Wednesday, 16 November 2016

Money Problems

For years, we've seen money thrown around Russia and Europe like it was going out of style as the KHL looked to attract the best teams and players from all corners of the land. Teams from Finland, the Czech Republic, Croatia, Latvia, Belarus, and China have all played in the KHL over the last few years, and we've seen players like Pavel Datsyuk, Ilya Kovalchuk, Ville Leino, and the Kostitsyn brothers all leave the NHL for greener Russian pastures. It appears, however, that the lush pastures once promised by the KHL are now suffering through a drought as the money being used to run the league and its teams is evaporating faster than it can be replenished.

According to a report by The Associated Press, the KHL "is considering cutting teams because of financial pressure" as the country suffers through a recession and low prices for oil that main sponsor Gazprom sells". As per the report, "(l)eague president Dmitry Chernyshenko said the KHL board is set to discuss 'an optimization of the number of clubs taking part,' in comments Monday to state agency R-Sport."


Making matters worse is that Russian President Vladimir Putin named a colleague of his as the top man in the KHL, and aforementioned Chernyshenko has made it his goal to strengthen the Russian teams in the KHL before any further expansion or assistance to European teams. While I generally agree with the idea that expanding to gain an influx of money for owners is a bad idea on the whole, the rush to secure a spot in China with Kunlun Red Star is starting to appear more like a mistake than capitalizing on an emerging hockey market.

The team in China that splits its games between Beijing and Shanghai are drawing less than 1000 fans to some games. Jokerit Helsinki was reportedly looking at moving back to the Finnish Elite League once their three-year contract with the league had expired after having posted a loss of some 13 Million Euros in their first KHL season. Lev Prague ceased to exist in 2014 just months after making the Gagarin Cup Final, and HC Slovan Bratislava has been talking about leaving the KHL after each season since the end of the 2014-15 season. In other words, there is and always has been some fragile ground surrounding the non-Russian teams.

As of June this past summer, eight teams were on notice of possible expulsion from the league for failing to meet financial demands including paying players.
Not paying players should be a massive red flag for any player looking to continue his career overseas, and it appears that the 29-tema league might have fallen into the "too big too fast" problem. According to a 2014 Ken Campbell report on The Hockey News' website where Jeff Glass talks candidly about the financial problems, "[t]he league is currently a 28-team behemoth when the model supports only about 15." Adding a 29th team in China this past offseason means that approximately half of the KHL's teams are nowhere near stable financial ground.


Even with the reports of financial problems and attendance problems in some cities, there were rumours of teams in England, Estonia, Sweden, and other countries wanting to become part of the KHL. In reading these stories, I'd be very worried about joining the KHL when there are apparent financial problems and reported conflicts of interests when it comes to ownership of teams. I've always felt that these successful European teams should remain as pillars of strength in their own countries, but you're probably quite aware that I own a stake in exactly zero-point-zero of these teams.

If the KHL is truly serious about putting their house in order, it might be time to scale back the league within their own borders. Medveščak Zagreb, Slovan Bratislava, Jokerit Helsinki, Dinamo Minsk, Dinamo Riga, and Kunlun Red Star all play outside Russia, and can probably join leagues a little closer to home to help ease the heavy travel burden that the KHL currently faces.

If we're talking about teams on the fringe, HC Sochi, Admiral Vladivostok, and Amur Khabarovsk can be cut from the schedule as well. Vladivostok and Khabarovsk can join the same league as Kunlun, possibly making the Asian Ice Hockey League deeper and stronger. Sochi, Minsk, and Riga can probably jump into the same league as Zagreb and Bratislava, so whatever league they join would be immediately deeper as well.

By making these nine cuts, the KHL moves from 29 teams to 20 teams, and none of the teams have to travel extreme distances to get to road games. By having less travel, the league can cut obvious costs associated in traveling to these far-off cities. With less teams, league resources are spread less thin as compared to the 29-team league, so there should be some strengthening there as well.

If the KHL chooses to stick with their 29-team league, there will be franchises who desert the league or fold altogether. You can't have a league if fans have to choose between groceries or tickets in these lean times nor can you have a successful league if players aren't being paid. Both scenarios are happening in the KHL right now, and I doubt there are many teams that can absorb a loss of 13 million Euros when all transactions are being done in rubles in the KHL. Much like the NHL of the 1990s, the weak ruble is killing the teams who deal in Euros such as Jokerit, Bratislava, and Riga.

Russia's professional hockey league that was to rival the NHL was ambitious when it started. However, like the WHA, it expanded far too quickly with men running teams who had lots of money but very little interest in hockey. When harder times arrived as they always do, a number of these men who had built their fortunes off old moneymakers such as oil were finding themselves with hockey teams that they couldn't afford nor were people coming to see. That, readers, is a recipe for disaster.

If the KHL continues down this road, they may have another decade of play before the weight of political and financial pressures collapse the league. In the end, the players and fans are the ones who lose the most because they lose jobs and civic pride that come with having a team in town. Sure, the billionaires lose a few million dollars season after season, but they still have hundreds of millions of dollars in the bank for their next trendy investment.

Like any failing business, a restructuring is on the horizon for the KHL. Let's just hope that this restructuring isn't done by force because that will devastate the league, its teams, its players, its fans, and its communities in a big way.

Until next time, keep your sticks on the ice!

1 comment:

JeffB said...

Great analysis. I've written before that I can't understand how the KHL can pay their top players millions of dollars a year when they have no major TV money, no substantial merchandise sales and play in arenas, in general, smaller than the University of Minnesota's 10,000 seat Mariucci Arena.

Only four teams play in arenas of 11,000 or more, and two of those are outside of Russia in Belarus and Finland. 15 teams, more than half the league, play in rinks under 8,000, so ticket sales aren't enough to keep the ship afloat either.

SKA Saint Petersburg is by far the most outrageous, reportedly playing Kovalchuk $5.5M, Datsyuk $4.5M, Voinov $4.5M, Shipachev $2M, Belov $1.5M, Zubarev $1.5M, Chudinov $1.5M, Yakovlev $1.5M, Dadonov $1.4M, Koskinen $1.3M and Tikhonov $1.3M - 14 of the top 30 players in the league in the 12,300 seat Ice Palace.

It seems the entire league is a vanity project for Oligarchs with bottomless pockets, and when they lose interest, what happens to that team then?