Skating On Thin Ice: Are Professional Sports Teams Profitable without Merchandizing and Sales of TV Time
Hockey is one of the most recognizable sports around the world, and The National Hockey League (NHL) is the sport's most recognizable league. It was formed in 1917 and has gone through many changes before reaching its current format. By, 1942 the league had been reduced to six teams, the "Original Six" and during this time the league began to become immensely popular throughout North America. Over the years the NHL has added many expansion teams to help increase their value and revenue and promote hockey across North America. By 2000, the NHL had 30 teams, 24 in the USA and 6 in Canada. However the financial gap between teams leaves questions to be considered. How do professional sports teams make their revenue? Are professional sports teams not profitable without merchandising and sales of TV time? Why are profits important to sports teams and everyone connected to them?
There are many ways in which NHL teams gain revenue, so I will just separate them into six categories. Traditionally, revenue platforms in the sports sector consist of: (1) gate revenues for live sporting events: (2) rights and fees paid by broadcast and cable television networks and TV stations to cover those events: (3) merchandising which includes the selling of products with team or player logos: (4)sponsorships, which include naming rights and payments to have a product associated with a team or league: (5) actual team ownership: and (6) concessions (Rosner, 2011, p. 187). Starting with gate receipts, (the sum of money taken at a sporting venue for the sale of tickets), these are where the majority of teams gain their revenue. An average taken from all 30 teams shows that 39.8% of the teams revenue will come from ticket sales, the high end being 56.6% from the Edmonton Oilers and the low end being 26% from the Dallas Stars. This means that 2/5 of an entire teams revenue comes from ticket sales. The amount of tickets sold will likely depend on a few factors such as location, population, team popularity and win percentage. For example; a team like the New York Rangers, who are a winning team and reside in an area that has about 19.1 million people, have 47.7% of their revenue coming from ticket sales, which would make sense because of their location. However, a team like the Phoenix Coyotes will struggle to sell tickets. They are a losing team who are located in a not-so hockey friendly area that has a metro population of 4.4 million. Only 26.5% of their revenue accounts for ticket sales. Next teams will gain revenue from the multiple local TV deals they have that broadcast their games. "Altogether, the league takes in approximately $50 million worth of national TV revenues. Divide that by 30 teams, and each franchise is entitled to approximately $ million" (Keller, 2011, p. 9). This means that on average teams will receive 11.4% of their revenue from TV deals. Since the $12 million dollar value is an average it isn't 100% accurate. Teams revenue from TV deals will depend on their local cable networks and the deal that is worked out with them. However, since this information is not available we use the league average. In contrast, the NHL dwarfs in comparison to the NFL when it comes to TV deals. In the NFL, teams average $140 million from TV deals. This totals to $4.5 billion for the whole league. Third, each team will earn money from merchandising which includes the selling of products with the teams logo and sponsorship deals. Each revenue will vary depending on team popularity, team value, etc. There are two separate branches of revenue from merchandising sales. First is the revenues from Licensing fees and sponsorships. These would be paid by manufacturers and retailers to the NHL. The total revenue from these sales is evenly divided among each team. Revenues from local retail sales makes up the second branch. Unlike branch one...
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