The Economics of Hockey: Demise of the Jets
Gregory Keith Mccomb
Excuse me for crying on this newsgroup...but I am quite distraught over
the demise of the Winnipeg Jets, my home team. I didn't realize that
yanking a sports franchise out of a city could be such an emotional
experience for a community. (And I don't even follow hockey that much)
The loss of the Jets and the possible loss of the Quebec Nordiques does
pose several interesting economic issues.
An economic report issues by Art Mauro several years ago argued there are
millions in economic spin-offs generated by a sports franchise:
aa) standard Keynesian multiplier effects, b) jobs c) tax revenues d)
tourism benefits. As a result, the provincial government decided to cover
team losses through subsidies over the past 3 or so years, with yearly
losses reaching around 10 million this year because of escalating
NHL salaries.
One of the issues that is constantly talked about in the media, however,
and that is very difficult to quantify is that the city will lose
something intangible --- Winnipeg will no longer be considered "big
league" - business will suffer as a result, people wont want to move to
this fair, but very cold city. This sort of phenomena is probably unique
only to a sports franchise.
Anyway, if anyone follows sports economics as I do as a sort of
diversion, I wonder if anyone has any opinions on NHL hockey economics.
a) Does anyone think it is fair to American NHL teams to institute a form
of revenue-sharing. It would in effect be a form of cross-subsidization.
Larger,
richer team (mostly in the US) would be propping up teams from smaller
centres, (mostly in Canada). Revenue sharing is currently used in
the NFL
to prop up smaller franchises like the Green Bay Packers. The lack of a
revenue sharing agreement amoung NHL owners was one of the reasons cited
by Winnipeg officials as to why a team would not be viable in a smaller
center (pop. 600,000) like Winnipeg. (Besides the failure of the cap on
salaries)
b) Do you think it is worthwhile for local and federal governments to
subsidize hockey teams to the extent they do by buying arenas (as they
have done in Los Angelos) or by direct subsidies as they have done in
Winnipeg. Are the economic and other non tangible spinoffs great enough
from a sports franchise great enough? Or, should tax money be better
spent on lowering the deficit or spent on health care?
c) What do you think the effects of the recent contract negotiated with
NHL players have on the labour market for hockey players? A careful
reading of the contract, in my opinion, indicates it will have a
significant drag on salaries over the next three years. Probably no real
increases. For example, to trade a player like Keith Tachuck, Boston
would have to give up five first round picks, and stay out of the free
agent market for a specified period. Meanwhile, rookies obtained by
the draft would have salaries capped for three years at about half a million.
(Much lower than the Lindros deal) One of the reasons a deal was not
struck in Winnipeg was that officials estimated salaries might double in
next two years. I think this was highly inaccurate.
Yours,
Greg McComb,
U of M.
(Still crying)
Robert Shorten
: b) Do you think it is worthwhile for local and federal governments to
: have done in Los Angelos) or by direct subsidies as they have done in
: Winnipeg. Are the economic and other non tangible spinoffs great enough
: from a sports franchise great enough? Or, should tax money be better
: spent on lowering the deficit or spent on health care?
or later realize that we are too poor to have the government support things
such as pro hockey and pro sports in general. The government should not be
in business amusing people, especially not rich people, who are the only
people who can afford to attend these events. They can afford to pay for it
anyway; why should I subsidise them?
I would rather see the money spent on lowering the deficit.
However, I would not object to seeing money spent on children's hockey,
since I am sure it teaches children things like teamwork and social skills,
as long as it is not done at the expense of libraries. (my opinion)
Jay Shorten; sho...@nic.hookup.net
Scott Wood
>: b) Do you think it is worthwhile for local and federal governments to
>: subsidize hockey teams to the extent they do by buying arenas (as they
>: have done in Los Angelos) or by direct subsidies as they have done in
>: Winnipeg. Are the economic and other non tangible spinoffs great enough
>: from a sports franchise great enough? Or, should tax money be better
>: spent on lowering the deficit or spent on health care?
IMHO, no. The economic spinoffs of sports teams are invariably way overstated
because the studies used by proponents ignore or downplay that money spent in
connection with attendance at sporting events would have been spent in some other
way. People who eat at restaurants around ballparks would still be eating
somewhere, etc. The net benefits to the locality is the economic activity that is
drawn away from areas outside the locality.
The more important spinoff is the non-tangilbe good feeling that some people
derive by "living in a big-league city." That doesn't justify taxing people.
Ironically, if the localities all refused to subsidize professional sports, they
all would for the most part, end up with the same teams they have with the
subsidies. The main losers would be the players. --sw
Paul Kennedy
ummc...@news.cc.umanitoba.ca (Gregory Keith Mccomb) wrote:
> Excuse me for crying on this newsgroup...but I am quite distraught over
> the demise of the Winnipeg Jets, my home team. I didn't realize that
> yanking a sports franchise out of a city could be such an emotional
> experience for a community. (And I don't even follow hockey that much)
>
> The loss of the Jets and the possible loss of the Quebec Nordiques does
> pose several interesting economic issues.
>
> b) Do you think it is worthwhile for local and federal governments to
> subsidize hockey teams to the extent they do by buying arenas (as they
> have done in Los Angelos) or by direct subsidies as they have done in
> Winnipeg. Are the economic and other non tangible spinoffs great enough
> from a sports franchise great enough? Or, should tax money be better
> spent on lowering the deficit or spent on health care?
IMHO it is not worth the money the government would have to spend to keep
a team in a city. As we all know, the government is the most inefficient
player in the market and as such would raise the cost of keeping the Jets
in Winnipeg. If it were economically viable a group of private investors
would come in and buy the team - the better to make a profit... if no one
is willing to pony up the money then it must not be a profitable
enterprise and therefore the government shouldn't spend precious resources
on a money-loser.
We had a situation like this in Houston just last year when the owner of
the (sp)Oilers tried to blackmail the city into building a new stadium
downtown. The argument was that the Astrodome wasn't built for football
and with a new stadium the Oilers could draw more fans and bring in more
money.
But there were a few objections to that idea. First, if it were
profitable to build a new stadium why could Bud Adams and his partners not
raise the capital to do so? Because it was a money-loser and everyone
knew it so their idea was to make it an emotional issue and get the city
to pay for it - luckily the city (for once) didn't fall for it. Second,
it might bring in more money to the area of town in which the stadium is,
but that is money that would've been spent anyway - albeit in another part
of town. No multiplier effect, in other words.
>
> c) What do you think the effects of the recent contract negotiated with
> NHL players have on the labour market for hockey players? A careful
> reading of the contract, in my opinion, indicates it will have a
> significant drag on salaries over the next three years. Probably no real
> increases. For example, to trade a player like Keith Tachuck, Boston
> would have to give up five first round picks, and stay out of the free
> agent market for a specified period. Meanwhile, rookies obtained by
> the draft would have salaries capped for three years at about half a million.
> (Much lower than the Lindros deal) One of the reasons a deal was not
> struck in Winnipeg was that officials estimated salaries might double in
> next two years. I think this was highly inaccurate.
There should be no salary cap in professional sports, that merely
subsidizes the operators of inefficient franchises. Let each player
market his or her skills to whomever wishes to bid on them. The draft
should be abolished and there should be unrestricted free agency as well.
The only thing a salary cap does is protect the owners from themselves -
it takes two to sign a contract.
--
Paul Kennedy
"Stop the world, I want to get off..."
gn842
>
>One of the issues that is constantly talked about in the media, however,
>and that is very difficult to quantify is that the city will lose
>something intangible --- Winnipeg will no longer be considered "big
>league" - business will suffer as a result, people wont want to move to
>this fair, but very cold city. This sort of phenomena is probably unique
>only to a sports franchise.
There's nothing unique about it. Education system quality, crime rates
(police force funding), pollution levels (for example, in Los Angeles)
are often mentioned as having a major effect on industry locational
decisions. But I would think that your city could go farther promoting
itself on the basis of accessible vaction areas, fishing, camping,
nice place to live, etc., than worrying about some damn hockey
team, which, BTW, is a "big deal" to snow belt people but is more of
a who-gives-a-damn thing in sunbelt states (I know, there are sunbelt
teams, but the level of frenzy is far lower). A San Francisco
computer firm is NOT going to say "Don't go there, they got not
hockey!"
>Anyway, if anyone follows sports economics as I do as a sort of
>diversion, I wonder if anyone has any opinions on NHL hockey economics.
>
>a) Does anyone think it is fair to American NHL teams to institute a form
>of revenue-sharing. It would in effect be a form of cross-subsidization.
>Larger,
>richer team (mostly in the US) would be propping up teams from smaller
>centres, (mostly in Canada). Revenue sharing is currently used in
>the NFL
>to prop up smaller franchises like the Green Bay Packers. The lack of a
>revenue sharing agreement amoung NHL owners was one of the reasons cited
>by Winnipeg officials as to why a team would not be viable in a smaller
>center (pop. 600,000) like Winnipeg. (Besides the failure of the cap on
>salaries)
This would depend on whether it is "worth it" for a fan in Los
Angeles to pay for his team to be able to play against teams
which are not sustained by their own cities. It's kind of
like a monopoly game board in an advanced stage. Someone starts
to win so big the others go bust. So, either he lets the game
grind to a halt and "wins" or he gives them money to keep going,
so he can enjoy the feeling of putting hotels on his property,
etc.
>b) Do you think it is worthwhile for local and federal governments to
>subsidize hockey teams to the extent they do by buying arenas (as they
>have done in Los Angelos) or by direct subsidies as they have done in
>Winnipeg. Are the economic and other non tangible spinoffs great enough
>from a sports franchise great enough? Or, should tax money be better
>spent on lowering the deficit or spent on health care?
It does seem a bit silly to be subsidizing hockey and raising
tuition rates for students at the same time. Hockey only
influences "productivity" to the extent that the ancillary
businesses use their profits to get better at doing what they
do. Educated workers and infrastructure have a much more
direct effect.
On the other hand, given the eagerness to cut welfare, some
kind of bread and circuses will be needed to distract the truly
destitute from all the things in life that they are missing.
"We don't care if your kids are hungry, hooked on drugs, or
illiterate. But if you can get your act together to buy a
TV (or sit in the neighborhood bar), we'll pay for some
Might Warriors of the Ice to fight it out for you."
Ever see the movie _Rollerball_?
Gregory Keith Mccomb
Thanks for the comments so far. The rational side of me likes to hear
economic debates about hockey. However, the emotional side of me still
hates to lose the Winnipeg Jets. (Sighhh)
Anyway, the tally so far is 4 against subsidies paid to a hockey
franchise. (Nobody for) And its generally thought the economic spinoffs
are not as great as they are made out to be by politicians and owners.
The latest update on the issues is that Minnesota's governor is
offering a $15 million subsidy to a group in that state to buy the Jets.
($5 million short of what was asked for by the onwers.)
Moral of the story. Perhaps free enterprise Americans are just as bad at
doling out subsidies to sports franchises as Liberal Canadians.
Greg Mccomb.
U of M,
Wpg.
(Dried my tears)
Patrick Dery
>From: ummc...@news.cc.umanitoba.ca (Gregory Keith Mccomb)
>Subject: Re: The Economics of Hockey: Demise of the Jets
>Date: 11 May 1995 23:47:40 GMT
I live in Quebec city, so you know what I'll talk you about!
> Anyway, the tally so far is 4 against subsidies paid to a hockey
>franchise. (Nobody for) And its generally thought the economic spinoffs
>are not as great as they are made out to be by politicians and owners.
Quebec's Government will not give subsidies directly to Nordiques. It tries
to be a shareholder (for about 17 millions $ on a resale value estimated at
100 millions...), so if the team is sold someday, it will get back is money.
I think it's the wisest move that can be! :-) Somehow, if the actual owners
accept the proposition, the gov. will also sponge deficits for the next 2
years, up to 7 millions each time max. That's less great...
I think that investing public funds in pro sports isn't more good or bad than
investing it in art and culture. Since here people who go to see hockey games
aren't the same - and are definitly over numerous - than those who go to see
opera and theater plays, it's maybe putting money where it should go... (It's
not my taste, just my economist point of view!).
The demand for hockey is here in Quebec, in fact what else the people here are
gonna do - and talk about - if there's no more team in town. To compensate
for the size of the market, and due to the interest people have in the team,
so maybe the gov.'s right to invest in it - for the same reasons gov. opens
museums, finance classical orchestras and contemporary painting and theater.
> Moral of the story. Perhaps free enterprise Americans are just as bad at
>doling out subsidies to sports franchises as Liberal Canadians.
Yeah, lobbyist "made in USA" are maybe better than Can's ones! We should hire
them! :-)
Bye!
--
\\|//
(o o)
-----------oOOo-(_)-oOOo------------
Patrick Dery, 3303...@VM1.ULAVAL.CA
Gregory Keith Mccomb
New tally.
Four Americans against subsidies to hockey franchises and one
Quebecer for direct investment by the province in the Nordiques.
Good to see someone from La Belle province making a contribution as they
face the same sitution as Winnipegers do. Although Quebec city
actually has some architecture and culture to promote their city.
Winnipeg has the coldest corner in Canada: Portage and Main.
Update on Winnipeg. Media mogul and Winniper Sid Spivak has stepped in
with a secretive offer to buy the Jets. Minnesota offer still on the table.
Still a gasp of life left in the Wpg. Jets.
See ya,
Greg McComb.
Paul Kennedy
There is one other possibility, let the local government unit (be it city,
state or province) step in a buy the franchise and make a profit on it.
Thus the team would really belong to what local government unit's name it
was borrowing. My problem with subsidies to sports teams is that it is
usually no more than a check in the hip pocket of the owners.
Robert Shorten
: New tally.
: Four Americans against subsidies to hockey franchises and one
: Quebecer for direct investment by the province in the Nordiques.
No, three Americans and one Canadian (myself -- and half-Manitoban,
BTW). As for tourist incentives--I would gladly visit Manitoba with
or without the Jets--but I have relatives in Winnipeg, so that is probably
the reason why. (no economically rational thinking here.)
Jay Shorten; sho...@nic.hookup.net
gn842
>
>Gregory Keith Mccomb wrote:
>
>>From: ummc...@news.cc.umanitoba.ca (Gregory Keith Mccomb)
>>Subject: Re: The Economics of Hockey: Demise of the Jets
>>Date: 11 May 1995 23:47:40 GMT
>>I think that investing public funds in pro sports isn't more good or bad than
>investing it in art and culture. Since here people who go to see hockey games
>aren't the same - and are definitly over numerous - than those who go to see
>opera and theater plays, it's maybe putting money where it should go... (It's
>not my taste, just my economist point of view!).
>
>The demand for hockey is here in Quebec, in fact what else the people here are
>gonna do - and talk about - if there's no more team in town. To compensate
>for the size of the market, and due to the interest people have in the team,
>so maybe the gov.'s right to invest in it - for the same reasons gov. opens
>museums, finance classical orchestras and contemporary painting and theater.
>
No doubt in Canada as in U.S. northeast hockey is extremely popular.
However, I was surprised to learn that annual museum attendance in
the U.S. exceeds pro-sports. I don't know about opera--there are
physical limits on how far singers can project w/o amplification--
but I suspect if TV and radio broadcasts are factored in, the
"audience" per dollar spent on subsidy may out-poll sports. This
is however pure supposition.
gn842
>
>There is one other possibility, let the local government unit (be it city,
>state or province) step in a buy the franchise and make a profit on it.
>Thus the team would really belong to what local government unit's name it
>was borrowing. My problem with subsidies to sports teams is that it is
>usually no more than a check in the hip pocket of the owners.
>
>--
>Paul Kennedy
>"Stop the world, I want to get off..."
Good point. Buy you know, it wouldn't hurt if some of those
mega-opera stars were to have to kick in a % of their recording
royalties to the public TV and public radio stations that have
made them so big.
gn842
>>
>Here's my modest proposal. I don't really mind that cities subsidize sports
>teams since I think cities get some huge benefits from having the teams in
>town. It does tick me off when cities pour a lot into a team which then moves
>(I'm from St. Louis). How about this? If a team excepts aid from a city, the
>name of the team becomes the property of the city. So a team can move but it
>must give up the value of the name it has built. No LA Raiders, no
>Indianapolis Colts, no LA Dodgers. No Arizona (or St. Louis) football
>Cardinals either (since the Cardinals started in Chicago). Best of all, no
>Utah Jazz!
>
>
>
I think if a whole team were to move and the name were to stay behind,
it would not be such a big deal. The proprietary value resides more
in ticket sales and team performance (inter-related), as well as
TV rights, than in the name and logo. If you take the name and log
o off a coke bottle, do a blind test against local bottling companies,
you get statistically indifferent results. The value is indeed
in the advertising. But when you ship s.o. like Joe Montana
or Joe Namath to a new team, people KNOW it. I like the suggestion
of creeping municipalization (increasing stockholdings proportionate
to subsidies) suggested above. Interesting that Quebec should be
using this quintessentially French statist/interventionist device.
Patrick Dery
> No doubt in Canada as in U.S. northeast hockey is extremely popular.
> However, I was surprised to learn that annual museum attendance in
> the U.S. exceeds pro-sports. I don't know about opera--there are
Attendance sure, because it is not 50-60$ per ticket! :-)
> physical limits on how far singers can project w/o amplification--
Same thing with the size of coliseums...
> but I suspect if TV and radio broadcasts are factored in, the
> "audience" per dollar spent on subsidy may out-poll sports. This
> is however pure supposition.
Chicago team earns about 850 000 US$ per match from the only sale of
tickets. Add to it teledistribution rights, etc., For example, Quebec's
ticket selling bring on about 350 000 CAN$. And I dunno if one
representation of any opera can reach that, except if every people who go
there pay 5 000$ for their seat! ;-)
No, I think that there's very big money in pro sports business, and it
will so on be reserved to big markets. It's too bad, since we loose the
spirit of the game! At the very base, sports should not be a matter of
money only... But market rules! ;-)
--
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
- Patrick Dery (PD...@ECN.ULAVAL.CA), Etudiant Gradue -
= CREFA, Departement d'Economique, Universite Laval =
- " DOS prompt Canadien Anglais: EH?\> " :-) -
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
Gregory Keith Mccomb
Thanks for the responses to my orginal posting on the demise of the Jets.
I am not sure whether any news of the groundswell of support for the team
has made it through wire reports to other cities. But it was incredible -
as much as a million dollars a day was being raised to buy the team.
However, the fate of team is still in limbo and likely tied up in the
legal wrangling.
I picked up a report commissioned by the province and city called:
"Report on the Preservation of NHL Hockey in Winnipeg,"
by Art Mauro.
It contains some economic information on the impact of the hockey
franchise, as well as some financial analysis.
I will quote a few statistics hoping to shed some light on the
discussion to date. (Or perhaps to just close off this string if people
are getting bored of it).
1)Two reports were done to estimate the economic impact of the Jets on
the local economy, a kind of Keynesian multiplier analysis. The first,
done by Coopers and Lybrand, May, 1990, estaimated that since 1978, the
Winnipeg Jets had contibuted $523 million in 1990 dollars to the
provinces GDP.
A second, called the Lavalin Report, was less postiive - it estimated
the regional multiplier at 2.5 and estimated the Jets NHL franchise
accounted for $18.7 million of revenue annually flowing into the province
of Manitoba.
2) It is often quoted in local media - repeatedly I might add - that
"Taxpayers are subsidizing the Jets" and "Why are we spending our
tax money (about 15 million Cdn. to date) on this team when it could be
spent on something else." A local group called "Thin Ice" was even formed
to advocate this point.
In actuality, the taxpayers of Manitoba have not lost a cent to
date on the team. The reason - contained in the Mauro report and not publisized -
is that in 1985 Winnipeg Enterprises - a city/province government group
that manages local sporting franchises bought a 36 per cent share of the
team for a mere $2.8 million dollars. Today, because of the rapid
increase in the value of NHL franchises because of southern expansion
, the Jets could be sold for around $90 million Cdn. That
means the province/city took a $2.8 million investment and turned it into
a market value of $32.5 million in 10 years. Hence, even though taxpayers
have spent $15 million in the last three years picking up team losses,
they would double their money if the team was sold today.
3) Finally, I have heard - too often "These small
population northern Canadian cities can't support hockey teams" so they
must be sold.
I think a better analysis is that greedy owners are seeing the worth of
their franchise balloon - ie) from $10 to $90 million in a decade with the
Jets - and want to cash in. The highest bidders are usually in the US and
are too impatient to hear local bids.
One of the reasons the Jets are losing money is not because of its
population base or income - the average familily income in Wpg is
$38,865, about mid pack of all NHL franchises - and the average paid
attendance is 12,787, which is above 6 other franchises in 1992/93,
including Washington, New York Islanders, San Jose, Ottawa, Hartford and
Tampa Bay.
One of the problems has been Winnipeg Jets have the lowest seat prices
in the league at $21.52, which is $10 below the League average of $30.40.
Reason: with the province picking up losses of the team in the last 3
years there was no incentive for team owners to increase ticket prices
even though NHL salaries have been escalating. They did in Vancouver and
thats why the team is still viable.
Anyway, thats my two cents on this issue.
Greg McComb
U of M.
"Save the Jets."