The Declining US Economy and the Rising Winnipeg Jets

Winnipeg Jets fans on their way to the MTS Centre before the Winnipeg Jets game against the Montreal Canadiens. The game is Winnipeg's first NHL regular season game in 15 years. Winnipeg lost 5-1.

During the opening game of the Winnipeg Jets on October 9, 2011 fans cheered the return of their beloved franchise to Canada– the sad trend of Canadian NHL franchises moving south was finally over.  The move of the Jets may be about hockey, but the larger story is about how the beacon of America’s promise is flickering due to an economic storm.

Many commentators look at the various forces at play in the NHL when analyzing the Jets move, however, few realize that because hockey is a business like any other it is intimately intertwined with larger economic trends.

The Winnipeg Jets

Hockey never took off in Atlanta—again.  The story of the new Jets begins in Atlanta, a city hit hard by the financial crisis that proved the final nail in the coffin of the Thrashers. The Atlanta Spirit ownership group experienced a financially unsustainable situation from the day the NHL was expanded into Georgia for the second time.  The Atlanta Thrashers had severely depressed attendance rates, low television viewership and equally dismal ticket and advertising revenue.  The franchise was doomed from the start as the NHL never realized its folly the first time around.

The Jets were the first sign of a major shift in the NHL and the abandonment of the aggressive Sun Belt strategy. Today the subsidy taps dried up as municipalities near default and once rich owners struggle to stay afloat.  Canada has become a more attractive place for NHL teams to operate as the United States undergoes upheaval, the city of Winnipeg has grown slowly and steadily and its fundamentals are very strong.  However, even this victory for Canada may be short lived if America’s problems go unresolved.

Winnipeg Jets fans on their way to the MTS Centre before the Winnipeg Jets game against the Montreal Canadiens. The game is Winnipeg's first NHL regular season game in 15 years. Winnipeg lost 5-1.

Winnipeg Jets fans on their way to the MTS Centre before the Winnipeg Jets game against the Montreal Canadiens. The game is Winnipeg’s first NHL regular season game in 15 years. Winnipeg lost 5-1.

NHL Hockey in the Sun Belt

The NHL pursued an aggressive strategy of southern expansion.  The 1988 Gretzky trade to Los Angeles marked the real birth of hockey in the south.  Through the relocation and expansion of the 1990s the NHL appeared to have a bright future in non-traditional American markets.  During the same time hockey appeared to be on the decline in Canada, despite stronger-than-ever fan support. World economic realities posed grave danger to Canada’s national pastime as the Canadian economy paled in comparison to the growth of the United States through the 1990s.  The dollar declined, player salaries rose and the franchises in Quebec and Winnipeg moved south.  The other small market Canadian teams hunkered down to simply survive.  The income differential and spending capacity of Canadian teams was constantly felt as the exodus of top-tier and mid-level players went on from teams like the Oilers.  Gretzky, Arnott, Joseph and Weight were among the many that were forced out by economics.  The seemingly omnipresent Dallas-Edmonton playoff series underscored the inequity as the valiant Oilers continually fell short of the big-spending Dallas Stars.

Government Subsidies on Tap

The fundamentals to support hockey did not exist.  Many of non-traditional US NHL franchises survived in cities through massive taxpayer subsidies given to owners in an erroneous belief the sports franchises added economic value to a local economy.  Bread and circuses became the voodoo economy in many US cities.  City councils like the one in Glendale, AZ undertook grandiose neighbourhood projects to develop new restaurants, stadia and infrastructure.  These attempts at central planning proved to be folly: the economics behind the plans were as artificial as the massive lawns in the desert. Owners spent money like drunken sailors, protected from the impact of low viewership and attendance by hiding behind a strong American dollar.

The NHL expansion in the United States proved to be built on a foundation of sand.  Massive government subsidies meant teams did not have to face up to the reality of true market conditions.  Since 1990 the “big four” sports leagues—the NFL, MLB, NBA and NHL—have received nearly $20 billion in taxpayer subsidies.  On average taxpayers contribute over 60% of the capital cost of new stadia development in the United States.

When ownership is looking at new developments using scare tactics to get government support and tax breaks became commonplace.  Even Mario Lemieux threatened relocation if governments did not assist in construction.  Municipal subsides for the St. Louis Blues came to $69 million, along with risk exposure on another $62.5 million in bonds.  The Blue Jackets’ arena receives a 99% property tax abatement.  At one point in 2005 the Montreal Canadiens were paying more property taxes on the Bell Centre than all of the U.S.-based teams combined.

The Southern Myth of NHL Hockey

Soon after the new CBA was signed cracks started to show in the model American franchises of the 1990s.  “Build and they will come” failed.  The seemingly temporary birth pangs of new franchises—low ratings and attendance became serious, long-term, structural problems.   As the US economy slowed, American NHL owners faced financial pressure and government revenues dried up the myth of prosperous American teams was quickly exposed.

The Business of Hockey in Canada is Booming

As the housing crisis began to bite, the US dollar sunk and the Canadian dollar rose while many Canadian teams became model franchises.  As governments in the United States spent record amount of money, Canadian jurisdictions saved, trimmed government’s size and prudently regulated the economy.  The New CBA was meant to save small-market teams like Edmonton and Calgary; however, the “have-nots” of the 1990s quickly became the “haves” of the late 2000s all of which was due to a change in economic fortunes of Canada.

The US Economic Storm and the Decline of NHL Hockey

The United States economy has been in turmoil for years with disastrous results for its citizens: 46.2 million people below the poverty line, median household income in 2010 was $49,445, 7% less than the median household income in 1999 in real dollars.  As unemployment skyrocketed tax revenues dried up as did the disposable income of many sports fans.  Municipal governments were among the hardest hit because of the housing market collapse.  Real estate prices in Glendale, AZ dropped 24% between 2007 and 2008.  This resulted in the bottom falling out of the city’s budget.  The devastation has also been felt on a state level as well.  Arizona has seen its revenue decline over 40% in 3 years. In 2008 it saw a deficit of $1.7 billion or 16.2 percent of state spending.

Home Foreclosure in America

United States housing bubble in 2006-2007 led to the collapse of the US house marketing and ultimately the financial crisis of the late 2000’s. The NHL teams in the Sun Belt were directly affected by the financial crisis as the combination of low interest and large debt made it difficult to keep hockey teams in this region. Photo credit to Maximum Marketer.

Big Government in NHL Hockey

To pay for its new “sports district” Glendale will have shelled out nearly $1 billion US– to date the city is still $500 million dollars in debt for just one project: all this for an annual tax contribution of only $13 million from the sports district.  With these numbers the City of Glendale entered into an agreement with the Coyotes to cover $25 million in short falls for two seasons just to keep the Coyotes on the ice and prop up a team with nearly $37 million in losses last year.  The Predators, Panthers and Stars are all in severe financial trouble as well.

Taxpayers are beginning to shut off the tap.  The Goldwater Institute in Arizona fought Glendale City Council tooth and nail over its assistance to the Coyotes while voters in Nassau, NY refused to foot a $400 million bill for a new arena for the Islanders prompting Bill Wang to consider relocation.  Nassau County was facing high property taxes and a nearly $150 million budget shortfall at the time.

Hockey is Canada’s Game

Canadian governments do help out sports franchises, though not on a level like that of Americans.  The use of public funds are less egregious because the Canadian municipalities have stronger budgets, the Canadian economy is generally much better than the United States and hockey teams are not losing tens of millions of dollars in Canada due to greater fan interest.

During 2011 first round playoffs the Versus network pulled in 742,000 viewers in the United States– at the same time in Canada games were drawing 2.3 million viewers in the evening and 1.4 million for late games.   The second round in Canada drew over 2.4 million viewers per night.  The numbers may not seem that extreme until one considers that the United States has ten times the population of Canada. Even more striking is the fact that Edmonton, Calgary and Ottawa are among the smallest markets in the NHL yet they draw in more gate revenues than almost every U.S.-based franchise.

The End of NHL Hockey in America?

The easy money party in America has run out.  The environment in which spawned NHL’s southern strategy was due to the loose policies and cheap credit that grew the US economy and housing market at the same time.  Unrealistic fiscal policy, government waste and a cultural obsession with leisure have taken their toll. The problems faced by US hockey teams are symptomatic of larger, more disturbing trends in American society and the American economy.

As the financial crisis continues to bite, hockey, as America’s fourth sport, will be the first to be punted by sports fans.   More danger lurks for America’s other sports if governments continue to recklessly spend and dole out tax breaks to wealthy ownership Groups and cannot rein government in fiscally.

The victory of seeing the Jets return home may prove hollow considering the vulnerability Canada faces with the prospect of long-term economic stagnation in the United States.  So far we have been relatively immune to problems south of the border.  Unless America can fix itself the problems faced by a number of NHL teams may seem like minor disturbances.   The 1990s can always return with a vengeance.  It’s with that sobering thought that Canada should welcome back the Jets…for now.