Economics 101: Why "blame the fan" doesn't make sense

MLSE has no incentive to ice a winning team because the ACC is already full every night, even when the team isn't good. If fans refused to buy tickets unless the team was doing well, MLSE would have to invest in a winning team. Therefore, the fans are to blame for the Leafs lack of success.

The argument above is well-known, often repeated, and makes absolutely no sense.

This really shouldn't be complicated, but apparently a lot of people are struggling with it. And since that includes most of our high-paid media stars, I thought I'd spell it out. This is going to be way too basic, to the point that anyone who really does understand economics will be embarrassed by it, but I'm really going to try to make it as simple as possible.

There are two broad categories of things you can sell: Those with a limited supply, and those with an unlimited supply. Airline tickets are a good example of a product with limited supply. There are only so many of them available for each flight, and once they're gone you can't sell anymore. You've made as much money as you're going to make.

On the other hand, if you're selling sneakers you're only limited by demand, and how many you can manage to produce. If demand goes up, and you can make more, you'll make more money. Some products, like MP3s on iTunes, are essentially completely unlimited since it costs nothing to make and store additional product.

Makes sense? Everyone still with me? Even the media guys?

Tickets to a hockey game have a limited supply. If a team sells all its tickets, it can't sell any more. Putting aside the (excruciatingly basic but apparently ignored) possibility of raising ticket prices, once all the tickets are sold then you can't make any more money. And since only the people with tickets are going to need parking and concessions, those are essentially limited too.

So yes, if the owner of a hockey team knows in advance that they will sell out every game, they have no business incentive to change the product.

This is a very sound argument. If it was 1983.

Sure, back when Harold Ballard was in charge the Leafs made most of their money off of gameday sales. So did every other NHL team. Yes, they sold a few jerseys and they made money off of TV rights. But most of the cash came from tickets and concessions.

So the "no incentive to win" argument probably made sense in those days, as Ballard himself confirmed.

Unfortunately for the fan-bashers, that was twenty years ago. Today, the business landscape is very different in the NHL in general, and that's especially true in Toronto.

The Toronto Star reported that the Leafs themselves estimate that by 2011, ticket sales will account for barely one-third of revenue. By then, the Leafs expect to bring in over $300 million a year from sources other than tickets.

Think about that: $300 million every year from non-ticket sources.

Today, the Leafs have revenue streams that Ballard couldn't have dreamed of. Licensed products, which used to mean t-shirts and jerseys and not much else, have expanded to virtually everything you can slap a logo on, including condos. Gameday advertising (or as they like to call it now, "corporate partnerships") brings in revenue that would be unimaginable in the 1980s. Increased competition for TV broadcasts has caused rights prices to skyrocket. Online revenue, still small today, has enormous potential for growth.

All new or greatly increased sources of revenue. All, unlike ticket sales, virtually unlimited.

You think revenue from any of those sources might go up if the Leafs won a Cup?

And that doesn't even touch on the topic of Leafs TV. While the channel isn't a money-maker yet, it's an enormous opportunity for MLSE. The Leafs are trying to follow the same model that the New York Yankees used in launching their own TV empire. The YES network launched in 2002, on the heels of the Yankees winning four World Series in the past six years.

That network's estimated worth now? Try $2 billion. With a "b".

No incentive to win? Really? Really?

Don't forget, the Leafs' primary owner is the Ontario Teachers' Pension Plan. As a pension, they view the team as an investment to hold onto as long as it increases in value and then eventually sell. That means they need for MLSE to grow. Profits are nice, but investments only go up in value when the company can demonstrate growth. The growth for MLSE is going to come from all of these new revenue streams.

And again, since there's virtually no limit on how many people can watch a game on TV or how many companies can cram an ad onto something, the growth potential is enormous. Especially if the team is winning.

And yet we still hear from reporters -- people who are paid to be experts about the Maple Leafs and the NHL -- who drone on and on about ticket sales. Why?

Could it really be that some of these guys haven't paid for a ticket in 20 years, and so still think about the economics of the game the same way they did back then? Or are they just intentionally misrepresenting the situation because "Blame the Dumb Leaf Fan" is a fun story to write?

I have no idea. But hopefully some basic economics will help at least a few of them see the light.

The bottom line: Arguing that Leafs ownership has no motivation to win because the building is always sold out is like arguing that the increase in concussions must be caused by players not wearing helmets. It's a nice idea, but outdated by 20 years.

The Leafs make a lot of money when they lose. But they'd make even more -- a lot more -- if they could figure out how to win.

MLSE doesn't lose because of lack of interest, they lose because they don't know how to build a winner. And you can't lay that at the feet of the loyal fans.