Luxury suites

[WC Handy*]

I'm sure I'm not alone in that I've always wondered how much luxury suites bring in, so when I saw this article I figured it was worth posting.

http://sports.espn.go.com/nba/news/story?id=2056998

5 new luxury boxes that will be leased @ $450K per year
8 more that will be leased at $350K per year

All 13 of these suites come with absolutely no view of the play. They're underground and people either have to watch on TV or leave the box to sit in a designated area for people in these suites.

From these 13 boxes alone the arena will make over $5M.
To put that into perspective, Nationwide Arena has 76 and Savvis Center has 91.

DISCLAIMER: I'm just posting this for information purposes. I fully understand that these boxes are leased for a year and not for a specific team. I fully understand that it's not fair to say that the team in the building made that full amount. Oh, and if you weren't aware, 40% of that amount counts as Basketball Related Income which is used to determine the NBA's cap.

Click to read more...

 

[Jarqui]

5 new luxury boxes that will be leased @ $450K per year
8 more that will be leased at $350K per year

From these 13 boxes alone the arena will make over $18M.

5 x 450 = $2.25 mil
8 x 350 = $2.80 mil
=============
13 Boxes = $5.05 mil

Where's the other $13 mil coming from as the difference is not a multiple of the total for one year ? (maybe I've missed something)

 

[WC Handy*]

That's what I get for using window's calculator with parenthesis.

 

[shakes]

and yet, some teams don't declare them as revenue period. I wish I could NOT make money like that.

 

[WC Handy*]

and yet, some teams don't declare them as revenue period. I wish I could NOT make money like that.

It's not the league's fault that the NHLPA hasn't worked with the league to define revenues.

 

[Jarqui]

and yet, some teams don't declare them as revenue period.

I think you will find they were all gone through in some detail with Levitt. He also compared the NBA CBA formulas used for revenue against the NHL practices and found no significant difference in the results. Many of the arenas were audited and for those that were not, auditors were sent in to get the numbers.

 

[BLONG7]

When big companies buy, or lease these suites, is it not for the entire year in that building? So if there is Hockey,Basketball,Ice Capades, or an Eagles concert, these companies or individuals get these suites to watch ALL things that go on in that venue? So, then we have to ask, how much of what they pay for the year, is designated as NHL Hockey related revenue? Any thoughts?

 

[GSC2k2*]

When big companies buy, or lease these suites, is it not for the entire year in that building? So if there is Hockey,Basketball,Ice Capades, or an Eagles concert, these companies or individuals get these suites to watch ALL things that go on in that venue? So, then we have to ask, how much of what they pay for the year, is designated as NHL Hockey related revenue? Any thoughts?

As stated above, the Levitt Report dealt with all of that in detail. Several formulae were considered and ultimately one was selected. THe precise formula escapes me at the moment, but suffice to say it was not the formula that maximized the NHL losses.

 

[John Flyers Fan]

As stated above, the Levitt Report dealt with all of that in detail. Several formulae were considered and ultimately one was selected. THe precise formula escapes me at the moment, but suffice to say it was not the formula that maximized the NHL losses.

The thing is that one formula can't work for all 30 teams.

Some buildings are used almost exclusively for hockey and should have 80-90% of suite revenues counted ... and some buildings are used almost every night and should have only 25-40% count.

 

[WC Handy*]

The thing is that one formula can't work for all 30 teams.

Some buildings are used almost exclusively for hockey and should have 80-90% of suite revenues counted ... and some buildings are used almost every night and should have only 25-40% count.

The NBA was perfectly capable of determining one formula for every team for the purposes of determining the cap.

 

[Jarqui]

The thing is that one formula can't work for all 30 teams.

Some buildings are used almost exclusively for hockey and should have 80-90% of suite revenues counted ... and some buildings are used almost every night and should have only 25-40% count.

Levitt's Report P. 14 and onward
I understand the differing practices have developed over time to fulfill each individual team’s business needs and include allocations based on: i) the relationship between the number of hockey events and the number of total events in the building, ii) the relationship of hockey attendance to total attendance in the building; and iii) affiliate contractual relationships or historical experience.

For example, in one instance, a team plays in an arena which is owned, managed and controlled by an affiliate and because the majority of the arena’s business is related to the operation of the hockey franchise, the team’s URO includes a disproportionately high share of suite and fixed signage revenues (when compared to an allocation done using paid attendance) and a disproportionately low share of
fixed building costs. Conversely, in another instance, because the arena is owned by an unaffiliated third party, the team does not own or receive certain categories of revenues such as building naming rights and certain suite premiums. These
revenues are retained by an unaffiliated third-party and, therefore, are properly excluded from the team’s URO.

Given the different economic circumstances each team faces, and the individual nature of the relationships between teams and affiliated or related parties, it is not surprising that individual team allocation methods vary, as those methodologies were designed by each team to account for its business activities based on its unique circumstances. However, as I am reporting on the combined URO for the
NHL, such individual differences are not relevant for purposes of our assignment. What is relevant is whether, on a League-wide aggregate basis, the allocation of revenues and expenses would change significantly if they were reallocated using a
standard methodology.
...
We considered three potential bases for etermining whether these revenues and expenses, if allocated using a standardized methodology, would differ significantly from the overall amounts included in the combined League-wide URO. These potential bases were: (i) the total number of NHL hockey events and non-hockey events; (ii) total gross receipts paid for hockey events and non-hockey events; and (iii) paid attendance for hockey and non-hockey events.
...
Based on this benchmarking analysis, I conclude that, when allocated between hockey and non-hockey events using Paid Attendance as a standard basis of allocation, aggregate League-wide revenues and expenses would not materially differ from the amounts reported in the combined League-wide URO.

Levitt looked at every NHL team (22) with a 50% or more stake in the arena and benchmarked against different methods to test the revenue numbers. Levitt reported that in the NHL, when they submit their numbers to the league URO, they don't all use the same method.

Levitt found at the end of the day, whether the teams used their indvidual methods or they all used the best standard method (paid attendance) which Levitt came up with after testing, that the NHL would have lost $2 mil more using Levitt's method than what the NHL had been reporting in the URO. Levitt also found that what the NHL actually came up with in revenues aligned to what they would come up with using the NBA CBA (BRI calculation).

 

[blitzkriegs]

When big companies buy, or lease these suites, is it not for the entire year in that building? So if there is Hockey,Basketball,Ice Capades, or an Eagles concert, these companies or individuals get these suites to watch ALL things that go on in that venue? So, then we have to ask, how much of what they pay for the year, is designated as NHL Hockey related revenue? Any thoughts?

To answer this part of your question- YES. Luxury suites in most arenas are leased per year for a fixed term. Suites include ANY event that the arena has - Circus, hockey, b-ball, AFL, Disney on Ice, etc.

Obviously, so-called floor seats are PER EVENT.

About 6 years ago, I priced out a suite at MSG. It was 330K per year for 3 year term. Included ALL MSG events - Knicks, Rangers, Dog Show, Circus, etc. Knicks/Rangers Floor/arena seating was obviously PER EVENT.

Remember, this is just for USE of the suite - not including food, bev, service charge, etc.

I don't know current pricing/term.

 

[kdb209]

Originally Posted by shakes
and yet, some teams don't declare them as revenue period.

I think you will find they were all gone through in some detail with Levitt. He also compared the NBA CBA formulas used for revenue against the NHL practices and found no significant difference in the results. Many of the arenas were audited and for those that were not, auditors were sent in to get the numbers.

Thank you. Someone else who has actually read the Levitt Report.

The Levitt Report is much more than the rubber stamping of team UROs (as some pro-PA posters would have you beleive). They did their own set of independent benchmarking (including comparisons with CBA defined NBA revenues) to see if the leagues declared revenues were reasonable.

The whole "No Luxury Box revenue at the United Center" is PA mis-information. It has been specifically repudiated by Lynn Turner (the head of Levitt's auditing team) - search for Lynn Turner and the Pittsurgh Post-Gazette, I'm tired of reposting the same info.

 

[Weary]

Levitt looked at every NHL team (22) with a 50% or more stake in the arena and benchmarked against different methods to test the revenue numbers. Levitt reported that in the NHL, when they submit their numbers to the league URO, they don't all use the same method.

Since Bill Wirtz owns less than 50% of the United Center, are the claims that the Blackhawks claimed no Luxury Box revenue true?

 

[kdb209]

Originally Posted by cleduc
Levitt looked at every NHL team (22) with a 50% or more stake in the arena and benchmarked against different methods to test the revenue numbers. Levitt reported that in the NHL, when they submit their numbers to the league URO, they don't all use the same method.

Since Bill Wirtz owns less than 50% of the United Center, are the claims that the Blackhawks claimed no Luxury Box revenue true?

OK. I guess I will have to drag out that Lynn Turner quote again:

Quote:
This zero dollars for luxury boxes at the United Center keeps coming up. It's pure BS. Lynn Turner (the head of Levitt's accounting team) has specifically repudiated that claim.

Quote:
From the post-gazette:
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."

 

[thinkwild]

Conversely, in another instance, because the arena is owned by an unaffiliated third party, the team does not own or receive certain categories of revenues such as building naming rights and certain suite premiums

My understanding is that in the NFL, that's not an allowable ownership structure. If this wasn't allowed allowed in the NHL, the hockey related revenue would surely be higher. The NHL owners would have a great incentive to structure themselves differently than the NFL would allow so that hockey related revenue is less.

If Wirtz structures his company so that the arena is unaffiliated, and thus rendering all its revenues as non-hockey related, so that Ms Turner can honestly say:

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,"

So I re-ask Weary's question.

However, as I am reporting on the combined URO for the
NHL, such individual differences are not relevant for purposes of our assignment. What is relevant is whether, on a League-wide aggregate basis, the allocation of revenues and expenses would change significantly if they were reallocated using a standard methodology.

Based on this benchmarking analysis, I conclude that, when allocated between hockey and non-hockey events using Paid Attendance as a standard basis of allocation, aggregate League-wide revenues and expenses would not materially differ from the amounts reported in the combined League-wide URO.

And it always comes back to this. It wouldnt be different than the URO's. Some consolation when you dont buy the URO's in the first place, (for good reason), nor have the ownership restrictions to make URO comparisons between leagues meaningful.

 

[Jarqui]

Since Bill Wirtz owns less than 50% of the United Center, are the claims that the Blackhawks claimed no Luxury Box revenue true?

Here's Levitt's definition:
Twenty-two of the 30 NHL teams play in an arena that is 50% or more owned, operated or controlled by the team or an affiliated or related-party.

I then scanned this list:
http://law.marquette.edu/s3/site/images/sports/NHLupdatecharts.pdf

Quickly I concluded that Wirtz was quite likely one of the 22. Some papers report he owns half the United Center with Reinsdorf owning the other half. Others claim a small piece of the United Center is owned by very minor partners.

But it doesn't end there. If any of those partners own a small piece of the Hawks (Reinsdorf?), you may get your 50% there. Or if Wirtz and Reinsdorf own half the company that manages/operates the arena, you could get 50% there. Or if Wirtz owns pieces in some of the companies that invested in the United Center, you could get your 50% there. Or if Wirtz is into any of the other affiliated companies, you might get your 50% there. Or Levitt may well have said, "close enough-near enough - I want to look at Wirtz’s numbers because of NHLPA claims".

Regardless, Levitt did say:
We were not provided with the audited financial statements for the arenas of 6 of the 22 teams that have affiliated arena entities. In three cases, the arenas. independent auditors performed agreed-upon procedures specified by me on the internal financial statements of the arena. In one case, the arena's independent auditor performed agreed-upon procedures on the excerpted information provided to us by comparing it to amounts reported in the audited financial statements of the arena. ....
In the other two cases, Ottawa and Buffalo, the agreed-upon procedures performed by Eisner related to the arena as well as the team.

And let's not have a site hissy fit that six arenas were "not audited" because:
1) If the arena's year end was later than the NHL's ie Dec 31, 2003, there's no way audit statements could be prepared and examined by Levitt in time for Levitt's Feb /04 report.
2) As above, independent auditors went into get the numbers for the six sites that did not have audited statements. If you look at their procedures, they effectively audited the numbers going into the UROs back to the cash receipts/bank accounts. (very acceptable accounting procedure).

For the teams who were not on that list, the revenues that they received got audited. And these numbers were compared to prior years audited so if someone was trying to pull a fast one, the conspiracy for many of them had to have started with their independent accountants years before.

Given Wirtz has a joint venture in the United Center, it stands to reason that the United Center was very likely audited to satisfy the other partners in the joint venture that no one was getting ripped off.

On the UROs, ALL revenue (NHL and non-NHL) received by teams had to be reported and reconciled. If the Blackhawks received luxury box revenue and designated it as not belonging to the NHL, it still had to appear on the URO as non-NHL revenue or it would not line up with their financial statements or their bank accounts. If that number was disproportionate to prior years or to other NHL teams based on the number of boxes, they had some real explaining to do.

The knowledge about sizable luxury box revenues in the United Center has been in the public domain since the building opened. It’s hard to believe that it could be ignored. There would be a total blank or zero in the Hawks column for luzury boxes which would stick out like a sore thumb on the leagues detailed URO for the Hawks.

Levitt was comparing the NHL to the NBA BRI calculation. His interest in looking closely at/studying Chicago with two very established franchises and how they split their revenues had to be significant.

Now, when you consider the above along with Lynn Turner's affirmative and staunch response to "Did you count Wirtz's luxury box revenues ?", do I believe that they included Wirtz's numbers ? Yes, I feel that I have good reason to believe that. And to the point where it would be absolutely incredible and almost inconceivable that they got missed.

 

[danaluvsthekings]

I looked at the arena numbers in the link from Marquette provided by Cleduc and I found one glaring error in the information about Staples Center. It says Staples Center cost $375 million to build and was 73% publicly financed but then it says they received $70.5 mil in public funds from bonds ($38.5 mil), convention center reserves ($20 mil), and the community redevelopment fund ($12 mil). Last I checked, $70.5 mil of $375 mil was only approximately 19%, not the 73% it claims. Also Anschutz wont release a final tally at what Staples Center cost and the thought is it cost more than $400 mil to complete. I don't know if the rest of their numbers are accurate but that's a huge error to say an arena was built with construction costs covered by 73% of public funds when the information in the next column shows it was less than 19%.

 

[Jarqui]

I looked at the arena numbers in the link from Marquette provided by Cleduc and I found one glaring error in the information about Staples Center. It says Staples Center cost $375 million to build and was 73% publicly financed but then it says they received $70.5 mil in public funds from bonds ($38.5 mil), convention center reserves ($20 mil), and the community redevelopment fund ($12 mil). Last I checked, $70.5 mil of $375 mil was only approximately 19%, not the 73% it claims. Also Anschutz wont release a final tally at what Staples Center cost and the thought is it cost more than $400 mil to complete. I don't know if the rest of their numbers are accurate but that's a huge error to say an arena was built with construction costs covered by 73% of public funds when the information in the next column shows it was less than 19%.

I don't think the report is trying to detail every penny of public funding etc. They've only included some "notable" notes. It is merely a chart of someone who went around and pieced together what they could for all the NHL teams and their arenas. It's only useful in that regard. Due to the private nature of some of these deals, it's virtually impossible to pin down who owns exactly how much of what without the actual deal in front of you.

The term "financing" in the report is an ambiguous one: an entity can finance to own or they can finance to be "paid back". I just used the report as a checklist to remind me of what I knew of the recent activity and parties involved in the arenas. For example: Anschutz has a major stake in Staples while the Ducks do not have a stake in their arena - just a lease for hockey, etc.

 

[me2]

My understanding is that in the NFL, that's not an allowable ownership structure. If this wasn't allowed allowed in the NHL, the hockey related revenue would surely be higher. The NHL owners would have a great incentive to structure themselves differently than the NFL would allow so that hockey related revenue is less.

If Wirtz structures his company so that the arena is unaffiliated, and thus rendering all its revenues as non-hockey related, so that Ms Turner can honestly say:

So Wirtz is going to do this selling his share in the Hawks or selling his share in the arena to an unaffiliated 3rd party he has no business or financial interests with?

 

[Weary]

So Wirtz is going to do this selling his share in the Hawks or selling his share in the arena to an unaffiliated 3rd party he has no business or financial interests with?

No. The question is, if Wirtz controls less than 50% of the joint venture that owns the arena, is any revenue from that joint venture counted as hockey revenue. The way I read the Levitt report rules, it would not be. I think he would have to control at least 50%.

If so, when Lynn Turner says, "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," it doesn't mean that any luxury box revenue was reported on the Blackhawks' URO.

 

[kdb209]

No. The question is, if Wirtz controls less than 50% of the joint venture that owns the arena, is any revenue from that joint venture counted as hockey revenue. The way I read the Levitt report rules, it would not be. I think he would have to control at least 50%.

If so, when Lynn Turner says, "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," it doesn't mean that any luxury box revenue was reported on the Blackhawks' URO.

The 50% threshold had nothing to do with whether revenues from affiliated or related parties were required to be counted as hockey revenue - it was just the cutoff they used to identify the 22 teams (out of 30) that they did a more in-depth set of investigations and independent benchmarking on.

All teams were required to report affiliated and related party revenues.

 

[danaluvsthekings]

I don't think the report is trying to detail every penny of public funding etc. They've only included some "notable" notes. It is merely a chart of someone who went around and pieced together what they could for all the NHL teams and their arenas. It's only useful in that regard. Due to the private nature of some of these deals, it's virtually impossible to pin down who owns exactly how much of what without the actual deal in front of you.

The term "financing" in the report is an ambiguous one: an entity can finance to own or they can finance to be "paid back". I just used the report as a checklist to remind me of what I knew of the recent activity and parties involved in the arenas. For example: Anschutz has a major stake in Staples while the Ducks do not have a stake in their arena - just a lease for hockey, etc.

True, a lot of the deals are pretty private considering they're using public funds. I was just trying to point out that claiming 73% of a building's cost is payed for with public funds when the numbers provided show its less than 19% is a pretty big mistake. If it was a small mistake like 75% vs 73% it wouldn't be that major. But there's a pretty big discrepancy in 73 vs 19%. So it just makes me curious if their other numbers are accurate.

The city of Anaheim built the Pond because they figured if they had a brand new arena either an NBA or NHL team would move in. They lucked out McNall was head of the Board of Governors, needed money, and was friends with Michael Eisner and convinced him that Disney needed to buy an expansion team. Otherwise they could have been stuck holding the bill for an arena with no sports team. The Ducks have a pretty good lease with the Pond too, although I think they renegotiated it to make it easier to attract an NBA team. The lease before said the Ducks get part of the money from the suites for all events. NBA teams didn't like this because they'd get less of the suite money. I'm sure Anaheim also can't wait for the Ducks sale to be approved just to make sure there's not a chance they're contracted or moved. Because with the Lakers and Clippers here and both having long term leases at Staples, I don't know if a 3rd NBA team will be allowed to move into the LA market.

 

[Weary]

The 50% threshold had nothing to do with whether revenues from affiliated or related parties were required to be counted as hockey revenue - it was just the cutoff they used to identify the 22 teams (out of 30) that they did a more in-depth set of investigations and independent benchmarking on.

All teams were required to report affiliated and related party revenues.

No. The twenty-two teams were the only ones reporting revenue from their arenas. For the other eight teams it says "no arena-related allocations are required."

Here is the section from the Levitt Report:

To perform the benchmarking study, we focused on the 22 teams that play in arenas that are 50% or more owned, operated or controlled by the team, or an affiliated or related-party, and the allocation of arena revenues and expenses between hockey and non-hockey activities. It was not necessary to include the other eight teams in the benchmarking study as the arenas in which they operate are not affiliated, are leased to the teams on an arm's length basis for only hockey activities and therefore no arena-related allocations are required. For purposes of this study, we considered suites and club seats, fixed signage, arena sponsorship arrangements, arena naming rights, and fixed building costs. All other significant revenues and costs can be directly identified with hockey or non-hockey events and therefore are not required to be allocated.​

The question whether the Blackhawks are in the group of 22 or the group of 8 is still open.

 

[Jarqui]

The 50% threshold had nothing to do with whether revenues from affiliated or related parties were required to be counted as hockey revenue - it was just the cutoff they used to identify the 22 teams (out of 30) that they did a more in-depth set of investigations and independent benchmarking on.

All teams were required to report affiliated and related party revenues.

I agree with that 100%.

And they also had to report all "non-NHl" revenues on the UROs and both NHL & non-NHL revenues got reconciled to the audited financial statements which took those numbers down to their bank accounts.

Whether a team leases or owns their arena, they were required to reports all revenues. And they were not just audited as an entity, Levitt had supplemental audits done on the numbers they submitted to the UROs - for all the teams.

Forbes reports Wirtz owns "half of the United Center".