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New market study produces some howling

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According to The Business Journals, Denver leads the NHL’s current “overextended” markets, but there’s very likely nothing wrong with the city’s ability to support the Avalanche that a little winning wouldn’t fix. (Ron Chenoy-US PRESSWIRE)

By Stu Hackel

Other than the sadness of Rick Rypien’s funeral on Saturday, a hypothetical exercise by a business publication became the biggest hockey story during an otherwise quiet weekend. Conducted by The Business Journals, which owns various weekly U.S. newspapers devoted to commercial news in their respective markets, the study written by G. Scott Thomas examined 58 North American cities that do not have an NHL team and tried to determine which would be most suitable based on their wealth.

It’s a limited, one-dimensional study, of course, so when the results indicated that the best places for a new or relocated NHL team included not just major markets like Houston, Las Vegas, Orlando and Seattle, but also Riverside-San Bernardino, CA, Bridgeport, CT, Virginia Beach-Norfolk, VA, Honolulu and even good ol’ Atlanta while Hamilton and Quebec City were considered borderline, well, you haven’t heard such howls since Chester Burnett recorded for Chess Records in the mid-20th Century.

Calling it “a clear case of nerdy number-crunching gone horribly wrong,” Steve McFarlane in The Calgary Sun wrote, “The outrageous report shows what happens when you take common sense, history and rational human thought out of a ‘study’ and leave it to the brains of a computer, or mathematically minded human beings posing as one.”

Wonder how he really feels.

McFarlane does acknowledge that the study includes this caveat: “Other factors would be considered, of course, such as an area’s passion for hockey. Canada has that quality in abundance.”

That passing mention should be more than a mere ingredient. The passion for hockey is part of an emotional component that must exist in a market or an NHL team is going to have problems surviving there. Seattle, for example, is one of Biz Journals’ prospective top markets, but despite its proximity to Canada, its relative wealth and a history of junior and minor pro hockey, there has really never been much passion to bring an NHL team there.

In fact, there are a number of preconditions that common sense dictates must be in place for an NHL team to survive in a market, and just having some or one of them won’t guarantee anything. The city must have a certain amount of wealth, yes, but it also needs a potentially supportive fan base, a suitable arena with a reasonable lease, and good means of transportation to get to the games, plus a cooperative corporate community. Take any of those conditions away and a city loses its suitability for NHL hockey.

All that said, Thomas’s study covers the very crucial area of whether a city can financially support a club, so despite its limitations, the findings cannot be so easily dismissed. McFarlane tries to debunk them, writing, “Based on disposable income, there’s no way the Jets would be back in Manitoba. Yet they sold out their season tickets in a matter of minutes (17), and without even debuting their new jersey, the team’s gear is the league’s most popular sales item at the moment.”

All that is true, however it doesn’t change the fact that there are still long-term questions about the Jets’ viability, especially if the team is not competitive during its first few years and, even if it is, the margins in Winnipeg, the NHL’s smallest market with the league’s smallest arena, could still be rather thin regardless of how passionate the fans are. Fortunately, the Jets have an immensely wealthy patron in David Thompson and not every potential NHL location would have the luxury of an owner who is ranked among the 20th richest people in the world to cover any losses.

Now, here’s the technical part of the study, so fasten your thinking cap or whatever it is you need to fasten: The methodology used by Thomas starts with the Total Personal Income (TPI) for each city, gathered from statistics available from the U.S. Bureau of Economic Analysis and raw data from Statistics Canada. Then, based on current NHL team revenue and average ticket prices, he theorizes that an NHL team needs an income base of $37.6 billion out of a city’s TPI to succeed.

But if a city has an existing MLB, NFL, NBA and MLS team there, he subtracts the relevant income bases those teams need to survive in that city. (Minimum income bases were estimated to be $85.4 billion for MLB, $36.7 billion for the NFL, $34.2 billion for the NBA, and $15.4 billion for MLS; for some reason, CFL teams are not factored in nor are college sports.) The notion is, presumably, that if sports dollars are already being allocated elsewhere, there are less remaining for a potential NHL team. If there is enough left over after subtracting for existing teams, Thomas concludes that a city has sufficient wealth to support an NHL team.

Houston, for example, has a TPI of $281.8 billion, and after the income bases for the MLB Astros, NFL Texans, NBA Rockets and MLS Dynamo are subtracted, there’s $110.2 billion left, well above the $36.7 billion threshold Thomas says is required to support an NHL club.

Now, after all that, Thomas’s figures come to some pretty interesting conclusions. Quebec, with a TPI of $30.273 billion, and Hamilton ($29.506) are considered borderline capable of supporting an NHL team, and Thomas isn’t including the Ti-Cats in Hamilton’s calculations.

But Kansas City, which has been rumored to be an NHL destination  (largely because it has a new arena bereft of a pro sports tenant, not because there has been a massive public outcry to bring the league to town), has an insufficient TPI after the income bases for the Royals, Chiefs and Sporting Kansas City are deducted.

And here’s a very provocative finding: Thomas says that 10 existing NHL markets — one-third of the league’s cities — are among the top 20 pro sports cities that are “over-extended,” meaning there is less Total Personal Income in those cities than the combined income bases needed to support the pro teams that play there. Colorado heads the list, Pittsburgh is third, and Tampa Bay is fourth, followed by St. Louis (7), Phoenix (8), Minneapolis-St. Paul (9), Buffalo (11), Detroit (13), Nashville (16) and poor Winnipeg (17) where they have yet to play a game and here, too, Thomas is not including the Blue Bombers.

This “over-extended” market concept is pretty interesting. Some of the NHL teams in those cities aren’t doing badly at all, but in their markets, other pro teams are. The Penguins and Steelers do well while the Pirates historically struggle.  But so much in sports business is wrapped up in winning and losing that an economic model like this can’t accurately account for the emotional factor of people deciding to attend a game based on how well a team plays. If all the Denver area teams were contenders, you’d expect all of them to fill their stadiums, or come close to it. When a team doesn’t do well, like the Avalanche in recent times, the sports dollars get spent elsewhere.

Getting back to which cities would be good candidates for a new or relocated franchise, one supposes there is the element of “If you build it, they will come” in all this, and that some believe if an NHL team is plopped down in a wealthy enough area that doesn’t currently have a burning desire for hockey, sufficient enthusiasm can be whipped up to manufacture interest. Perhaps. Philadelphia wasn’t a hockey hotbed before the Flyers were put there in 1967 — largely because it was a major TV market that the NHL was courting along with the other five cities that were awarded franchises. Winning the Stanley Cup twice within their first decade certainly changed the popularity of the Flyers, and the sport, in Philly.

On the other hand, the Thrashers paid the ultimate price for not having a winning team. Putting a contender on the ice might have helped them survive their ownership infighting, although some believe that squabbling helped contribute to the team’s poor play. And that brings up to the most obvious of all factors in having a successful sports franchise. If you win, they will come.

It’s impossible to deny at least some of Thomas’s main point: a city has to be financially capable of supporting a team. Does his model accurately portray the connection between wealth and sports? That’s a debate for greater economics thinkers than the fellow who wrote this post. The only real conclusion we’re comfortable drawing from the study is that many different circumstances must be factored into the picture when figuring out where teams will flourish and why. You’d also better expect some howling when you talk about putting NHL teams in non-traditional markets.

  • Published On Aug 22, 2011
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