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When Goliath doesn't win — and why

When Goliath doesn't win — and why

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Forbes on Nov. 30 released its annual financial ranking of NHL teams. Although there’s debate about the accuracy and validity of some of the numbers, most who analyze the data believe that by using the same methodology over time, the relative differences between teams and the collective longitudinal changes they face are reasonable when making club-purchase assessments or for discussing research focusing on real revenues and profitability.

One item in the report that got our attention was the team whose worth increased proportionally the most over the previous year: the reborn Winnipeg Jets. Why are the Jets worth more in Winnipeg than playing as the Thrashers in Atlanta?

Our take? When talking about ticket buyers, fan avidity is sometimes more important than quantity. The return of the Jets to Manitoba’s capital is particularly notable when you recall that 16 years ago (in 1996) the club left town ownerless and virtually unable to compete in the NHL. Then, before last season, True North Sports and Entertainment purchased the Thrashers for $110 million and paid a $60 million relocation fee to the league. Now the club is worth $164 million, a 21 percent increase from Forbes’ estimate the previous year.

The Jets followed up their move with a well designed ticket-pricing model, a smart rebrand, the construction of a shrewd management team and the presentation of a sound business model. Now, this all may sound like a good case study for students, but one thing is important to question: How could a club increase in value by 21 percent in moving from Atlanta to Winnipeg?

Some numbers to ponder: Atlanta represents the 10th largest metropolis in North America (5.3 million people), is one of the nation’s top media markets, and is home to numerous other professional sports teams. Winnipeg features a population of less than 700,000, is one of the smallest cities for a professional sports team in Canada (or the U.S.) and offers limited media presence.

But maybe something is afoot in pro sports. Green Bay dominated the recent NFL regular season, Oklahoma City is an emerging NBA power, and Milwaukee and St. Louis played for MLB’s National League championship last October.

Is it possible that small markets can survive and thrive in big-time sports? The answer is no, or best case, it’s highly unlikely. Any MBA student will tell you that economies of scale (and the presence of Fortune 500 sponsors) dictate most commercial outcomes. Still, it wouldn’t surprise us to see an NHL team move to Quebec City (whose population equals Winnipeg’s) or for the NFL to want teams in Buffalo and New Orleans despite needing a quality team in Los Angeles.

The reason? Small-market teams, with their grassroots marketing and sense of community ownership, often feature more avidity than their city-mouse cousins. Plus, most mega markets have multiple teams fighting for fan attention.

Further, the presence of Davids fighting Goliaths gives off a different perception to the media and fans when the word “parity” is thrown around by league commissioners. Indeed, collective-bargaining agreements now routinely attempt to provide environments in which smaller-market teams can compete financially.

On another continent, Manchester, England, should not be the seat of power in English football … but it is. That’s why it’s vital for North American leagues to value their tiny markets and protect them from the very challenges their smaller populations create. If every team is London, New York or Toronto, it’s much harder to sell an underdog.

That’s why when Buffalo goes to four straight Super Bowls or Milwaukee makes the NL Championship Series, the health of a pro sport (both in asset appreciation for owners and appreciation by fans) goes up broadly.

In politics, they say New York and Los Angeles (or Toronto and Vancouver) select the candidates, but everyone knows it’s the smaller markets in between that elect the president (or prime minister). Perhaps a parallel exists in sports.

Rick Burton (rhburton@syr.edu) is the David B. Falk Professor of Sport Management at Syracuse University. Norm O’Reilly (norman.oreilly@uottawa.ca) is an associate professor of sport business at the University of Ottawa.