teams in the NHL. Note that these figures are all estimates from the 2010-11 season and that they rely on the data provided by Forbes as part of their annual Business of Hockey series.

Their revenue estimates are not perfect, but they are a usable approximation and illustrate why we’re in another labour war, seven years after the last one:

Estimated NHL team revenues (2010-11)

Before revenue sharing, the NHL's top 10 revenue generating teams are believed to averaged close to $150-million in revenue the 2010-11 season. The bottom 10 teams are likely closer to $70-million each.

SOURCE:

Forbes (with alterations made for estimated revenue sharing figures)

Now, the way the NHL’s current CBA works, it’s not that difficult to come up with a general estimate of the profit levels of the 30 teams as a group.

In 2010-11, for example, the league made roughly $3.1-billion and, as per the CBA, 57 per cent – or $1.76-billion – of that went to the players.

That then leaves 43 per cent for the owners or about $1.33-billion ($44-million per team).

Expenses beyond what teams pay players then take a big bite out of that figure, with those costs going to things like executive and staff salaries, minor league operations, arena operations, travel and marketing, etc.

According to the Levitt Report in 2002-03, these operating costs were roughly $26-million per team nearly a decade ago. Accounting for inflation and rising costs in several areas, we can probably safely assume they have since risen into the $35-million range.

Multiplied by 30 teams, that would have eaten up roughly $1-billion of that owners’ share mentioned above.

So in terms of our roughed out numbers here that leaves about $280-million as our “profit” estimate.

The NHL as a whole, in other words, now makes money – and if revenues were 100 per cent shared among owners, they’d all be profitable.

(That’s looking at only hockey-related revenues, by the way. Getting into non-HRR sources such as increases in franchise values and the like is a whole new topic.)

The major issue, however, is that the $280-million profit margin (or whatever the precise figure is) is going almost entirely to the league’s top teams.

The Leafs, for one, likely make up $100-million or more a season of that figure, even after giving up the league’s largest revenue sharing donation to the less fortunate teams.

Add in the Rangers, Habs, Canucks, Red Wings, Bruins, Blackhawks and Flyers – all healthy franchises – and there’s another $240-million or so.

So there’s eight franchises and we’re already well over the $280-million profit figure we’ve estimated for 2010-11.

[flyerrod]

Thanks for giving me a rough generalization of how it works but I am still no closer to "defining" what is in or what is removed from the pool considered Hockey Related Revenue or HRR. That is what is causing the major gulf between the players and the owners. The owners don't want to show everything they consider HRR or NON revenue because large portions of what they remove maybe should not be. The Owners thought they had the upper hand with the last agreement and did not realize they did not pull enough out of the HRR as Hockey Related Costs. This whole lock out is based on them changing that definition of HRR and lessening the amount the players have to share or lessening the percentage so the profits are more in their favor. The rest of the changes they are "wanting" is just window dressing to steer the eyes away from the big prize. You can bet the Owners will cave on every one of their demands but the HRR as that is the one that they most want and will not cave on.