Economics of Halifax's CFL bid hinge on loyal fans
JOSH HEALEY
http://thechronicleherald.ca January 10, 2018
Roughly 40 per cent of operating revenue for teams a result of ticket sales
EDITOR'S NOTE: This is part ten of a series on the lastest attempt to bring a CFL team to Halifax.
PART 1: CFL in Halifax: A gamble with lots of field to cover
PART 2: Stadium talks dominate CFL expansion discussion
PART 3: Halifax CFL franchise would make football a coast-to-coast sport, says commissioner
PART 4: Would Halifax support pro football?
PART 5: Roughriders show that CFL fan support can be province-wide
PART 6: Retired CFL pros want to see Halifax team
PART 7: Could a public-private partnership secure a CFL stadium?
PART 8: Stadium will make or break Halifax's CFL bid
PART 9: POLL: What's in a name for an Atlantic CFL team?
At the end of the day, Halifax’s bid for a CFL team will come down to dollars and cents.
And the cost of running a football franchise in Halifax extends beyond building the estimated $200-million stadium.
It is a long-term investment and there are countless coaches, players, bartenders and janitors who will all draw a paycheque if expansion occurs.
Examining the financials of teams around the league, it becomes apparent that the profits of CFL teams depend heavily on loyal fan bases to survive.
Glen Hodgson, a senior fellow at the Conference Board of Canada and an expert in macro-economics, said that the financial success of a Halifax franchise hinges on the team attracting a dedicated audience.
“They really have to appeal to all of Atlantic Canada as a fan base,” he said. “You need a capture area of about a million people to make a team go.”
Annual report trends
The Winnipeg Blue Bombers, Edmonton Eskimos and Saskatchewan Roughriders all release annual financial reports to the public.
For the 2016 season, Winnipeg and Edmonton reported marginal surpluses of $2.8 million and $2.2 million respectively.
Winnipeg’s operating revenues totalled $27.1 million while Edmonton reported $23.5 million.
Saskatchewan, an outlier in terms of profits in the CFL, boasted operating revenues of $39.3 million but spent $42.7 million on everything from player salaries to extra footballs.
Looking at these numbers, all three teams are basically spending as much as they earn.
And in terms of revenue, roughly 40 per cent of the teams’ profits are based solely on ticket sales.
As Len Rhodes, Edmonton’s president and CEO outlined, the profitability of the team relies on attendance.
“Our primary focus is to attract new fans,” he wrote. “We are a gate-driven league and our largest single source of revenue is ticket sales.”
A gate driven league
Hodgson said that relying so heavily on fan attendance poses a risk.
“You’re obviously more susceptible to not having a winning team or having bad weather for a couple of days,” he said. “In any business, the more diversified you are the more stable your business is going to be.”
He highlighted that growing a dedicated fan base helps protect against a weak team but it takes some time for fans to buy into the system. Ticket prices will be integral to attracting fans in Halifax.
“There will be an effect early on where you’ll sell out for the first year because it’s new in town, but ticket pricing is going to be really important in building a fan base and getting young people to support a team,” said Hodgson.
The variance in ticket prices can be seen in the revenues of Saskatchewan and Edmonton.
Ticket sales compromised roughly 40 per cent of both teams’ revenues but Saskatchewan earned $15.6 million on tickets while Edmonton reported $8.91 million. This is despite Edmonton having more seats available.
“It’s about the popularity of the team. They’re now the hottest ticket in Saskatchewan,” said Hodgson.
Randy Burgess, vice-president of communications and content for the Ottawa Sports and Entertainment Group (OSEG), said Ottawa has been successful at attracting fans to Redblacks games as an expansion team. The emphasis has been on attracting peoples aged 18-34.
“Ticket prices are low. You can get in the building for as little as $35 and go wherever you want,” said Burgess. “The focus is on fun. That’s really the business we’re in.”
Costs
The CFL salary cap, which is low when compared to other pro sports, sits at roughly $5 million.
But when compared to the revenues of teams not named Saskatchewan, the cap eats up around a quarter of their operating revenues.
For example, Edmonton spent $7.9 million on player and coaches’ salaries.
Including scouting, medical personnel, travel costs and gear, Edmonton paid out another $11.4 million for football operation expenses.
And there are even more expenses to be added, such as the price of producing merchandise, marketing and more.
Sponsorships would be one way to combat operating costs but sponsorship revenues for teams are slight in comparison to ticket sales.
Edmonton’s sponsors contributed 21 per cent of their revenue while Saskatchewan’s was only 15 per cent.
Like Ottawa, Edmonton plans on capitalizing on a young fan base to cover the cost of business.
“An IMI research study conducted in April 2016 indicates the Edmonton Eskimos have a wide, passionate and growing fan base, led by teens and millennials following the 2015 Grey Cup victory,” reported Rhodes.
For Halifax to boast a fan base that attends the number of games and buys the merchandise and concessions to make a franchise financially viable will take time.
“They would have to build a fan base and that would take, frankly, a generation,” said Hodgson.
A lesson learned
Roger Greenberg, OSEG’s executive chairman and managing partner , has experience growing a CFL fan base.
A strong football culture or lack thereof, was something that was frequently discussed at the beginning of Ottawa’s CFL expansion in 2014.
“Football failed twice in Ottawa,” said Greenberg, arguing that Halifax’s bid is starting off on better footing than his own.
He said he believes the reason the previous renditions of the CFL in Ottawa failed was because of poor ownership.
“It’s like any business. If you don’t have quality leadership and ownership, I don’t care what the business is, it’s going to fail,” Greenberg said.
Now, the CFL is thriving in the nation’s capital.
“We sell out every game. We sold out the Grey Cup. We had the first Grey Cup parade here in 40 years last year,” said Greenberg. “We’ve been successful.”
How much will Atlantic Canadians be willing to support — and pay — to make the same success happen in Halifax?