The NHL Owners Conundrum

In business, the challenge for every CEO of an established company is trying to balance the needs of three stakeholders:  Customers, Employees and Shareholders.  Each stakeholder is competing for more of what the company has to offer, whether it is a lower price (customer), higher wages (employees) or better earnings (shareholders).  A CEOs job is to continually make tradeoffs between these parties and strike the balance needed to keep the company healthy and growing.

In hockey, NHL owners are also trying to find the balance between three (somewhat) competing forces which at times seem contradictory.  The first two are pretty clear, which is 1) to make a profit and 2) to win a Stanley Cup.  However, each item does not exist in a vacuum. They belong to bigger eco-system which is the National Hockey League, and collectively the league is bigger than any individual team, and what is best for the league is a level playing field which gives each team the option of competing equally with other teams. So the third factor NHL owners try to manage overall is 3) Competitive balance.  Thanks to the salary cap initiated in 2005, the league has successfully seen a lot more parity than ever before with different teams winning the Stanley Cup and so many teams competing for a playoff spot up until then end of the season.

In upcoming posts we will explore how striking the balance of these three factors is very challenging for NHL owners under the current (expired) CBA because they must optimize for one or two at the expense of the third.  In particular, for many teams in order to remain competitive and take a serious run at a Stanley Cup it will be at the expense of profitability.  It is important to dive into the economic structure of individual teams in order to fully appreciate what makes striking this balance such a conundrum for owners.