Monday, June 04, 2007

Ducks bring in the doh?!

This piece from Sunday's Orange County Register laid out some of the major gains for Anaheim in terms of revenue since the Samueli family purchased the club from Disney in 2005.

Here are a few of the highlights:
  • 200-per-cent growth in sponsorship revenue
  • 236-per-cent increase in merchandise sales, the bulk of which were made up of replica jerseys
  • ticket prices for the finals ranging from $110 to $903 (U.S.)
  • $13-million spent upgrading the Honda Center
That all would seem to indicate some major coin flowing in the Ducks' general direction, but the story makes sure to point out that "losses could run into the millions despite added revenue from playoff games and a regular season with the highest level of sponsorships and premium-seat sales since the Ducks began play in 1993-94."

Really? A team that potentially wins the Cup but claims losses? Even the Carolina Hurricanes didn't attempt that bold of a claim, saying the team made $10-million in 2005-06 despite the fact the North Carolina-based club had lower attendance and cheaper ticket prices for their run than the Ducks did this season.

This one doesn't pass the smell test.



At 1:48 a.m., June 04, 2007, Blogger J. Michael Neal said...

How can you tell when a sports owner is lying? When he claims he's losing money. I have three words for you:

Related Party Transactions.

At 2:08 a.m., June 04, 2007, Blogger Delicious said...

Indeed, check it (from the story):

Ryan, who is also chief operating officer of the Ducks, declined to separate the team from the building when talking about finances.
They're too tightly connected, he said.

At 3:04 a.m., June 04, 2007, Blogger --Staurofila-- said...

Well, I guess in every country Sports are manipulated by money... just like everything else...

At 3:40 a.m., June 04, 2007, Blogger Kel said...

Must be some very creative accounting. Good that the NHLPA are not falling into the trap by linking salaries to hockey-related revenues, not profits. On the other hand, that means NHLPA don't care whether teams claim they make or lose money to the public.

At 11:12 a.m., June 04, 2007, Anonymous Anonymous said...

Hockey is such an unprofitable business that Pauper George Gillet Jr. (I lose millions on the Canadiens) has just enough spare change lying around to buy Liverpool and a part of a NASCAR team, plus that spare $72 million he found under the cushions of his couch at the Bell Centre.

At 1:27 p.m., June 04, 2007, Anonymous Frank said...

James, I read the original article and it is the worst piece of business journalism I have seen in some time. I'm sure your colleagues at the Globe business section would get a good laugh from it. As an accountant it tells me absolutely nothing!

First, season tickets have risen to 14,000 from 7,000. Great, but how many "game seats" were actually sold, and at what average effective price. Season tickets can include packages for all 41 home games, 20 home games, 10 home games etc.. Was the increase all in 10 game season tickets?

33 sell outs versus 11 previously. Great, but were promotional give aways and deep discounts used to achieve the sellouts.

Ticket prices rose by 20% at the low end to $15 and by 60% at the high end to $190. Great, but the very fact that they are still selling seats for $15 should tell you they are almost giving the product away. You can't even get into most junior hockey games or AHL games for $15.

Also, what is the mix between the $15 and $190 seats. Are 75% of the seats priced at $15 and the rest at higher prices? In other words what is the average effective price of all seats sold after discounts and promotions, and how has that changed from year to year.

Next they say there was a 200% growth in advertising and sponsorship revenue and 236% in merchandise revenue. Great, but percentage increases tell you nothing unless you know the starting base they are measured from. A 200% increase on next to nothing, still leaves you with next to nothing.

Next they make a big deal about spending $13 million on the Honda Centre. Assuming the current replacement cost of the arena is $500 million one would expect to spend about 2% or $10 million each year in capital maintenance just to keep it current and functional.

Next they claim to be losing money. But are they losing money on EBITDA (earnings before interest, taxes, depreciation and amortization) or net income.

If they have heavily mortgaged the sale price of the team and building, there could be enormous debt servicing costs that are being incurred and creating the losses, especially if related parties are holding second and third mortgages on these assets at very high interest rates.

Finally, as J Michael Neal states one needs to examine all expenditure transactions with related parties to determine if non market transfer prices are being used to shift profits and loses between various entities, and for taxation planning.

Unfortunately, all NHL teams are privately owned - not publicly traded - so we will never get to see their books. All of this of course is why the NHLPA uses gross hockey related revenues for the basis of the salary cap.

At 2:23 p.m., June 04, 2007, Anonymous Anonymous said...

Great post.
I have one comment after reading it.
"My brain hurts."

At 2:44 p.m., June 04, 2007, Anonymous Mike said...

Back in the late 90's, the CFO of the Canucks once gave a television interview where he said one of the reasons the Canucks were losing so much money (apparently 30 million per year) at the time was because they were paying so much money in rent for GM Place. He said this with an absolute straight face, never mentioning the fact that they OWN THE BUILDING.

All of these corporations put all sorts of transactions on paper for tax purposes but as far as actual real losses, I don't buy it for a second. Half the time they make projections along the lines of "I think we are going to make 30 million profit this year". If they only make 20 million profit, they come out right after and say "We lost 10 million".

The Ducks are losing money, you say? Sure, I'll believe that when Pronger wins the Lady Byng.

At 1:14 a.m., June 05, 2007, Blogger J. Michael Neal said...

All of these corporations put all sorts of transactions on paper for tax purposes

Exactly, keeping in mind that league revenue sharing is a form of taxation. All other things being equal, you'd rather have a company other than the team itself making the profits, because you might get away with a lower revenue sharing bill. That depends upon how those rules are written, and what investigation and enforcement mechanisms there are.

At 5:13 p.m., June 05, 2007, Blogger Kel said...

I think revenue sharing is independent of earnings. Escrow money not returned to players are shared. National TV contract income is shared. Ticket revenue from playoff teams are shared (i.e., for every playoff game ticket sold, the home team contributes an amount (I read it's tied to regular season ticket price) to revenue-sharing pool).


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