THE BUSINESS OF THE NHL – THE CORRELATION OF FAN SUPPORT AND TEAM VALUATION

When hockeyfreeforall.com isn’t forging into the frontiers of hockey analytics, we are studying the financial health of the league from many angles. We recently completed our 2014-2015 models for each team with respect to their fan base, revenue, valuation, and believe it or not, twitter followers. We think an overview like this is especially timely given the discussion of expansion taking place presently. NOTE – we think expansion is a terrible idea; we believe there are already 5-8 teams too many. Most of these have poor financials and sport roughly 170 players who detract from the success of their respective teams as measured by our Advanced Bracton metric.
Having said that, we wish to share with you some of our findings.

1) There were only 3 teams in the NHL who drew over 800,000 fans to their arenas last year (i.e, had more than 20,000 fans per night) and three that sold less than 550,000 tickets (i.e., less than 13,500 fans). Surprisingly, Winnipeg was not one of these despite having the smallest building in the league).
2) Loosely speaking, teams whose arenas are situated in suburban areas (in the southern US) to which fans must drive (and in some cases brave horrific traffic), sold the fewest tickets.
3) There were 13 markets running at 100% of arena capacity or more. There were 8 cities in which teams attract less than 90% of capacity while Carolina (72%) and Florida (66%) were the worst in the NHL (by far).
4) In all, NHL teams sold over 21mm tickets to roughly 17,000 fans per game (96% capacity) in 30 cities for an average price of $62.00.
5) The 30 cites cover a metropolitan statistical area of 175mm people or a little more than half the population of the US and Canada. The league enjoyed $3.7Bn in revenues.
6) There are 5 teams in the NHL (Florida, Anaheim, Dallas, Arizona and Tampa Bay) with average ticket prices of less than $45. There are 11 teams that have average prices of over $70.00.
7) There were only 5 teams who grossed enough revenues from ticket sales to cover the maximum salary cap while there were 9 that didn’t even cover half of it.
8) There were 8 teams that did not gross more than $100mm of hockey related revenues. They were all American teams. There were only 6 teams that generated over $150mm in turnover.
9) Ten out of 30 teams in the NHL produced negative operating income. In four of these cases, the team sold over 96% of arena capacity and in three cases (NYI, NJD, and ANA) teams with negative cash flow play in large markets as second or third (suburban) teams. Interesting.
10) Forbes values 7 teams at less than $250mm, all of whom lose money other than Nashville.

We have looked at Forbes valuations critically and do not see tight correlations between any variables and valuations. For example, the values are neither wholly commensurate with money making (loosely) nor are they linked to the size of the MSA (no correlation), nor are tabulated on a relative basis.

11) Very oddly, the only decent correlation between valuations exists relative to …twitter followers. We suppose that if a fan base is “supportive” of a team, that level of local relevance can be measured in this way. It appears the higher the headline number of followers, the more valuable the team. Does Forbes use a “support factor” when assigning a multiple or revenues and earnings if applicable? If so, how does it do it?
12) We can believe there are 11 teams that have less than 10% of their MSA following their home team on twitter. However, the following number strains credibility; there are actually 8 teams that have at least 25% of their MSA following the official twitter feed for their team (with 3 over 40%). Really? Does 42% of the MSA of Calgary, for example, have a twitter account, or does the team have a much, and we mean MUCH, bigger footprint outside Alberta than we imagined?
In all, the Forbes rankings make little to no sense from a consistency standpoint. We are not sure how much science and/or art is assigned when gauging the value of a team relative to either its financial performance, capitalization (debt versus equity), total revenues or some other “support factor.” It appears as if the “support factor” however Forbes assigns it, has more weighting on the value of a franchise than any other means, by far.
As such, we wonder how much the league or its expansion suitors would assign “support” in places like Las Vegas, Seattle or Quebec City? Is Las Vegas the same as Phoenix? Hope not. Is Quebec City a comparable to Ottawa? Maybe. It seems like the league, given the findings we outline above, should be concentrating on expanding, if it has to expand at all on cities which meet the following criteria:
1) Not in the southern US (because the impact of the MSA as a percentage of the population would be minimal at this point unless Houston were being contemplated). The incremental TV revenues in the US may be muted.
2) Not a suburban area which involved driving to an arena (this is death in some already shaky markets).
3) An area that could sustain an NHL franchise with at least 95% arena capacity, demographics to support the league average seat price of around $60 and allow the team to make positive cash flow at that level.
4) Generate enough “fan support” locally (i.e., above 10% of the MSA) however one wishes to measure it. By using twitter followers, we may have uncovered a proxy for fan base (brand) loyalty which appears to have a strong impact on how the value of NHL teams is derived.

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