Friday, September 12, 2014

The pros and cons of the inevitable NHL expansion

The NHL’s sleepy summer got a brief jolt when reports surfaced that the league was on the verge of adding four new teams. The league would be welcoming expansion franchises in Seattle, Toronto, Quebec City, and Las Vegas, we were told, and all four new teams would be up and running by 2017.

The league quickly denied the reports … kind of. It was one of those “there’s no truth to this specific story right now” sort of denials, leaving open the possibility that expansion could still be coming in the near future. And realistically, it has to be. With revenues at record levels, it seems inevitable that it won’t be long before the league expands for the first time since the 2000-01 season.

But should it? As with any major business decision, there are pros and cons to NHL expansion. Let’s run through some of the arguments that could be made on either side.

Pro: Money. We might as well get this one out of the way first, since it’s easily the biggest reason that we’re even talking about any of this. So: money. A very, very big pile of money.

The NHL and its owners will make a ton of money off of another round of expansion. Initial reports estimated that the league would be looking for a $350 million expansion fee for each new team,1 for a total of $1.4 billion. That seems like a big number, but Gary Bettman practically scoffed at it, suggesting the league would be aiming much higher. One report suggesting that bidding for a new Toronto team alone could start at $800 million and perhaps top $1 billion, which would be a North American sports record for an expansion fee.

Even better, at least from the owners’ perspective, is that the expansion fees won’t count as hockey-related revenue, which means it wouldn’t be shared with the players in the form of an increased salary cap. All that money would essentially go directly into the owners’ pockets. That seems like a pretty easy vote to take.

Con: While the league would surely love to cash four new expansion fee checks, there’s a legitimate question as to whether there are really four markets out there that could support a new NHL team.

While the league has never been more successful in terms of overall revenue, it’s not like demand for the product is soaring, and there are legitimate questions about the proposed destinations. Las Vegas has never had a major pro sports team, and Seattle doesn’t have an arena or any current plans to build one. Combine that with the fact that neither city is exactly known as a hotbed for hockey fans,2 and you get a decent argument that the destinations don’t make much sense.

Quebec City, of course, has already had an NHL team, which it lost back in 1996 due to financial pressures. The league’s business landscape has changed significantly since then, especially as it relates to Canadian teams, so there’s a good chance that Quebec City could work as a reclamation project in the same way that Winnipeg has. But it wouldn’t be a sure thing.

Meanwhile, it’s worth mentioning that not all 30 of the current franchises are exactly thriving. While nothing is imminent, struggling teams like the Panthers, Predators, and Coyotes could need to move someday, or at least want to be able to legitimately threaten it to squeeze more out of their current homes. They can’t do that unless there are viable markets available.

>> Read the full post on Grantland

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