Economics of NHL lockout

Brian Smyth is already bracing for a winter of misery.

"It's going to be a long, cold, lonely season," he says, sitting in a downtown Toronto sports bar festooned with hockey posters, banners, and jerseys. "Hockey is our lifeblood. Without it, there will be no joy. Nothing to celebrate or talk about."

It's the same lament being uttered across Canada on the eve of a National Hockey League lockout. After all, in Canada hockey isn't just a game - it's part of the national fabric, a passion that borders on obsession.

The NHL's collective-bargaining agreement expires at the stroke of midnight tonight, and owners are expected to deadbolt their arena doors across Canada and the US, shutting down the season that's scheduled to begin Oct. 13. Owners and players are in a pitched battle over the basic economics of the system.

A study commissioned by the NHL estimated that the league lost $273 million on revenues of $2 billion during the 2002-03 season. Television ad revenues haven't kept pace with player salaries.

Owners want to cap payrolls, while players want to maintain the current market-based system. Observers say the entire season could be lost, delivering a cross-check to the Canadian economy.

"It will hit like a wallop. A loss of millions and millions," explains Richard Powers, who teaches sports marketing at the University of Toronto. "The trickle-down effect is huge."

While no one tracks hockey's overall impact on Canada's economy, many industries are already feeling the pinch. Last month, the country's largest manufacturer of hockey sticks announced it would trim its workforce, citing a slump in orders from the NHL. Pink slips have already begun to fly in the head offices of teams like the Toronto Maple Leafs and the Ottawa Senators. The list of causalities is expected to swell in the event of a prolonged work stoppage.

Media watchers say the CBC, Canada's public broadcaster, will feel the loss of ad revenues from its top show, "Hockey Night in Canada," a Saturday night ritual in bars and living rooms across the country. "'Hockey Night in Canada' is their biggest drawing property in terms of audience," says Helena Shelton of Media Buying Services in Toronto. "They're planning alternative programming, but no one is going to go there to watch reruns of old movies."

Still, the greatest cry can be heard in the restaurant and bar trade in cities with home teams. "It's a big hit for anybody that has a TV and serves beer," says Brad Marsh, a former NHL star who now owns Marshy's Bar-B-Q & Grill, a restaurant located in the Corel Centre, where the Ottawa Senators square off for home games. Mr. Marsh is opening a second location across town to shore up lost sales.

Nick Fatsis, owner of TKOs Sports Pub in Toronto, is worried. Already hit with a citywide smoking ban last January, Mr. Fatsis says he won't be able to weather this storm. "Before the smoking ban and during hockey season, you'd have to get here at 5:30 if you wanted a seat for a 7:30 game," Fatsis explains. "How I long for those days. I think this could really be the final knockout punch for us."

The league appeared to be in a genuine crisis two seasons ago when two teams, the Buffalo Sabres and Ottawa Senators, filed for bankruptcy protection, and players missed payments. Insiders now question the long-term viability of franchises in the US Sunbelt - the Carolina Hurricanes, Florida Panthers, Atlanta Thrashers, Nashville Predators, and Phoenix Coyotes - as well as smaller-market teams like the Pittsburgh Penguins. More than half the teams are losing money and another quarter are treading water. Over the years, the Calgary Flames, Edmonton Oilers, and Ottawa Senators have all talked about relocating to more-lucrative US markets, home to 24 of the league's 30 teams, following the lead of the Quebec Nordiques and Winnipeg Jets.

Owners are proposing a hard salary cap, like the NFL and NBA, set at $32 million. The Detroit Red Wings and the New York Rangers current payrolls are well over twice that. The players have countered with a small rollback on salaries (5 percent), reducing salaries for rookies, and say they're open to a luxury-tax system like that of Major League Baseball.

The NHL's last work stoppage was in 1994. A last-minute agreement was reached in January 1995 that salvaged the rest of the season.