I think you’re making some incorrect assumptions about revenue sharing and it’s purpose. Yes, in the micro it’s to help protect weaker teams from failing and to mitigate risk in year-to-year fluctuations.
In the macro, the purpose of revenue sharing is twofold.
-
Teams like Toronto, Chicago and New York aren’t going to be raking in $120M++ every year if they don’t have a wide range of teams to play against. For the sake of argument let’s say around half of the money that a hockey team earns is attributed to the presence of an opponent yet the home team keeps all of it. In a world where all the teams are earning the same amount this balances out because everyone plays the same number of home and road games. In reality those big market teams benefit way more from the presence of the opponent than the smaller market teams do. Revenue sharing seeks to balance that inequity by asking the haves to help out the have-nots, this ensures the health of the entire system.
-
Putting teams in smaller markets has a positive effect on the entire league by exposing the sport to new fans and makes it more appealing to national TV audiences. While there’s a tipping point somewhere, but to a point having a team in Florida losing money is better than no team there at all. All those people in Miami are now part of your market, even if they aren’t Panthers fans they make be Rangers fans as a result of the exposure. When the league and networks are selling to advertisers it better to say we have a potential market that includes Miami that’s underutilized than it is to say we don’t play in Miami at all.
The accountants obviously have to make decisions on a case by case basis and there’s a very complex set of maths that determine if these warm weather teams and smaller markets are a net benefit to the league or not, and the math isn’t based off one year or even 10 years of results. The league has revenue sharing to allow them to make these attempts to broaden the reach of the NHL a shared investment instead of one burdened wholly by one owner.
Sure it’s simple to say Florida is losing money, move it to Hamilton. But if the Hamilton market is saturated and leaving the Florida market vacant inhibits your growth potential and appeal to advertisers then maybe those extra asses in seats and the short term benefit might end up costing all the teams in the long run.
Naturally it may be time to call that expansion into new markets a failure and decide that the investments by the entire league there are not worth the expected return anymore, but the math isn’t just about individual team earnings, local TV ratings and attendance.
Think of it this way. Microsoft is investing heavily in Windows Phone. It’s costing them a ton of money and maybe the Windows and Office teams have to see their budgets cut as a result. A simplistic response is that they should kill WP and put that money back into Win8 because that product is making money, more investment will get us more money! But, with them having 90% of the PC market how much more money is there really to be had? The opportunity is in mobile, hence the willingness to lose money.
Canada is like the PC market, it’s tapped out from a TV and merchandise perspective. Miami and Phoenix are mobile. It’s a tough uphill climb and they may fail, but the opportunity is worth the investment. That investment would benefit all the teams not just the Panthers and Coyotes. Hence revenue sharing.
