The Long-Term Financial Impact of a Playoff Push

There once was a time when Games 80-82 carried little weight for the Detroit Red Wings.  Sure, there’d be the odd contest in the late going where players were aiming for milestones, and there might be occasional jockeying for seeding, I suppose. But given the Red Wings, during their 24-season playoff streak, have posted up 17 100-point seasons, 14 division titles, and 6 President’s Trophy seasons, the last few games are really about fine tuning and rest.

But this is the fourth straight season that here’s been some high drama to simply make the playoffs, and no more so than this year.  The focus now to make the playoffs now has shifted away from about a month-long focus to be better than Philadelphia and make the postseason as the 2nd Wild-Card in the East, to now, given the slumping Bruins, finishing 3rd in the Atlantic.  The prize for that also likely includes a 1st-round rematch with the Lightning, now without both Steven Stamkos and Anton Stralman, which will probably make them considerable underdogs, even with the home ice and regardless of whether they meet the Bruins or Red Wings.

Detroit may need to win both the Philadelphia and Boston games, but they certainly cannot afford to lose them both.  Strap in, Wednesday and Thursday will be tense nights, considerably more so than last week’s Wild & Maple Leaf victories.

But could making or missing the postseason and hosting home games at Joe Louis Arena a couple of weeks from now make a tangible economic difference on what the Red Wings do (or don’t do) next season with their payroll?

Well, it’s hard to think it has no impact.  Yes, gone are the days when the Red Wings went on significant summer shopping sprees for free agents or had the economic power to acquire veteran talent and not move equitable money back out the door.  They still are one of only eight NHL clubs above the $71 million threshold (this year’s cap, as a reminder, is 71.4M, but some money can be buried at the AHL level, or moved around based on players being on LTIR).  

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It’s jarring to notice when researching prior payrolls that the 03-04 Red Wings team that crashed out to Calgary in the second round of the playoffs had a payroll of over $77 million. That year’s team signed Derian Hatcher to a monstrous free agent contract, and acquired the high-priced Robert Lang in a trade, and before the 04-05 lockout had quite expensive deals still with Brett Hull, Brendan Shanahan, and Matthieu Schneider.  This was also the season they bizarrely asked Dominik Hasek to come back out of retirement and play goal when they were headed into only the second year of Curtis Joseph’s Wings contract which saw him making $24 million over three seasons.

During much of the era from 1998 through 2004, the Red Wings’ payroll was so pumped up like a steroid-addled pro wrestler, that even to break even and make a little bit of money for the Ilitch family, the team needed to host SEVEN postseason games.  Incredible, isn’t it?  That’s despite the consistent full houses for 41 home games, merchandise sales, and corporate sponsorship.

Remember, there weren’t nearly the lucrative TV deals for all the clubs the league now has with NBC and with Sportsnet. But there were some years I covered the Red Wings in the postseason for WDFN Radio in Detroit where it was obvious the organization was under tremendous pressure. Not just because, hey, you want to win the games and advance, but to not have a season that ended up as a financial loser.

All this being said, you may ask why would the Red Wings and success (or lack of) this season play into next year’s projections and payroll.  I can lay that out simple enough for you, even if you don’t have a college economics degree (uhh, I don’t either, nothing to be ashamed of). 

Truth be told, no one has ever meaningfully complained about Mike Ilitch “not spending enough” on the Red Wings, but that’s because when he has in the past, results have been delivered, and though not every season in every playoff run, enough times that his commitment isn’t questioned.

If anything, in Detroit, his commitment to the Detroit Tigers has questioned far more harshly during the 12 consecutive under-.500 seasons his baseball team put up from the abandoned 1994 strike season, through the 2005 season, the most humiliating peak being a couple of years prior during the 43-119 2003 season (Alan Trammell’s managerial debut).  The Tigers spent in the bottom 10 of Major League Baseball for payroll in a relatively new stadium, Comerica Park, while the Red Wings were either 1st or 2nd in all of those seasons (and several more before that).

But, bottom line, what revenue gets brought in by the Red Wings for each playoff game?

Let’s say the average ticket price for Red Wings’ playoff games is $85 US.  Given that the cheapest upper bowl seat for last season’s Lightning series was between $50-55 while much of the lower bowl and suites are well over $85, I consider this to be a conservative guess.

Assuming there’s a few freebies handed out by the club here and there, let’s say there are 19,500 tickets sold at an average of $85.  That adds up to just under $1.7 million in ticket gate for one first-round game.

Getting a read on the average amount spent on concessions per fan is tricky, but a couple of folks I trust who run NHL buildings put an estimate of between $22 and $25 forward.  Let’s say it’s $23 then. 19,500 x 23 is another $448,500 coming in.  Is it all pure profit?  Of course not, but let’s say $330,000 gets cleared after buying food and drink and paying employees the little that NHL teams do.  Our running total is now at a tidy $2 million dollars (per game).

We’re hardly done — the Red Wings are one of the several clubs that have a fantastic parking deal in the nearby structures, and as anyone who knows Detroit is well aware, public transit is practically a non-entity. So let’s say 11,000 cars pay an average of $20 to park.  We’re in for $220,000 extra (running total of $2.2 million).

Merchandise.  Yes, you’ll say — not me.  Why do I want to be the dork with a grey t-shirt with the logos of both the Lightning and Red Wings for $26 US, to PROVE I attended an Eastern Conference first-round matchup?  If it’s not you then, it’s someone else.

The people I spoke to pegged the number there at $20. 19,500 x 20 = $390,000.  We’re in the neighborhood of $2.6 million now.  You’d have many unique fans for other games as well, the further you go, so let’s keep that figure per game.  Remember, just buying one $180 Wings jersey or one of those terrible leather jackets for $450 skews the average dramatically.

SINGEG

Obviously, there’s other money coming in and other money going out, but money that isn’t going out that’s significant are player salaries.  The playoffs come, the beards get grown, the cliches are flying, and the player paychecks cease.

No one else’s salary goes up unless bonus structures are written into the contracts of management members or coaches for team achievement and performance.  Again, I think I’m being quite conservative with the figures, but, using the ones above, playing three first round playoff games puts approximately $7.5-$8M of profit right into the Ilitch vault.  

The unfortunate thing for the Red Wings is, and they’re far from the only club facing these circumstances, the expensive contracts they’d love to trade?  Get serious, no one’s taking them on.  That said, deals like Clarkson-for-Horton, Luongo-back-to-Florida, and even the Coyotes paying Chris Pronger not to play after the swap with Philadelphia, do tell you that there is no player “impossible” to move in the modern-day NHL.

But if next season is (and I firmly believe it will be) Pavel Datsyuk’s last NHL season, and one of Henrik Zetterberg’s and Niklas Kronwall’s last productive NHL seasons, the impact of missing the playoffs this year may indeed be felt on next year’s roster for economic reasons alone. They’d better make it this year because there’s far less chance they will next season.

The Ilitch family know that the page is about to turn with this franchise, and no playoff games cut their profit margins by between $6-8 million, but they also are quite aware new revenue streams will being flowing with relative riches in the 2017-18 season when the Red Wings move into their new arena.  But you know when they’re not happening? NEXT season.

A deeper look into the thought is a subject for another day, but history implies that teams in the last year at an older rink will cut money invested in improvements in maintenance, given the lack of a “next season.” 

Ken Holland already has an enormous amount of work to do this summer. Just signing his RFAs to proper contracts, will be difficult enough, let alone moving a contract like Jonathan Ericsson’s (4 years left at $4.25M), which I don’t think you can do unless you’re tossing in a far more desirable asset like a Nyquist or a Tatar.

He clearly walks and doesn’t look back from both Brad Richards and Kyle Quincey, and notable raises are coming for Danny DeKeyser, Riley Sheahan, and, of course, Petr Mrazek.

There won’t ever be an admission from the Red Wings that missing the playoffs impacts the team’s spending next season because the expectation is they’ll be a cap team as they always have been since 2005-06. But the complete lack of playoff revenue means the money to get the Wings to the cap in 16-17 has to come from somewhere else, and no owner enjoys the sound of that.