I Am Concerned

The attendance at games on weeknights seems to be slipping down again. Even the weekend games are not selling out. I haven't sat down and really compared to the numbers from last year but just based on impressions I'd say the team is running behind last year in terms of bodies in seats.

Thrashers Attendance History
2000-01 15,262 Attendance Rank 21st Standings Rank 28th
2001-02 12,002 Attendance Rank 29th Standings Rank 30th
2002-03 13,476 Attendance Rank 28th Standings Rank 23rd
2003-04 15,121 Attendance Rank 21st Standings Rank 21st
2004-05 NHL Lockout
2005-06 15,550 Attendance Rank 23rd Standings Rank 19th
2006-07 16,229 Attendance Rank 21st Standings Rank 12th
2007-08 15,385 Attendance Rank 21st Standings Rank 26th

Honestly this comes as a surprise to me. I know that attendance always picks up in the 2nd half of the season post-football season, but the Thrashers were quoted as saying that advance sales where very strong heading into this year. They sold many full, half and partial ticket plans.

My question is where are those people? Did they only buy tickets for the 2nd half? Are they not using their tickets? If they are using their tickets then it looks to me like the Thrashers walk-up numbers must be down significantly. I expected a bit more of a bounce from a winning season and playoff appearance last spring.

This week the Atlanta Business Chronicle had an article that quoted the new head of the NHLPA union that NHL revenues are up substantially. If the numbers he quoted are close to the final figures for the 2007-08 season then the salary cap is going to take another jump up in 2008-09. The top of the cap will rise from about $39 in 05-06 to $45 in 06-07 to $50 million in 07-08 to about $55 million in 08-09.

The CBA between the players and owners sets both a cap on spending a floor on spending. If the salary cap rises to $55 million next year that means that the salary floor will go up to $39 million. That's right in 2008 the salary cap minimum will be the same number as the cap maximum was back in 2005--holy cow that's a fast rise!

Why is the cap going up so quickly? 1) Major shifts in the value of the US and Canadian dollar 2) ticket price increases in some markets 3) the new TV contract in Canada will bring in $100 million 4) attendance rebound in some markets like St. Louis.

Roughly speaking we can divide the NHL into three groups 1) 6 Canadian teams, 2) 13 US teams in traditional hockey markets, 3) 11 US teams in non-traditional markets. Back before the lockout the six Canadian clubs were being squeezed by the weakness of the Canadian dollar (they had to pay their players in US currency but ticket were priced in Canadian currency) and some of the smaller Canadian markets such as Calgary, Edmonton and Ottawa were losing significant amounts of money.

Fast forward 10 years and there has been a massive swing in exchange rates and the Canadian currency is trading higher than the US dollar. This doesn't hurt the NHL teams in traditional markets so much because most have robust attendance, but it does hurt a number of the non-traditional teams such as Atlanta where ticket sales are far from automatic.

Here's the key part of the problem. Player compensation is determined by the overall amount of money the NHL brings in the door. That number is going up overall, but the increase is more heavily concentrated in the six Canadian teams. So Atlanta is going to be required to spend more on salaries regardless of their local revenues because more money is flowing to the league north of the border. We are now stuck in the same situation that Edmonton and Calgary were a couple of years ago where the exchange rate is becoming a major factor in the economics of our local hockey franchise.

When Atlanta Spirit took over this team they spent to the cap max the first two seasons ($39 million, $45 million) , even though they lost substantial amounts of money. This season the team is on pace to spend $44.2 (according to Irish Blues great website). They could still add some salary but from the outside it looks like they are working with a budget of in the neighborhood of $45 million and I assume they will probably lose $5-10 million this year.

I'm still very bullish on Atlanta as a hockey market in the long term. There are 5 million people here and almost 1 million Yankee born) but if you're the owners those losses are real money. The problem is that for the foreseeable future this team is going to lose money. Even if the Thrashers spent the bare minimum they would likely finish in the red--now that minimum is rising fast each year. At some point this club needs to start showing major increases in revenues.

There are many sports team owners out there who operate their teams at a yearly loss because of tax write offs. They know they will get paid when they sell the team because the sports franchises appreciate substantially. If Belkin wins who knows maybe he would sell of the Thrashers (but keep them in his building) to cut his losses. If the Spirit Group wins they may choose to bring in another partner to provide cash to help cover those annual losses and buyout Belkin's share. Honestly I have no idea how they would handle the situation but the owners have to be talking about these issues with each other.

I am not worried about this team moving. But I am worried that this team will lose so much money that ownership will spend closer to the bottom than the top of the salary cap. As a fan I'd rather see my GM go into each season able to spend as much money as the Rangers, Red Wings, Flyers and Maple Leafs but this seems unlikely to happen again in this market in the near future.