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Source link: http://archive.mises.org/9903/coyote-ugly/

Coyote Ugly

May 5, 2009 by

The National Hockey League’s Phoenix Coyotes filed for bankruptcy today. The club has over $108.4 million in unsecured debt, most of it money loans from Coyotes CEO Jerry Moyes. The team can’t make lease payments on its government-owned arena, and the National Hockey League has been bailing out loaning Moyes cash just to meet basic expenses. The bankruptcy petition proposes selling the club to a group headed by Research in Motion co-CEO John Balsillie, who has offered $212.5 million, provided he can move the team to Hamilton, Ontario, where he’s already lined up 12,000 season ticket holders.

So it sounds like the market is working pretty well. A failed business will be liquidated and relocated to a market where it’s likely to do better. Except NHL Commissioner Gary Bettman is adamantly opposed. He’d much rather continue losing money in Arizona:

NHL deputy commissioner Bill Daly said in a statement Tuesday that league has been notified of Phoenix’s dire situation.

“We have just become aware of today’s Bankruptcy Court filing purportedly made on behalf of the Phoenix Coyotes,” Daly said. “We are investigating the circumstances surrounding the petition, including the propriety of its filing. We have removed Jerry Moyes from all positions of authority to act for or on behalf of the Club. The League will appear and proceed before the Bankruptcy Court in the best interests of all of the Club’s constituencies, including its fans in Arizona and the League’s 29 other Member Clubs.”

Sources tell ESPN.com’s Scott Burnside the NHL will oppose the Balsillie’s move to purchase the team, as will the City of Glendale. It is believed the city will argue filing for bankruptcy does not give the team the right to break their lease, and that commissioner Gary Bettman was dealing with the situation in Phoenix when he was informed of the bankruptcy proceedings and the bid to sell the team to Balsillie.

Bettman is “dealing with the situation” by simply throwing more money down the hole. He doesn’t want to admit that the NHL’s artificial-boom-fueled expansion and reliance on government-funded arenas was a poor business strategy. The NHL is the sports equivalent of the Fed; it’s been printing worthless money in the form of new franchises for decades. Consider this: From 1978 to 2008, the National Football League and Major League Baseball increased their total “output” of regular season games by about 15%; during that same time, the NHL increased output 81%. Somehow, baseball and football remain more popular and profitable despite a slower growth rate. Some would say there’s a lesson here.

The Coyotes’ situation demonstrates the basic problem with sports “commissioners” – they’re politicians, not businessmen. Bettman has no equity stake in the NHL or its member clubs. His primary concern is managing political relationships, particularly with the cities he fleeced to fund arenas. Relocating the Coyotes to Hamilton makes terrific business sense, but politically, it’s a challenge to Bettman’s authority and his myopic view that the NHL can support 30 healthy franchises in today’s economy. (The New York Islanders may be the next to go.) Bettman can’t prevent franchises from failing, but he will pretend like they’re not failing to avoid responsibility. Hey, it works for the Fed, right?


BioTube May 5, 2009 at 9:55 pm

Isn’t hockey only slightly more popular than soccer in this nation? How’s the US soccer league faring?

Marco Costa May 5, 2009 at 10:09 pm

Do people play soccer in the US? Remarkable.

John Singleton May 5, 2009 at 10:37 pm

MLS is actually doing quite well all things considered. Attendance is down, but sponsorships are holding strong. Expansion has hit snafus in a few markets, but I think that may be a blessing in disquise.

John Singleton May 5, 2009 at 10:39 pm

Oh, and for what it’s worth, Bettman is a horrible commissioner and always has been. He’s been doing an excellent job of ruining professional hockey in North America for quite some time.

Gaurav Ahuja May 5, 2009 at 10:52 pm

Hockey is significantly more popular than soccer. A good sport to compare it to would be car racing. Hockey is more popular the closer you get to towards the Great Lakes region adjacent to the border going from east to west.

When Commissioner Bettman takes government money and advantage of government arenas, he is not fleecing anyone, unless there is something more sinister than underlies your statement about that aspect. Is Wal-Mart fleecing anyone by taking advantage of special tax breaks and land deals that they get when dealing with municipalities? I hope the answer is in the negative. And hockey is more popular than ever in Canada and places like Minnesota. Football and baseball are only more popular in America than ice hockey. And I agree that Commissioner Bettman is more like a politician, but the owners allow him to be there. They can remove him at any time. He is responsible towards the stakeholders even though he may not be one as he gets his money from them. His salary is commensurate with how well the league does. Bettman does not want to lose a hockey market forever while moving to an area that already likes hockey. Even though, I don’t agree with it I can see why he would want to keep it there. If you can keep teams long enough in an area(perhaps while temporarily losing money), it will grow a young fan base and develop the next generation to follow hockey and play it more in a certain metropolitan area. It happened on Long Island and in other U.S. markets. Even though I do agree moving to Hamilton would be better, having a team in a huge market like Phoenix isn’t a bad idea if you think you can get a significant piece of the sports market while also being profitable in the long run. Plus, thirty hockey franchises probably could be supported if they have the teams in the right places where hockey is already liked. Then, expansion may be more cautiously tried in the warmer parts of America. But, they have tried to aggressively expand with some false market signals sent their way. Many businesses failed with incorrect market signals as well. I would not single out Mr. Bettman and the N.H.L. for such criticism as they have plenty of company.

matskralc May 6, 2009 at 8:04 am

Is Wal-Mart fleecing anyone by taking advantage of special tax breaks and land deals that they get when dealing with municipalities?


This some kind of trick question?

B. Ranson May 6, 2009 at 8:16 am

Hockey has a very strong following here in Minnesota. It is a popular high-school, college and professional sport.

Hockey, like McDonalds, is a franchise business. In a franchise, ownership is divided is between a local businessman and a larger group of shareholders. In return for some amount of start up capital and a tried and true business model, the local businessman is obligated to abide by certain rules that the shareholders lay out, even if he believes these rules hurt his business.

I would like to know more about the owners of the Pheonix team and their contract with the NHL before I pass judgment on the situation.

Horst Muhlmann May 6, 2009 at 9:30 am

The Phoenix Coyotes head of hockey operations is Wayne Gretzky, who called the profitable New Jersey Devils a “Mickey Mouse” organization.

The Devils have won three Stanley Cups, and the Coyotes have never gone past the first round of the playoffs since leaving Winnipeg.

8 May 6, 2009 at 10:37 am

Hockey does well with a low fan base because the average hockey fan is wealthier than the average fan of other sports, and has interests sought by marketers. Instead of expanding this strong base, Bettman went after new (non-traditional) fans and failed. (Recall all the stupid attempts to ban fighting. This was to make it more appealing to new fans.) Now he’s left with the same fan base, diluted over a larger number of clubs.

matskralc May 6, 2009 at 12:50 pm

The NHL floundered in the late 90′s and early 00′s for a few of reasons.

The primary reason was simply the over-expansion of the league. Bettman and the owners saw an opportunity to extract large franchise fees from prospective new owners and fancy-schmancy new arenas from city and state taxpayers. It didn’t matter to them that these clubs were opening in markets that had little interest in hockey or little ability to support a club (Miami, Tampa, Atlanta, Nashville, Anaheim plus the movements of Winnipeg to Phoenix and Hartford to Raleigh…some others weren’t so bad, such as the movement of Minnesota to Dallas and Quebec to Denver, and some of those mentioned have been mixed, such as Raleigh and Anaheim). This, of course, resulted in a dilution of talent (and therefore an inferior product) and the creation of money-losers.

Other problems aren’t really related to the business end. Teams, especially the previously-mentioned New Jersey Devils, became successful by playing a careful, very defensive style of hockey that limited offensive opportunities. Casual fans pay to see goal scorers, not a bogged-down neutral zone full of guys clutching and grabbing at one another (and certainly not “fighting”, which generally results in two men hugging each other before they fall down on the ice*). Mario Lemieux famously referred to the NHL as a “garage league” when expressing his frustration over the predominant style of play and it was partially blamed for his first retirement.

The NHL lost the 04-05 season to a lockout as ownership decided player costs were becoming too high. The resulting collective bargaining agreement was much more friendly to team owners. The NHL has also instituted, over time, a number of rule changes designed to open up a more offensive game (such as eliminating the two-line pass and limiting the ability of goaltenders to play the puck). Since the lockout, NHL revenues have been growing. It is likely, however, that this year revenues will drop, but, you know, everybody’s are.

The NHL probably still has too many teams, and contraction probably is the best option. However, that would be an even larger admittance of failure than relocating a franchise. Jim Balsillie also attempted to purchase the Pittsburgh Penguins in order to relocate them to Hamilton, and was met with stark resistance from the NHL. When the Penguins threatened to move to Kansas City or Las Vegas and the NHL joined in on pressuring the city and state government, Pittsburgh and Pennsylvania finally blinked and caved on building an arena (Kansas City already has one that they been trying to bring a team to for years). The Penguins later admitted that the Kansas City/Las Vegas scenario was basically a bluff and that the team was never likely to actually move (just how true that is is, of course, speculation).

Phoenix should probably be folded, and failing that certainly ought to be moved. One amazing thing about the southern Ontario market is how hockey-crazy it is. The Toronto Maple Leafs have struggled for years, yet a Maple Leafs ticket is probably the hardest (and most expensive) to get in the entire league. And as mentioned, Balsillie already has plenty of people lined up for season tickets for a Hamilton franchise. A second Toronto-area franchise would be an easy cash cow, and it’s puzzling that the NHL won’t at least admit its Phoenix mistake and allow the franchise to be purchased by Balsillie and relocated.

*Off-topic: fighting, of course, is banned. Anybody who does it receives a five-minute major penalty. The league has attempted instituting a number of rules over the years to attempt to curtail fighting even further, such as requiring all jerseys to be tied down (and therefore non-removable in a fight) and the instigator rule (a player who blatantly instigates a fight receives an extra two-minute minor penalty and a game misconduct [i.e. ejection from the game]). The presence of fighting in hockey is a subject of intense debate, and it’s far from settled that the casual fan buys a ticket to see fights. Given that revenues have been increasing and fighting has been decreasing, this is unlikely.

KP May 6, 2009 at 2:21 pm
matskralc May 6, 2009 at 4:26 pm

An interesting point I saw brought up elsewhere, and I’m pretty sure I follow it correctly.

The NHL currently employs a salary floor: the total player payroll for each NHL team must exceed a certain amount. The salary floor is a percentage of league revenues.

A Hamilton franchise, such as the one Balsillie wants, would be a very high revenue franchise. Furthermore, those revenues would arrive in Canadian dollars, which have strengthened considerably over the years against the American dollar.

This means that this one Canadian franchise in Hamilton would likely generate enough revenue (especially if it replaced a loser like Phoenix) to raise everybody else’s salary floor, despite everybody else’s team revenues dropping!

Vanmind May 6, 2009 at 10:26 pm

Previous attempts to locate a franchise in Hamilton have been thwarted by the team in Buffalo, which was able to argue something about how being in “close proximity” would cut revenues for the Sabres. I wonder what’s different this time.

All in all, I think Hamilton is a second-rate choice (probably chosen because RIM headquarters is in nearby Kitchener). IMO the Coyotes should move back to Winterpeg and rename themselves the Jets. For one thing, losing a team from the Western Conference would be a blow to game scheduling.

dmitry May 7, 2009 at 12:33 am

I have read that more profits could be had by selling rights ($$$$$) to and creating a new team in Hamilton than by moving Phoenix there.

I started watching hockey when I lived in Florida of all places.

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