FREE AGENCY HELPS TO LEVEL THE PLAYING FIELD, BUT PRO SPORTS LEAGUES REMAIN TILTED

OTTAWA, June 27, 2011 /CNW/ - July 1 and the days that follow have become one of the most anticipated periods for franchises and fans in the National Hockey League (NHL) and National Basketball Association (NBA), as teams can sign eligible free agent players to new contracts in an effort to improve their performance. All North American pro sports leagues make some effort to level the financial and competitive playing field for their franchises, but some make it more of a priority than others.

A Conference Board of Canada analysis, Pro League Competitive Conditions and How the NHL Stacks Up (http://www.conferenceboard.ca/reports/briefings/bigLeagues/briefing-5.aspx), assesses how the NHL compares to Major League Baseball, the National Football League (NFL) and the NBA in making their leagues more competitive.

"All the major pro sports leagues pay lip service to the concept of ensuring a "level playing field. While all the leagues "talk the talk," there are wide disparities among them when it actually comes to walking the walk," said Glen Hodgson, Senior Vice-President and Chief Economist, and co-author of the publication. "What a league does to implement a level-playing field says a great deal about its business philosophy and distribution of economic power within the league."

The level-playing field concept is applied mostly to issues that directly affect the players, such as:

  • Salary caps - Limits on overall player payrolls constrain teams from wildly outspending their competitors, and help to reduce the likelihood that players can bid up their salaries to levels that only a few teams can afford to pay. The NHL and NFL have "hard" salary caps that limit total players salaries, but Major League Baseball and the NBA have "soft" caps that still allow certain wealthy teams to cherry-pick the top free agent talent.
  • Access to new talent through an entry draft - Each of the four leagues hold annual drafts in the spring or early summer to equalize access to new talent.
  • Free agency rules - To varying degrees, all the leagues allow players to complete contracts with one team and sign with another after a specified number of years of service.

In contrast to the relatively level playing field in areas that directly affect players, the North American leagues differ widely in their approaches to revenue sharing and support for individual franchises. The NFL (which shares 80 per cent of revenues) and Major League Baseball are at opposite ends of the spectrum when it comes to creating conditions that allow all teams to compete equally for talent and revenues; the NHL and NBA fall between the two extreme positions.

The NHL has only limited revenue sharing among its 30 teams. It also appears to have chronic challenges with respect to competitive conditions among its franchises. Uniquely among the four major professional leagues, it has used targeted subsidies to assist weaker franchises. A decade ago, when the weak Canadian dollar presented a challenge to many franchises based in Canada, the NHL provided financial assistance to those teams. Today, it is weak franchises located primarily in the southern United States that are eligible for revenue-sharing subsidies.

"Overall, the NHL's approach to revenue-sharing is messy and creates conditions for divisiveness among franchises," said Hodgson. "The primary reason for the NHL's approach to revenue-sharing appears to be to maintain teams in existing cities, thereby protecting the current and future value of all other franchises. The bankruptcy of any franchise is not a good signal to send to potential investors, and simply moving franchises between cities means there are no expansion fees to share.

"Only when all other options appear to be exhausted in an existing market does relocation becomes an option for the NHL. This threshold was recently crossed when the league approved a transfer of ownership of the Atlanta franchise, resulting in the return of an NHL team to Winnipeg for the upcoming season."

This is the fifth briefing in the series Playing in the Big Leagues: What Makes a Professional Sports Team Successful in Canada?, which will continue throughout 2011.

SOURCE CONFERENCE BOARD OF CANADA

For further information:

Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext.  448
E-mail: corpcomm@conferenceboard.ca

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