Sports- August 2006

Quaff from Cup slakes Canes' parched coffers
By Chris Roush

"What will help the most, hockey fans say, is if the Hurricanes can put a competitive team on the ice. But that, too, is questionable. … As of early September, the team’s roster had stirred little excitement." — Business North Carolina, October 2005

Nine months later, of course, that Carolina Hurricanes roster had managed to stir up quite a bit of excitement, delivering the Stanley Cup to Raleigh in a Game 7 win over the Edmonton Oilers. Not only was it the state’s first professional-sports championship, but the series enabled the Hurricanes finally to squeeze out a profit for Peter Karmanos, who bought the Hartford Whalers in 1994 and moved the National Hockey League franchise to North Carolina in 1997.

During the presentation of the Stanley Cup, NHL Commissioner Gary Bettman praised Karmanos for seeing North Carolina’s potential as a hockey market. That was evident after a game that featured a sellout crowd of nearly 19,000 fans — many of whom didn’t know a cross-check from a canceled check 10 years ago — standing to cheer the entire contest. But many believe that what Karmanos, the chairman and CEO of Detroit-based software maker Compuware, really saw back then were visions of state and local incentives: $130 million that paid for the bulk of the construction of what is now the RBC Center, where the Hurricanes play home games. Karmanos, who had been unable to negotiate a deal in Hartford, chipped in about $28 million.

Still, the North Carolina years haven’t been easy for him. The team, which played its first two seasons in Greensboro while the RBC Center was being built, says it lost $140 million through the 2003-04 season despite going to the Stanley Cup finals in 2002. It got a break with the labor lockout of 2004-05: It lost only $7.5 million by not playing.

The lockout also sowed the seeds of this championship season. A new labor agreement with the NHL Players Association ushered in a salary cap — $39 million last season — and revenue sharing for the Hurricanes and other teams in the league’s smaller markets. Even so, Carolina cut its payroll from $34 million in 2003-04 to $27 million at the beginning of 2005-06.

But forcing the cap on the league helped spread the talent. Many teams had to trade or cut star players to get under it. Meanwhile, the cap left the Canes enough space to bring in midlevel free agents. General Manager Jim Rutherford, who may have been the real hero of the season, spent money wisely on relatively low-paid, speedy scorers such as Cory Stillman and Ray Whitney. With veteran Rod Brind’amour, young stars Erik Cole and Eric Staal and rookie Cam Ward, they formed the core of a championship team. Carolina saved enough room under the cap that it added two veterans, Doug Weight and Mark Recchi, for its run down the stretch, upping the payroll to only $30 million.

The team won’t say how much it made, though various estimates put the figure at $2 million to $3 million. Karmanos said the team would be profitable if it advanced past the second round of the playoffs. The 30-team league, after years of posting numbers so red that they looked like they had been in a hockey fight, made more than $100 million. Nearly two dozen teams were profitable this year, up from 11 before the lockout.

Winning the Stanley Cup will generate interest from fans, sponsors and advertisers for the 2006-07 season and beyond. But the Hurricanes aren’t skating in Fat City. Attendance ranked 21st in the league last season, and the team plays in the second-smallest U.S. market, behind Buffalo, so any drop in on-ice performance — such as the two seasons when the team missed the playoffs after making it to the finals in 2002 — could lead to more financial losses.

“A market like Carolina has more pressure on it than a market like Edmonton,” according to Dan Mason, who teaches a course on the business of hockey at the University of Alberta. “The key to longstanding success of a market is to be able to develop a grass-roots following. So there is more pressure on Carolina to win because that develops interest.”

Attendance increased 28.1% to an average of 15,596. That fell short of 2003-04, the team’s best year, as well as the average attendance this year for nonplayoff teams in Pittsburgh, Los Angeles, Boston and Columbus, Ohio. Matt West, vice president of business operations, says that during the lockout management mulled how to market the team better once play resumed. “We decided we wanted to reach out to customers who had never been to a hockey game before.”

That meant lowering regular-season ticket prices — something that basketball’s Charlotte Bobcats are trying next season — and holding promotions, such as giving a donation to local schools if Harris Teeter customers came to a game and flashed store customer-loyalty cards. The team also sponsored nights at local bars to attract fans to watch away games when the team was on the road. To promote the sport, it hired a youth-hockey coordinator, who held camps and gave lessons to local teams. Cane players helped market the team, mingling with fans before games and at special events.

Keeping the financial momentum going will be hard. Though the salary cap increases to $44 million next season, management said the team would spend no more than $40 million on its payroll. That was quickly eaten up after the season. Brind’amour got a five-year, $18 million contract extension, and Staal and Cole each re-signed at more than $4 million per season. More raises and hiring two minor free agents took the rest of the budget. Meanwhile, other teams also had new room under the cap and signed a few of Carolina’s players, including Weight, defenseman Aaron Ward, who scored a goal in Game 7, and goaltender Martin Gerber, the starter before Cam Ward took the job during the playoffs. Recchi also was likely to sign elsewhere.

Coach Peter Laviolette signed a five-year contract that will pay him $1 million a year. Though his salary won’t count against the cap, it will against Karmanos’ bottom line.

West says it’s too early to discuss the marketing strategy for next season, but it’s likely to revolve around the championship. “We’ve got to jump right back into marketing season tickets and miniticket plans and getting our sponsorship portfolio and suite revenue up. We need to maximize not just being Stanley Cup champions but the run the team has had and show them this is a team that they want to be partners with for years to come.”