Sports Economy 101

Just recently the owner of a professional hockey team called the Phoenix Coyotes was caught between a rock and a hard place. He had been drastically losing money year in and year out with his hockey team, not to mention the financial hit he took when the stock market crashed, and debated back and forth between filing for bankruptcy or selling his team. He chose to do both, a move that would have netted him and his partners around $200 million dollars and would give him some leeway for once. The only problem? The transaction is contingent upon the new owner being able to move the team to the city of Hamilton in the province of Ontario, Canada.

How does this pose a problem? Just this year the Seattle SuperSonics relocated to Oklahoma City after being a part of Seattle for over forty years. Why would an NHL team that has been steadily losing money and that has only been stationed in its current city for about ten years cause some snags in the line for a team that is over $100 million in debt and that has not made the playoffs since 2002? NHL officials are weary of the move. Commissioner Gary Bettman has stated that he doesn't believe the group that wants to buy the team and relocate the organization will get the support and the vote from the other owners, something that is needed by rule to move a team.

How does this have anything to do with economics? Years ago when hockey enjoyed a peak in interest and when it had not one but two golden childs skating on the ice at the same time, that being Wayne Gretzky and Mario Lemuix, the brain trusts of the NHL were thinking nothing of money and profits and wanted to emulate the way the NBA was now operating by adding more teams and expanding out west to bigger markets and bigger cities. In 1991 there were only 21 NHL franchises before a swoon of new franchises and relocations rocked the next ten years which ended with teams now placed in cities such as Dallas, Anaheim, two Florida based teams, the aforementioned Phoenix team, North Carolina, Nashville, and Atlanta. Only one team from that crop is in the top half of operating income, that being the San Jose Sharks who had the best record in the league this year. Their income? A paltry 2 million dollars.

From an economic standpoint, wouldn't it make more sense for an NHL owner to stay in a "hockey-friendly" town? Wouldn't it be smart to try to market an NHL team in a town that where young kids could actually play hockey? For example, take a kid from Phoenix and take a kid from Buffalo. Would the kid from Phoenix rather go indoors to play hockey on an artificial man-made hockey rink in a building that is purposely kept to chilling temperatures while the average temperature doesn't get below 60 in the winter months and he can go out and enjoy some sunshine? How about the same thinking of why herds of people as a whole would want to go to a chilling hockey stadium in March and April when the weather is beautiful outside? It's almost common sense. As for the kid from Buffalo? It would be safe to say that he is out on frozen-over ponds skating around with a stick in his hand as opposed to trying to play basketball on snow-covered courts with huge gloves on.

That brings the next point against hockey expansion and relocation in these "big" market cities, hockey teams will have to compete with football, basketball, and in some cases baseball throughout their regular seasons. Again for the team in Phoenix, in some cases they can get lucky and have days where there is not another ticket in town. How many days out of their season could that possibly be? And why would people want to spend an extra $80 to run out to a hockey game after they splurge a few hundred bucks attending a football or basketball game?

Competition is a key focal point in economics. According to Dr. Tenney, companies do not like competition because it harms them. So why would a team relocate to a city that has forms of competition that they will be directly competing against? For example, seven out of the NHL's top ten teams in terms of attendance figures for this past season had little or no direct competition in terms of other sports. Little competition meaning that those teams didn't really have to compete with another good team that is competing for a playoff spot. Those teams were located in Montreal, Calgary, Ottowa, Vancouver, St. Louis, Toronto and Minnesota. Also, five out of the top ten teams in terms of attendance were located in Canada. Comparing that with the teams that are ranked in the bottom in attendance, seven out of the bottom eleven all have something in common, that being a relatively warm-weathered city. New Jersey is the only team in the bottom eleven that breaks the trend of hockey-friendly town with little competition.

So, following just the attendance numbers, it would make economic sense for a team like Phoenix to relocate then. Five out of the six Canadian-based teams are in the top ten in attendance numbers. It would make them also try to follow the trend of this hockey-friendly town with little competition as opposed to trying to compete against three other professional teams. It would also at least create interest in the team. To correlate it with basketball numbers, the Seattle SuperSonics moved to Oklahoma City this year. It doesn't really seem as though Oklahoma City would be a place for a basketball team to strike gold, but there is no other competition during basketball season and the genuine interest of having a team created buzz amongst the populous of the city. The team then rode that interest and buzz and were ninth in the league in terms of percentage of home games that were sold out and eleventh in the average amount of fans per game. Not bad for a team that had the 4th worst record in the league.

To see if the same trned holds up with the NBA for attendance figures, three of the top ten have no other pro ticket in town. Six out of the top ten have little competition. The exact trends don't necesarilly hold up when comparing basketball attendance numbers to the trends with hockey, but in defense basketball is a more popular sport. It may also be safe to say that that defense can hold up, seeing as how the winless Detroit Lions on average had 30,000 more fans per game than their basketball and hockey counterparts, both teams that made the playoffs in their respective sport, and why football stadiums are built to hold 3/4s of a hundred thousand as opposed to 1/4 of a hundred thousand.

Economics is the science of the production, distribution and consumption of a good or service and their management. Sports easily falls into that mold. There is the production or creation of the team, the distribution or marketing of the team and the consumption of the fan's interest. The management of a team is quite baffling sometimes. It is easy to assume that hockey isn't a sport that could thrive in a warm weather city based on that is a game played on ice, but attendance figures hold up the argument. For the thinking that an ideal goal for a business is to maximize profits, hockey hasn't held up ecomically.

Mike Madias who is a sports journalist tries to make the argument that teams that have left Canada in the past did it because they can make more money in the US because of the way the Canadian economy and currency fluctuate. The revenue for Canadian based teams come in in terms of Canadian dollars, but they have to pay out in American dollars and with the way that the Canadian dollar fluctuates, they then don't make as much money in return. That doesn't explain then how all six of the Canadian based teams were ranked in the top ten of total American dollar revenue even after exchanging Bordens for Benjamins. Hockey has been called a Canadian sport for years upon years, much like how football is an American sport. Why try to think that big market cities with large populations can support a hockey team? It sounds good on paper, but in reality that is not the case.

Oddly enough, one argument from the NHL bosses against the move from Phoenix to Ontario is that they would invade on the fan bases of the Toronto and Buffalo based teams. This doesn't really seem to make sense considering they are already going against three other heavyweights who's stadiums are located virtually next to each other as opposed to an hour away which what Hamilton is from both Toronto and Buffalo, but it also has over 600,000 people living there. That may be almost a million less than what Phoenix has, but what other ticket is there in Hamilton?

In conclusion, speaking economically may be essentially like learning a new language, but using a little bit of economic thinking and comparing what works for other teams and what hasn't worked for the other teams should prove to be a good starting point for any team that is in the hole. Organizations should follow the mold of what has worked for other teams and use some common sense. When it comes to maximizing profits for a sports team, as a lot of teams have shown, you don't need to produce championship contenders year in and year out, you really just need to use a little common sense mixed in with the economic mind set and follow the mold of what has worked for other teams.

The Phoenix Coyotes may not be moving anytime soon and the only real way for it to be known if they would make more money by moving cities would be if they actually did move cities. Based off of other teams though and by following the trends of succesful hockey teams compared with unsuccesful hockey teams though, it would make for a good assumption that they would make money. For a team that has consistantly lost money for ten straight years it would seem that they would take a chance and recreate the organization as a whole as opposed to trying to fix something that seemingly can't be fixed.