LA Kings analysis.

[Cranky]

(Fact) The Los Angeles Kings Hockey Club will lose $12.5 million this season. Since the current ownership group purchased the team, losses have totaled $108 million. These losses are computed on a free cash flow basis, do not include paper losses and are made up out of the team owners’ pockets. Staples Center is profitable but not by enough to offset losses by the Kings. Anschutz Entertainment Group does not earn any income from its ownership of the Kings. Intra-company transfers are minimal and entirely proper.

(Opinion) The National Hockey League’s economic model is completely broken. Revenues, although growing nicely, have failed to keep pace with rising expenses, primarily player compensation. Player salary growth is only a symptom and not the cause of the current financial crisis. The real culprits are over-expansion and the resulting disparity in revenues between the top and bottom teams. Failure to address this issue and focusing only on player remuneration will lead inevitably to a long work stoppage that will endanger the League’s very existence. The real victims in this scenario will be the fans whose concerns are not being taken into account by either the players or owners.

(Opinion) The responsibility for the current crisis can be laid squarely at the feet of the League office and certain owners. Poorly conceived and badly executed expansion combined with a dilution of talent and shortsighted spending decisions have brought the NHL to the verge of insolvency. It is the opinion of this report that the leaders of the National Hockey League (NHL) are now more interested in vindicating past decisions than in solving the problems their choices have engendered. The League office needs to take a more expansive view on how to solve the current problems that plague the sport of Hockey and should eliminate the gag order that currently prevents more enlightened owners from proposing alternative solutions. By allowing the League staff a free hand to run the negotiations with the players for a new Collective Bargaining Agreement, the team owners are complicit in the potential destruction of their own businesses.

(Opinion) In the author’s opinion, the only solution to the League’s broken economics is to reduce the disparity in revenues between the large market and small market teams. Until this is accomplished, solutions such as revenue sharing and a player salary cap will be unacceptable to both the owners and players and will prove to be mere band-aids that will delay the final reckoning. The only way to narrow the gap in revenues between the richest and poorest teams is to contract or consolidate the four to six weakest franchises. The remaining teams will emerge as much stronger entities able to realistically deal with the sport’s problems.

[Cranky]

II. Background and Overview
The genesis of this report came from an article in Forbes Magazine late last year which claimed the LA Kings were profitable over the 2001-2002 season by $7 million. This figure was refuted by Kings’ President Tim Leiweke in two articles in the Los Angeles Times in which Mr. Leiweke claimed the team was actually losing more than $10 million per season. These articles appeared to many of the team’s fans as a ‘trial balloon’ preparing them for the potential exit of several high-priced players. Relations between the Kings’ management and the fans as expressed on the fan website, www.letsgokings.com, and in numerous, increasingly ugly, conversations between season ticket holders and their ticket representatives swiftly deteriorated. At the same time, the team was playing quite poorly on the ice and was falling out of playoff contention after having reached post-season play for the past three years.

In order to verify the claims the Kings were making in the press, of which I was quite skeptical, I wrote Mr. Leiweke a letter that was simultaneously posted on www.letsgokings.com. In this letter, I presented my credentials as a portfolio manager and media company analyst and offered to visit the team offices to conduct an independent review of the Kings’ current financial condition. Much to my surprise, Mr. Leiweke passed on my written offer to team Chief Financial Officer (CFO) Dan Beckerman and asked him to open up the team’s financial statements to me under the protection of a Non-Disclosure Agreement (NDA). I subsequently contacted Mr. Beckerman to arrange several visits to the headquarters of Anschutz Entertainment Group (AEG), the owner of the Kings hockey club, in order to conduct my inspection of the team’s books as well as ask management the questions I needed to complete my probe.

For three days following my regular work hours, I visited the AEG offices under the supervision of Dan Beckerman. For a total of ten hours, I had complete access to all audited financial records of the LA Kings as well as supporting documentation. In addition, I was able to trace and ask questions regarding every payment made by or to the Kings from all related entities including Staples Center and the AEG parent. Every number that I was permitted to see was subject to my questioning, and, on several occasions, I reconciled numbers in the official financial statements with receipts that proved the actual revenues and expenditures. Mr. Beckerman was kind enough to make himself completely available to me throughout the entire process, and there is not a single question I asked for which he did not provide an answer. It is my impression that the Kings’ management was being completely cooperative in attempting to put the information in the hands of the fans through my research efforts.

[Cranky]

Since the key findings of this report are dependent on the validity of this entire process, it is important for the readers to understand certain facts. My job as an analyst and portfolio manager revolves around the analysis and understanding of publicly available financial statements. Any company that wishes to list its security on a U.S. stock exchange is required by law to file quarterly income statements, balance sheets and statements of cash flow with the Securities and Exchange Commission (SEC). In addition to viewing these statements, my job is to ask the tough questions of management to ascertain why certain numbers are the way they are and what they could look like in the future under different scenarios. Sometimes this questioning can become quite intense as managements attempt to put the best possible spin on their numbers while analysts such as myself attempt to discover the truth. My ability to generate superior equity returns for my clients depends on how effective I am in this interactive dialog and in analyzing the information I receive. In this study, I applied the same principles and diligence in evaluating the Kings’ financial statements and management credibility as I do with the public companies that wish me to invest the funds that my clients have entrusted me with in their stock.

Questions have arisen regarding the authenticity of the financial statements, the so-called books, presented to me for analysis. While in another era, such queries would be legitimate, recent high profile accounting scandals and the subsequent losses borne by the investing public have changed corporate culture for the better. The financial statements given to me bore the signature of KPMG, a Big 6 accounting firm. These statements are the same presented to the IRS for tax collection purposes. If they were falsified in any way the auditors who signed these statements would be committing a felony. Moreover, for public companies, both the CEO and CFO have to certify the authenticity of the numbers under pain of criminal penalty for any material deception. While AEG and the Kings are a private company, it is unlikely the corporate officers would escape justice if they falsified entries in any way. In addition, I was able to see multiple supporting documents that had numbers that matched the official entries in the certified financial statements. Since it is inconceivable to me that auditors and corporate officers would risk potential jail time and a loss of their livelihood to fool a fan website, I am assuming for the purposes of this report that every number shown to me is genuine and will continue to do so until someone has proven criminal behavior on the part of the Kings, their auditors or their parent corporation.

Finally, there is the matter of the NDA that I was asked to sign as a condition of this analysis. What this accomplishes from the Kings’ point of view is assurance on their part that I do not inadvertently release a number that they wish to withhold to avoid violating agreements with or by-laws of the League. While it is the organization’s intent to get the maximum amount of information to the fans through this report, the numbers are the property of the Los Angeles Kings, and they wish to protect their interests. On the other hand, the analysis and conclusions derived from this report are solely the property of the author, and the Kings possess no veto power over these findings. There is no question that some of my conclusions are controversial, but they are my opinion and are neither endorsed nor disapproved of by the Kings or their parent. From the reader’s point of view, Section III of this report should be considered facts as proven by the numbers which I have gathered from the official financial statements and supporting data. Sections IV and V are informed analysis and conclusions that are the opinions of the author and as such are open to vigorous dispute and debate. My conclusions are provocative and controversial and are intended to spark spirited discussion both on the website and within the press. It is my hope that these opinions will challenge the accepted and collective wisdom and give fans of the sport a little bit different lens through which to view the problems of the NHL. It is impossible to solve these issues without an honest discussion of the problems, and I hope I have put some ideas forward that will widen the narrow parameters under which the current discussions are taking place.

It must be pointed out that for the purposes of this report my clients are the fans of the Los Angeles Kings. It is their interests that I have attempted to keep foremost in my mind while researching and writing this document. The Kings invited me to their offices solely for the purpose of verifying their claims regarding financial losses. As I examined the numbers, it became obvious to me that the scope of this project had to increase in order to provide a complete picture to the fans. The Kings may rightfully claim that I have exceeded the bounds of what they originally agreed to when they opened up their financial statements to me, but I believe that as both a fan and trained analyst that I have the right to form and express certain opinions regarding these numbers. The Kings’ management does not in anyway endorse any of these findings and opinions.

I wish to acknowledge several contributors to this report. Tadeuz Kugler (Tadite) has previously put together and impressive collection of data and statistics comparing the different NHL teams. He has also written a report that I have borrowed extensively from in which he uses regression analysis to correlate and identify the key problems facing the NHL. Danny Tolen (Dizzyd) is a passionate hockey fan and researcher extraordinaire who has collected reams of data at my request to substantiate many of the claims in this report. Pat Perry (PSP) is a long-suffering fan who has provided me with invaluable knowledge regarding the history of the Kings franchise and promises made by past team owners. Ron Gotcher (RegDunlap) has acted as my attorney on a Pro Bono basis during this process and examined the NDA. Mike Zampelli, the owner of www.letsgokings.com, has given the fans a forum in which to voice their opinions. In addition, I would like to thank the Los Angeles Kings hockey team for granting me this extraordinary opportunity. Tim Leiweke, the CEO, deserves enormous credit for being the first pro sports leader to open up his books to a fan. This is an act of courage and vision, and he has paid a penalty for doing so. CFO Dan Beckerman has endured 14 hours under a constant stream of questioning from me with his wife and pet dog constantly beckoning him home. His assistant, Kely Lyon, has worked to collect all the data I required. Any report on the Kings would be incomplete without acknowledging the heart and soul of the club, GM Dave Taylor who has redefined what loyalty and dedication to an organization really means. Finally, I wish to thank the fans of the LA Kings whose support of the team and the sport of hockey are second to none. In addition to making their wishes to the club to release this financial data loud and clear, they have been my inspiration throughout this process. None of this would have been possible without their enthusiasm and passion for the Kings.

[Cranky]

III. Findings of Fact
1) The Finances – The LA Kings lost $6.5 million in operating cash over the 2001-2002 season. When one adds losses from financing such as interest payments and deferred compensation, the losses escalate to $11.3 million last season. With the failure of the team to reach the playoffs this season as well as the constant stream of injuries which necessitated an unexpected number of minor league call-ups, total cash losses will approach $12.5 million in 2002/03. These losses are computed on a cash only basis and do not include any depreciation or amortization of previous capital expenditures. Total cash operating losses for the Kings during the AEG ownership era are $108 million. Looking at other portions of the AEG business empire, Staples Center is profitable, but only marginally so after making a significant debt service payment on the $315 million in debt held against the facility. Given that AEG ownership percentage of Staples Center is lower than that of the Kings, these profits are insufficient to cover the cash losses of the hockey team. Anschutz Entertainment Group does not earn any income from the Kings. For an excellent background on AEG, I would refer readers to the webpage www.barnburners.com/news/02/mls/0227.html.

As to transfer payments between the entities, the Kings pay 8% of gross ticket receipts or $1.9 million to Staples Center for rent. This is the same rent paid by the Lakers and puts the Kings squarely in the middle of the league in terms of its lease payment. In return, Staples contributes 25% of the premier seat and luxury suite license and ticket revenues to the Kings. Again, this is the same amount of money that the Lakers receive. In addition, Staples Center and all its facilities are made available to the Kings that use them to sell their merchandise and place their sponsorships. The Kings do not make any material payments to AEG but do receive parking revenues on land owned by the parent company. In addition, AEG subsidizes the cost of the Kings’ financial, legal and IT staff. These are expenses the Kings would have to incur themselves if they did not have a parent organization.

It is beyond the scope of this report to value either the franchise or the land surrounding Staples Center that is owned by AEG. The Kings were purchased in 1995 for $115 million and there are few comparable sales available to price the franchise. What is possible to surmise is that NHL franchise values have taken a severe hit when one considers that the Buffalo Sabres were purchased for only the $70 million of assumed debt. The new owner, New York billionaire Thomas Golisano, has put no new net cash into the team. This is less than the expansion payment that the latest entrants to the NHL paid to enter the League. Given the amount of teams currently for sale, it is hard to argue that franchises are currently appreciating in value. With regard to the land that AEG owns surrounding Staples Center, the only thing I can point to is that it is still being used for parking lots, hardly the highest return that could be generated from this asset. This land was purchased at fair market value by AEG and is subject to the zoning laws of the City of Los Angeles. While it will eventually be developed, there is a time value of money cost associated with carrying the land in its current state. Time will tell how much this investment will appreciate in value.

2) A Closer Look at the Losses – In terms of growing their revenue base, the Kings have had great success under the current ownership. Total revenues have grown 15.3% compounded annually (CAGR) over the seven full seasons the team has been owned by AEG. Total revenues now approach $67 million. Particularly impressive is the 18.2% CAGR in total gate receipts achieved over this period. The main reason for this impressive growth is the move to Staples Center. Gate receipts jumped from $19.6 million in 1998-1999 to $33.4 million in 1999-2000. This was due to a combination of greater attendance and higher average ticket prices, but the main stimulus came from the premier seats and luxury boxes as the Kings enjoy a much higher split of these revenues than they earned while playing at the Forum. Total admission revenues in 2001-2002 were $39.9 million based on average paid (not announced) attendance of 15,000 per game and an average ticket price of $48.12. This ticket price is comfortably below the league average to attend a regular season game. Gate will be higher this season based on a price increase combined with better paid attendance and should reach $42 million barring a collapse of fan base at the end of the season due to the failure to make the playoffs. By comparison, the Kings are in the middle of the pack in the NHL with respect to gate receipts with average attendance numbers and below average ticket prices offset by the suite and premier seat revenues.

In terms of broadcasting, the Kings share equally in the NHL’s national television deals with the American and Canadian broadcast and cable networks as well as the Center Ice premium package. The local TV contract with Fox Sportsnet is in the top ten in the league in the high seven figures per season and contains an automatic escalator higher than inflation despite ‘dismal’ ratings that sometimes are worse than soccer locally. Fox is also required to broadcast at least 65 games a season, and the contract goes through 2015. For radio, the Kings purchase airtime on local stations and sell the advertising, a less than ideal arrangement that reflects the lack of interest on the part of any programmer to purchase the audio broadcast rights. The third largest revenue source is sponsorships, primarily advertising on the boards and on the video screens during games. Kings’ management has grown advertising revenue to close to $7 million by requesting that the core sponsors of Staples Center also buy time and space during Kings’ games.

Gate, broadcasting and sponsorships make up 95% of total team revenues. A brief word about other sources is in order. In return for paying the salaries of the players of the Manchester Monarchs, the Kings’ receive a payment of $800 thousand from their minor league franchise, comparable to what other clubs receive from their minor league affiliates. All merchandise revenue sold outside of Staples Center is split between the NHL and the National Hockey League Players Association (NHLPA) to cover the cost of running the League and funding player pensions. For merchandise sold inside the venue, the Kings receive a licensing payment of 25% of gross receipts that totals just over $300 thousand. Insurance payments for player injuries are clearly broken out. Parking revenues are close to $800 thousand and are barely growing. Finally, concession revenues are only $1.3 million per season, a number that I did not at first believe. To verify this number, the Kings provided me with invoices given to them by the two outside vendors that run the concessions. The average fan purchases only $6.50 per game in concessions, a reflection of the fact than many people buy no food and drinks whatsoever. Aramark, the vendor keeps a certain amount to pay for food and labor, and the remainder is split equally between the Kings and Staples Center. At an average attendance of 15,000 and 41 home games, anyone can do the math and realize concessions are not a huge source of revenues. At the suite level, the average expenditure is higher but gross margins on the food and drink are much lower.

[Cranky]

Operating expenses can be divided into two categories. The first includes all non-player salary costs. In these segments, the Kings have done an effective job in controlling the growth of these line items. Non-player expenses have grown at a 6.4% CAGR during the AEG era, 8.9% slower than revenues, and now total $25.5 million. The main contributors are game expenses which is the rent paid to Staples Center as well as the cost of producing each game ($5.4 million) and team expenses which include player per diem, travel, equipment, coaching and staff ($8.3 million). Team expenses are growing in low single digits while games expenses have grown at a double-digit pace as Staples Center is 2.5 times larger than the Forum and requires more staff to operate. Higher gate revenue also means higher rent that is computed as a percentage of paid attendance. In addition, the City of Los Angeles imposes a 3.5% ticket tax for games played at that facility. The Kings pay $1.2 million to broadcast games on the radio, $690 thousand for training camp, $643 thousand for public relations, $1.1 million for client relations and community affairs and $1.75 million for marketing. General and Administrative (overhead) is at $1.73 million. Each of these line items is barely showing any growth, and the Kings can legitimately make the claim that they run a tight ship.

Three non-player expense lines have grown at double digits compounded over the past seven years. The team has invested significant resources in scouting which is now at $1.7 million per season, a 16.2% annual growth rate. League dues have averaged 16.6% growth and are a material percentage of revenues, a matter that will be discussed later in this report. The main contributor to this is the Canadian Currency Equalization Program whereby, according the Associated Press, the strongest franchises in the U.S. subsidize teams north of the border that are handicapped by a weaker currency. In the absence of these payments, league assessments would have grown in the low single digits. Finally, season ticket sales expenses have jumped 12.1% a year to $1.4 million in an effort to broaden and deepen the fan base. One other note should be mentioned. While minor league player salary expenses grew at 2.3% from 1996 to 2002, there was huge jump this season because of the bonuses paid to the team’s top prospects. This figure is now at $3.2 million and should remain close to that as long as the team remains committed to building through the draft.

The second major category and by far the largest expense facing the franchise is player compensation. During the 2001/02 season this totaled $45.4 million. While the budget for this year forecast a similar number, the team will exceed this figure due to the numerous injuries that forced the premature call-up of several minor leaguers who are paid the front end of their two-way contracts while they are with the big club. In terms of player salaries, the Kings are in the top half of the league. Player salary growth for the Kings has been 18.9% compounded in the seven years that I am examining. If salaries had escalated at just 10% a year from when AEG purchased the franchise, the Kings would have generated a cash operating profit of $7 million in 2001-2002. In other words, the additional revenues captured by the move to Staples Center have been entirely consumed by the growth in player salaries. This will be discussed at greater length later.

Below the operating line, the Kings also receive and pay out cash for various financing requirements. The Playoffs are a significant source of free cash flow, generating approximately $4 million in revenues and $2 million in expenses per round. Failure to make the playoffs this season will add $2 million to the Kings’ cash losses. The franchise owes $54 million in debt and the annual payment is $2.9 million in cash. Debt owed to the owners for paying for the team’s losses accrues but there are no current cash payments. In addition, deferred compensation left over from the previous owner’s era still amounts to $2.5 million a year in cash payments. Total deferred compensation inherited at the time of acquisition totaled $34 million with a balance of $8 million remaining after this season. This particularly hurts in that the Kings are still forced to pay players who are now competing against them on other teams. The current ownership had the choice of eliminating these payments through a bankruptcy filing yet volunteered to assume these obligations at a real cost to the team’s bottom line. Three other entries appear in the cash from financing segment. Expansion payments, which are non-recurring, were paid to the Kings in the 1998, 1999 and 2000 seasons. These extraordinary entries are enormously significant, as I will explain later. Also present are buyouts of former player contracts as well as a one-time settlement from the NHL in 2002. The decision to place one-time, non-recurring revenues and costs into the financing section of the cash flows and not into operations is entirely consistent with generally accepted accounting principles (GAAP).

3) Conclusion – After examining all the data and reconciling the official income statements with the annual free cash flows, I can state definitively that the Kings have lost $108 million in cash since AEG has owned the team. The greatest loss, which occurred in 1998-1999, was $31.7 million and the best year was 1999-2000 where the cash loss was $8.2 million. This year, the cash loss will be $12.5 million. Staples Center barely earns its cost of capital and does not generate nearly enough profits to offset these losses. These operating shortfalls are being absorbed by ownership and are almost equal to the original purchase price of the team. Philip Anschutz can put the team into insolvency at any time given the debt the Kings now owe him personally. Anschutz is permitted to write these losses off to shield income from other sources from taxes, but the important point to remember is that these are cash, not paper, losses, and cannot be classified as a ‘tax shield’. In the interest of full disclosure, Anschutz is legally permitted to deduct 50% of the team’s purchase price from his personal taxes according to an IRS-approved schedule, but this benefit has been almost entirely consumed. These numbers are indisputable unless someone can prove criminal malfeasance on the part of the team and its management and auditors.

[Cranky]

IV. Financial Analysis
Thus far, the information that I have provided is completely factual and not open to dispute. The following discussion is purely the opinion of the author based on my analysis of the data. Open, vigorous and fair debate on these matters is encouraged and welcomed. In addition, the Kings’ organization does not in any way endorse any of these conclusions or findings.

1) The Kings – At the risk of stating the obvious, the main financial problem facing the Kings franchise is that revenues are insufficient to cover expenses. A closer look at the revenues tells an important story. The Kings’ fan base is simply not large enough. Last season, the team averaged 15,000 paid per game. This season was heading higher, although falling out of the playoff picture has affected the size of the crowds. Of all the numbers that I saw, this one had to be the most disappointing, especially when one considers Dallas and Colorado sell out every game even though hockey lacks the long-term roots in those markets. Not only are the Kings in the middle of the NHL pack in terms of attendance, average ticket prices are below many of the team’s peers. According to publicly available data, Dallas has ticket prices that average 49% more than the Kings and Colorado sells their seats at a 55% premium. These two teams also have higher paid attendance which results in the Stars exceeding the Kings average gate revenue by 65% per game while the Avalanche are 75% higher. This explains why these two franchises are able to afford a higher payroll.

Even this analysis does not paint the complete picture. The Kings are fortunate to be playing in the same building as the most popular team in Basketball and arguably the strongest franchise in this city. It is hard not to argue that most suites and premier seats are purchased by fans who want to see the Lakers. If the Lakers did not play in Staples Center, the luxury suites would not be sold out and premier seats would not be at 87% occupancy. The premier seats that are unsold are at the corners of the arena where the view for basketball is quite poor. Despite the fact that the seats are primarily sold to fans of the Lakers, the Kings receive an EQUAL share of these revenues. As stated above, the two teams each receive 25% of the ticket and license revenues from premium and box seating with Staples Center keeping the balance minus all associated expenses. It is difficult to escape the conclusion that the Kings are being subsidized by the Lakers, something that King’s fans should be grateful for. Furthermore, the Kings receive 64% of total revenues from attendance, including premium seating. This compares to a league-wide average of about 70%-75% of revenues from gate, according to Faceoff.com. This is where playing in Los Angeles becomes an advantage because the huge market forces advertisers to pay up for sponsorships and local television rights fees are high despite poor ratings. Weak ratings in a large market can often represent more viewers than very strong ratings in a smaller market.

The key top line issue facing the Los Angeles Kings is that there are not enough fans willing to pay to fill up the arena, and that demand is too weak to drive higher ticket pricing. While it is certainly a positive that average ticket prices are in the middle of the NHL, comparatively low gate revenues does certainly impact the quality of the team on the ice. Simply put, more revenues leads to an increased ability to afford higher player salaries. There is a direct correlation here that cannot be ignored. As to why the Kings lack the fan base of other teams, I would point to the alternatives available to people in this city with regards to their entertainment options. Los Angeles has much more competition for scarce entertainment dollars, and this has a tremendous impact on the top line of local teams. Unfortunately, the NHL is not the only professional League in this town to have to face up to these cold facts. Some would argue that the Kings failure to ever win a championship affects attendance and ticket pricing. I am not unsympathetic to this line of reasoning. Two of the most successful franchises outside of the ‘Original Six’ from a revenue point of view are Dallas and Colorado, and both have had a record of recent on-ice success. The question I would pose to the fans is “how much more would you be willing to pay for tickets if the additional revenues went to acquire better players?”

The other piece of the profitability picture is expenses. As I have already stated, non-player costs have risen at 6.4% a year compounded under current ownership. The team has made investments in scouting and ticket sales. Nevertheless, many costs such as overhead and game expenses should not rise faster than the rate of inflation, and I would hope and expect non-player expense growth to be held at 5% or less going forward (in the absence of a marketing initiative I will discuss later). One point that has to be made is that even though the Kings are losing money, they are still required to subsidize teams north of the border through the Canadian Currency Equalization Program according to published reports. This would seem to be a systemic problem to be discussed at greater length later.

The Kings are forced to compete for the services of players with 29 other NHL franchises. Thus, player compensation is based on a free and open market, and individual teams have very little control over this expense item. At $45 to $48 million, the Kings are in the upper half of the League in terms of player costs. To put this number in perspective, total player salaries were $19.1 million in 1996/97, the first full season the club was owned by AEG. According to the NHLPA, Dallas has a payroll of $61.7 million and Colorado is at $60 million (not including one-time bonuses). At the other end of the spectrum, Ottawa and Edmonton are both near $30 million. While player salaries is only one, and not necessarily the most important, factor determining on-ice performance, it is impossible to escape the fact that seven of the last nine Stanley Cups have been won by teams with payrolls in the upper echelon of the League. Teams with a small budget have to be extremely creative on how they manage their roster, and it has proven difficult for them to keep these rosters intact over time as Edmonton and Pittsburgh have clearly proven. There are specific reasons why salaries have grown dramatically in the late 1990s, but this is a league-wide issue that I will address. Suffice it to say, keeping player salaries within available revenues is the key if the Kings are ever going to achieve profitability.

Failure to get deep into the playoffs has a major impact on profitability. Given that gate is such an important contributor to revenues, adding additional games to the schedule at a premium price without added player costs can make a big difference. The question always becomes if one wants to gamble by temporarily adding salary in an uncertain attempt to make the playoffs and win a couple of rounds under extremely competitive conditions. Thus far in the AEG era, the Kings have not taken this gamble, Cliff Ronning notwithstanding. Since nothing sells season tickets better than a successful end to the previous season, the Kings can be legitimately questioned on why they have not been more aggressive given the huge financial benefits to winning. Interest expense is a result of the financial leverage ownership has incurred to improve equity returns and should stay relatively constant. The imminent termination of deferred compensation payments is a blessing for the franchise; it should never repeat this error again. As we move to a discussion and analysis of the NHL’s financial condition, it is important to stress the Kings have done some things well and some not so well, but they and every other team are completely dependent on the resolution of the league-wide issues they are subject to.

[Cranky]

2) The NHL – While I was only able to look at the financial statements of the LA Kings, this information combined with publicly available data on the web has allowed me to make certain inferences. Even though the number of teams has increased by nine over the past decade, the amount paid to the League in dues has grown rather than decreased as one would expect as there are more teams paying. The League finances itself from playoff revenues, a cut of the nation television dollars and from merchandising sales. Any shortfall has to be made up from the clubs. Given that these other revenue sources have grown at least with inflation (except for merchandising), it becomes obvious that costs have risen faster necessitating an increase in total dues collected. While it will take an examination of the NHL’s finances to answer this question definitively (I encourage them to adopt the Kings’ example), I suspect that the League has come under pressure from the need to support weak franchises. In the past year, two teams have gone bankrupt, and at least one is being run by the NHL. This is not the first time this has occurred. While the reasons for these failures have to do with problems in the local markets, it is the NHL and its owners who are left holding the bill.

Added to this financial strain is the problem of the Canadian teams. Due to fiscal policies north of the border, the Canadian dollar has been in a long-term tailspin relative to its U.S. counterpart. Whereas both currencies were at one time at parity, a Canadian dollar is now worth only $0.60 U.S. The Canadian teams collect the great majority of their revenues in local currency but are forced to pay their largest expense, player compensation, in U.S. dollars. For each $1 U.S. in salary these teams have to pay, they need to collect $1.67 in Canadian. This creates an enormous burden for the Canadian teams, many of which play in under-sized markets to begin with in a country with a lower economic growth rate than its Southern neighbor. Given that keeping the sport in its birthplace is considered essential, the NHL has begun to subsidize the teams north of the border. According to the Associated Press, there is a Canadian Currency Equalization Payment of $3.7 million that the NHL pays to each of the qualifying Canadian teams annually. This currency issue is clearly impacting the economic health of all the teams and must be addressed with a long-term solution.

Another indicator of the League’s troubles is the remarkably high percentage of revenues that come from the gate. At 70%-75% of revenues, according to Faceoff.com, the NHL is far more dependent on attendance than the other sports. This is a reflection of the weak national television deal that pays each club $5.7 million annually as compared to $70+ million per NFL team and $20+ million for each NBA franchise, according to the Canadian Press. There is a real question whether the NHL will be able to achieve a similar deal when the current contract with ABC and ESPN expires at the end of next season. This is due to anemic ratings in the U.S. for the sport of Hockey on television for both local and national broadcasts. It is the opinion of this report that the NHL is to blame for this ratings decline. By over-expanding (a theme I will return to), the League has diluted its talent base and created a slower, less skilled product than what was on display just 10 years ago. Clutching and grabbing, which has slowed the game to a trickle, is a direct result of too many unskilled players on the ice attempting to keep up with their faster, more talented counterparts. This has been a tragedy as Hockey, when well played, can be the fastest and most exciting of the major sports. A boring, defensive style, necessitated by a lack of skilled players to fill out rosters, is not what the television viewers want, and they are voting with their remote controls.

Publicly available data allows me to show that the Kings are not the only team losing money. Colorado is close to $55 million in gate revenues if one looks at ticket pricing on the team website and assumes every game is sold out. If they are at the league average of 75% of revenues from gate, total revenues are $73.3 million. With a player budget at $60 million, there is no way the club can be profitable given the Kings have non-player expenses at $21 million. If the Avalanche are lucky, they will advance deep into the playoffs and eke out a profit, but this is one of the League’s healthiest teams. Let’s look at Edmonton by comparison. Because of ticket prices paid in Canadian dollars, I estimate the Oilers only generate $25 million U.S. at the gate for a total of $33.3 million in total revenues ($37 million with the currency subsidy). The team’s payroll is $28 million U.S. that means the team is likely losing money after they pay non-player expenses. The Florida Panthers are in even worse shape with lower attendance and no League subsidies to rely on. I caution the reader that my numbers here are estimated based on imperfect data, but I am likely not too far from the truth. I feel confident that by looking at representative numbers, quite a few teams are losing money, and that the Kings franchise is far from being in the worst shape.

The question that has to be asked is why the NHL’s economic model appears to be broken. Commissioner Gary Bettman in the Pittsburgh Gazette estimated that the league’s revenues increased 171% in the past 10 years while salaries increased 240%. While this may be true (but unverified), this is an unsatisfying answer. One must ask why salaries have increased to this extent, and here I blame the League and the owners. The author believes the main driver of higher player salaries has been the poorly planned and badly executed expansion of the NHL outside of its traditional markets. This has come about for several reasons. The most obvious is the expansion payments made by the new entrants which artificially inflated the revenues of the existing teams. A look at the Kings’ financial statements tells the story. From 1998 through 2000, the Kings booked well over ten million dollars in income from expansion. These payments are correctly accounted for as a financing and not an operating entry into the cash flow statement. This is significant as these payments are non-recurring in nature and had an adverse affect on operations because the national TV revenues would now be split with the new entrants, leaving fewer dollars for the existing teams. Since 1991 according to the Toronto Star (1/17/03), $570 million has poured into the NHL from expansion payments, and this money has been spent. The years of expansion saw a doubling of the team’s player compensation costs. It is hard to escape the conclusion that some teams were taking these non-recurring expansion payments and bidding up player salaries in a desperate attempt to go deep into the playoffs and possibly win the Stanley Cup. The NHL put artificial dollars into the hands of its owners and watched them spend this money with reckless abandon.

There are several other ways in which expansion has driven expenses out of control. Suddenly there are 30 teams bidding for a fixed talent pool whereas before there were only 21. The influx of the top European players into the NHL in the late 1980s and early to mid 1990s has mostly ended. There are no more new pools of talent that the League can tap into. When demand for players increases and supply remains static, prices for those players begins to rise. That is the Law of Economics. With a diluted talent base and end of the era of the 60 to 80 goals a year scorer, star players who can still put the puck into the net have become as valuable as gold. When there was more talent to spread around, only two players (Gretzky and Lemieux) really were able to make the difference between winning and losing. Now every team is searching for that one elusive star that can put it over the top. It is no wonder that the auction for the services of these difference makers has reached stratospheric heights. The result of this profligacy is an increase in the average player salary from $271,000 in 1991 to $572,000 in 1994 and an astounding $1.6 million today, according to the Pittsburgh Post Gazette (1/25/03). This is higher than the average NFL salary (an NFL team has 53 players on its roster as opposed to 23 in the NHL), but that League is the proud owner of a national TV contract that pays each team $70 million a year, almost 13 times what an NHL team is paid. In short, expansion has been an unmitigated disaster for the NHL by driving salary inflation, diluting the product and creating weak teams that are a drag on the League.

Let me be clear here so there is no doubt on where the responsibility for this sad state of affairs lies. The players have a limited career where their earnings power is compressed into a few short years. They are generally underpaid as young newcomers bound to the organization that selects them in the entry draft. After they hit their 30s, the bargaining power of all but the most talented players declines dramatically. On top of that, many players leave the game with permanent damage to their bodies caused by playing an extremely physical, contact sport. Their desire to maximize their returns in the short window open to them is completely understandable. The rise is salaries are due mostly to the owners’ and NHL’s ill-considered decision to expand combined with a wide disparity in revenues between the largest and smallest market teams. New, often uninformed, money was brought into the League, and it is no surprise that it was spent unwisely in order for some short-term ego gratification. By failing to recognize this threat and by doing a remarkably poor job (see Ottawa and N.Y. Islanders) in selecting new ownership groups, the NHL and its leaders deserve the heaviest burden when apportioning the blame for a failed economic model.

[Cranky]

3) The Collective Bargaining Agreement (CBA) – No analysis of the current state of the NHL can be complete without looking at the imminent expiration of the contract governing relations between the owners as represented by the League and the players spoken for by the NHLPA. The last agreement was concluded during the 1994-1995 season, but not before a lockout by the owners caused a loss of almost half a season. The agreement was extended in 1998 but is expiring at the end of the 2003/04 season. Each side appears to be preparing for war. The players have assembled a strike fund and each owner has been ordered to secure a $10 million letter of credit as security against a long work stoppage. Each side has established draconian rules to squash any dissent within the ranks that might weaken them at the bargaining table. No discussions are currently scheduled as the NHLPA prefers to negotiate under crisis conditions. The thoughts and wishes of the fans are not being considered in the slightest by either side. Both the players and the owners would prefer to focus on selfish and parochial interests. It is this stalemate that has, in many ways, influenced me to undertake this project.

The owners are intent on forcing a salary cap upon the players whereby the teams can save themselves from their own spendthrift ways. Under the current economic model, the players will never accept a salary cap, nor should they. Let’s leave aside the obvious arguments that it is unfair for any employer to regulate the earnings power of their employee in any way. This goes against the fundamental principles of the Free Enterprise System that everyone else operates under. The key reason why a salary cap will not work in today’s NHL is because of the disparity in revenues between the largest and smallest market teams. A salary cap low enough to save Edmonton and Florida from inevitable bankruptcy will force the average salary below current levels and allow the healthiest teams to earn a huge profit by locking in their expenses at an artificially low level. For instance, a salary cap at $30 million (which is even too high for some teams) means an average salary of $1.1 million (assuming 27 players paid at the NHL level), a 30%+ reduction from current levels. At the same time, teams like the New York Rangers and Dallas Stars, that I estimate enjoy revenues of over $100 million, will enjoy incredible profitability with this favorable cost structure locked in. It is the height of arrogance on the part of the owners to assume that this could be acceptable to the players in any form.

What about that other so-called panacea usually trotted out called revenue sharing between wealthy teams and their poorer counterparts? After all, according to Business Week (1/27/03) the NHL shares a paltry percentage (9%) of its revenues between the clubs especially when compared to the NFL (63%) and NBA (35%). This is, however, where the real weakness of the NHL economic model is exposed. The reason these other Leagues can afford to share such a high percentage of their revenues is because national television dollars make up a much higher share of their total top line. In a League where gate represents such a high percentage of revenues, asking teams to share is manifestly unfair. For instance, the Kings were able to essentially double their revenues because AEG took a huge risk by spending over $400 million to build Staples Center. Why should the Kings’ owners have to distribute income from suites and premier seats to their counterparts in other cities who have not taken this risk and built a modern facility? This would fly in the face of everything that is great about Free Enterprise- the rewards of our system should go to the risk taker and the one who shows initiative. Owners who refuse to invest in their teams should not be with rewarded with revenue sharing dollars from their more entrepreneurial peers.

There is one more interesting analytical point to make regarding the CBA, one that could plant the seeds of an eventual settlement. The idea that the players are united behind a common goal is a myth perpetrated by the NHLPA. I have been very hard on the owners and the NHL, so now let me state my belief that the main objective of the leaders of the player’s union is not the long-term welfare of the sport of Hockey. Instead, they are unnecessarily mistrustful of the owners and seek to correct legitimate grievances from two decades ago rather than focusing on current problems. The reality is that there is a split among the players, between those that are lucky to be in the League and the stars. The star players are the ones who move the turnstiles and are the one’s with the most to lose from a work stoppage. Many of these athletes earn huge sums that they will never be able to recover should they lose time from a work stoppage. Any solution to the League’s problems will have to take their interests into account because there is no sport and no fans without them. In other words, the stars are going to be willing to play ball to reach a settlement– recent comments by Brett Hull bemoaning the pay of some of his less skilled counterparts prove this last point.

On the other side are the role players, and those having to compete for a job every season. These team members have less to lose from a work stoppage as they have a lower standard of living and are protected long term by very attractive pension benefits. The primary goal of this segment of the union will be to protect the absolute number of jobs as many of these players exist on the margin of the League. It is these athletes that have benefited most on a relative basis from the collective bargaining process as it was their rights that were regularly trampled on under the old reserve clause system. Many of the game’s stars have gone on to have very successful second careers trading off their hockey fame. The same cannot be said of the hundreds of anonymous names who passed through the League for a few seasons filling up a roster space. It will be very interesting to see how the dynamic between these two groups within the NHLPA will play out as the end of next season approaches.

To conclude this section, it is the opinion of the author that the evidence I have seen proves that the economic model of the NHL is broken. The individual teams are mere victims of this larger picture. It is the fault of the owners and the League that things have reached this point. Expansion is the main culprit of these problems and player salary growth is the symptom and not the cause. Failure to address the underlying root causes of this problem and focusing on unworkable band-aids such as revenue sharing and a salary cap will lead inevitably to a long work stoppage. The NHL has a high probability of not surviving such a catastrophe. With the TV contract up and renewal tenuous at best and with an immature fan base in many markets without the proven long-term loyalty to the sport, fan disgust at a lost season, whole or partial, could spell ruin for the League. I liken the march towards a lost season to Armageddon for the NHL whose very survival may now be at stake. I will now present some conclusions that may allow all sides to step back from the precipice.

[Cranky]

V. Conclusions and Solutions
The key findings and conclusions of my analysis are again open to debate and are disavowed by the Kings. The picture that I have painted thus far is not a pretty one, and there is plenty of blame to share among the various constituencies. A discussion highlighting the key issues and proposing some potential solutions would seem to be in order. None of these proposals will be easy or without pain, but the current path leading to a long work stoppage and the possible destruction of the League is clearly an unacceptable to the main consumers of the NHL's product. I am one fan among millions, but this paper is a desire for the most important and the most ignored constituency of the sport of Hockey to have a voice in the current debate.

1) The Kings - for most of this report, I have been sympathetic to the Kings franchise and their management. I have validated their claims of losing money and have pointed to factors beyond the team's control as the culprit for those losses. Having said this, the team and its management cannot entirely escape blame for the financial straights they now face. In particular, there are two areas where the franchise has fallen woefully short. As I have already stated, the most disappointing finding in my financial examination of the team is the fact that paid attendance last season averaged only 15,000 per game. While slightly higher this season, this number is an indication that management initiatives to broaden and deepen the fan base have failed. Los Angeles is the second largest city in the country. There is no shortage of either skating rinks or transplants from other cities that grew up with the sport of Hockey. The Kings have played here since 1967 and enjoyed some success, particularly during the Gretzky era, thus creating deep roots in this town. The new ownership, which has said on innumerable occasions that it is deeply committed to the team, has simply failed to take the necessary steps to increase the number of paying customers. The reasons for this are not entirely obvious, but I would argue not enough money has been invested in the marketing budget that has only increased 3.9% per year. For those who say that Hockey will never emerge as more than a niche sport in southern tier and non-traditional markets, I would point to the success of Dallas and Colorado who only recently had franchises relocated to these cities yet exceed the Kings in both number of tickets sold and in average ticket price. Granted both those teams have won the Stanley Cup, but that alone is only a partial explanation for their financial success. The Kings are going to have to do a much better job in cultivating and maintaining its fan base in order for the team to enjoy long-term success on the ice.

My second criticism of the Kings and their ownership is how the team has abdicated its own responsibilities in terms of solving the problems I have outlined and passing this duty on to the League office. Tim Leiweke, in a recent interview, stated unequivocally that it was up to Commissioner Gary Bettman to solve the NHL’s problems. Commissioner Bettman, however, seems intent in proving that each of the current franchises is viable even as two teams emerge from bankruptcy and several others suffer severe financial pain. Philip Anschutz is undoubtedly one of the most successful businessmen in the U.S., and Tim Leiweke sits on the NHL Board of Governors. Anschutz achieved his success and wealth by holding the people that work for him accountable. Why then, I ask, have the Kings not played a larger role in attempting to determine League policy? To the best of my knowledge, the Kings have voted with their peers in favor of League policy on every significant decision. Saying that they are only one of thirty teams is not an acceptable excuse. Playing in the second largest market and the country’s media center gives the club natural influence within League councils. Mr. Anschutz’s voice cannot be ignored were it to be used to influence and even direct policy. I believe the Kings organization is acutely aware of the problems outlined in this report. These are very intelligent people who care deeply about their investment and are distressed that it could go up in smoke if there is a long work stoppage. Our franchise has a responsibility and obligation to play a larger role in League affairs to help avert the doomsday scenario I have described.

Having delivered my criticism, it would not be fair not to mention the current ownership’s successes. Obviously, the move to Staples has been a huge benefit. The arena is one of the nicest in the League with its many amenities, open spaces and premium seating. This has allowed the team to more than double its revenues. The Kings management also deserve credit for building the new training center, investing in scouting and purchasing a minor league affiliate to develop players. The general manager and coach are, at the very least, competent and certainly have the ability to make this a dominant franchise for a long time if given the proper resources. The local television contract is impressive, and it is unlikely that many other teams have more sponsorship revenues than the Kings. With all these assets working for the franchise, it is a shame the League’s problems are having such a negative impact on the team. This is why I am so hard on management for not being more aggressive in seizing their own destiny and proposing solutions. Nevertheless, the franchise itself has never been stronger with a wealthy and committed owner, a capable and deep management team and a consistent strategy. If there is one number that I would point to that shows how much class our team has, it is the issue of deferred compensation. Mr. Anschutz and Mr. Roski could have easily expunged this debt in bankruptcy, but at great cost to themselves, ownership decided to continue these payments to former players. They have earned my patronage, and I will continue to attend at least 75% of all the home games. I believe strongly that the organization continues to merit the support of the fans, and I encourage the readers of this report to not give up on the team. If the NHL survives, the Kings will be an active and successful part of it.

2) The NHL – I have stated previously that expansion has put tremendous strain on the NHL’s economic model. Perhaps the most insidious result of this haphazard growth has been the creation of a wide disparity between wealthy teams and those in smaller markets without the revenue base to be able to compete effectively. As I’ve discussed, this has resulted in a situation where the weaker teams are no longer able to retain their talented players which in turn leads to poor results on the ice and weak attendance on the part of fans who have given up hope of ever contending for a championship. At the same time, I believe the players will be unwilling to accept an agreement with the owners that rolls back average salaries much below current levels. What is often forgotten in the discussion of a salary cap is that the Leagues that have successfully adopted such restraint on salary growth have also simultaneously implemented a salary floor. For instance, a salary cap of around $45 million (which I believe the Kings can live with) allows each team to pay 27 players (a roster of 23 plus substitutes for injury) the current average salary. If however, several teams choose to have a salary budget of $30 million, the players on that team will only average $1.1 million thus dragging the average down for the entire League. The conclusion is inescapable; the only way to maintain the average salary at the current level is for there to be a solid floor as well as a ceiling on player salaries.

The implications of this are enormous. It is obvious that several teams will be unable because of their local economics to be able to afford a salary floor that will be acceptable to the NHLPA. This is the conundrum that the disparity in revenues between the rich and poor teams has wrought. It is the opinion of the author that the only way for the NHL to have a salary structure that will be acceptable to the players is to contract or consolidate the four to six weakest teams which lack the revenue base to be able pay a level of player compensation commensurate with or close to the league average. This is a very controversial statement that needs to be discussed at greater length. Clearly, if the bottom six teams from a revenue point of view are eliminated, the salary floor can be set at a higher level than before. Just as importantly, contraction, painful as it is in the short term, will leave behind much healthier teams and a stronger League. The need to subsidize teams in or close to bankruptcy will be eliminated. League dues can thus be reduced. Moreover fewer teams will share national revenues, such as network television. The most pressing reason, however, for contraction is that the quality of the on-ice product will be vastly improved. Talent will be more concentrated leading to faster, harder-hitting and more skilled action, precisely the kind of Hockey that leads to greater attendance and better television ratings.

[Cranky]

The cost of contraction will not be insignificant. Teams that will have to be eliminated will have to be compensated with a contraction fee just as they paid an expansion payment when they entered the NHL. This will require a capital expenditure on the part of the surviving teams. The core fan base in those cities will likely be heartbroken. Selecting which teams will have to go will be an emotionally wrenching process wrought with politics. The player’s union will not be pleased with the prospect of 100 to a 150 jobs being eliminated. The role of the Canadian government will be interesting here. Several of the weakest existing teams are north of the border, and suffer from the twin ills of a weak currency (caused by government policies) and small markets. Canada and its people are going to have to decide just how important having professional hockey franchises are to the nation. The Canadian government subsidizes other forms of entertainment on an ongoing basis by giving significant tax breaks to companies that create filmed content within the country’s borders. If Canada wants to have six teams, the Canadian taxpayer is going to have to step forward and help save at least two of their franchises which are currently among the weakest of the thirty NHL teams. That may be unpleasant for some to hear, but there is no reason why the health of the League should be further endangered because Canada wants to retain all its NHL teams without paying for the costs of doing so.

While contraction will be painful, the costs of avoiding this solution or a similar one will be a bloody work stoppage that could potentially kill the NHL. I believe the two major constituencies involved will be able to embrace the idea of contraction. For the owners, the choice is simple. They can attempt to impose a salary cap on the players low enough to protect the weakest of the thirty teams, something which will surely result in a strike that could kill their business, or figure out a way to share revenues more equitably so that the weakest teams will have a realistic chance of competing. With the exception of the New Jersey Devils, the last nine Stanley Cups have been won by the larger market teams. Clubs like Pittsburgh, Calgary and Florida start the season at a marked disadvantage in talent and have almost no chance of reaching the playoffs. This is an unhealthy situation that creates weak partners that then need to be subsidized. The degree of the current disparity in market size and revenue base is too large to bridge. By eliminating the weakest franchises, the disparity between the highest revenue team and lowest one can be dramatically reduced, thus allowing a greater level of revenue sharing to be viable. Contraction would seem to be an obvious solution to the team owners.

For the players, this resolution would seem to be less palatable. Certainly for the leaders of the NHLPA, a loss of jobs and the concomitant loss of dues will be huge disincentive to approving contraction. As I have mentioned before, I believe the union leaders do not spend enough time thinking of long term-future of game or the welfare of the fans. The window of hope, however, will be the position of the stars and second tier role players. These athletes will still have jobs post-contraction, and will be able to earn salaries comparable of what they receive today. Furthermore, the elimination of the 100 to 150 least talented players will open up the game and allow the true stars to better showcase their talents. Speeding up the sport is a winner for the players and the fans. I believe the stars can be persuaded that contraction is in their long-term best interest so that they impose pressure on the NHLPA to accept such a solution. The Union leaders and less skilled players may not like it, but the threat of the stars stepping across the picket line as what happened in the NFL during the 1987 strike could force the recalcitrants in line. Interestingly, the resolution of the 1987 NFL strike created the conditions for the League’s current success, one where the players appear to be quite satisfied since their salary cap and floor grow with overall football revenues. As the NFL has proven, the players do best when the League is healthy and growing it revenues. The NHLPA should be spending more time worrying about how to grow the revenue pie and less on how to divide it. In exchange for sacrificing some of their jobs, the players should be granted the right of unrestricted free agency earlier in their careers.

As an alternative to contraction, the NHL should also consider the consolidation of its weaker franchises. For instance, the Province of Alberta could probably comfortably support one team while it struggles to maintain two. Combining two teams into one in markets such as Florida or in the Southeast would allow these franchises to keep revenues such as corporate sponsorships, luxury boxes and local gate because half the ‘home’ games would be played in one city with the other half in the sister city. At the same time, the size of the local television market and advertising dollars would increase as home games played in Miami would also be broadcast in Tampa where the other half of the team’s fans would reside. More importantly, expenses would be drastically cut as only one roster of players would need to be supported rather than two. Consolidation is also attractive in that the fans in Miami or in Edmonton would not lose hockey entirely but will have half as many home games. For the Florida Panthers, having to sell out only 20 dates as opposed to 41 would be a blessing. Baseball is experimenting this year with consolidation with the Montreal Expos playing 25% of their home dates in San Juan, Puerto Rico. This last example is also incisive for Hockey. The most logical markets in which to place new teams are in Europe that has large cities filled with devoted fans of the sport. This is something to consider in the next decade. Finally, consolidation is appealing because it would cost less money to eliminate teams since the existing ownership could split possession of the surviving team and would still have an equity interest in the future success of the NHL.

[Cranky]

The biggest obstacle to these proposals, in our opinion, will come from the League office. Gary Bettman has repeatedly said, in the face of all contrary evidence that all thirty franchises are viable and should emerge intact in any settlement with the players. This would seem to be a posture designed more to vindicate the previous decision to expand rather an honest appraisal of where the League stands today economically. Thus far, the League has a policy designed to silence all opposition. Owners and management that deviate from the NHL’s stated negotiating position are subject to steep fines. Realistic alternatives are dismissed out of hand. A long-term solution to the current economic crisis of the NHL will require the sport’s stewards to think out of the box. What we as fans are receiving are canned proposals and platitudes that are not advancing the ball. Current policies are leading to Armageddon, the destruction of the NHL as we know it, and the League office appears inclined wedded to solutions will never be acceptable to the players. Requiring each of the clubs to create a strike fund to tide them over through a work stoppage and stifling internal dissent are not the acts of someone who cares for the game or the fans. The NHL owners have a responsibility and duty to speak up, to draft alternatives and to stop taking such a narrow view of the current situation while removing the threat of a lockout or a strike as options. This is the main conclusion of this report and is, what I believe what the fans deserve. I call on all sides to not destroy our game.

In closing, I would like to point to the situation faced by the Greek City States in about 200 BC. These civilizations had dominated the ancient world for almost 700 years but now faced a rising Roman Empire. Instead of uniting to counter the rising threat, these cities preferred to continue their ancient rivalries which allowed Rome to defeat and absorb them individually. In retrospect, any agreement between these city-states would have been preferable to being conquered, yet the animosity that existed between them and the grudges that had built up over time proved to be too powerful to overcome. The result of this disunity was being displaced and colonized by an ascendant Rome. Age-old dislikes can sometimes color how one views the current situation, often to the detriment of finding an acceptable solution.

Today, a certain sense of inevitability hangs around the Sport of Hockey as if the owners want to impose terms in the next CBA that they know the players will never accept. The NHLPA is not even negotiating now hoping that a crisis atmosphere closer to the expiration of the current agreement will allow them to get a better deal. This is insanity. The differences between the owners and players are not so great that they cannot be bridged provided new ideas and solutions are injected into the debate. Both sides need each other and cannot survive alone. Instead of embracing alternative thoughts, all dissent is suppressed and inertia rules the day. The sport of Baseball still has not recovered from its long strike in 1994 that wiped out the World Series. Fans have blamed the owners and the players equally and are not coming to the ballpark in numbers that equal the last season before the strike. As a niche sport that is not played in every backyard in America, Hockey is in a much more tenuous situation than Baseball. A long strike will be catastrophic in terms of destroying the fan base that is so essential to the Sport’s survival. That is why I liken the current position of both the owners and the players as the March to Armageddon.

At the recent State of the Franchise meeting, Tim Leiweke made an interesting point, stating that the current owners and players were mere stewards of Hockey. Management, owners and rosters will inevitably change over time while the game itself is timeless. He is absolutely right. The Sport belongs, not to the owners and the players, but to the fans that support it with both their wallets and their passions. The game’s guardians are doing a poor job of nurturing the sport and seem intent on doing further damage rather than realistically dealing with eminently solvable problems. I have outlined one possible solution to the key issues that ail the sport, but there is no doubt that there are others. I may be completely wrong with my conclusions, but at least the parameters of debate are now widened. Now other alternatives can and should also be considered. All it takes to find a solution is an open mind and a reminder about what is really important— the greatness of the sport and the ardor of the fans. As but one fan, I call on the League, the owners and the players to fulfill their responsibilities step back from the abyss and save the sport of Hockey.