CEO Says AHL Needs To Control Expenses

June 5, 2002
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GRAND RAPIDS — As David Andrews prepares for his eighth season in the president’s chair, but his first in the top seat of the newly expanded American Hockey League, his primary business priority is to control expenses.

The addition of six former International Hockey League franchises, two AHL start-ups and a transfer to Cleveland has given his league a strong earnings potential, a wider fan base and renewed hope for the minor league hockey business future.

But going to 27 teams in just one swipe is also costly, and expanding too quickly into the wrong markets can carry the ultimate cost — as witnessed by the recent demise of the IHL. That’s why keeping costs down has become his mantra.

Andrews has the league owners humming that chant, too, as they agreed to equally share the higher travel costs that expansion will bring in October. But, for him, there is another song to be sung and not a solo by the AHL chorus, either. He wants the National Hockey League owners to carry the same tune.

The AHL is the NHL’s official development league. Most of the NHL players, and many of its coaches, executives, referees and linesmen, come from the AHL. Most rule changes, like four-on-four overtime play, get a trial run in the “A” before they debut in the “N.”

So the business link between the two leagues is a tight one, and one for which the AHL pays the NHL an annual fee. Before the IHL folded, the NHL had two leagues to offer affiliations to, and both competed for those. Now that the AHL is the NHL’s only outlet, Andrews wants to reevaluate the fee franchises pay for affiliation.

“That business relationship is definitely the single largest expense that we have, it’s our players-supply expense. That is an area that we really need to take a look at and do a better job of negotiating these agreements with the NHL teams that we work with,” said Andrews.

“I’m going to try to assist our teams in structuring these agreements and in strengthening our position with these negotiations going forward,” he added. “We need to look at our significant costs which are player supply and our NHL relationships.”

Of course, Andrews is also taking a long look at how the league can increase revenue.

“We need to sell more tickets. We need to build our business opportunities and television opportunities that have essentially been created by this expansion,” he said. “ I think there is a tremendous potential out there in the expanded footprint and the major media markets that we’re now in. I think if we can do that, we’ll be stable and successful for a long time.”

Last year, its 65th season, the AHL drew 4.4 million paying customers. This year, Andrews hopes that number rises to at least 8 million with the bigger turnstiles in Chicago, Houston, Salt Lake City, Winnipeg, Milwaukee and Grand Rapids. Those six drew a total of 1.75 million for the IHL in its final season.

Last year, regional sports networks televised around 100 AHL games. This year, Andrews hopes that number rises to near 200 as the pending expansion brought additional broadcast inquiries to his office from American outlets before his June announcement.

One issue, however, not on Andrews’ agenda is bargaining with the players union. That’s because the Professional Hockey Players Association signed a five-year agreement, which does not contain a team salary cap, with the AHL last fall.

“We have a very good relationship with our players association. The association has unanimously endorsed this expansion and we’re going to work together to try and grow this business.”

But Andrews has set a limit on how large the business can grow — more exactly, how many franchises the league can have. He wants three more for a total of 30, a number that matches the total of NHL franchises. Limiting the franchises also adds financial value to each one.

By the way, three AHL franchises are dormant and those rights belong to Detroit, Florida and Ottawa of the NHL. There isn’t a time limit on how long each can keep their franchise inactive, but Andrews feels it won’t be much longer before these become active.

“It’s left open, although there is a fairly significant financial penalty for those teams to maintain their inactive status. They pay a fee to the league each year,” said Andrews.

“I would anticipate, certainly from the phone calls I’ve had over the last few weeks, that the creation of one league at our level in North America will have the result of creating additional demand for these teams. There are only ever going to be 30 of them, and I think the market forces of demand will lead us to a 30-team league next season.”

Looking ahead is always the preferred view for a business executive to take. It usually means the present is good, so the future gets most of the attention — and the future is where Andrews seems to be directing most of his.

“I think it looks terrific. I think it certainly looks better than it did a few weeks ago when we expanded to a 27-team league. While we’ve added some travel expenses, we’ve added much stronger ownership,” he said.

“I think we’re in terrific shape. We’ve got lots of work to do, but I think our future is much brighter than it was a month ago.”   

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