DETROIT (AdAge.com) -- Faced with a half-billion dollar loss from advertising revenue and TV contracts after canceling its season last week, the National Hockey League must now grapple with an erosion of confidence from fans and sponsors that threaten its future.
|NHL must convince corporate sponsors and TV networks that it can be a viable entity again.
Dwindling fan base
While wondering if an already-dwindling fan base will return next season -- if there is a next season -- the league must first convince its corporate partners and the TV networks that it can be a viable entity.
"To say that future revenue streams have been compromised is an understatement," said sports marketing expert David Carter, a principal at Los Angeles-based Sports Business Group and a professor at the University of Southern California.
The NHL became the first North American professional sports league to cancel an entire season last week when its owners could not settle with the players on a collective bargaining agreement. In doing so, the league lost an estimated $400 million in advertising revenue, $60 million from its one-year cable television contract with Walt Disney Corp.'s ESPN, and an unknown amount of income from its national broadcast deal with General Electric Co.'s NBC. This was supposed to be the first of a two-year deal between the NHL and NBC in which no fees were paid upfront, but the two sides would split advertising revenue.
Marketers shifting ad budgets
Marketers had already shifted ad dollars away from the NHL to other sports back in September. Now, two corporate partners who asked not to be identified told Advertising Age last week they will reconsider their sponsorships with the league.
"There was a lot of internal discussion here, even before the lockout, about whether enough of an audience was there to justify what we've done with the league," said a marketing officer from one of the companies. "I'm sure those discussions will be revived."
Said an executive with the second marketer: "I think the worry now is whether they will even have a 2005-2006 season come October."
Keith McIntyre, president of the Ontario, Canada-based sports sponsorship consultancy K.Mac & Associates, isn't surprised.
Sponsors walking away
"For sure you would see sponsors walk away," Mr. McIntyre said. "And once a company cuts ties, it won't be easy for the NHL to try to win them back. The reason a company sponsors is to tap into that emotion that the fan brings. We're already seeing some of our larger clients buying elsewhere."
The NHL has 20 corporate partners, including Ford Motor Co. of Canada and Labatt's beer, whose advertising appears only in Canada; Anheuser-Busch and Southwest Airlines, whose sponsorships are U.S.-exclusive; and Nike, Coca-Cola and MasterCard, whose sponsorships cover both countries.
While some are reviewing their options, others remain confident the league will return.
"Our sponsorship is an effective way to reach the wide variety of adult fans who follow the sport, and we're confident this will continue in the future," Tony Ponturo, vice president of global media and sports marketing for Anheuser-Busch, said in a statement.
Other sponsors either declined to comment or did not return calls. At last week's press conference in New York to announce the cancellation of the season, league commissioner Gary Bettman acknowledged the situation, saying: "We don't know what our revenues are going to be."
League's partners were protected
Ed Horne, president of NHL Enterprises, said all of the league's partners were protected in case the season was canceled.
"While all of our partners will make whatever rational decision they'll make for their business, there are no surprises," Mr. Horne said. "We've tried to be fair to them in their agreements. When we come back, just like we have to prove ourselves to our fans we'll have to prove ourselves to our business partners. But there's been nobody who has suggested they're not supportive of us."
NBC shares 'disappointment'
NBC issued a statement from NBC Sports President Ken Schanzer, who said, "We share with hockey fans their disappointment that the parties did not come to an agreement and are hopeful they will do so between now and the onset of next season."
At ESPN, a statement read, "We're very disappointed there is no NHL this season. We hope the two sides will soon resolve their differences. We are, however, prepared with a compelling lineup of replacement programming for the remainder of regular season and playoffs."
In fact, ESPN's programming that replaced hockey this season -- mostly college basketball and some original content -- has doubled what the NHL's ratings on the network were last season.
"We will know better what a season without hockey looks like, in terms of ratings, in terms of audience composition and in terms of audience loyalty. We're looking very, very closely at that now," Sunni Boot, president of Publicis Groupe's ZenithOptimedia Canada, told the Toronto Globe & Mail. "Next year, the situation being the same, we're going to walk in with much more proven knowledge to support our recommendations [to clients]."
Will there be a next season?
Whether there is a next season remains to be seen. Experts who have covered the labor negotiations expect the owners to use the 2005-06 season as further leverage over the players. Instead of negotiating a deal between now and the start of training camps in September, some believe that by again delaying the start of next season, it will splinter a union whose players will have already missed a full year of salary and will go into next fall faced with the prospect of losing more money.
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James B. Arndorfer and Jean Halliday contributed to this report.