The announcement had been anticipated since last week, when the NHL cancelled regular-season games through Nov. 30 because of the lockout.
"The logistical demands for staging events of this magnitude made today's decision unavoidable," said NHL deputy commissioner Bill Daly. "We simply are out of time. We are extremely disappointed, for our fans and for all those affected, to have to cancel the Winter Classic and Hockeytown Winter Festival events."
"We look forward to bringing the next Winter Classic and the Hockeytown Winter Festival to Michigan."
The Winter Classic game had been set for New Year's Day at Michigan Stadium in Ann Arbor, with the Detroit Red Wings playing the Toronto Maple Leafs.
The contract the league signed with the University of Michigan to use its stadium for the outdoor event reportedly stipulates that the NHL could recover all but $100,000 US of its $3-million rental fee if it was to cancel the Winter Classic by Nov. 2 or sooner.
The first payment of $250,000 to the school was to be paid Friday, with the league also losing the $100,000 deposit.
If the league had not cancelled the event Friday it would need to reimburse the university for any "out-of-pocket expenses reasonably occurred" in connection with the outdoor game.
Organizers were anticipating the game would topple the world record of 104,173 fans who took part in the “Big Chill” NCAA hockey game between Michigan and rival Michigan State University at Michigan Stadium on Dec. 11, 2011.
Other events such as alumni, junior, college and American Hockey Leagues games for a second outdoor venue at Comerica Park in Detroit were also cancelled.
John Collins, the NHL’s chief operation officer, said in February that the economic boom of the weeklong hockey events to Michigan’s southeast region — including Detroit and Ann Arbor — could exceed $75 million. That would amount to more than double the estimated $30 to $35 million host Philadelphia garnered last year.
The lockout, now in its 48th day, has already seen 326 regular-season games lost — or 26.5 per cent of the schedule — after the NHL cancelled contests from Oct. 11 through Nov. 30.
Earlier Friday, NHL deputy commissioner Bill Daly told The Canadian Press that he expects collective bargaining talks with the NHL Players' Association to resume in the "relatively near future."
The two sides haven't formally met since Oct. 18 in Toronto.
Daily, who has kept contact with NHLPA's special counsel Steve Fehr several times this week, said collective bargaining talks with the union is closer to being set up.
"No meetings have been scheduled yet, but we have had an ongoing dialogue," Daly wrote in an email to The Associated Press on Friday.