#Melnykout/The Melnyk problem

[jbeck5]

Teams carrying debt is fine. What's important is that they are in a position to be able to pay it down. Mtl has millions in debt too, but they can pay it off at any time. Dallas carries a similar debt load to us as well, but nobody complains about it. Debt is fine if you have the revenue to match it.

Why would a team willfully carry a big amount of debt?
Reminds me of when i kept refusing to pay off my credit card and realized how much money i wasted in interest if i would have just bit the bullet and paid it all right away.

Like, i wonder what the laws are on taxes, the amount of money paid to interest vs the amount of money saved from perhaps some tax write off for being in debt, if it exists.

If i recall properly, when melnyk bought the sens he was worth something like 1.4 billion. He got the sens for 100 million plus arena for 30 million according to this old article i used:

Creditors approve Melnyk's purchase of Sens | CBC Sports

Obviously he couldn't make all the assets he wanted liquid...but i just wonder over the course of his ownership of the sens, how many millions has he paid in interest, and would it have been worth just selling off some shares in other ventures and paying off the debt to be debt free and pay zero interest. It would be fun to look at the figures.

 

[jbeck5]

So, I came across some historical Forbes data from the year Melnyk bought the Sens, just a snapshot of what they estimated was going on in the league, and seems tangentially relevant here, so I thought I'd post;

Team	Value	Debt/Value	Revenue	Operating Income
NYR	272	92%	113	-6.9
DAL	270	55%	108	5.6
TOR	263	24%	105	13.8
PHI	252	26%	101	3.5
DET	245	25%	89	-13.7
COL	229	23%	88	-3.9
BOS	223	54%	84	2.8
CHI	192	0%	74	1
LA	183	72%	78	1.6
MTL	170	47%	71	-5.4
MIN	170	71%	79	20.1
NYI	151	66%	56	-10.9
STL	147	66%	67	-29.4
NJ	145	46%	73	-9.4
CBJ	144	31%	66	3.6
SJ	137	33%	65	-8.6
TB	136	37%	65	-0.07
WAS	130	51%	62	-21
VAN	125	76%	66	0.7
PHX	120	84%	43	-21.1
OTT	117	20%	59	-2
PIT	114	35%	57	4.5
FLA	113	44%	57	-9.2
ANA	112	0%	59	-10.8
ATL	110	63%	57	-0.09
CAR	109	55%	57	-13
NSH	101	40%	46	-2.8
CGY	97	20%	51	-5.8
BUF	95	53%	50	-5.3
EDM	91	35%	48	-0.1

[TBODY] [/TBODY]

Of note;

- They estimated the debt for the Sens at the time Melnyk purchased to be well below average. Most team were borrowing substantially more than they do these days.
- Only 10 teams had a positive OI that year, compared to 9 I think being in the negative this year.
- It doesn't show in the table I made, but teams were spending and insane amount on salaries given the revenue streams. Many of the teams bleeding money were doing so because couldn't or wouldn't control their spending.

based on the debt/value number, they are estimating the Sens debt at around 23 mil, which would have been the 4th lowest in the NHL, a pretty enviable position to start in I guess...

23 million a year? or total?

Creditors approve Melnyk's purchase of Sens | CBC Sports

Because this article speculates a debt of over 300 million, total.

 

[Micklebot]

23 million a year? or total?

Creditors approve Melnyk's purchase of Sens | CBC Sports

Because this article speculates a debt of over 300 million, total.

Thats 23 total. Creditors accepted the deal because it was a cash deal (far less total value than Brydens oddball deal that fell through though) im not sure if Forbes numbers capture all debt, id have to look up their definitions. For example melnyk borrowing money to buy the team might not and probably is not considered team debt.

Heres an article about covanta getting about 20 cents correction, insiders saying closer to 10 cents on the dollar for its share of the sens debt
London Free Press: Business Section - Melnyk has his arena

 

[aragorn]

Oh I'm well aware of what the plan is. Build a team with the bare minimum investment and pray we squeek into 8th and go on a Cinderella run. This 3 year plan is an excuse to spend the bare minimum just like it was in 2011. Any more criticism in the media and Melnyk will resort back to the "we'll spend when the time is right" BS.

How anyone buys anything Melnyk and Dorion are selling is baffling. The only thing Melnyk's budget can buy is the status quo.

Then why would EK stay? Or why would they pay him what he wants to stay? Makes more sense than to trade EK & get as much as you can & try to build a winning team on a reduced budget with cheap young players on their ELCs, doesn't it?

 

[Sensung]

Then why would EK stay? Or why would they pay him what he wants to stay? Makes more sense than to trade EK & get as much as you can & try to build a winning team on a reduced budget with cheap young players on their ELCs, doesn't it?

EK shouldn't want to stay.

He might want to stay for the sake of his family.

The team should want to sign him because low balling him and then dealing him for a crap return will lead to a fan revolt.

 

[Masked]

I have a fair bit more knowledge of accounting than 101 and don't agree at all with your assessment.

it is indisputably true that NHL teams except for the elite few were bleeding cash. 2 strikes later and a massive TV deal from Rogers seems to have changed that. But this team, a small market team, with revenue in Cdn dollars was losing money. Not just the team...all of it...Winnipeg and Quebec losing teams didn't happen because of a lack of accounting tricks. Bryden losing the "team" didn't happen because of a lack of accounting tricks.
Before we go any further....do you agree that this was true across the NHL up to a few years ago? if we can't agree on this then there's no point in any further discussion

Nothing you have posted here is "indisputably true" and much is false. 2 strikes? False. The NHL has only had 1 strike. The Canadian dollar has ebbed and flowed considerably during Melnyk's reign so using that as evidence of consistently losing money makes no sense. Winnipeg and Quebec losing their teams is irrelevant in this conversation.

 

[JD1]

Nothing you have posted here is "indisputably true" and much is false. 2 strikes? False. The NHL has only had 1 strike. The Canadian dollar has ebbed and flowed considerably during Melnyk's reign so using that as evidence of consistently losing money makes no sense. Winnipeg and Quebec losing their teams is irrelevant in this conversation.

pardon me....lockouts

 

[Gil Gunderson]

Then why would EK stay? Or why would they pay him what he wants to stay? Makes more sense than to trade EK & get as much as you can & try to build a winning team on a reduced budget with cheap young players on their ELCs, doesn't it?

I’ll be shocked if he wants to stay.

 

[harrisb]

pardon me....lockouts

You willfully ignore that owning a professional sports team is nothing more than an ego boosting luxury for those who have “made it”. The lone exception I can think of is Jerry Jones but the NFL and especially the cowboys are a whole different ball game. Probably some soccer owners in this category but I don’t follow it.

Did Melnyk “make it”? Yup he did, but his shady dealings and personal problems caused him to “lose it” (in more ways than one). Now he’s trying to use the team as his lone source of income to fund his other failing / failed ventures, it’s really not hard to understand. There are only a very small handful of teams in the NHL that can be run like this and every single one of them is far, far, far, far, far beyond his means.

Again, please provide at least one example of a highly profitable business that Melnyk owns which is able to fund this team as his personal wealth is no longer able to do so. Fairly certain I could go through every other owner in the league and find something like this, or a significantly larger personal wealth. Again, it’s a luxury, and one that he can no longer afford unless he runs it on a shoestring for profit.

The league is going to step in at some point, we pretty well just have to let him keep selling picks for profit and let him keep talking. With his new roles of chief executive of everything it should take too long for foot in mouth disease to kick in.

 

[JD1]

You willfully ignore that owning a professional sports team is nothing more than an ego boosting luxury for those who have “made it”. The lone exception I can think of is Jerry Jones but the NFL and especially the cowboys are a whole different ball game. Probably some soccer owners in this category but I don’t follow it.

Did Melnyk “make it”? Yup he did, but his shady dealings and personal problems caused him to “lose it” (in more ways than one). Now he’s trying to use the team as his lone source of income to fund his other failing / failed ventures, it’s really not hard to understand. There are only a very small handful of teams in the NHL that can be run like this and every single one of them is far, far, far, far, far beyond his means.

Again, please provide at least one example of a highly profitable business that Melnyk owns which is able to fund this team as his personal wealth is no longer able to do so. Fairly certain I could go through every other owner in the league and find something like this, or a significantly larger personal wealth. Again, it’s a luxury, and one that he can no longer afford unless he runs it on a shoestring for profit.

The league is going to step in at some point, we pretty well just have to let him keep selling picks for profit and let him keep talking. With his new roles of chief executive of everything it should take too long for foot in mouth disease to kick in.

you are going in circles and contradicting yourself

What you've said is that Melnyk moves money around between related corps to create the appearance of the team losing money but in reality between the related corps he is making money

you've also said that one needs to be a big time billionaire to cover the losses associated with owning a sports team. That other businesses need to fund this team?

Which is it? You kind of twisted yourself up here. He makes "massive" money or he needs other sources of wealth to "fund this team"

the first 10 years or so he covered losses and the increased debt comes from covering those losses. the past few years since the new TV deals the operating situation across the NHL, coupled with the player revenue sharing, has improved the economics of owning an NHL team considerably.

He doesn't appear to need to write cheques anymore. The business seems to run on its own without the need to write cheques. You've heard him reference having to do that right?

If you read various lists regarding wealth, he appears to still have about 700M of net wealth apart from his Sens ownership.

 

[Micklebot]

For what it's worth, prior to the 05 lockout, eligible Canadian teams got support from the league to compensate for the Canadian dollar. In the new CBA that was nixed as revenue sharing was deemed to sufficiently address the issue. Canadian dollar definitely had an impact on the smaller market Canadian teams, but the league did mitigate that issue; Ottawa was receiving close to 3 mil a year in assistance (which at that time would have been pretty significant).

To be honest, the team tightening it's belt is perfectly understandable when they are in the process of a massive development project with Lebreton. The issue I have is more with sacrificing assets to save money short term; I feel it's counterproductive, as those assets are what allow you to have cheap talent in the future, and be more cost efficient.

Now, are the decisions to throw picks into trades to have other teams retain or pay bonuses driven by a GM that thinks short term, or by an Owner that demands immediate results on the balance sheet? Idk, but in the end, Melnyk just extended the GM that makes these questionable (imo) moves, and by doing so is complicit in them.

For those questioning whether or not Melnyk would get involved in decisions like this, it's worth noting he had a reputation of being a hands on owner going back to his days owning St Mikes Majors,

A hands-on owner known for discussing strategy with the coach between periods and chartering planes rather than buses to transport the young players, he's now planning a new arena for the Majors.

Interestingly though, for all the complaints about him being cheap, that wasn't always a complaint about him. This is the guy that threw a free Eagles concert for the city when he bought the team, spent to the cap for the first few years of the cap era (we used to move players because the cap crunch, Hossa and Havlat being the main examples).

Frankly, there is a lot of unknowns out there around the finances of this team, and what's put out for public consumption doesn't always align with the truth. The NHL was building up for a war leading into the 2004-05 lockout, and would have done their best to make it appear as though they were hemorrhaging money as a league, and while there certainly was some truth to it, there would also have been some exaggeration for negotiating purposes. Melnyk put out that he lost ~94 mil at one point, and again, there's strategic purpose to that statement.

I was able to dig up some of the forbes estimates year by year for Ottawa (missing some of the more recent years for debt ratio though); they offer a snapshot of what Forbes thought was going on, though are likely far from perfect. What I think is interesting is the debt/value ratio, and the column I calculated that estimates the team debt in dollars:

Year	Value	Debt/Value	Revenue	Player exp	OI	Estimated Debt
2003	117	20	59	35	-2	23.4
2004	125	NA	70	48	-5	NA
2005	NA	NA	NA	NA	NA	NA
2006	159	15	76	42	4.2	23.85
2007	186	59	93	46	10.4	109.74
2008	207	63	96	54	4.7	130.41
2009	197	66	90	57	-3.8	130.02
2010	196	66	96	60	-3.8	129.36
2011	201	NA	100	57	3.2	NA
2012	220	NA	113	56	14.5	NA
2013	380	NA	83	36	6.8	NA
2014	400	NA	117	55	22.5	NA
2015	370	NA	119	58	18.5	NA
2016	355	NA	118	68	6.3	NA
2017	420	29	135	73	10	121.8

[TBODY] [/TBODY]

It seems like Forbes thinks Ottawa took a massive ~90 mil loan right around the cup run, and never paid it down (the debt value ratio dropped in line with the teams increase in value, and that's about it).

Anybody know off hand what might have happened in the 2006 to 2008 time frame that would have led to the team needing to borrow an extra 100 mil dollars? Only thing I can think of is maybe Melnyk put his own money in to maintain operations during the lockout, and the team borrowed that money to pay him back, and has never been able (or willing) to pay it back down.

 

[harrisb]

you are going in circles and contradicting yourself

What you've said is that Melnyk moves money around between related corps to create the appearance of the team losing money but in reality between the related corps he is making money

you've also said that one needs to be a big time billionaire to cover the losses associated with owning a sports team. That other businesses need to fund this team?

Which is it? You kind of twisted yourself up here. He makes "massive" money or he needs other sources of wealth to "fund this team"

the first 10 years or so he covered losses and the increased debt comes from covering those losses. the past few years since the new TV deals the operating situation across the NHL, coupled with the player revenue sharing, has improved the economics of owning an NHL team considerably.

He doesn't appear to need to write cheques anymore. The business seems to run on its own without the need to write cheques. You've heard him reference having to do that right?

If you read various lists regarding wealth, he appears to still have about 700M of net wealth apart from his Sens ownership.

You’ve added a new skill, spin, deflect and now twist.

Maybe I should have been more clear, name another owner who does not have significant wealth or income outside their hockey team? 700m is peanuts in the land these guys play. How much in losses do you figure a lockout will incur. We’re anxiously waiting for your reply

 

[JD1]

For what it's worth, prior to the 05 lockout, eligible Canadian teams got support from the league to compensate for the Canadian dollar. In the new CBA that was nixed as revenue sharing was deemed to sufficiently address the issue. Canadian dollar definitely had an impact on the smaller market Canadian teams, but the league did mitigate that issue; Ottawa was receiving close to 3 mil a year in assistance (which at that time would have been pretty significant).

To be honest, the team tightening it's belt is perfectly understandable when they are in the process of a massive development project with Lebreton. The issue I have is more with sacrificing assets to save money short term; I feel it's counterproductive, as those assets are what allow you to have cheap talent in the future, and be more cost efficient.

Now, are the decisions to throw picks into trades to have other teams retain or pay bonuses driven by a GM that thinks short term, or by an Owner that demands immediate results on the balance sheet? Idk, but in the end, Melnyk just extended the GM that makes these questionable (imo) moves, and by doing so is complicit in them.

For those questioning whether or not Melnyk would get involved in decisions like this, it's worth noting he had a reputation of being a hands on owner going back to his days owning St Mikes Majors,



Interestingly though, for all the complaints about him being cheap, that wasn't always a complaint about him. This is the guy that threw a free Eagles concert for the city when he bought the team, spent to the cap for the first few years of the cap era (we used to move players because the cap crunch, Hossa and Havlat being the main examples).

Frankly, there is a lot of unknowns out there around the finances of this team, and what's put out for public consumption doesn't always align with the truth. The NHL was building up for a war leading into the 2004-05 lockout, and would have done their best to make it appear as though they were hemorrhaging money as a league, and while there certainly was some truth to it, there would also have been some exaggeration for negotiating purposes. Melnyk put out that he lost ~94 mil at one point, and again, there's strategic purpose to that statement.

I was able to dig up some of the forbes estimates year by year for Ottawa (missing some of the more recent years for debt ratio though); they offer a snapshot of what Forbes thought was going on, though are likely far from perfect. What I think is interesting is the debt/value ratio, and the column I calculated that estimates the team debt in dollars:

Year	Value	Debt/Value	Revenue	Player exp	OI	Estimated Debt
2003	117	20	59	35	-2	23.4
2004	125	NA	70	48	-5	NA
2005	NA	NA	NA	NA	NA	NA
2006	159	15	76	42	4.2	23.85
2007	186	59	93	46	10.4	109.74
2008	207	63	96	54	4.7	130.41
2009	197	66	90	57	-3.8	130.02
2010	196	66	96	60	-3.8	129.36
2011	201	NA	100	57	3.2	NA
2012	220	NA	113	56	14.5	NA
2013	380	NA	83	36	6.8	NA
2014	400	NA	117	55	22.5	NA
2015	370	NA	119	58	18.5	NA
2016	355	NA	118	68	6.3	NA
2017	420	29	135	73	10	121.8

[TBODY] [/TBODY]

It seems like Forbes thinks Ottawa took a massive ~90 mil loan right around the cup run, and never paid it down (the debt value ratio dropped in line with the teams increase in value, and that's about it).

Anybody know off hand what might have happened in the 2006 to 2008 time frame that would have led to the team needing to borrow an extra 100 mil dollars? Only thing I can think of is maybe Melnyk put his own money in to maintain operations during the lockout, and the team borrowed that money to pay him back, and has never been able (or willing) to pay it back down.

your notion of Melnyk floating cash and the team paying him back is the most logical conclusion.

to borrow money thru a corporate entity, pay interest on the loan, then pay the money out to yourself but having to pay tax on what you pay out is a very expensive way to raise money

 

[JD1]

You’ve added a new skill, spin, deflect and now twist.

Maybe I should have been more clear, name another owner who does not have significant wealth or income outside their hockey team? 700m is peanuts in the land these guys play. How much in losses do you figure a lockout will incur. We’re anxiously waiting for your reply

I've done nothing of the sort. I used your words

you said
1. he makes massive money

and in another post you said

2. we need an owner with billions to fund the team

which is it?

 

[Micklebot]

your notion of Melnyk floating cash and the team paying him back is the most logical conclusion.

to borrow money thru a corporate entity, pay interest on the loan, then pay the money out to yourself but having to pay tax on what you pay out is a very expensive way to raise money

I think 100 mil is a bit much though. The Corel center actually made more money during the lockout than normal because there were more non hockey events to offset the loses. They also didn't pay player salaries. 100 mil exceeds their entire yearly revenue for that era by a significant amount. I don't doubt that he would have loaned the team money during the lockout, but I can't buy into that much being needed. Rumours were that he financed about 50% of the purchase price of the team and arena, maybe that's it? Doesn't really make sense either.

 

[JD1]

I think 100 mil is a bit much though. The Corel center actually made more money during the lockout than normal because there were more non hockey events to offset the loses. They also didn't pay player salaries. 100 mil exceeds their entire yearly revenue for that era by a significant amount. I don't doubt that he would have loaned the team money during the lockout, but I can't buy into that much being needed. Rumours were that he financed about 50% of the purchase price of the team and arena, maybe that's it? Doesn't really make sense either.

I agree that much debt in 1 year makes no sense. I think pushing 100 over 10 or 11 of the first years I can understand. that building costs a lot to maintain / upgrade. it's challenging to out it all together however the whole thing was bleeding money before Melnyk and it didn't just stop because he arrived. I think at this point it's reasonably break even but for many years he was writing cheques

 

[Boud]

I agree that much debt in 1 year makes no sense. I think pushing 100 over 10 or 11 of the first years I can understand. that building costs a lot to maintain / upgrade. it's challenging to out it all together however the whole thing was bleeding money before Melnyk and it didn't just stop because he arrived. I think at this point it's reasonably break even but for many years he was writing cheques

The franchise value has grown 100M+ in the last 10 years and even more now with the Lebreton project open and a new expansion team coming up.

Refinance and you get the value and most likely more. That's not considering the revenue they get from the arena and etc... The team/arena as a whole has been way above water there's no doubt. Nobody runs a business "just because", there's major profit to be made. There are many ways to make it look like revenues are low to decrease taxes paid, that's exactly how businessmen are succesful. As an accountant, you can manipulate the numbers very easily and let's face it, everyone does it.

 

[JD1]

The franchise value has grown 100M+ in the last 10 years and even more now with the Lebreton project open and a new expansion team coming up.

Refinance and you get the value and most likely more. That's not considering the revenue they get from the arena and etc... The team/arena as a whole has been way above water there's no doubt. Nobody runs a business "just because", there's major profit to be made. There are many ways to make it look like revenues are low to decrease taxes paid, that's exactly how businessmen are succesful. As an accountant, you can manipulate the numbers very easily and let's face it, everyone does it.

Melnyk cannot just refinance and access the money. it's corporate entity that is being financed. he would then need to pay it out to himself and that requires paying taxes.

as a whole, the recent tv deals look like they've turned the entire league around. Prior to those deals most teams, as a whole, appear to have been losing money.

businessman are successful for a variety of reasons, not because they play games with accountants to manipulate tax. If that's your business model you are in trouble.

 

[Micklebot]

I agree that much debt in 1 year makes no sense. I think pushing 100 over 10 or 11 of the first years I can understand. that building costs a lot to maintain / upgrade. it's challenging to out it all together however the whole thing was bleeding money before Melnyk and it didn't just stop because he arrived. I think at this point it's reasonably break even but for many years he was writing cheques

Well, it would have stopped bleeding money to debt repayment just because he arrived when over 300 mil in debt became around 30 mil. Then you have the Canadian dollar rebounding, by the time he took out that huge loan things had already drastically improved compared to the days under Bryden and we actually got to par with the US shortly afterwards, and while that's not because he took over it does coincide with it.

Having said that, player expenses exploded in part because he wanted to be the mecca of hockey, and at the time could apparently afford it. I think the cap system and changes that came with it inflated player salaries too.

 

[topshelf15]

Whatever the money issue is or isnt,things can not stay the same.....We need a at least a 90 to 100 million dollar budget to compete,this would include front office staff, coaches,players,and swallowing the odd bad contract....Now by no means should we be at this number being a dead last team,but the money has to be there...And EM has to let his people use the money,without interference

 

[Qward]

Sake of his family?

My friends cousin is Karlsson's wife. He spoke openly years ago about not enjoying the fact he cant live a regular life in Ottawa. He can't go grocery shopping or to a restaurant without someone coming up asking for an autograph or picture.

Personally I am planning on him leaving.

 

[Smash88]

Sake of his family?

My friends cousin is Karlsson's wife. He spoke openly years ago about not enjoying the fact he cant live a regular life in Ottawa. He can't go grocery shopping or to a restaurant without someone coming up asking for an autograph or picture.

Personally I am planning on him leaving.

He's Erik Karlsson.

That will happen in any NHL city he goes to. Maybe somewhat less in non-hockey dominant markets, but I guarantee you it would still happen almost every time he went out.

This is also why he's paid millions.

 

[stempniaksen]

He's Erik Karlsson.

That will happen in any NHL city he goes to. Maybe somewhat less in non-hockey dominant markets, but I guarantee you it would still happen almost every time he went out.

This is also why he's paid millions.

Somewhat less? I think you're being incredibly naive about the pressure cooker that Canadian markets can be.

He's arguably THE most recognizable guy in Ottawa, if he goes to Vegas or LA he suddenly becomes the what? 500th most recognizable person?

 

[bert]

Sake of his family?

My friends cousin is Karlsson's wife. He spoke openly years ago about not enjoying the fact he cant live a regular life in Ottawa. He can't go grocery shopping or to a restaurant without someone coming up asking for an autograph or picture.

Personally I am planning on him leaving.

Yup this is what he expresses to the people close to him.

 

[Smash88]

Somewhat less? I think you're being incredibly naive about the pressure cooker that Canadian markets can be.

He's arguably THE most recognizable guy in Ottawa, if he goes to Vegas or LA he suddenly becomes the what? 500th most recognizable person?

He will still get recognized and still asked for autographs, it's the nature of being one of the top players in the league.

Has absolutely nothing to do with Ottawa.