Pennies On The Dollar

I'll always be the last guy to credit Rogers Communications with anything intelligent based on how they spend their money, but there are certain things that happen where one has to ask the obvious questions that go with what transpired. Rogers was busy today announcing that they had reached a deal with Amazon Prime Video to have Bezos' streaming service exclusively broadcast Wednesday night, regular-season, national NHL games and early-round Stanley Cup Playoff series in both English and French for the next twelve years. And for as greedy as Rogers is know to be, this deal seems like buyer's remorse.

Amazon Prime Video will now have the exclusive rights to Wednesday night where they'll compete with TNT Sports for hockey fans' eyes, but you can add another streaming service to your collection of bills after this announcement. For $99 annually, you can watch Amazon's collection of Wednesday games they choose to show on their national broadcast which will see "at least 26 national regular-season NHL games, beginning on Wednesday, September 30, available only on Prime Video in Canada at no additional cost to Prime members."

Add that onto your $350 annual fee for Sportsnet+ and any fees to watch games that the NHL might be producing for the four teams - Carolina Hurricanes, Columbus Blue Jackets, Minnesota Wild and St. Louis Blues - who signed on with their centralized production group, and simply watching hockey on TV is becoming a thing of the past. With everything being streamed on multiple services, we're back to the cable model that everyone tried to abandon a few years ago.

The title of this article isn't about that, though. Instead, it's a question that goes to the very heart of Rogers' 12-year, $11-billion deal they signed with the NHL because you'd think a company with five network sports stations and a streaming service that recently raised its annual price would want more content that Canadians love.

If Rogers was looking to sell one night of their annual $917-million deal, it would clock in around $131 million. Of course, there were no details on the financial deal that Amazon made with Rogers to acquire the rights to Wednesday night games, but you know they aren't paying $131 million annually for those rights. If they are, they need their heads checked as much as those people making decisions for Rogers. With "at least 26 national regular-season NHL games", Amazon isn't spending $5 million per game for those rights.

Again, I have no proof that they aren't spending $5 million per game, but there's no way Amazon makes money if they are. And if they spent less than $5 million per game, that means that Rogers sold Wednesday night rights for pennies on the dollar. On the low chance that Amazon did spend more than $5 million per game, why wouldn't they just buy the regional rights to teams who need regional coverage for much less? I know at least one French-speaking province and team who doesn't have a regional broadcaster for next year.

Again, it begs the question as to why Rogers sold off Wednesday nights at all if Amazon thinks it can make money with those broadcasts. If Amazon could generate enough subscription and ad revenue from those broadcasts, Rogers wouldn't let someone else benefit from those rights when they owned them. That makes me think that they aren't seeing the returns they want, and they'll trying to recover some money by ridding themselves of one night of games per week where they generate the least revenue every week.

And let's not forget that Amazon had Monday night games last season they had bought from Rogers! Why switch nights for the next twelve years unless they discovered that Mondays can be profitable?

No one is going to come out and explain why Rogers and Amazon made this deal from each side's perspective, but if you think that Rogers is generating more than a billion dollars per year while broadcasting hockey, I have barrels of snake oil to sell you. This is the first sign that the financial bubble the hockey world lives in might be close to bursting based on how that financial model plays out.

Economist Hyman P. Minsky's research identifies five bubble phases: displacement, boom, euphoria, profit-taking, and panic, explaining the progression from excitement to market collapse. The NHL went through its displacement phase with the hirng of Gary Bettman in the 1990s as it changed rules, added new teams, and marketed everything it could. The boom phase saw more fans gain access to things to which they never had access before, pushing the NHL into its euphoria phase where everything could be monetized with the NHL forecasting that the revenue will not diminish. That leads us to the profit-taking phase where everyone is making as much money as they can as fast as they can, forgetting that money and revenue streams are finite. All that's left after this phase is panic.

Rogers owns something that should be an asset, but the value of that asset is less than what Rogers paid for it, making it a debt. The bubble formed when asset prices surged far above their intrinsic value thanks to speculative market prices that the NHL created thanks to its always-rising economic forecast. And now that the prices are far too high for most people's budgets, revenues will begin to dry up and the bubble will burst, causing significant financial losses and economic problems for years to come. Rogers should be worried.

Of course, Rogers could sell other days to networks and streaming services to cut their losses, but I get the sense that ego and pride will stand in the way of making deals with Bell Media or CraveTV. Rogers has deep enough pockets to weather the losses they may incur as long as their shareholders are ok with it, so I'd expect more price increases for Sportsnet cable channels and their streaming service before they sell off other days. After all, someone will pay their insane prices to watch hockey, right? Revenue is all that matters.

With the costs to watch hockey from the comfort of your own home skyrocketing, with ticket prices at an all-time high in all markets, with merchandise prices higher than ever before, and with equipment and ice-time pricing rising faster than the temperature in Death Valley, hockey is standing on a dangerous cliff where they are close to financially alienating the middle-class fan. The NHL isn't trying to grow the game as much as they're trying to grow their bottom line and hockey-related revenues, so don't be surprised if people start finding their entertainment elsewhere this winter.

It's hard to like the world's best hockey league when all it does is treat its fans like ATMs, so maybe it's time to move on. Like a good investor, it's better to cut your losses and get out before one falls into moral and financial ruin. Just don't say you weren't warned.

Until next time, keep your sticks on the ice!