NEW YORK--(BUSINESS WIRE)--Fitch believes recent positive tones around meetings between the National Hockey League (NHL) and the NHL Players' Association create some optimism that the current hockey season may be salvaged. However, should the lockout go on and result in a significantly shortened (or canceled) season, we would expect substantial consequences for the NHL's brand and some arenas.
In our view, cancellation would affect some arenas more directly than others. Some have heightened exposure to their NHL franchise if it produces a significant share of arena generated revenues. Others have more financial flexibility. Despite the already canceled games, arenas like the Pepsi Center, Staples Center, and some private arenas that also have a National Basketball Association franchise as an anchor tenant or host a significant number of other events are more likely to retain revenue certainty to support operations.
Over the near term, most arenas are expected to maintain a significant level of contractually obligated revenue in the form of multiyear suites and club seats, sponsorship and advertising, and other contracts. However, renewals of these revenue agreements may be adversely affected by a canceled season. The pressure on renewal rates stemming from local economic conditions and, in some cases, recent on-ice performance could be exacerbated by labor uncertainty.
Over the long term, recovery from a canceled season may challenge many entities. The NHL's brand will likely be negatively affected, resulting in difficult renewals on the league's television contracts and distribution. Revenues from ticket sales and sponsorships would also likely slump, as fans and companies become disillusioned by the second season cancellation in 10 years.
The NHL's 2004-2005 season was officially canceled on Feb 16, 2005. Revenues returned the next season, in part, supported by a strong economy. With the current financial backdrop, such a strong and prompt resumption of revenue could be difficult for many arenas, franchises, and the NHL.
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