Caps' Financial Picture Improving
Saturday, January 21, 2006
Even as rookie sensation Alex Ovechkin astonishes the hockey world, the Washington Capitals are struggling through one of their most difficult seasons ever. Coming off a one-season lockout in which the league failed to play a single game, the Capitals have the fourth-worst record in the NHL and rank last in the league in attendance.
Nonetheless, the team may post its best financial year since owner Ted Leonsis bought it for $85 million in 1999, thanks to one of the lowest payrolls in the league and revenue sharing that could send an extra $5 to $10 million to the bottom line.
"We will lose about $5 million, which is great news for us considering we lost $35 million one year and $25 million last time we played," Leonsis said in an e-mail. He added that although the team is in last place in the Southeast Division, the Capitals are a faster, higher-scoring franchise with a better record now than they were with a much more expensive lineup two years ago.
The Capitals have never been a big draw in the Washington area, and the arrival last summer of baseball's Washington Nationals relegated hockey to an even lower perch.
Even a star-studded lineup that included Jaromir Jagr, Robert Lang and Sergei Gonchar failed to sell out MCI Center during the 2003 playoffs, which disappointed Leonsis, who has tried several things to make hockey a hit in Washington.
After the Jagr-led Capitals failed to get past the first round of playoffs in 2003, the team's season ticket sales began to drop from its peak of around 12,000. The slide continued through the 2003-04 season, when the Capitals failed to make the playoffs and Leonsis began dumping his top-heavy payroll, which reached about $50 million that year but now is around $27 million, not counting about $3 million a year the team owes on Jagr's contract. The NHL canceled its 2004-05 season when the league and players failed to reach a new labor agreement.
Season ticket sales are now down to about 8,750, far short of the 11,000 to 12,000 the team needs to break even under the current NHL economic model, according to Leonsis. The team's walk-up sales, group sales and sponsorships are ahead of expectations, and the Capitals have added another 1,000 seats to its low-priced "eagles nest" promotion that charges $10 a ticket, reduced to $5 if a fan buys four seats.
Attendance this season after 18 home games averaged 12,829, which was the lowest in the 30-team league and filled 70 percent of the 18,277-seat MCI Center. By comparison, 10 NHL teams had sold out every game as of this week and were averaging around 19,000 per game. The Boston Bruins were ranked 16th in attendance, averaging 16,792.
The Nationals' arrival wasn't the only challenge in the Capitals' quest to lure a bigger share of the area's entertainment dollars. The Redskins made the playoffs, the Wizards are coming off a playoff season, and last season's NHL lockout left hockey all but forgotten in some markets.
"It made for a crowded marketplace in Washington sports and difficult for the Capitals to be heard above all that noise," said David Cope, who has worked in sports marketing and ticket sales for several area professional sports teams.
Although the Capitals have kept the marketing budget at about $1 million, or the same amount it was two years ago, the team has not filled two of their top marketing positions and no longer pays an outside advertising firm to create its campaigns. Also, about half of the marketing budget comes from in-kind promotions, in which the team exchanges advertising space and promotions with other companies without any money exchanging hands.
Leonsis said the team has been more successful with direct marking through telephone calls, special events and direct mail, than it has been with broad advertising. He said the marketing is much more focused, aimed at Metro riders, Internet users, military people and others who can help the team solidify its fan base. Leonsis said he spends as much, if not more, than the average NHL franchise.
The team has placed advertisements and commercials in theaters and on 180 local movie screens, clustered ads around newspaper boxes, sponsored local radio traffic reports and is about to embark on a major search engine marketing plan. The team has focused on certain zip codes with wraparound newspaper ads and publicized the Capitals brand on various local radio stations and Comcast SportsNet and WBDC-50, as well as local spots on ESPN2 and WTTG-5.
"I can't talk to the number [they spend], but they are as strategic and well-thought out as most teams," said Ed Horne, president of NHL Enterprises, the league's marketing arm.