Saturday, November 10, 2007

The Forbes figures

I'm a day late in getting to the Forbes numbers, which have already been passed around and digested by the blogosphere.

It really would be a worthwhile exercise to somehow determine revenues for every NHL club, as then you could make some pretty accurate assumptions when it comes to things such as revenue sharing. The problem with these figures, as was the case last year, is that they are merely best guesstimates, and already include the revenue sharing handout.

That means teams like Toronto, the Rangers, Detroit and Montreal are actually listed up to $20-million short in terms of revenue, while Nashville, St. Louis and others are getting a big bump in the basement.

Putting what we do know to good use, however, I think we can make these figures dance a bit in the right direction.

For one, we know all six Canadian teams paid into revenue sharing, to varying degrees. We also know that the teams in Toronto, New York, Anaheim, Philadelphia, Los Angeles, Chicago, Newark and Long Island are ineligible to receive these funds.

We also know that the Top 10 teams pay into revenue sharing and the bottom 15 receive, and that in 2005-06, 11 teams were dealt roughly $90-million. Teams that spend over the midpoint — which was $36-million last season — also receive less revenue sharing (there is incentive for teams to have smaller payrolls).

A look, then, with some fudging thrown in with the already fudged numbers (please keep in mind these are, in most cases, not actual figures; if you have seen reports with more accurate numbers I'll adjust what I've got here):

Rk Team Forbes #
Payout Handout Adj. Rev.
1 Toronto Maple Leafs 138 20 Ineligible 158
2 New York Rangers 122 17 Ineligible 139
3 Detroit Red Wings 109 9 x
118
4 Montreal Canadiens 109 9 No 118
5 Vancouver Canucks 96 7 No 103
6 Ottawa Senators 93 6 No 99
7 Dallas Stars 91 5 x
96
8 Anaheim Ducks 89 5 Ineligible 94
9 Philadelphia Flyers 87 5 Ineligible 92
10 Boston Bruins 87

87
11 Tampa Bay Lightning 85

85
12 Los Angeles Kings 84
Ineligible 84
13Calgary Flames775No82
14 Colorado Avalanche 79

79
15 Minnesota Wild 78

78
16 Buffalo Sabres 74

74
17 Edmonton Oilers 71 2 No 73
18 Chicago Blackhawks 69 x
Ineligible 69
19 San Jose Sharks 72
3 69
20 New Jersey Devils 65 x
Ineligible 65
21 Columbus Blue Jackets 68 x
8 60
22 Carolina Hurricanes 68 x
8 60
23 New York Islanders 60 x
Ineligible 60
24 Pittsburgh Penguins 67 x
8 59
25 Atlanta Thrashers 67 x
9 58
26 Phoenix Coyotes 67 x
9 58
27 Florida Panthers 67 x
10 57
28 Washington Capitals 66 x
10 56
29 St Louis Blues 66 x
11 55
30 Nashville Predators 65 x
14 51



90 90

I think that gives us a better idea of what's happening in the NHL, although clearly Forbes has Calgary and Edmonton far too low given we know they were Top 10 revenue clubs last season.

Interesting to note just how big the handouts are, as if Nashville's receiving (at most) $14-million, that means there are seven or eight others eating up a big portion of the estimated $90-million revenue sharing.

I honestly don't know teams like if Anaheim paid into, or Columbus received, revenue sharing, but given that playoff revenues make up a good portion of this money exchanging hands, this shouldn't come as a surprise.

The Canada-U.S. Divide

Others have pointed this out, but using the Forbes figures, things don't look so rosy south of the border in the NHL:

Current Value 1-Yr Value Change (%) Debt/Value (%) Revenue Operating Income
Avg. Canadian 235.7 17.2 44.3 97.3 18.4
Avg. American 191.1 9.5 45.9 77.2 -0.6


Using my fudged figures, which attempt to take revenue sharing out of the equation:

Adj. Revenue Adj. Income
Avg. Canadian 105.5 26.6
Avg. American 75.1 -2.7

Taking revenue sharing out of the equation, teams that lost money with it are in dire straights. Carolina, Florida, Atlanta, Phoenix, St. Louis and Nashville all would have lost $15-million or more.

The Predators would have lost nearly $24-million.

According to these adjusted figures, the Canadian franchises generated 26 per cent of league revenues. Most have had that figure at 30 per cent or higher, which would mean those six teams generated nearly $90-million more than these adjusted figures.

It would also mean lower U.S. revenues and larger losses than what I've got here.

37 Comments:

At 1:29 PM, November 10, 2007, Anonymous Rickster said...

Nice work James. I think you are directionally correct. Interestingly, even your adjusted numbers put Canadian revenues at 26% of the total. I'm having trouble believing that so many teams are losing money. All of the owners had a hand in creating this new system, so how could they propose something that won't work?
If they can't make a profit in this system, then they are beyond hope. Wouldn't their owners be clamouring for a move or trying to sell?

 
At 1:29 PM, November 10, 2007, Anonymous Gerald said...

This comment has been removed by a blog administrator.

 
At 1:42 PM, November 10, 2007, Blogger James Mirtle said...

Gerald, since you asked so nicely (as always): Every Forbes valuation study in recent memory has included revenue sharing in revenue figures, something that is detailed on every single team page this year.

Read the website if you want to come here and insult my intelligence.

 
At 2:00 PM, November 10, 2007, Anonymous Danny Tolensky said...

Great analysis James.

Rickster, I think it's easy to see how they're losing money, just looking at the gate receipts and the team payrolls. Before the lockout ten teams had payrolls under $34.3 mil. With the cap floor rising 60% (from $21.3 mil) the new system doesn't really help the teams that struggled pre-lockout. Quite the opposite actually.

According to Forbes' numbers, thirteen teams are less profitable or are losing more $ than they were before the lockout.

Danny

 
At 2:10 PM, November 10, 2007, Anonymous Gerald said...

Ah yes, I see it now. Thank you. Was that so hard?

Incidentally, your decision to remove my post above also deleted some purely substantive points that do not depend on whether revenue sharing is in or out. Unfortunate.

Have you done the calcs of revenue sharing on the basis of the formula set out in the CBA (which is a detailed weighting system) or more on an estimate?

I would also note that the Forbes numbers apper to overshoot official NHL HRR numbers by about $100 million. An adjustment needs to be made in that respect as well. I would expect most of the discrepancy would result from some of the more complex financial structures of arena-owning teams (TOR, NYR, LAK, CHI, etc.).

{By the way, no one insulted your intelligence with that post. If/when I question someone's intelligence on NHL business topics, I am generally not that oblique about it, as I am sure you know. But whatever. I humbly apologize.}

 
At 2:14 PM, November 10, 2007, Blogger James Mirtle said...

Incidentally, your decision to remove my post above also deleted some purely substantive points that do not depend on whether revenue sharing is in or out. Unfortunate.

It's either that or make you sit in the corner.

Incidentally, no one else who stops by here has a problem with the rules in the playpen.

 
At 2:14 PM, November 10, 2007, Anonymous Rickster said...

Danny - it is simple to see how they are losing money while looking at these numbers. But I am getting at trying to understand the underlying factors. I am wondering two things:
1. If these numbers are correct, why would the owners of teams that can't produce enough revenue to make a profit agree to sign the new CBA?? Why wouldn't they demand more revenue sharing? As I recall, it only tok 6 votes against the CBA to prevent its ratification. Why would those low-revenue teams sign a deal that raised their costs dramatically without giving them any revenue benfit?

2. Are these the right numbers? Are teams making more revenue is being counted here? Are all concessions, tax breaks, and ancilliary benefits being taken into account?

As an aside, we should also remember that the operating profit numbers don't include interest. We know Forbes's guess of each team's debt and can assume a 6% interest rate with a 15 year amortization period. That adds a further $4M in cost to each team (on average)

 
At 2:45 PM, November 10, 2007, Anonymous Danny Tolensky said...

Good questions. I think its very possible that they didn't project revenues accurately coming out of the lockout, and didn't anticipate the cap rising so much, so quickly.

In terms of revenue sharing, I don't think the small market teams were in a position to make those kinds of demands of the more powerful teams, especially after losing a year. I know many people think the revenue sharing should be more substantial but to me $90 mil split between 8-9 teams seems more than fair - if not for the dramatically rising salary floor.

I don't think these are the right numbers but I do think they're close enough to be able to make assumptions, when used with other numbers that have been reported in the past. Some of the components you mentioned wouldn't be included as part of HRR. Also a good point on the interest calculation..

 
At 3:11 PM, November 10, 2007, Anonymous Rickster said...

Danny,
Revenues haven't accelerated that rapidly. I think it is more than reasonable to assume that even the lowest-revenue teams' non-HRR is large enough to supercede their hockey-related losses.

How else can you explain someone buying a team in Nashville for $193M?

 
At 3:20 PM, November 10, 2007, Anonymous Danny Tolensky said...

I really don't think they're buying the team to keep it in Nashville (just my opinion). But that's another discussion for another day..

 
At 3:57 PM, November 10, 2007, Anonymous Frank said...

James, I assume all of the teams revenues include their equal share of centralized revenues from the league office for national TV, merchandising etc..

Since most of these centralized revenues derive from the CBC/TSN national contract, we have once again another redistribution of income from Canada to the US teams.

Also, do you know if the CBC/TSN pays the league in Canadian dollars or US dollars? If its Canadian dollars then this should be added to Canadian revenues when we try to establish the ratio of revenue coming from Canada that is subject to currency translation.

Thought you might be interested that a local fan called into a talk show here complaining about the Canadian and US pricing of Centre Ice by the NHL League office.

When the subscription process started in September the Canadian and US dollars were approximately at par yet the price in Canada was $199 and the price in the US was $149 ($219 and $169 once the season started). Therefore Canadian fans are being charged 33% more.

Apparently, he was "miffed" by this so he contacted his cable provider and they explained that Canadian and US distributers receive the same fee for carrying the service and the price differential is entirely due to the NHL charging Canadian fans a higher price than US fans.

He then wrote the NHL League Office to ask for an explanation. They wrote back that the price in Canada was higher because "Canada is a mature market" (ie. fans are willing to pay a higher price in Canada)!

 
At 4:53 PM, November 10, 2007, Anonymous Anonymous said...

In my opinion it's not too hard to understand that lot of teams are losing money even with this new system.

When you spend more money now than before lock-out and your revenues are same or less as before what's so hard to understand. Pretty simple.

And there's no reason to wonder why would anybody stay in the business that's losing money because owning a NHL team is not so called normal business.

These owners are billionaires who made their coin in real business world. Owning an NHL team (as is NFL, NBA, MLB etc. teams)is a hobby for them.

It's a chance to get in the special group. Why would anybody pay $100,000 to join a golf club when you could play the same game in public courses? Why drive Rolls when Ford can do the same thing.

Losing 5, 7, or 10M a year for a billionaire who's left hand makes 100M at the same time in his real business isn't big deal.

They can hang with athletes, celebrities and get their names/faces in the media.

And in the end they don't have to worry about losing their 100-200M team because there's always another billionaire willing to get into this exclusive club.

And thanks to James for this post. Interesting.

 
At 5:07 PM, November 10, 2007, Anonymous jealous broadcaster said...

Interesting to note where all Bettman's relocation/expansion projects sit in this list... how does this clown have a job still!??

The Owners have to wake up.

 
At 5:18 PM, November 10, 2007, Anonymous Rickster said...

Anon,
This is the owners' system. They locked the players out, co-opted the union, and got the exact CBA they wanted. 75% of the owners had to agree, so the teams that are currently losing money (by Forbes's count) could have: a)projected the expected effect of the CBA on their profitability and b) stopped the league from negotiating until they had an effective revenue sharing plan in place to offset the implementation of a salary floor.

If it is true that owners don't care about losses and only own a team as a status symbol then why did they lock the players out for a year? In order to lose more money?

My thinking is that there are revenues / financial benefits that outweigh any of these losses. Not that the league will ever admit it...

 
At 7:29 PM, November 10, 2007, Anonymous Gerald said...

Rickster, the answer of course is that the poster above is completely and utterly wrong. The idea of the gentleman owner having a sports team as a hobby is a throoughly antiquated idea that has not been the case for quite some time - not since the early/mid-90's when the money got big. It certainly is not the case now, as the owners have figured out the correct paradigm for the sports industry: use the team in concert with an entertainment business running an arena and (if you are fortunate) broadcast assets.

There is no big "secret" here, Rickster. The owners are not hiding anything. MLSE, MSG, AEG and, in a slightly different twist Jeremy Jacobs and the Wirtzes, are the paradigm. For those owners who do not own their arena, they arrange for deals which give them virtually the next best thing in terms of ancillary revenues (i.e. what the prospective Nashville owners are trying to accomplish). While a team may lose money, it can still act so as to make the overall arena/entertainment business better. When on top of the arena you have broadcasting assets, that is another way to leverage the sports team asset.

This notion of a "club" is absolute nonsense. Most owners are already in plenty of clubs, such as the club of, well, being a billionaire. This is not rocket science as far as business is concerned. Vertical integration has been a business principle for a long, long time.

stopped the league from negotiating until they had an effective revenue sharing plan in place to offset the implementation of a salary floor.

Rickster, the CBA system already is such a plan. It provides no less revenue sharing than is necessary to allow a team to spend not just to the floor, but to a minimum of $4 million above the floor (plus more if the NHL owners decide that they shall do so). There are caveats tied to pulling your own weight in terms of league growth, but they are not onerous at all.

 
At 7:32 PM, November 10, 2007, Anonymous Gerald said...

When you spend more money now than before lock-out and your revenues are same or less as before what's so hard to understand. Pretty simple.

Anon,

Pretty simple,except fopr the fact that you are dead wrong. Revenue is up over $200 million from pre-lockout levels (with only a VERY small portion due to currency increases) and player costs are still down approximately $180 million.

Where do people get this stuff? Actually, strike that - I already know, and it is a damn shame.

 
At 8:23 PM, November 10, 2007, Anonymous Rickster said...

Gerald, I don't think that the Article 49 hurdles are easy to overcome in markets where people don't like or play hockey, so I don't really consider this to be comprehensive revenue-sharing. In other words, annual hockey revenue growth in Florida or Phoenix will never ever exceed the league average. Eventually the revenue sharing tap will be turned off.

The lockout was brought about by teams who couldn't afford to keep up with the spending habits of the Rangers and Flyers. Now those same teams are seemingly in financial distress after rewriting the rules. There are two possible explanations for this: incompetence or another source of revenue that turns even the worst of the money losers into reasonably profitable enterprises.

I'm inclined to believe the latter, but haven't ruled the former out by any stretch.

 
At 9:41 PM, November 10, 2007, Blogger J. Michael Neal said...

As Gerald points out, the first thing you have to do is stop believing the numbers. Forbes does a very good job, but keep in mind what that job is: figuring out the revenues of the teams. This article isn't clear, but their usual approach is that they don't try to chase down even the obvious related party transactions. They certainly aren't trying to figure out the revenue that John Davidson is generating from that property he has next to his arena. There is more money in owning a hockey team than Forbes shows.

How much more? You got me. If Forbes isn't going to try to dig into it, I sure as hell am not going to be able to. It may be enough that there aren't any revenue losing teams, or if there are a lot fewer than this would indicate.

As a general rule, though, the only teams that lose money are teams with bad leases. By "bad lease," of course, I mean that no one is subsidizing them enough. That's the first key. Being on the public dole isn't strictly necessary to make money, but it certainly helps. There are some teams that just own their arena (though most of them didn't actually cough up all the money to build it), and collect every dollar in sight, hiding a bunch of it from the revenue sharers.

Now, unlike baseball, I'm prepared to believe that some teams not named the "Marlins" are actually losing money. For real. Even though league revenues are up, it looks as if they are becoming even more skewed. The differences in local TV revenue are striking.

So far as I know, the NHL has nothing like MLB Advanced Media, which has turned into a money making machine for baseball teams. I have no idea if they have the pull to do it, either in terms of the NHL being a big enough deal, or the league having the authority to completely centralize every team's Web presence, and make it league revenue.

 
At 9:54 PM, November 10, 2007, Blogger James Mirtle said...

Some good points JMN. I wouldn't go much further than to look at these numbers as they relate to hockey-related revenue and revenue sharing. We don't have the actual figures, but these aren't so far off as to be useless (at least for discussion).

 
At 10:26 PM, November 10, 2007, Blogger J. Michael Neal said...

Mostly, I just fell in love with using the bold tag.

 
At 10:37 PM, November 10, 2007, Anonymous Gerald said...

In other words, annual hockey revenue growth in Florida or Phoenix will never ever exceed the league average. Eventually the revenue sharing tap will be turned off.

Rickster, first off, the tap never gets "turned off" per the CBA. It is reduced, but it is never ever turned off unless the market becomes large enough in DMA that it becomes ineligible (ie ATL possibly in a number of years). Ity is not structured that way. Secondly, the NHL effectively decides itself how much revenue sharing there is beyond the 4.5% minimum. If markets are becoming distrssed, the NHL can change the outcome by simply increasing the Targeted Team Player Compensation. That will create larger "shares". Note as well that, as NHL revenues increase, the minimum revenue sharing increases as well (it is up to over $100 million now).

Regarding the inability of developing markets to pace NHL revenue growth, where would you get that idea? NHL revenue growth is driven by developing markets, not the large markets. TOR, for example, is tapped out for new revenue streams. No more tickets or suites or ad space can be sold.
Secondly, a team can generate more than 6-7% growth by a few playoff gates. NASH will undoubtedly outpace NHL revenue growth by virtue of its 25%+ ticket hike (it did so last year as well); given that its paid attendance is on pace to last year's at this time, it seems that it will crush last year's revenue figures. This "distressed market", for those of us who read CDN newspapers. For developing markets, an extra 500-1000 fans is a huge revenue increase - 4 to 7% right off the start, without regard to ticket price increases. For that matter, developing markets have tons more room to increase prices.

Might I suggest that you are falling into the trap of believing that Canada is the sole supporter of the NHL, as espoused by the CDN sports media?

 
At 10:56 PM, November 10, 2007, Anonymous Gerald said...

JMN, I agree with a number of your points, but I am certainly not saying to not believe the numbers.

Firstly, I wouldefinitely say that the Forbes numbers take into account related party transactions. I am sure that you understand that determining related-party transactions and asisnging a fair market value to them is not really that difficult a concept. There are value benchmarks for just about everything - TV, signage, concessions contracts, suite revenue distribution, you name it. What's more, those benchmarks are fairly ascertainable - some of them are in the CBA, for example. Otehr examples are in the NBA CBA. Based on the numbers as reported, clearly they have been taken into account in most material respects. While people have this mistaken assumption that acocuntants can ascribe values to just about anything based on what the client wants, that is far, far from true, and particularly so for teams who are owned by public entities, like NYR. Every NHL team in fact produces audited financial statements. Your suggestion that money is somehow "hidden from revenue sharers" is way off the mark. The books are audited and then reviewed by third party auditors for the NHLPA.

Secondly, I think you have it wrong in that you seem to be suggesting that NHL teams are responsible for all this ancillary revenue that is earned elsewhere. It is much more of a symbiotic relationship. To the extent that an NHL team can fill 44 nights or more a year for a team that owns its arena, that is not to say the team gets credit for the other 200 nights that the arena fills with concerts or Disney on Ice. The team is jsut a part of the overall whole; in no way is it responsible for all that synergy that is created for the MSG's, MLSE's, Jeremy Jacobs' concessions company, Wirtz' concessions company, the other events at Sunrise, FLA or AEG's massive network of arenas.

 
At 11:30 PM, November 10, 2007, Blogger J. Michael Neal said...

Firstly, I wouldefinitely say that the Forbes numbers take into account related party transactions.

I don't know any reason to think this. As I said, this article is vague on the subject. However, in the past, other Forbes analyses have explicitly stated that they aren't counting related party transactions. They might include things that are counted in the revenue sharing; that would make sense, but I haven't ever seen them say that that's what they do. Is there any reason to think that their approach to hockey is different?

NHL revenue growth is driven by developing markets, not the large markets. TOR, for example, is tapped out for new revenue streams. No more tickets or suites or ad space can be sold.

This is simply not the case. The large markets are not, as a general rule, tapped out. They keep signing larger TV contracts. They sell the suites for more money. Ideally, they don't grow as quickly as the smaller markets, but they definitely grow. More, if Toronto grows its revenues by 5%, they have added more revenue than Nashville has if it grows 15%.

Now, I suspect that the specific case of Detroit is completely tapped out. The economy got taken off life support over the summer, and is now flatlined. I'd be very surprised if the Red Wings revenue is growing. That's an exceptional case, though.

The team is jsut a part of the overall whole; in no way is it responsible for all that synergy that is created for the MSG's, MLSE's, Jeremy Jacobs' concessions company, Wirtz' concessions company, the other events at Sunrise, FLA or AEG's massive network of arenas.

No, but then I never even implied that this was the case. There are, though, a lot of non-hockey revenues that are tied to NHL teams. The example I used was Bill (not John) Davidson's property next to his arena. There isn't any reason that this revenue should be tied to the hockey team, except that Davidson would not have gotten that concession without the team, and he is selling that concession as a part of the team. You would have to consider this revenue when examining whether the Lightning are profitable as a business, and I'd bet that little of that revenue, if any, goes into the revenue sharing pot.

 
At 9:10 AM, November 11, 2007, Anonymous Rickster said...

No Gerald, I don't think that the Canadian teams are driving the bus. I have never said that. If these Forbes numbers are roughly correct then there are 10 teams who create about 50% of the revenue (Tor, NYR, Det, Mtl, Phi, Dal, Bos, Col, Van). Hockey is wildly popular in these markets and is growing rapidly.

Phoenix, Carolina, Florida, and Nashville are not new teams. Potential consumers have seen the product and said no thanks. It is even more difficult for them to increase revenues than in New York.

Can the league increase revenue sharing without opening up the CBA?

 
At 11:07 AM, November 11, 2007, Anonymous Gerald said...

(Tor, NYR, Det, Mtl, Phi, Dal, Bos, Col, Van). Hockey is wildly popular in these markets and is growing rapidly.

The first part of your statement is more or less correct, but not the second. In terms of ticket revenue, only two of them outstripped the average NHL growth in that area (NYR and DAL). Boston's receipts went down over 10%, and COL by 3.4%. TOR's was a miniscule 1.9%. That is the "problem" in generating growth after your arena has been filled in years past - mind you, BOS has not had that problem with their arena ever.

Phoenix, Carolina, Florida, and Nashville are not new teams. Potential consumers have seen the product and said no thanks. It is even more difficult for them to increase revenues than in New York.

Why would you lump CAR in with those others? They are going great guns, Rickster. I suggest that you are working with either a dated assumption or you are placing too much faith in the Forbes numbers from a macro point of view (I suspect the Forbes numbers are generally okay, but there are significant discrepancies on a team level). CAR's gate receipts went up by over 40% from the year before, and are well over the $25 million suggested by Forbes (closer to $30 mil). Most people do not know that NASH increased their gate receipts by over 20%. Is that the fan saying "no thanks"?

You have not addressed my point above. With developing markets having much more pricing room and still more tickets and suites to sell, why do you still think that NYR would be able to grow faster? That would be contrary to corporate experience in virtually every single industry that you can name.

 
At 11:09 AM, November 11, 2007, Anonymous Gerald said...

Can the league increase revenue sharing without opening up the CBA?

The league determines the Targeted Team Player Compensation. So, by my reading, yes.

 
At 11:10 AM, November 11, 2007, Blogger James Mirtle said...

What's interesting in the Forbes numbers is that the Leafs have gone from $48-million in the late '90s to, what, $160-million now?

That's incredible growth.

 
At 11:19 AM, November 11, 2007, Anonymous Gerald said...

Is there any reason to think that their approach to hockey is different?

Well, you wouldn't be able to get anywhere near the numbers without doing so. Every team uses a web of related corporate entities for their holdings - a different one for broadcast assets, concessions, etc. That is standard practice for limitation of liability reasons. The Wirtzes do not sell their hockey concessions out of the same entity that owns the Hawks, for example.

Secondly, it is common sense. Forbes would do it because they know to do it. You are not suggesting that related party transactions are even in the slightest way "new" or unique or anything of the sort, are you? It is basic stuff.

I'd bet that little of that revenue, if any, goes into the revenue sharing pot.

Nor should it, Michael. That revenue (which is not revenue until it is sold, but never mind) is not related to hockey in any sense. It would offend GAAP to include it.

 
At 11:23 AM, November 11, 2007, Anonymous Gerald said...

What's interesting in the Forbes numbers is that the Leafs have gone from $48-million in the late '90s to, what, $160-million now?

More like $150 by my calcs, but that is what you get with (a) professional management and, more importantly (b) a shiny new arena.

 
At 12:02 PM, November 11, 2007, Anonymous Rickster said...

Gerald - you are making my head spin. You are treating the Forbes numbers as holy writ in one paragraph, then denigrating them in the next.

I consider the non-hockey revenue portion (boxes, television stations, concessions) to be a vital part of this discussion. I am pretty sure that all the teams in the NHL are profitable when everything is taken into account (certainly something GAAP would smile upon), hence the Nashville sale for $193M. I have no problem with rich teams supporting poor teams financially, as long as there is hope for the poor teams to develop into strong markets, much like Dallas has done.

What concerns me is that there are already a number of teams crying poor. Eugene Melnyck said on the McCown show that the Sens needed to make it to the 2nd round of the playoffs to turn a profit. Rick Westhead had an article in the Star claiming that the Article 49 provisions were going to kill have-not franchises. All of this points to another lock-out after next year. The players gave in on every issue, and probably feel entitled to take some back, especially since they have a new leader. I wouldn't be shocked if they opted out and demanded a greater say in how the league is run as well as a more liberal interpretation of 'hockey-related revenues'.

 
At 12:20 PM, November 11, 2007, Anonymous Baroque said...

"Can the league increase revenue sharing without opening up the CBA?"

The league determines the Targeted Team Player Compensation. So, by my reading, yes.


I wonder what kind of a can of worms that would open between the owners. Some of the owners of teams that are already paying into the revenue sharing pot are grumbling about supporting welfare cases, and I can't imagine they will respond positively to a proposal from the perceived needy teams to siphon off more of their earnings.

 
At 12:29 PM, November 11, 2007, Anonymous Rickster said...

You have not addressed my point above. With developing markets having much more pricing room and still more tickets and suites to sell, why do you still think that NYR would be able to grow faster? That would be contrary to corporate experience in virtually every single industry that you can name.

Within pro sports, I bet that NFL Europe's revenues were growing slower than the NFL's. I bet the Yankees and Red Sox revenues are growing faster than Kansas City's or Seattle's. In the NBA I bet the Knicks' revenues are growing faster than the Grizzlies'.

In the real world, there are tons of industries that have more growth in strong, established markets than others, especially when it comes to discretionary spending that is an acquired taste like the type we are talking about here. Off the top of my head, I would think that sales of automatic cars are growing faster in North America than Europe. Luxury purse sales growth is stronger in cities like New York and LA than in Minneapolis. Strong markets for these goods grow faster because these products are in demand.

People in Phoenix are not suddenly going to enjoy going to hockey games, which is why their average attendance has decreased by 8% over last year (admittedly it is still early in the season). The Leafs and Rangers will sell the same amount of tickets they did last year, but for 6% more. They will also sell more sweaters, increase their take from proprietary media (LeafsTV) and further develop their website. I know you are trying to be optimistic, but I don't see the fact that the have-not buildings are even emptier as an opportunity for growth.

 
At 12:46 PM, November 11, 2007, Anonymous Rickster said...

Why would you lump CAR in with those others? They are going great guns, Rickster. I suggest that you are working with either a dated assumption or you are placing too much faith in the Forbes numbers...

Not having access to the numbers that you have regarding each team's revenue growth (source for CAR's $9.5M gate receipt growth / Nash 20% gate receipt growth would be greatly appreciated), I have to go by attendance figures provided by ESPN. So far this season, Carolina is down by 8%, or 1300 fans per game. They are receiving revenue sharing dollars. I know it is early in the year, but I don't see this as 'going great guns'. I guess we will just have to disagree.

I'm sure the Hurricanes are still making a profit when all is said and done. But let's not kid ourselves: hockey is never going to be popular there. Karmanos is going to start crying poor again, and we'll be heading for another labour stoppage as the owners will try to take more from the players.

 
At 2:34 PM, November 11, 2007, Anonymous Gerald said...

Rickster, emial me at geralddotcarpenteratsympaticodotca and I will send you the pdf for last year's ticket revenue (leaked through James' paper last year).

I will address a number of your points above (and there are a ton of them) separately.

 
At 3:12 PM, November 11, 2007, Anonymous Gerald said...

1. Your point about the elite markets driving the bus (of which 4 are CDN, says Forbes) is very well made. There is a mushy middle in there that depends on playoff performance, but (as with most businesses) some divisions of the business are carrying others to a degree.

2. My view on the numbers (and none of it is holy scrit - heck, the total is off by $100 mil) is not contradictory. I think they are useful on a macro level, but increasingly unreliable in terms of their individual components.

3. Non-ticket revenue is crucial, i agree. It can be correlated somewhat to ticket revenue, but there are many anomalies (ie NYI poor ticket revenue vs huge TV revenue). Ticket revenue is less than 50% of the story.

4. I find Eugene Melnyk less than credible. His "40% comment" was totally out of left field. Assuming that OTT cleared $15 mil or so from 9 home dates in the playoffs, that would put his regular season revenue at $78 million (plus probably $5 mil in revenue sharing added back in with the playoff gates). Average non-payroll expenses in the NHL were $23 million pre-lockout (assume a hugely conservative increase to $30 mil). There is no way he did not earn a regular seaosn profit.

4. I LOVE your point about supporting lesser markets so long as they have potential to become strong. Excellently said.

5. Rick Westhead's article was dead wrong. I actually engaged in a brief back-and-forth email with himn wherien he demmonstrated no knowledge of the topic.

6. The only way that there will be a lockout will be if the parties lose their mind, and I assure you that they are (now) both run by sensible businessmen. The war has been fought. If you care to bet, please name the stakes.

7. Speaking of stakes, you are making a lot of bets on what is growing faster in a lot of areas. However, what you are doing is not comparing developing markets with a situation where both markets are mature but where one is better than the other (ie luxury purses). Where do you think Coke is selling at a greater growth rate - the US or China? How about McDonalds? Luxury purses? Power plants? It is precisely why industries move to fresh markets - to fuel growth.

8. Your point about the Lerafs and Rangers is a perfect illustration. They raise prices by 6 percent. CAR and NASH raised prices by 20-25% this year (incidentally, as an aside, CAR is receiving more ticket revenue as a result despite an 8% atendance reduction which gap will close as the season progresses, as it always does). The Leafs and Rangers will not sell all that many new sweaters. I imagine they will sell a healthy amount, but I doubt there is GROWTH in there beyond price increases. Leaf fans have sweaters already. There is no growth in suites revenue, as the suites are all sold for periods of 5-10 years. That is the very definition of stagnant.

9. Further to point 8, I suggest that you have stumbled across the point that caused a lot of the strong markets to support the lockout - in mature markets, there is not going to be many more big NEW revenue streams, and there is only so much more pricing power that will be available; you cannot increase ticket prices indefinitely.

10. The websites are a league initiative. That is undoubtedly a big revenue opportunity, especially as games streams come online, but that will be pursued by the league as a whole, not by the teams. That money will be shared league-wide, as the Rangers have found out. The NBA (I know) and NFL (I believe) do it that way, in order to leverage nationwide advertising opportunities.

 
At 2:02 PM, November 15, 2007, Anonymous kdb209 said...

One minor nit in your revenue sharing calculation.

Did you account that all playoff clubs (in addition to clubs in the top 10 in revenues) contribute to revenue sharing - 30-50% of gate revenues of a hypothetical sold-out regular season game for each home playoff game.

So, teams like the Sharks, Thrashers, and Predators both paid into and collected from the revenue sharing pie.

 
At 2:05 PM, November 15, 2007, Anonymous kdb209 said...

Each year the Forbes numbers come out to the usual thread of arguing and caveats.

I consider them useful in their own context - they provide one consistent set of numbers and methodology that can be used to compare relative franchise revenues/valuations among teams at one point in time and compare historical valuations over time.

The Forbes numbers need to be taken with a big grain of salt - they do not have access to any real team numbers, and are all just their best guess estimates. Forbes does not really give any information on their sources or methodology.

They do this exercise once a year for the NHL, NBA, MLB, and NFL - the NHL numbers come out every November. It is not any kind of deep investigation or anaylsis - it is just a regularly scheduled puff piece they do that gets Forbes a lot of ink. It is of no real use to their target audience of investors - the clubs are all either privately held or held as one small part of a corporate owner.

One way to vet at least some of the Forbes numbers is to look at the actual franchise sales prices/offers and compare them to the preceding Forbes numbers:

Nashville Predators (Offer June 2007, Pending)
Sales Price: $193M
Forbes (11/06): $134M
Forbes (11/07): $143M
Other bids: Balsillie's $238M

Tampa Bay Ligtning (Offer Aug 2007, Pending)
Sales Price: $206M
Forbes (11/06): $172M
Forbes (11/07): $199M

Pittsburgh Penguins (Bids Dec 2006, Not Sold)
Bids: $150-175M
Forbes (11/06): $133M
Forbes (11/07): $155M
Mario finally opted not to sell, but received five bids (Balsillie, Gottesdiener, Fingold, Murstein, ???) over $150M including two at $175M

Edmonton Oilers (Unsolicited offers May-July 2007, Not Sold)
Offers: $131M - 162M ($145M CDN -$170M CDN, based on a .9028 / 0.9542 loonie on March 4 / July 18)
Forbes (11/06): $146M
Forbes (11/07): $157M
Based on Katz's reported offers of $145M CDN (May 5) and $165M CDN (July 18).

St Louis Blues (March 2006)
Sales Price: $150M
Forbes (11/06): $150M
Forbes (11/07): $144M

Anaheim Ducks (June 2005)
Sales Price: $60M-$75M (includes practice facility)
Forbes (11/04): $108M - Forbes did not do their NHL piece during the lockout
Forbes (11/06): $157M
The sale included the Ducks' practice facility, Disney Ice (now Anaheim Ice). Reports put the value of Disney Ice at $15M, giving a net Franchise value of $60M.

New Jersey Devils (March 2004)
Sales Price: ???
Forbes (11/03): $145M
Forbes (11/04): $124M
I haven't seen any reported numbers when Vanderbeek bought his controlling interest from Puck Holdings / YankeeNets.

Ottawa Senators (Aug 2003)
Sales Price: $93M
Forbes (11/02): $95M
Forbes (11/03): $117M

Buffalo Sabres (March 2003)
Sales Price: $93M
Forbes (11/02): $92M
Forbes (11/03): $95M

San Jose Sharks (Feb 2002)
Sales Price $147M
Forbes (11/01): $148M
Forbes (11/02): $158M
As far as I know, no numbers were ever reported when the sale occured.
I have never seen any numbers until I just came across the $147M number mentioned in passing in the Forbes 11/04 valuations article.

Forbes seems to have significantly undervalued the Predators, Lightning, Penguins, and Oilers, overvalued the Ducks, and been pretty close on the Blues, Senators, and Sabres.

 

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