KHL business aspects discussion

[Vancouver Canucks]

This move seems odd, sure he has his reasons but it can't be financial ones?

I don't ever see Riga leaving the league. They 'make' money and we know the owner and Putin are close friends, it's just a shame we don't recuit well anymore

What about the Kunlun Red Stars? Have they ever been on the spotlight?

 

[hansomreiste]

What about the Kunlun Red Stars? Have they ever been on the spotlight?

Not sure what you mean by spotlight but there is no way they leave soon. They're an ongoing project which is supposed to get only better and it seems like KHL is planning to expand eastwards - the success of Kunlun is really important so I'm sure they'll do their best to have such a thing to speak of.

Personally, what got me anxious about so far is that the clubs are too dependent on rich men's money. Now, they're obviously willing to change that for good. However, I have no idea how you do this with Kunlun. You can expect Russian teams to generate profit this or that way but in China there is no love for hockey. Let's see how they deal with it. One thing for sure: Kunlun is going nowhere. At least for a foreseeable future.

 

[Alessandro Seren Rosso]

Personally, what got me anxious about so far is that the clubs are too dependent on rich men's money.

And since when sports is not like that?

 

[hansomreiste]

And since when sports is not like that?

It's true that most sport organizations stay afloat only thanks to rich people who give a hand but most of those are kinda mandatory for society while hockey clubs are not. Since it's an example I'm familiar with, I'll go with Turkish football clubs. As far as I know, only a handful of them make profit while the rest is always in deep debt yet you cannot imagine Fenerbahce or Galatasaray going down simply because people decided not to sponsor it - there is no such world. Give up on those teams and millions of people would raise money or simply go rioting on streets. So, while the club itself doesn't turn profit, it's very important and in a way, has to survive this or that way.

In hockey, most KHL clubs' fate is only at the hands of government and some oligarchs. When they say it's done, it's done. I hardly doubt people of Russia would be eager to save, let's say, Amur Khabarovsk from going bankrupt. And the problem is not "saving" teams actually, it's stability. Lev Prague is a very good example of that. Hell, those guys had great attendance and went as far as Gagarin Cup finals, only to be folded right after that. This is the problem with "rich men" - once you have no tool to control teams, then you can see stuff like that which is very unpleasant.

So far, KHL teams had almost nothing working towards their way. TV ratings? Some games are not even on TV. Merchandise sales? Correct me if I'm wrong but clubs don't even ship abroad. Well, not many people will buy KHL merchandise from abroad but still it's a beginning. More customers, more markets equals to more profit. And honestly, if you have teams from like six or seven countries, your clubs should be able to sell their products abroad. Ticket sales? I can't say it's bad in general but the money generated through this is simply negligible due to the high costs of travel and salaries.

In many other sport organizations, even teams that are in deep **** can somehow generate money over time. Moreover, being in charge of a football team for example has its own advantages - "Hi, I'm Alessandro Seren Rosso, a wealthy businessman!" is not the best introduction to get respect and have new, beefy friends; yet "Hello, I'm Mr. Rosso, president and owner of AC Milan" is something else! I don't see this "advantage" for KHL teams, most of which are not that prestigious, so to say.

We can talk about this all day long but one thing is for sure: KHL needs to find a way to reduce expenses while increasing the income. Currently, the fate of KHL teams are at the hands of municipalities or sponsors. They should be supportive hands, not master of puppet.

I'm really positive about this development plan and looking forward to seeing how it will be implemented and worked out. Honestly, having seen how things went last season and transfer activities following it, I had kinda lost my hope with KHL, thinking it has now turned into a punching bag for SKA & CSKA but now I'm really hopeful. For me, KHL just turned from "Well, it was a nice try but how far can you go with oligarchs pumping money while you get nothing in return?" into "This league is getting better and better!" for now. Hope they can keep their promises and go forward with those ideas.

Fewer teams and salary cap. Damn. That's awesome. Imagine a KHL season where SKA, CSKA, Loko, Avangard, Salavat, Ak Bars and Sibir all regarded as serious contenders. Imagine those play-off series. Wow. That gets me hard.

 

[vorky]

@hansomreiste

I agree with majority of your claims, but using Lev Prague is not the best example. Lev was some kind of experiment because the national hockey federation did not want to give a green light to a classic club. Year 2014 was a crisis year, because of Ukrainian situation and the KHL decided to change the leadership (because of Ukrainian and related issues). Lev´s last season was 13/14, the league wanted Sparta Praha (the same owner as Lev) to substitude Lev, but Sparta GM (Briza) was against the idea, so the league gave up (because Lev was a plastic team with no tradition, if there was Sparta, the KHL would not give up so easily - the same applies to Slovan and Jokerit now - they are too important for league´s imagine). Plus Lev was a project of Medvedev (see a change of KHL leadership in 2014). If I were you, I would use Spartak Moscow as example, who left the league for one year, but the club has been very important for the league, so came back. That is all to "rich men" problem.

EDIT:
I am sure the league will accept only really good EU/Asian clubs in future (if there will be an expansion), the clubs with great potential of growing/earning money. The league wont accept everyone anymore. So, I would not worry that the league will follow Lev´s example of folding after year or two.

 

[Alessandro Seren Rosso]

So far, KHL teams had almost nothing working towards their way. TV ratings? Some games are not even on TV. Merchandise sales? Correct me if I'm wrong but clubs don't even ship abroad. Well, not many people will buy KHL merchandise from abroad but still it's a beginning.

I don't live in Russia but I do have a lot of KHL stuff from different clubs. But to tell the truth I bought all my pieces from the KHL and not from the single clubs.
EDIT: I also agree with many of your points. You can't just compare football and hockey 1:1, but the points remain.
I wasn't a fan of Chernyshenko, but his latest things have been quite good hopefully it won't be just words
A thing that I am glad he understood is that you can't just cut salaries just for the sake of cutting. KHL (and other european leagues too but they have no money) need good salaries to stay in good shape.
Frankly, though, the KHL is too dependant on Russia's economy.
But that's unavoidable. Also other leagues go up and down with the domestic economy. I think that people forgets too fast that the NHL is supported by the world's first economy.

 

[Alessandro Seren Rosso]

The only thing I'm not too sold on is the salary cap. Of course it's not nice to see C/SKA hording for players, but Datsyuk, Kovalchuk and Jagr won't play for Novokuznetsk anyways so it'd be bad for the league to lose these players.
We'd need the richest team to pay a luxury tax that would go into a stability fund to help poorer teams to have more competitive budgets.

 

[hansomreiste]

@hansomreiste

I agree with majority of your claims, but using Lev Prague is not the best example. Lev was some kind of experiment because the national hockey federation did not want to give a green light to a classic club. Year 2014 was a crisis year, because of Ukrainian situation and the KHL decided to change the leadership (because of Ukrainian and related issues). Lev´s last season was 13/14, the league wanted Sparta Praha (the same owner as Lev) to substitude Lev, but Sparta GM (Briza) was against the idea, so the league gave up (because Lev was a plastic team with no tradition, if there was Sparta, the KHL would not give up so easily - the same applies to Slovan and Jokerit now - they are too important for league´s imagine). Plus Lev was a project of Medvedev (see a change of KHL leadership in 2014). If I were you, I would use Spartak Moscow as example, who left the league for one year, but the club has been very important for the league, so came back. That is all to "rich men" problem.

EDIT:
I am sure the league will accept only really good EU/Asian clubs in future (if there will be an expansion), the clubs with great potential of growing/earning money. The league wont accept everyone anymore. So, I would not worry that the league will follow Lev´s example of folding after year or two.

As I previously stated, I believe that dependency on oligarchs is dangerous mainly because it prevents KHL from being a stable league. So, the main problem is not "oligarch money" here but what it brings to the table: an unstable league with many teams that could possibly have to quit at any moment. I know Lev may not be the best example in this case but in the end they painted an unstable picture for this league, which is pretty discouraging for a fan. You don't want teams dropping here and there. If you can somehow secure finances from an oligarch for next five years, then I'd say, OK, I'm fine with that setup. What matters is stability and in the long run, trusting rich men is not the way to go. That's why I suggest changes. If some people come up and say, "Don't worry bud, we have this team covered for next five to ten years", then let it be so. Think about a more stable project ten years later. That's fine. But unfortunately, things don't work like that in real life and nobody can promise such guarantees; hence the need to sustain it all by yourself. To sum it up, KHL teams need to be able to survive only because they exist. When you need hands from outside, chances are you won't get them when you need at some point.

The only thing I'm not too sold on is the salary cap. Of course it's not nice to see C/SKA hording for players, but Datsyuk, Kovalchuk and Jagr won't play for Novokuznetsk anyways so it'd be bad for the league to lose these players.
We'd need the richest team to pay a luxury tax that would go into a stability fund to help poorer teams to have more competitive budgets.

Luxury tax itself is a stupid concept, in my opinion. It's basically asking for a small bribe from rich teams; which still keeps them rich and poor ones poor. If luxury tax is too much; teams won't go for expensive signings. Then, why do we need this? Just go on with salary cap. If luxury cap is reasonable, then rich teams will throw in some more money and get all players they want. In return, other teams will receive fractions of money, which is not useful for anything. Maybe you can keep one or two players exempt from cap... Other than that, I really see nothing else other than a hard cap. Either this or that. Any option that gives rich teams to splash money will kill the league in the long run. KHL won't turn into a bush league just because two or three stars left.

Moreover, with parity comes more revenue. Over time, many teams will be able to afford those players who couldn't find themselves a spot in CSKA or SKA. With a healthy league structure, many teams can sign high quality players. Moreover, I'm sure there will be lots of players who are not good enough for NHL or who simply don't want to go across the pond but rather wish to stay at home. When SKA and CSKA can't steal those guys, guess where they'll head: other strong teams in their own league, rather than looking for fantasy in other European countries.

Avangard, Sibir, Ak Bars, Loko, Salavat, Torpedo, Avto... All those teams, again, with a healthy league structure, can be top contenders who can pay lots of money to good players. And as a fan who cares about parity, I don't even care where Datsyuk plays - give me an above average hockey experience with balanced teams where the winner is not known before even the round starts, I'm perfectly fine with it. Though that's only my opinion. Some people seem to like watching SKA full of stars sweep everyone.

 

[vorky]

I think that Chernyshenko & his team are aware of a fact that the KHL can not compete with the NHL if the KHL clubs are not financially stable. Some people hate Chernyshenko for it, because he is "too weak" (if compared to Medvedev & his words how KHL will compete with NHL soon). If you read his interviews, he has been comparing KHL to other European hockey leagues instead, even KHL Strategy 2015 says that some Euro clubs are more financially stable than some KHL´s. Likely E&Y made an analysis for KHL this year (as a backround for new 7-y strategy), so the league has detail informations about other important hockey leagues (European, CHL and NHL) and how they will develop in next five to seven years. The KHL knows what to do to be succesfull financially, they have all informations. Only question is if the KHL will be able to implement the ideas into reality. We just can hope....

If all goes according to a plan, the KHL will change salary cap mechanism somehow. Chernyshenko is talking about financial fair play. Would be great if someone (hansomreiste??) explain us how UEFA Financial Fair Play works. These informations would be useful to understand future´s KHL.

I understand your point with "the richest team to pay a luxury tax that would go into a stability fund etc", but my view is another. And it is not only my opinion, Medvedev has the same opinion. There were talks that state corporations should not finance concrete clubs directly, but send these money to a National Fund which will distribute the money equally to all clubs of the league. Medvedev does not agree with such mechanism. Your suggestion is similar. I agree that in ideal world, it would be great idea how to solve the problem of poor clubs. NHL has been doing it in some degree if I know. The problem in Russia/KHL is that not all GM/owners know how to run a club (bussiness). Chernyshenko said it this week, so I will quote him

It seems that some clubs take money from sponsors, pay off old debts, and then accumulate new ones.

source

If you give more money to poor managers (not saying clubs, because relatively poor Sibir has one of the best GM in KHL), they will not change their long term behavior overnight. And problem stays, not the way how to go. Russia (and Central Europe too) do not have a tradition of education in the sphere of sport management/bussiness/ marketing. As I know the KHL educates league´s and club´s managers, but it is still not enough.

When you look at KHL revenue sharing mechanism, you will come to conclusion that the teams who want to develop & have good on ice results, will get more money from KHL (TV deals). Usually these teams are among the wealhiest one. Poor clubs get less money from KHL. The exact opposite of NHL revenue sharing, where poor clubs get more than wealthy clubs (if I know, correct me if wrong). KHL tries to motivate the clubs to invest, to develop and will be rewarded in the end of a day. Maybe unfair for poor clubs.

 

[vorky]

As I previously stated, I believe that dependency on oligarchs is dangerous mainly because it prevents KHL from being a stable league. So, the main problem is not "oligarch money" here but what it brings to the table: an unstable league with many teams that could possibly have to quit at any moment. I know Lev may not be the best example in this case but in the end they painted an unstable picture for this league, which is pretty discouraging for a fan. You don't want teams dropping here and there. If you can somehow secure finances from an oligarch for next five years, then I'd say, OK, I'm fine with that setup. What matters is stability and in the long run, trusting rich men is not the way to go. That's why I suggest changes. If some people come up and say, "Don't worry bud, we have this team covered for next five to ten years", then let it be so. Think about a more stable project ten years later. That's fine. But unfortunately, things don't work like that in real life and nobody can promise such guarantees; hence the need to sustain it all by yourself. To sum it up, KHL teams need to be able to survive only because they exist. When you need hands from outside, chances are you won't get them when you need at some point.

Chernyshenko wants to change this. He wants a league/clubs with more sources of income, not only from sponsors (de facto government money). But it is not easy to achieve it. When he came to the league, there was big costs for employees/departments/office rent, the league did not make profit, League´s Stable Fund (and another one which name I dont remember) was almost empty, becaue previous leadership used the money to run the league. Now, all Funds are secured (dont know if full) and the league is in profit. Not big, but profit.

in Medvedev era (better said Kochevrin who was Head of Marketing), the clubs could not use a logo of KHL in their merchandising, no cooperation between clubs and league in this department. At the start (2008 or 2009), the KHL had to pay to Russia 2 to broadcast the KHL games on TV or there was a barter - so no income for league from TV right. Clubs could not sign a sponsorship agreement with car manufacturer or telefon provider because of exclusive rights for league´s sponsors (Chevrolet & Megafon) - of course, all the money went to KHL office. No sharing revenues between the league and the clubs, Chernyshenko had to change it.

 

[Alessandro Seren Rosso]

If all goes according to a plan, the KHL will change salary cap mechanism somehow. Chernyshenko is talking about financial fair play. Would be great if someone (hansomreiste??) explain us how UEFA Financial Fair Play works.

To be honest it's much blabla and not too much action (imho).
Basically, with financial fair play, "you can't spend more than what you earn". You need to control your debts, and you can't have delays in paying salaries. Otherwise you'll get a fine and get some sanctions (eg reduced squad, can't register new players, down to can't participate in Euro leagues).
Now, of course without some control it will be far west and who has more guns/money just hords players from other teams (C/SKA).
The financial fair play is all good words (and probably some effect, but not too much), but what is the Champions League's final this year? A few years ago AC Milan had to sell their top two players due to FPP, but they were signed by PSG.
It may be a good start, but I don't really think that this FPP will be enough to have more parity.
A stricter limit on roster size would increase parity IMHO.
SKA signing Rundblad means that they have 12 (twelve) first-team defensemen. Let's not count Rykov, he's 20 so he's technically still a junior. We have 11 first-team defensemen. I'd bet my house that they won't HAVE TO lose even one of them. This is unacceptable. We need to go down to a 23-men roster. I understand that it's easy to "cheat" due to VHL and MHL, but it's not acceptable that SKA has 12 first team defensemen. SKA may afford to lose say Khafizullin and Rukavishnikov, this would be a very good pair for 70% of other KHL clubs. There must be a ban on two-way contracts for players over-22 and players who played a given number of games in the KHL.
The same counts for CSKA and their forwards.

 

[Alessandro Seren Rosso]

in Medvedev era (better said Kochevrin who was Head of Marketing), the clubs could not use a logo of KHL in their merchandising, no cooperation between clubs and league in this department. At the start (2008 or 2009), the KHL had to pay to Russia 2 to broadcast the KHL games on TV or there was a barter - so no income for league from TV right. Clubs could not sign a sponsorship agreement with car manufacturer or telefon provider because of exclusive rights for league´s sponsors (Chevrolet & Megafon) - of course, all the money went to KHL office. No sharing revenues between the league and the clubs, Chernyshenko had to change it.

In Medvedev's defense, those are typical "juvenile mistakes"

 

[vorky]

In Medvedev's defense, those are typical "juvenile mistakes"

Yes, Medvedev was great as founding father (if Chernyshenko was on his place, he would fail IMO), but the league needed to develop into financial stable league (bussiness) + international situation was bad for the league, so they decided to change the leadership. I just wanted to point out that Chernyshenko & his team are here to change bussiness model of the league/clubs. The problem is that there is so many people who wants Chernyshenko to fail (leave the league as soon as possible).

 

[vorky]

Thx for explanation of financial fair play in soccer.

I think the KHL will use FFP as some kind of mechanism how to control the budgets for salaries, to be a balance between income and costs (not 1:1 of course) of the clubs. The league will control a financial health of the teams. And the league will have exact data of what clubs bring benefits (income) for the league and who dont. The KHL will evaluate the clubs annually. Then they can decide which clubs should leave the league. I want to hope the league will publish this FFP Reviews after season like UEFA is doing with FFP (I read somewhere they do it, but I am not sure). You know, the main argument of Russian journalists (against contraction) is that there are some conditions for clubs, but nobody (from journalists) knows them.

The league under Chernyshenko decided in 2015 the salary cap will decrease every season from over milliard Rubles (15/16) to 900 millions Rubles (17/18). At the same time they decided that salary floor will be abandoned, because there was not economical and sport effect (average players were overpaid, but did not bring results on ice). One of mechanism how to achieve a parity is contraction of RUS teams - less RUS teams, less jobs for average R players, bigger competition among them, their better results on ice because they want to keep a job and lower salaries of such players. Of course there are risks of such a decision (contraction), but also the benefits. At least how I understand it. Of course, it is not only way how to achieve a parity, but I dont have more details at the moment. Hope the league will give us more details next week.

 

[Alessandro Seren Rosso]

https://www.uefa.org/MultimediaFiles/Download/Tech/uefaorg/General/01/99/91/07/1999107_DOWNLOAD.pdf

2013/14 season.
I haven't found a more recent document unfortunately
EDIT: go to page 35

 

[Exarz]

We need to go down to a 23-men roster. I understand that it's easy to "cheat" due to VHL and MHL, but it's not acceptable that SKA has 12 first team defensemen. SKA may afford to lose say Khafizullin and Rukavishnikov, this would be a very good pair for 70% of other KHL clubs. There must be a ban on two-way contracts for players over-22 and players who played a given number of games in the KHL.
The same counts for CSKA and their forwards.

This! I don't understand why they haven't implemented it, but for two-way contracts there could be a maximum salary allowed that should just be average. All of a sudden, players would start looking for new club addresses

 

[vorky]

Thx for the link.

We can not compare total revenues of UEFA & KHL, but we can compare share of revenue streams of clubs. Of course UEFA & KHL may differ in methodics, but general point remains.

According to your link, UEFA clubs revenue streams are as follow:

25% domestic TV deals
11% UEFA Prize money (especially TV deals)
24% sponsorship
10% commercial
20% gate receipts (so tickets)
10% other

As Chernyshenko said in the interview this week, KHL clubs (all) revenue streams are as follow:

14% TV deals, commercial, tickets, commercial sponsors
86% sponsors (state companies or private owners of clubs)

So, soccer clubs earn cca 60-70% from TV, commercial & ticketing and 20% from sposorship deals. Therefore I said earlier that Chernyshenko wants to change this bussiness model, he does not want the league & clubs to be so dependant on sponsors.

If anybody interested, there are revenue streams of the KHL (as a league, not clubs) for 15/16:

49% - sponsorship
26% - TV deals
10% - KHL TV (so, TV deals as well)
6% - clubs fees
9% - commercial

In Alessandro´s link, share of TV deals of best soccer leagues was over 45% of revenues at the year.

PS: I have found 2015 UEFA report, see, on page 72 is similar graph of revenue streams as Alessandro posted from 2012

 

[Alessandro Seren Rosso]

Thx for the link.

We can not compare total revenues of UEFA & KHL, but we can compare share of revenue streams of clubs. Of course UEFA & KHL may differ in methodics, but general point remains.

According to your link, UEFA clubs revenue streams are as follow:

25% domestic TV deals
11% UEFA Prize money (especially TV deals)
24% sponsorship
10% commercial
20% gate receipts (so tickets)
10% other

As Chernyshenko said in the interview this week, KHL clubs (all) revenue streams are as follow:

14% TV deals, commercial, tickets, commercial sponsors
86% sponsors (state companies or private owners of clubs)

So, soccer clubs earn cca 60-70% from TV, commercial & ticketing and 20% from sposorship deals. Therefore I said earlier that Chernyshenko wants to change this bussiness model, he does not want the league & clubs to be so dependant on sponsors.

If anybody interested, there are revenue streams of the KHL (as a league, not clubs) for 15/16:

49% - sponsorship
26% - TV deals
10% - KHL TV (so, TV deals as well)
6% - clubs fees
9% - commercial

In Alessandro´s link, share of TV deals of best soccer leagues was over 45% of revenues at the year.

PS: I have found 2015 UEFA report, see, on page 72 is similar graph of revenue streams as Alessandro posted from 2012

I still don't understand what is the difference between "commercial sponsors" and "sponsors"

 

[vorky]

I still don't understand what is the difference between "commercial sponsors" and "sponsors"

I used the term "commercial sponsors" to differ "sponsorship" and "external sources" as it is written in english version of the interview.

The main sources of income for clubs is the revenue received from sponsorship, broadcasting, the so-called “hockey days” when stadiums sell tickets, licensed products, and souvenirs. In addition, clubs which own their stadiums harvest additional income from food and drink outlets. Currently, for our clubs, such commercial activities account for only 14 percent of total income, with the remaining 86% from various external sources, depending on the club. Sometimes the source is a private investor, or a municipal or regional authority, or a state-owned enterprise.

I dont understand the difference as well, because so called "external sources" are sponsors (sponsorship agreements between a club and a municipal authority etc) as well. My point is that the structure of the KHL clubs revenue streams differ from soccer clubs.

 

[Rigafan]

@hansomreiste

As mentioned the NHL has the worlds biggest economy behind it- and people living in that economy with money to spend. You can ask for $200 tickets in Toronto or Boston, hell even in the bottom teams like Colorado and people will pay it.

The KHL is in Russia where the average person doesn't make so much and can't spend so much on luxuries like the KHL - I know you know this but we sometimes forget when we get passionate

The league is still very young also so there is time to grow and try these new ventrues like Salary cap, revenue sharing ect and see which one fits us best.

I do agree that these oil men need to be more stable with their funding though. Sure you have billions and what to run a team? But give me a 5-10yr plan first!

 

[Rigafan]

What about the Kunlun Red Stars? Have they ever been on the spotlight?

Kunlun is very much politics

 

[Alessandro Seren Rosso]

Kunlun is very much politics

It may be politics but they do have a serious project behind them, now that they're also into juniors, women, VHL, and all.

 

[hansomreiste]

http://www.khl.ru/news/2017/05/23/347704.html

Today is the big day. Looking forward to hearing what comes out of that. Long story short, there will be a meeting of (maybe already "was") Board of Directors. Chernyshenko says there may be "unpopular decisions". Hype hype hype.

 

[Alessandro Seren Rosso]

Well, I think we all knew that this was the result.
I'm always sad when a team leaves. Kuznya has a great tradition, but maybe this is for the good.

 

[Milos Krasic]

I'm glad Yugra is staying, even though a lot of people want them out.