Former SEC Chair Arthur Levitt Verifies $273 million in NHL losses. (a review only)

[Jarqui]

From what I heard the Chicago revenues were $3M ($3M over $2.1B is immaterial). Immaterial means too small to affect any decision using the $2.1B revenue figure.

Wirtz probably booked a sale in a prior year for a lot more than that. Therefore, easy solution is to use more than 1 year for your basis. What other claims by players have actual hard numbers and facts to them NONE! The only way to substantiate anything is to do some kind of audit on the teams. Even the Chicago revenue number is ambiguous. How do they know what it is without a proper audit?

I'm pretty sure Chicago was audited. The two bankrupt teams (Ottawa & Buffalo) and two others in deep fiscal difficulty or transition were not. Chicago doesn't fit either of those descriptions.

From the post-gazette (via ESPN):
http://sports.espn.go.com/espn/wire?section=nhl&id=1992467
Accused of failing to disclose luxury box revenues in former U.S. Securities & Exchange Commission chairman Arthur Levitt's report of NHL finances in February 2003, Wirtz was cleared of any wrongdoings by another member of the commission.
"Let me say without reservation that when the Levitt Report was done, it was ensured that all hockey-related luxury box revenues were included in the reported revenues," former commission chief accountant Lynn Turner wrote in an e-mail to the Pittsburgh Post-Gazette. "Unfortunately, the players have refused to accept Mr. Levitt's written offer to sit down with them and take them through the numbers. This has led to such uninformed statements."
The accusation was made by Penguins defenseman Brooks Orpik, who told the newspaper Wirtz "declared no revenue from luxury boxes at the United Center in Chicago."

All Saskin had to do if leaving out the Chicago box revenues was really true was sit down with Levitt on that one issue. Can you imagine the damage if Saskin was able to emerge from that meeting and head into a press conference to show those numbers had really been left out ? I'm sure the NHLPA can.

Can you imagine Arthur Levitt offering such a meeting if he couldn't back up his numbers ? I can't.

There's a good reason why they never met. Levitt could prove his numbers and the NHLPA knew it.

 

[Snap Wilson]

>>Once again I've audited very complex companies and sports teams are so basic its not funny.>>

Oh, really. And which sports teams have you audited? It allegedly took Levitt 2,000 hours to do a review (not an audit) for all 30 teams, but you can tell us how basic it is to audit a team.

Next!!!

 

[DuklaNation]

>>Once again I've audited very complex companies and sports teams are so basic its not funny.>>

Oh, really. And which sports teams have you audited? It allegedly took Levitt 2,000 hours to do a review (not an audit) for all 30 teams, but you can tell us how basic it is to audit a team.

Next!!!

2000 hrs over 30 teams is 67 hrs/team or 1.5 weeks regular work. Try auditing a bank with worldwide trading operations (usually a year long job if combined with internal audit work). Let alone some of the complex lending transactions. Point is, a sports team is easy because there is no complex financial transactions and little argument on how to value items. Its that simple really.

 

[Shark Attack]

87% of NHL teams were independently audited in that fashion.

That is the first time I have seen that number can you back that up, I am a little skeptical.....

Levitt and his accounting people verified the work of these independent auditors - a second layer of independent quality assurance and integrity. The report was a heck of a lot more than merely a "a financial report/analysis". They have the financial proof to back up what they said.

I don't believe that is the case, the 2nd layer was not there for most franchises and there were revenue streams that were missing for some organizations, Chicago - Luxury boxes, Boston - Concessions, etc....

A good CPA can do that and they are paid to do that within the limits of the law. However, when audited by a third party independent auditor, the funky journal entries to accomplish that go out the window. Those entries have to be proven and justified.

Further, the numbers gathered up to produce Levitt and these audits are raw numbers of revenues or expenses. The only significant room for "creativity" would be in the percentage allocated to the NHL. But Levitt checked and defined those rules in advance and checked that they were adhered to. He also cross checked them against things like the NBA method so that they were "reasonable" in magnitude.

I believe there was other creativity with respect to inter-company transactions especially with franchises that owned their arenas and other holding companies. I also believ that the Leavit report, did not even mention some teams European assets, (LA Kings).

The NHLPA proposed 24% rollback on Dec 9th proves that and proves Levitt was indeed very close in accuracy that the NHLPA agreed with.

I agree with the following caveat, based on the revenue assumptions made by Leavitt.

 

[Jarqui]

87% of NHL teams were independently audited in that fashion.

That is the first time I have seen that number can you back that up, I am a little skeptical.....

From page 7 of Levitt Report
For the 2002-2003 season we requested that the NHL have each team obtain an audit of its financial statements by an independent public accounting firm and have its independent auditor issue a supplementary audit report on the URO.s summary statement of operations (Schedule I) and the schedule of related-party transactions (Schedule XII).

Bottom of page 7 of Levitt Report
Due to the bankruptcy filings of the Buffalo Sabres and Ottawa Senators in January 2003, and the unique financial and legal circumstances surrounding such filings, the teams were unable to provide audit reports. In addition, two other teams did not have audit reports issued because of pending financing issues and transactions. In these cases, alternative verification procedures were performed as described later in this report.

And when you read Appendix H, they went in and got these numbers and verified the key ones like an auditor would. And they also reconciled the magnitudes of these numbers with those team’s prior year’s audited financial statements. I see nothing materially or deeply wrong with that procedure - particularly give the state of the companies.

26 teams audited out of 30 teams = 87% audited while the 13% of teams not audited went through Levitt’s verification procedures on those key URO numbers similar to an audit.

Levitt has sound accounting backup for the numbers that appear on his report.

 

[shOOt_the_mOOn]

Linkage is the key

If the teams make money, the players should be entitled to their fair share.

If the teams lose money, players salaries should reflect this trend as well.

I personally don't believe either side is being 100% honest in this.

The fact that the players want linkage when teams are doing well and no linkage when the teams struggle financially speaks volumes to me. Sounds like having their cake and eat it too type of mentality.

This is why the players are losing the battle of the public opinion.

If my memory serves me, the offer by the owners would have ensured average salaries around $1.3 million. That's not chicken feed. Most people struggle to eke out a living and have a hard time swallowing people who aren't happy making over a million dollars to play a game.

The owners really don't have any thing to lose the way I see it. As someone else stated earlier in this thread, most owners have many other businesses, and any loss they incur from their share of a hockey team becomes a tax write off.

If the players don't get this by now, I'm not sure they ever will.

 

[Jarqui]

Levitt and his accounting people verified the work of these independent auditors - a second layer of independent quality assurance and integrity. The report was a heck of a lot more than merely a "a financial report/analysis". They have the financial proof to back up what they said.

I don't believe that is the case, the 2nd layer was not there for most franchises and there were revenue streams that were missing for some organizations, Chicago - Luxury boxes, Boston - Concessions, etc....

Can you provide a link to where any accounting authority has proven beyond hearsay those revenue streams were missing from Levitt’s report ? As linked in a prior post above re Chicago, Lynn Turner sure took exception to the notion.

Levitt had a three year financial history on all 30 teams provided to him at the start of his review. That as I recall was backed up by 2002 audited financial statements for 27 of the teams. Site visits to some teams (7?), review of audit working papers of some teams, discussions and submissions to formally answer questions of all teams, various tests performed on the numbers on some different sets of randomly selected teams/auditors for quality assurance, other tests of the numbers on all the teams, etc as outlined in his report was performed aside from the auditors efforts. It was indeed a proper second layer of review for assurance of those numbers.

 

[Jarqui]

A good CPA can do that and they are paid to do that within the limits of the law. However, when audited by a third party independent auditor, the funky journal entries to accomplish that go out the window. Those entries have to be proven and justified.

Further, the numbers gathered up to produce Levitt and these audits are raw numbers of revenues or expenses. The only significant room for "creativity" would be in the percentage allocated to the NHL. But Levitt checked and defined those rules in advance and checked that they were adhered to. He also cross checked them against things like the NBA method so that they were "reasonable" in magnitude.

I believe there was other creativity with respect to inter-company transactions especially with franchises that owned their arenas and other holding companies. I also believe that the Leavit report, did not even mention some teams European assets, (LA Kings).

Well, European assets would appear on the balance sheet of whatever company owned them - not on the NHL operating statement. Please explain to us why an NHL hockey player is entitled to some revenue recognition on the NHL operating statement from a European team’s revenue in 2002-3. Are the European players on that European team entitled to a cut of the NHL players revenue action in the NHL ?

As for this supposed "creativity", I suggest you read the report. You couldn’t have to make such a suggestion. Levitt found that several teams have to do revenue allocations differently. He goes into this at some length. Not to be creative but to be fair and more precise under GAAP. The lions share of "additional" revenues and expenses in Calgary went to the Flames because they have a much smaller share of non-hockey related activity at their rink. On the other hand, the Leafs or Rangers or Kings have a much larger portion of non-related hockey activity going on at their rinks. Therefore, you could not fairly say "give 50% of some revenue/expense to hockey" for all hockey teams. It had to be done more precisely and fair. And it was.

Further, Levitt looked at allocations by event, by gross revenue, by paid attendance and by the way the NBA does it to cross check the way the NHL as a whole does it. The fairest checking method and most precise turned out to be paid attendance in Levitt’s opinion. But none of those general methods were used in his numbers. They were only performed by Levitt to cross check ALL the audited numbers for reasonableness. He found that the audited numbers used on the league’s UROs were reasonable according to those tests.

 

[Shark Attack]

From page 7 of Levitt Report
For the 2002-2003 season we requested that the NHL have each team obtain an audit of its financial statements by an independent public accounting firm and have its independent auditor issue a supplementary audit report on the URO.s summary statement of operations (Schedule I) and the schedule of related-party transactions (Schedule XII).

Bottom of page 7 of Levitt Report
Due to the bankruptcy filings of the Buffalo Sabres and Ottawa Senators in January 2003, and the unique financial and legal circumstances surrounding such filings, the teams were unable to provide audit reports. In addition, two other teams did not have audit reports issued because of pending financing issues and transactions. In these cases, alternative verification procedures were performed as described later in this report.

And when you read Appendix H, they went in and got these numbers and verified the key ones like an auditor would. And they also reconciled the magnitudes of these numbers with those team’s prior year’s audited financial statements. I see nothing materially or deeply wrong with that procedure - particularly give the state of the companies.

26 teams audited out of 30 teams = 87% audited while the 13% of teams not audited went through Levitt’s verification procedures on those key URO numbers similar to an audit.

Levitt has sound accounting backup for the numbers that appear on his report.

Thanks for the info!

 

[Tinordi24*]

It constantly suprises me that they players and Goodenut accuse the owners of hiding revenues and discredit the Levitt report....

Well if they truly believe they should go out and PROVE it instead of just dismissing it. Why doesnt Goodenow, in a CRUCIAL public relations ploy come out and say "WE DEMAND THE OWNER'S OPEN THEIR BOOKS!" The owners would then have no choice and they would get a mutually agreed upon independant auditor to come in and take care of it.

Goodenow would say "Oh no..we cant do that...they HIDE their money secretly!"...o

OH!! SURE BOB! WE ARE JUST SUPPOSE TO BELIEVE YOUR ASSERTION THAT THE OWNERS ARE MISTATING REVENUES BASED ON ZERO FACTS!!

The owners would open up their books to a joint audit committee and the PA knows that.

The NHPLA doesnt want to look at the numbers because it will PROVE the owners were telling the truth!

Pro NHLPA people are completely ignorant of this small detail.

 

[Snap Wilson]

The NHPLA doesnt want to look at the numbers because it will PROVE the owners were telling the truth!

From the NHLPA website:

"As the NHL continues to claim its financial survival is at stake, it should open its books and let everyone see the teams claiming these losses. We have publicly asked the NHL to do so but they steadfastly refuse to expose the information to the light of day."

How's that again?

 

[Tinordi24*]

From the NHLPA website:

"As the NHL continues to claim its financial survival is at stake, it should open its books and let everyone see the teams claiming these losses. We have publicly asked the NHL to do so but they steadfastly refuse to expose the information to the light of day."

How's that again?

Interesting that they arent SHOUTING that out in the press at the TOP of their LUNGS! If I were Goodenut I know I'd be..unless...I really dont believe what I say.

Isnt that just like the NHLPA telling us that the owners are the ones to invite Gretzky and Lemieux when a few days later Good ol Trev Lindork comes out and tells everyone the NHLPA invited them?

More NHLPA doublespeak.

Besides Melnyk invited the PA to check his books out and so far they haven't taken him up on the offer so far as I know....curious dont you think??? They should be jumping on that!!!

BTW - Why dont you try coming up with a more biased website next time you give a link? That would make your case more compelling.