The Carolina Hurricanes And NHL Revenue Sharing

September 13, 2012; New York, NY, USA; NHL commissioner Gary Bettman speaks during a press conference at the Crowne Plaza Times Square. Mandatory Credit: Brad Penner-US PRESSWIRE

Sigh. Siiiigh. Sigh.

I’m sure all of us have experienced a parent (or aunt, or cousin, or mentor, or whoever) sitting us down and saying, “I’m just disappointed in you.” It’s a crushing blow, right? Would that I were the NHL’s aunt (not mother; can you imagine giving birth to Gary Bettman?), because if I were, I would be giving them exactly that speech now. By making their refusal to truly negotiate very public, they’re making it very obvious that while they ostensibly care about wanting fans to think well of them, they mostly just don’t want to give an inch to the NHLPA. All talk of “fair” 50-50 splits aside, their position is pretty clear.

Anyway, that’s not the topic of this post. The topic of this post is: the Carolina Hurricanes, NHL revenue sharing, and the intersection of the two. One of the biggest schisms in hockey is the debate about non-traditional markets. Obviously, as a Hurricanes fan, I’m generally for them; I do think, however, that expansion should be tempered with a knowledge of what market you’re getting yourself into (hi, Atlanta).

Once a team is established, one of the biggest ways to ensure they don’t immediately fold is revenue sharing. I’m sure most people reading this are well versed in how NHL revenue sharing works, but for those who aren’t: the way it works in the NHL (similar to the way it works in every major North American sport, all of which had revenue sharing before the NHL did) is that the top 10 teams contribute, and the bottom 15 teams can take money from the pool, assuming they meet eligibility requirements such as at least 80% attendance. There’s really no ambiguity about how revenue sharing works: it’s a very clear redistribution of wealth. Where the ambiguity comes in is whether or not it’s terrible effective.

The Hurricanes, obviously, benefit from revenue sharing. Karmanos has said that the team isn’t yet profitable, which doesn’t really surprise me. Consider the amount of money the team invests in local hockey, community outreach, etc.; then consider how much it invests in just the day-to-day operations of a hockey team, while slowly growing a still-smaller fanbase. This is a team that isn’t yet decently profitable, much less a dynamo like Toronto.

Revenue sharing, however, evens the playing field a little. I think a lot of people – I’d say fans, but I’ve seen it from people actually affiliated with teams and players as well – think about revenue sharing as a way to sort of stem the hemorrhaging of unhealthy teams. Revenue sharing is frequently perceived as a kind of Band-Aid solution, which allows unpopular or floundering teams to keep from folding so quickly.

It can definitely function that way. Some teams are kept afloat for longer than they maybe should be by various mechanisms; Phoenix is a popular example of this, but I’d argue that New Jersey’s slide into attendance problems is another good example. But when used by a team that’s actually committed to investing and growing, revenue sharing can be immensely useful.

A point I’m sure I’ll make again is this: “spend money to make money” isn’t just some empty business platitude. It’s a reality of business. Sports are a collective endeavor even moreso than a lot of businesses. Major league sports depend on quite a bit of buy-in from investors and fans. The way they’re structured, a single new fan is a drop in the bucket. It’s movement en masse that makes or breaks a sports team.

There are some things you can do that will sink you pretty effectively, like – oh, say, blacking out all local games in a gambit to get people to spend money on tickets to your arena (hey, Dollar Bill era Blackhawks). There are also things that are almost guaranteed to gain you fans in the short term, like winning a Cup. But fan retention and long-term growing of a fanbase is a lot more complex, and requires a considerable investment of time and money.

So, does the roughly $10 million dollars a year that a bottom-15 team gets really matter? I’d argue yes. That’s the salary of a very, very good (or very, very overrated) player. It’s not a ton of money, but it’s not a small amount, either – roughly 14% of the cap is a hefty chunk of change.

Obviously, teams shouldn’t be in the bottom 15 forever; but that’s half the league, so straits don’t even really need to be dire for a team to be collecting money from revenue sharing. And in major league sports, a ten- or twenty-year-old team is incredibly young. It can take decades to attract the kind of fanbase that keeps a team afloat in less winning years.

Up until now I’ve been mostly speaking in vague terms, but concluding on those vague terms would be somewhat dishonest. The plain truth is, the Hurricanes benefit from revenue sharing. They’re middling-to-near-the-bottom in terms of income, money spent to the cap, attendance, and all kinds of measures of a team’s health and success. Karmanos getting a new ownership group solidified was a major victory (and I’ll discuss that in the future), but that’s not going to make the Hurricanes a richer team overnight; rather, it provides them with some wiggle room in terms of how much they can spend to get better, and thus more profitable.

The next post I make will explore why the Hurricanes are wise to spend the money they’ve spent over the summer. For now, I’ll just say: a lot of what fans have been talking about with regards to the lockout has been related to the measures instituted after the last lockout. Namely, revenue sharing, a hard cap, and so on. These are things it’s generally acknowledged major sports need, but they’re new to the NHL, and a lot of fans espouse a point of view that expansion-geared investing and redistribution is inherently a bad thing.

Smart expansion is important (another post), but so is spreading the wealth around. For a sport to grow and make more money, it needs investment – both time and money – into making less profitable markets more profitable. Revenue sharing is a standardized way to do this. The conditions built into it mean teams have to actually pay attention to their business operations, but teams that paint by the numbers can reap a small reward they can put towards making more money. Its implementation might not always be perfect, but I’d argue it’s an extremely valuable aspect of the change the NHL’s gone through in the past twenty years or so.