Today I talk about the KHL’s business development as proclaimed by the KHL Development Strategy. We also look at SKA St.Petersburg and its business results.
The KHL Salary Cap Mechanism Is Working
1. As I discussed earlier, the KHL is moving to a strict salary cap mechanism in 2020-21. The cap ceiling will be ₽900 million (around €11-13 million) plus bonuses, which are not included in the cap. But, once again, CSKA President Igor Esmatovich proposed to increase the ceiling to ₽1.3 billion (around €16-18 million) plus bonuses. So, the KHL Board of Directors voted again at the end of April to confirm the original ceiling’s sum. That decision is consistent with the KHL Development Strategy 2017-2023 requiring clubs to decrease the state funding & making more (financial) parity within the league.
2. As you know the league originally planned the strict salary cap for 2019-20, but at the time Esmatovich proposed postponing for one season due to expensive contracts of Sorokin, Kaprizov, Grigorenko, and others with CSKA who would have many problems to comply with the cap. All these deals run out after 2019-20. Now, Esmatovich tried the same move, but the KHL Board refused to play his game.
3. Of course, it is not just about CSKA. Other clubs having the same problems with the ceiling. Metallurg terminated an expensive deal with Antipin, then he signed with SKA. It is likely Mozyakin will sign a less expensive deal. The Swedish forward André Petterson signed with Lokomotiv because Dynamo Moscow does not have space under the cap after signing Jaškin & on-going contract of Shipachyov and others. And Zaripov reportedly extended with Ak Bars for less money. CSKA can not afford to extend Marchenko, who moved to Lokomotiv instead. Forward Tolchinsky is moving to Avangard for the same reason – CSKA’s cap space issues. Another case is Yakupov‘s trade to Vityaz because SKA needs more cap space. So, the cap mechanism is working since day one! A more balanced league is in the making.
Projected Revenue Sharing Growing Despite Coronavirus
4. Below I will sum up Morozov’s interview for RBC Sport. It is his first detailed interview about the league’s development, especially financial, after becoming the KHL President.
Of course, the coronavirus pandemic has affected the league’s financial numbers in some way but the league will announce the final financial data in September. After all, the league was financially prepared for such an extraordinary situation due to the league’s stabilization fund. That fund had around ₽500 million (around €6-7 million) in 2017. Up-to-date numbers are not available.
5. Despite the coronavirus pandemic’s effect, the KHL plans to share around ₽453 million (around €6 million) with clubs for 2019-20, details to be announced in September. I just remind you that the league shared with teams ₽419 million (around €5 million) for 2018-19, so now it should be more money for clubs. But the league expects some negative consequence of the coronavirus on the league’s revenues from a long-term perspective, but it remains to be seen how serious it will be.
6. While waiting for confirmation of the league’s total revenues for 2019-20, we can look at the recent seasons. The KHL’s revenues, underlying the league’s revenues, not including individual clubs, consisted around ₽3 billion (around €37-42 million, depending on the exchange rate at the time) in 2017-18 while they were around ₽3,6 billion (around €44-50 million) next season, so still growing.
Lowering the Share of State Funding in Clubs Budgets
7. One of the league’s major aims is to decrease the share of the state funding in clubs budgets. Especially the influential European hockey officials using this argument to point out the supposed KHL financial unsustainability. The opposite is true, this state funding has secured the league’s development in the previous decade. Now, the league can afford to decrease it while still being superior to other European hockey leagues.
Based on the uncompleted data, the share of the local governments funding in clubs budgets remains at 7% in 2019-20 but the share of the state corporations funding decreased from 57% to 52% in the past two seasons. Guessing it is around a ₽2 billion decrease (around €25 million) for all clubs combined from season to season. And the league expects a much bigger decrease in 2020-21 as a result of the salary cap because earlier rich clubs spent much more money on salaries.
8. Of course, the clubs need to replace this money by revenues from their business activity (so-called commercial revenue), so ticketing, merchandise, match-day revenues, and others. According to the league’s strategy, all clubs should earn at least 20-25% of their budgets from their business activity by 2023-24, excluding the sponsorship agreements which are not counting in this 20-25% quota. This past season Jokerit (27%) & Avtomobilist (21%) led the league in these criteria.
So, the league’s plan is not to completely get rid of state funding in clubs budgets, just to lower the share of state funding and replacing it by clubs business activity & revenues.
SKA Business Development Over the Last Decade
9. Now, a few words about SKA St.Petersburg’s business model & its development over the last decade. So, SKA’s commercial revenues were around ₽50 million per season a decade ago, now they are at ₽1 billion. Just noting that the sum (₽1 billion) does not include the sponsorship agreements with Gazprom & others. So, almost half of that sum is sourced from ticketing, so around ₽500 million. Of course, ticketing will keep growing with the new arena for over 20,000 seats (now around 11,000 seats) on a horizon.
10. SKA’s marketing is working at following the league’s recommendations for clubs, so increasing young spectators, especially kids & women at the games. That is a logical move because these groups can bring more money to clubs. Of course, it is a challenge for all sports leagues in the world to bring younger & wealthier audience to their home games. Some five-to-six years ago, SKA’s audience consisted of men (85%) & women (15%), now the proportion is different – 60% to 40% in favour of men. Almost half of the fans are 30-49 years old now, so relatively young.
11. SKA has three major fan-shops in St.Petersburg (at the Arena, Pulkovo Airport & Nevsky Prospect) but the majority of revenue is from so-called match-day revenues. Around 10% of the sales are from online shopping. If not counting the city on the Neva, people from Moscow, Ekaterinburg, Ufa, Novosibirsk & Chelyabinsk buy the most SKA merchandise from online shopping. Of course, the club sells its merchandise abroad as well. The most frequent countries are the USA, Finland, Estonia, Ukraine, Kazakhstan, Belarus, Germany, Latvia & France.
Will the KHL World Games Continue Next Season?
12. Morozov says the league has been negotiating with two new countries to host the KHL World Games in 2020-21. But the current pandemic situation is creating some major obstacles for negotiators. So, we need to wait a few weeks to know if the league keeps playing these games in Europe next season. Nothing is confirmed yet. Reminding you that the KHL World Games took place in Vienna, Austria & Zűrich, Switzerland in 2018. Another Swiss city – Davos hosted it in 2019. It is not a secret that the league considered various German cities for the games in recent years. Meanwhile Paris, France & Copenhagen, Denmark were among candidates as well.
13. According to Morozov, the KHL would like to start the next season on September 2nd. But the situation with coronavirus pandemic may force the league to postpone the starting date of the 2020-21 campaign. So, the KHL Board of Directors will meet in late May or June to decide about the list of teams participating in the upcoming season. Afterwards, the league will be working on the 2020-21 schedule.
The Growth of the KHL Television Network
14. Last but not least, the league’s partnership with television networks. The KHL sold the league’s television rights to 33 countries for the 2019-20 season. If talking about the Russian market, the league has its two television channels. And its games are broadcasted by the federal channel MatchTV (owned by Gazprom-Media Holding) & regional broadcasters on the Russian territory as well. Regarding the viewership of the KHL games on MatchTV in 2019-20, it increased by 19% in comparison to 2018-19.
15. Of course, the KHL was inspired by the NHL Network when launching their television channels – KHL TV & KHL TV HD. The first one was launched in 2009 & KHL TV HD in 2012. As Morozov says, KHL TV has above 24.4 million subscribers while its high-definition version has around 12 million subscribers. Both channels have been constantly growing.
Feature Image Credit: (Alexander Shcherbak\TASS via Getty Images)