Can Winnipeg, Hamilton or Quebec City support an NHL team?

Fourteen years after they left Winnipeg for sunny Phoenix, the Jets haunt this city still.

The financial difficulties faced by the former Winnipeg hockey franchise, now known as the Phoenix Coyotes, raised hopes this year that NHL hockey might be poised to return to Winnipeg.

Then Derek Zona of SB Nation Hockey threw cold water on that idea. So cold you’d think it was scooped right out of the Assiniboine.

In an analysis he posted Dec. 8, Zona concluded that Winnipeg is simply not large enough to support an NHL team.

“[Quebec City’s economy] is 60 percent and Winnipeg [is] only 53 percent of the size of Ottawa, the current smallest market in the NHL,” he wrote.

“On a per capita basis, Quebec would be the fifth-poorest market and Winnipeg would be the poorest market in the league,” he wrote, concluding that Hamilton/Southern Ontario would be “the best market for a second team”.

With that in mind, I set out in search of the tipping point between those markets that could support a profitable NHL team and those that could not — and to determine which side of that tipping point Winnipeg, Hamilton and Quebec City are each on.

What we do know, thanks to Forbes Magazine, is that the team to generate a profit on the least revenue this year, the Colorado Avalanche, did so on $82 million in revenue.  This can be considered the rock-bottom amount of revenue that a team needs to have any hope of profitability.

The revenue that a team needs in order to truly be in good financial shape is about $98 million, the point above which all teams made a profit.

That being settled, the next step was to determine if Winnipeg, Hamilton or Quebec City had enough money sloshing around for a local NHL team to meet those revenue targets.

For that, I looked at the relationship between the revenues reported by the six existing Canadian teams and the size of the local market.

Thanks to Statistics Canada, it’s possible to estimate the relative size of each local market by multiplying the number of households by the average household income (at least as of 2005 — StatsCan doesn’t collect this information every year).

Compare the size of the local market to the revenues generated by the local NHL team, and you find a strong enough relationship between the two variables that knowing one can help you roughly estimate the other.

Based on what we know about the six teams that operate in Canada — all operating in an environment where hockey is the most popular spectator sport — we do know that unless a metro area had a total household income of about $40 billion just before the last census, it was unlikely to be able to support a team generating $98 million in annual revenues — the point above which profitability becomes a given — in 2010.

The minimum local income base to support a marginally profitable low-budget team at $82 million in annual revenues: about $28 billion.

Winnipeg ($18.2 billion) and Quebec City ($19.3 billion) fell far short of both goals. Both markets might be able to host a profitable team if the break-even point were in the $60 million to $70 million range, but a break-even point in excess of $80 million would likely mean recurring multi-million dollar losses.

Hamilton ($20.5 billion) hardly seems much better at first blush, but add in the nearby St. Catharines-Niagara ($10.2 billion) and Brantford areas ($3.2 billion) and you have the potential for a marginally profitable team.

In short, there is a high risk that the survival of a Winnipeg or Quebec City NHL team would be dependent on recurring favours and financial assistance from governments — favours and assistance not normally made available to other organizations — while competing with infrastructure projects, education and health care for scarce resources.

The argument that the team would be sold and forced to leave town again, inflicting humiliation upon the city  if these favours and this financial aid were not forthcoming, would make it difficult for governments to negotiate from a position of strength.

Thus, as unpopular as Derek Zona’s conclusions about Winnipeg and Quebec City might be, what we do know about the relationship between a city’s overall income pool and the revenues generated by a local NHL team suggests that his conclusions are well-founded. A bit of disappointment at not securing an NHL franchise today is preferable to putting ourselves at risk of being subject to perpetual blackmail tomorrow.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

8 Responses to Can Winnipeg, Hamilton or Quebec City support an NHL team?

  1. John Dobbin says:

    My guess is that with 16 NHL teams in the red, the economics of the league don’t work and than rather than re-location, you are going to into teams simply fail.

    The only reason Phoenix will function next year is because of what Glendale is doing to support them. It is doubtful that it is well that can be continually plumbed.

    A NHL team in Winnipeg would be a hard prospect for success unless radical changes were made in terms of ensuring profitability for the league as a whole. It is possible that a team with wealthy owner, lucrative arena revenues and a host of surrounding businesses propping up the bottom line might be able to fake it but with half the league tottering, the NHL could be an endangered species.

  2. unclebob says:

    This is Winnipeg and when it comes to quasi public projects our planning and budgeting process has not had a very good track record. For most projects elsewhere there are well researched estimates but for Winnipeg there are only “fairy tales”.
    Aside from that flaw, there is an important difference between Winnipeg and many other contenders and you kind of put your finger on it already. We do not have anywhere near the same kind of rural and nearby critical mass to make this work. Canola fields and hog barns do not buy a lot of tickets.

  3. W. Krawec says:

    What is the ace up the sleeves of a NHL team’s prospective owners?

    Is it the knowledge that a small market will pay a steep price to hang on to a status symbol like a NHL team (as Edmonton will when it hands over the keys to a new arena to the billionaire owner of the Oilers)? Is it the thought of “pulling a Hulsizer” and buying a distressed asset in the hope of seeing its value appreciate over the longer term? Is it the thought that the NHL, a league that likes to think like the NFL but in financial terms is probably closer to the CFL, will come to its senses, slash expenses making a team much more viable in a place like Winnipeg?

    Or is it something else entirely?

  4. cherenkov says:

    I like the fit of your regression line. 🙂

    How would Winnipeg look if you forced a linear relationship? It looks like it’s really only Montreal that’s bending the curve there, and they have an extremely devoted fan base.

    I also wonder how corporate income or head office count would change the picture. Probably not in a good way for Winnipeg..

  5. theviewfromseven says:

    That’s a pretty good fit alright! Here’s the linear relationship (not as nice as the first, as I was multitasking):

    Thanks to all of you, too, for your comments. I always enjoy reading them!

  6. cherenkov says:

    Well there you go: with the linear relationship Winnipeg’s team would come in at $82.5m — right at the minimum amount for a marginally profitable low budget team!

  7. theviewfromseven says:

    But would a Gillam, Manitoba NHL team really pull in $67 million per year?

  8. cherenkov says:

    They get that northern living allowance up there….

    Ya, good point.

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