Tuesday, March 10, 2009

The Crash

The financial chill of the world economy was evident during the NHL trade deadline this year. While the number of deals consummated before the deadline is only slightly below average, the type of deals definitely showed the financial caution NHL owners are wise to employ in this environment.

Jay Bowmeester did not move. Chris Pronger did not move. With the exception of Ollie Jokinen there really weren’t any big salaries which were moved around. Fear is the simple reason. Managers and coaches wanted these players but owners know what is coming.

The NHL has done considerably better than most industries in weathering this global financial storm, but let’s remember that most of this years revenues with the exception of attendance were already in the bank before the season started or early in the season from sponsors and partners. That means that next years cap will be based on this years revenues which were good. So the cap may go down, but not by much. Problem is next years revenues decide the cap the year after. Everyone in the NHL who operates a calculator is dreading the 2010-2011 season because that is when the cap is expected to drop like a stone. Some believe over the 2010-2011 and 2011-2012 seasons the combined cap drop could be as much as 10 to 12 million. That would bring the cap back into the mid-40 million range. Problem is the long term contracts signed for 6,7,8 or 9 million dollars must still be honored while the teams try to fill out their rosters with enough inexpensive players to meet the cap.

I am no financial whiz, but if I were part of the NHL’s middle class I would be scared. Very, very scared. Many or most of those players don’t get contracts longer than 2 or 3 years. They don’t wield enough power to earn term in their contracts. It means many of those players in the 1.5 to 3.5 million dollar per year price range will be free agents when the cap collapse occurs. That could mean playing for half or a third of your previous contract even if your stats increase. If you are unwilling to accept the pay cut teams will simply use more entry level players out of simple financial necessity. What kind of market place will it be for those players in today’s middle class when hundreds could be looking for work at the same time? Many will jump at the first offer and that will keep the financial bar low, thus those who hold out on principle and/or ego will find themselves without a team to play for.

When this time comes some will blame the calamity facing the players on the owners and/or the CBA. Lets all remember how economics works for the rest of us in the real world. Companies struggle, they don’t buy sponsorships. When they don’t buy sponsorships NHL owners make less or lose more. When NHL owners make less or lose more, they reduce staff and cut costs. When that doesn’t work they reduce the budget for hockey operations and players have to go and cheaper ones brought in. It takes a while for the economy to reach an NHL player but when it does, the NHLPA will certainly tell all of us who are to blame. The list will be long and the accusations of incompetence, greed and wacky accounting will be pointed directly at the owners or an ill conceived CBA.

What really will have happened is the rest of the worlds problems will have burrowed through all the layers of financial insulation players often enjoy and the real world will hit them square in the head. The only difference is millions of people with lesser means will have suffered greater financial hardship and woe for a longer period and a lot earlier than any NHL player.

See you at the rink.

1 comment:

marsbar said...

So I am not sure that the downturn will have major impact, teams with best young talent in 2012 will likely win, and teams with major money in few players like Ottawa, TB , NYR and Dallas and Anaheim and Pittsburgh are likely to continue to suffer. Same rules as today really..