Forbes slams Levitt report

[SuperUnknown]

Michael Ozanian, the author of the article, was on the radio in Calgary this afternoon. He mentioned how he didn't get any financial information from the league, and dug it up himself.

One of the most interesting things he said was that owning a hockey team is not a good business venture, if a team only focuses on hockey operations. In other words, teams that don't own their own buildings, or some other non-hockey source of revenue, are in rough shape.

This is precisely what doesn't make sense. So in 10 years, when everything is developed around the arena and there's no more gain to be made, the team has to move to another place where they can possibly develop non-hockey operations?

You have to make the hockey teams themselves profitable if you want to make the NHL stable.

 

[Tom_Benjamin]

One of the most interesting things he said was that owning a hockey team is not a good business venture, if a team only focuses on hockey operations. In other words, teams that don't own their own buildings, or some other non-hockey source of revenue, are in rough shape.

So which team doesn't own or control the building? How many standalone ventures are there in the NHL? If the arena lease gives the team or a holding company the right to all arena revenues does it matter who owns the building?

If there is a standalone team, contract it.

Tom

 

[kurt]

Wait a minute!

I'd be interested to see how some of you define "hockey related revenue."

What do you think should be included? What should not? Obviously ticket revenue would be included. But what about merchandise? Concession revenues? Parking?

IMO, absolutely everything that is generated as a result of NHL hockey should be considered hockey-related revenue... TV deals, advertising, concession revenues, parking, merch, the works. The players are the ones generating this revenue, they add all the value to the NHL.

If a club owner doesn't own the building he plays in, perhaps he should be getting the facility to pay the NHL franchise for the right to host their games, as they gain a LOT from the games.

 

[Seachd]

So which team doesn't own or control the building? How many standalone ventures are there in the NHL? If the arena lease gives the team or a holding company the right to all arena revenues does it matter who owns the building?

If there is a standalone team, contract it.

Tom

There must be more than a few teams like that, including most of the Canadian teams, according to Ozanian. He said for those teams he had to obtain the lease agreements to get his numbers.

 

[Tom_Benjamin]

There must be more than a few teams like that, including most of the Canadian teams, according to Ozanian. He said for those teams he had to obtain the lease agreements to get his numbers.

I don't know what the lease arrangements are for the Oilers and Flames, but the other four teams are owned by companies that also own the rink. Pittsburgh doesn't have a rink and would be considered standalone, but an independent study showed that the Penguins would do just fine if they went out and built themselves a rink - both the team and rink would turn a profit.

None of these teams are bought as individual entities. They are always bought as an inseparable part of a package. The owner can separate them any way he wants and then make whatever claims he wants about the separate pieces.

Golisano paid $92 million for the Sabres and all the rink revenues and expenses. Isn't the key number the return on the entire $92 million? If Golisano divides the revenue arbitrarily and announces the Sabres lose $8 million a year, don't we think it matters what the rink management business did? What if the rink profit was $20 million? Do we say "No, no! The hockey team has to make money all by itself."

Tom

 

[djhn579]

I don't know what the lease arrangements are for the Oilers and Flames, but the other four teams are owned by companies that also own the rink. Pittsburgh doesn't have a rink and would be considered standalone, but an independent study showed that the Penguins would do just fine if they went out and built themselves a rink - both the team and rink would turn a profit.

None of these teams are bought as individual entities. They are always bought as an inseparable part of a package. The owner can separate them any way he wants and then make whatever claims he wants about the separate pieces.

Golisano paid $92 million for the Sabres and all the rink revenues and expenses. Isn't the key number the return on the entire $92 million? If Golisano divides the revenue arbitrarily and announces the Sabres lose $8 million a year, don't we think it matters what the rink management business did? What if the rink profit was $20 million? Do we say "No, no! The hockey team has to make money all by itself."

Tom

That would depend.

If the owner identified their costs to run the arena for a year (including when they had events and needed large support staffs, and when they needed smaller staffs for say, hockey practices) and then divided that by the total number of events held in the arena, including practices, and charged rent to each event accordingly, it is possible that the hockey team would pay a large portion of the rent for the arena. It costs money to put on the ice surface, turn on the lights and heat the building, considering 42 games a year and 60 to 80 practices. Other events, such as concerts, just require lights and maybe heat for a day or so, and staff for the night. If there are a lot of events held at the arena besides hockey, it would be entirely possible for the arena to make a profit while the team lost money.

Is this how it is being done? I don't know, but if the arena was run as a seperate entity, this would be a reasonable way to do it.

Do you have a number of arenas in mind that made $20M while the team lost money?

 

[YellHockey*]

Do you have a number of arenas in mind that made $20M while the team lost money?

The Corel Centre was like that when owned by Bryden. According to the Globe and Mail, the Corel Centre made $18M one season while the Senators lost an amount less then that.

 

[djhn579]

The Corel Centre was like that when owned by Bryden. According to the Globe and Mail, the Corel Centre made $18M one season while the Senators lost an amount less then that.

If the Corel center had 300 events a year, and charged an average rent of $60,000 per event, that would make $18M. The hockey team would have been charged ~$5M (assuming 42 games and 58 practices at that average rent). That does not seem unreasonable if we assume that the other revenue the team made just barely covered salaries.

Of course, I don't know what arenas normally charge for rent...

 

[YellHockey*]

If the Corel center had 300 events a year, and charged an average rent of $60,000 per event, that would make $18M. The hockey team would have been charged ~$5M (assuming 42 games and 58 practices at that average rent). That does not seem unreasonable if we assume that the other revenue the team made just barely covered salaries.

But that ignores paying off the loans on the $300M it took to build the Corel Centre, operating costs and property taxes.

The Corel Centre was a cash cow because it got all the suite revenues, all the in rink advertising revenue, revenues from the Senators for office space at prices far above market rates.

 

[djhn579]

But that ignores paying off the loans on the $300M it took to build the Corel Centre, operating costs and property taxes.

The Corel Centre was a cash cow because it got all the suite revenues, all the in rink advertising revenue, revenues from the Senators for office space at prices far above market rates.

I'm just showing how it is possible for an arena to make money while a team loses money without playing financial games. Of course I don't know how the Corel center was run, but it is possible for this situation to happen.

 

[Tom_Benjamin]

Is this how it is being done? I don't know, but if the arena was run as a seperate entity, this would be a reasonable way to do it.

Do you have a number of arenas in mind that made $20M while the team lost money?

The rinks generally don't publish a set of books either, but this is beside the point. Nobody buys just a hockey team. They buy a team with a lease on the rink. Or they buy a team and the rink. Or they buy the team and the rink in the middle of a real estate deal.

I'll go back to Golisano. He bought the Sabres for $92 million. For that price, he got a hockey team and the right to manage the rink. If you were going to evaluate the quality of his investment, would you decide it was awful if he said he lost $8.5 million on the hockey team? Don't you at least want to know how he made out with the rink? Or do you just cluck and worry about the Sabres? He does not own the rink, but if he does not buy the team he doesn't get the rink revenues. He can charge himself any rent he wants. He can split the luxury box money 50-50 or 90-10. He can give all the board revenue to the team or all the board revenue to the rink. And so on.

I'm not saying he made a great investment or that the rink made $20 million. I'm saying that it is silly to think that an $8.5 million loss reflects what Golisano got for his $92 million last season. It is a meaningless number. You have to know what the Sabres are doing and what the rink is turning for him. Why didn't Golisano just buy the right to run the rink? Why didn't he just buy the team?

Why didn't Ellman just do his real estate deal in Scottsdale? If his shopping mall and rink are part of a $750 million development that is going to be very profitable, why buy a white elephant hockey team to lose money with in the middle of a sweet deal? Why not just build the rink and make a bundle on it? The fact is without the team there is no rink. Without the rink, there is no development.

That's the point. You have to look at the whole deal. How often do we do that? Which teams aren't part of a much bigger deal? There may be a few, but not many.

Tom

 

[BM67]

I have to say some of these team value changes seem quite strange.

NYR lose $3.3 million and have a 89% debt load, but their value goes up 4%. Chicago makes $9.4 mil and have 0 debt, but they drop 7%.

I know the values are before debt, but shouldn't a profitable team without debt go up in value, while a non-profitable team with a huge debt go down?

Anaheim's losses of $22.4 mil, are over 20% of their value, yet their value only drops 3%?

 

[A Good Flying Bird*]

I was in a room with a bunch of scouts today. I overheard lots of talk about the Forbes report.
Seems like some of the scouts I heard were happy the report came out, if for no other reason than to possible stimulate some discussion

 

[PecaFan]

Taxes? Do money losing teams pay taxes? I thought they were a tax shelter, a benefit to the owner with lots of other income to offset.

Of course they pay taxes. The city of Vancouver or Montreal doesn't care if you're making money or not, they send everyone a bill each year.

And who said we were talking about only the money losing teams? Not counting taxes paid by the money making teams over-inflates their profits.

 

[MacDaddy TLC*]

I don't look at the GAAP (generally accepted accounting principles) of the NHL/NHLPA.

Actually for those two groups, it is the generally acceptable policy for evasion, AKA GAPE.

 

[Tom_Benjamin]

Of course they pay taxes. The city of Vancouver or Montreal doesn't care if you're making money or not, they send everyone a bill each year.

What taxes do the Canucks pay to the city of Vancouver? What taxes do the Canadiens pay to the city of Montreal? They pay corporate income tax on profits.

Tom

 

[Bring Back Bucky]

What taxes do the Canucks pay to the city of Vancouver? What taxes do the Canadiens pay to the city of Montreal? They pay corporate income tax on profits.

Tom

Unless I am mistaken they also pay very large business occupancy taxes, which is one of the plights of the canadian franchises. Occupancy tax is unrelated to income, be it positive or negative.

 

[YellHockey*]

Of course they pay taxes. The city of Vancouver or Montreal doesn't care if you're making money or not, they send everyone a bill each year.

They send out bills for property taxes. Why would a hockey team pay a property tax?

 

[Bring Back Bucky]

They send out bills for property taxes. Why would a hockey team pay a property tax?

If you've followed the plight of the Canadian teams over the past few years, you would have seen considerable attention paid to the municipal taxes paid by hockey teams and the burden it causes. It seems to me one team doesn't pay them but I can't remember which one..

I own a business that is conducted in a building that I don't own. I don't pay property taxes, but pay BUSINESS OCCUPANCY tax, which is taxation for operation of a business within my municipal unit.

 

[Tom_Benjamin]

If you've followed the plight of the Canadian teams over the past few years, you would have seen considerable attention paid to the municipal taxes paid by hockey teams and the burden it causes. It seems to me one team doesn't pay them but I can't remember which one..

Yes, but this was misleading again. Rod Bryden used to complain all the time, but he was mixing rink expenses with team revenues. The property tax is paid by the building.

I own a business that is conducted in a building that I don't own. I don't pay property taxes, but pay BUSINESS OCCUPANCY tax, which is taxation for operation of a business within my municipal unit.

I've vaguely heard of this kind of tax but I thought it had been eliminated as stupid in most jurisdictions. Where do you live? I know there is one in Nova Scotia but even there I'm pretty sure sports organizations are exempt. I'm out on a limb here but I don't think any team pays a business occupancy tax.

Tom

 

[Bring Back Bucky]

Yes, but this was misleading again. Rod Bryden used to complain all the time, but he was mixing rink expenses with team revenues. The property tax is paid by the building.



I've vaguely heard of this kind of tax but I thought it had been eliminated as stupid in most jurisdictions. Where do you live? I know there is one in Nova Scotia but even there I'm pretty sure sports organizations are exempt. I'm out on a limb here but I don't think any team pays a business occupancy tax.

Tom

This fate is shared by the Oilers, who don't own the building they play in; I wish I were smart enough to know how to find information and link it.

 

[FlyersFan10*]

Ok, so now that we have two sides to the financial numbers that are being bandied around now, maybe this will jumpstart negotiations. Seeing as to how both sides have egg on their faces, I'd like to think that a middle ground could now be found. With the release of the Forbes report, there is no way that the league could ask for a salary cap now when the losses have been reported as being over exagerated. So, with regards to the claim that the players are running the game into the ground with rediculous salaries, the Forbes report shows that that issue is not the case. So, now is the time to get back to the table and negotiate. If Goodenow is smart, he calls Bettman while his iron is hot and starts up negotiations again. The other thing they should do......keep quiet about things and don't even mention that they are talking again.

 

[triggrman]

Ok, so now that we have two sides to the financial numbers that are being bandied around now, maybe this will jumpstart negotiations. Seeing as to how both sides have egg on their faces, I'd like to think that a middle ground could now be found. With the release of the Forbes report, there is no way that the league could ask for a salary cap now when the losses have been reported as being over exagerated. So, with regards to the claim that the players are running the game into the ground with rediculous salaries, the Forbes report shows that that issue is not the case. So, now is the time to get back to the table and negotiate. If Goodenow is smart, he calls Bettman while his iron is hot and starts up negotiations again. The other thing they should do......keep quiet about things and don't even mention that they are talking again.

The Forbes report showed nothing other than arena management or commercial real estate is profitable but owning a hockey team isn't.

Also there are all sorts of taxes not just property taxes but income, social security (yes owners in some cases must match these federal taxes dollar for dollar with the employee), entertainment taxes on ticket revenue on top of sales taxes for ticket revenue, some states will add an additional tax on subleases too, so even if you aren't the building owner you may have to pay a tax on the propety you are leasing.

 

[BM67]

Yes, but this was misleading again. Rod Bryden used to complain all the time, but he was mixing rink expenses with team revenues. The property tax is paid by the building.

I've vaguely heard of this kind of tax but I thought it had been eliminated as stupid in most jurisdictions. Where do you live? I know there is one in Nova Scotia but even there I'm pretty sure sports organizations are exempt. I'm out on a limb here but I don't think any team pays a business occupancy tax.

Tom

So arena revenue is hockey revenue, but arena expenses are not hockey expenses? So instead of under reporting profits, you want them to over report them? Were you involved with Enron?

A few years ago when they were looking for a government bailout for Canadian teams, it was reported that several of the Canadian teams were paying more in "property taxes" than all the US teams combined. Large enough taxes to wipe out the profit of Toronto, so ignoring them is not insignificant.

Not sure how things stand today, they might be paying a reduced tax, but they are still paying something.

 

[Oiler_Fan]

The Forbes report showed nothing other than arena management or commercial real estate is profitable but owning a hockey team isn't.

Basically what I got out of it. On the other hand the Levitt report points out that revenue easily identified as hockey related is out stripped by the expenses. All the dancing around the Levitt report basically deals with revenue that isn't clearly identifiable as hockey revenue. Certainly some teams are using this to their advantage on how they reported for the URO and there is lots of room for argument here, so I won't touch it.

The difference in this negotiation is that it's in the players best interest that pure hockey business isn't profitable and the owners want a mechanism to force this to be profitable. I do question what impact the players really do have in the non-hockey related revenue, and some owners must be doing that too, otherwise I doubt it would be where it is today.

One possibly interesting point here is that, if the lockout is extended, the owners will get a clearer picture of this. If the arena management and commercial real estates business is still viable and profitable without hockey being played, the dynamics of this would change a bit I think.

Too many sweet heart arena deals in the US complicate this alot, man.