PA's turn to make an offer the NHL cannot refuse..

[PecaFan]

You're forgetting that $44 milllion average would have been cut by 24% to $33.4 million.

True, I did forget about that. But you can't just multiply the previous average by 76%, because there were a couple of hundred unsigned players that the rollback didn't apply to, including tons of the big names. And as much as folks like to pretend they'd sign for 76% of their previous contracts because the "market has been reset", the fact is that they're going to sign for whatever the market will bear, as always. And lets face it, human nature for anyone negotiating a contract will be to ask for at least what they made last year. Some RFA who made $2 million is just going to accept $1.5 million because the owner says "everyone else took a 24% cut"? Not a chance.

And where are you getting that the owners only break even at 54%?

$2,100 Revenue x 54% = $1,134 player costs
Operating costs = $800 (based on NHL projections for 2004-05)
PROFIT = $166 million

From my previous discussion with EndBoards, a PA supporter:
http://www.hfboards.com/showthread.php?p=2848239#post2848239

Revenues of $1.75 billion are the break even point, and that's a pretty reasonable expectation of what the revenues would be with after losing the big tv contracts, as well as the lockout required to win that 54%.

 

[WC Handy*]

I agree...

Can you, however, accept that competence provides a greater advantage than money?

Actually, I cannot accept that. I'd say that they're about equal. If competence was significantly more important you'd have more low payroll teams putting up 100 point seasons. But instead you have teams with money and arguably incompetent management such as the Blues putting up 100 point seasons.

 

[Brent Burns Beard]

Actually, I cannot accept that. I'd say that they're about equal. If competence was significantly more important you'd have more low payroll teams putting up 100 point seasons. But instead you have teams with money and arguably incompetent management such as the Blues putting up 100 point seasons.

and having no sniff at the cup, year after year.

i think the fans in Calgary have had it better than the fans in STL. as one example.

dr

 

[WC Handy*]

and having no sniff at the cup, year after year.

i think the fans in Calgary have had it better than the fans in STL. as one example.

dr

I think it's quite safe to say that you're in the great minority if you'd actually cheer for a team that missed the playoffs for, what, 7 straight years and had one good playoff run (that didn't result in a Cup) than cheer for a team that consistantly fields a team that has a chance to win their division.

 

[Brent Burns Beard]

I think it's quite safe to say that you're in the great minority if you'd actually cheer for a team that missed the playoffs for, what, 7 straight years and had one good playoff run (that didn't result in a Cup) than cheer for a team that consistantly fields a team that has a chance to win their division.

well, why dont we let every team into the playoffs then no one misses !

seriously, as a Calgarian, i recognized they didnt deserve to make the playoffs. in fact, if there was a salary cap in the last 10 years, they would have never gotten the best player in the world, nor their #1 dman.

Calgary has not been disadavanted at all by the previous CBA. they happen to be in one of the premier hockey markets on the entire planet and in a city with lots of corporate money and fan interest.

shed no tears for Calgary.

dr

 

[WC Handy*]

Calgary has not been disadavanted at all by the previous CBA.

 

[Brent Burns Beard]

well if thats the level of your discourse, go enjoy yourself.

dr

 

[GSC2k2*]

$5.5 million in pure profit on an avg of $70 million in revenues. That's a 7.9% profit margin. Again, not too shabby, and a heck of a lot better than what WalMart pulls in.

Actually, that is a fallacious argument. In business, the relevant number is ROI (Return on Investment). By that criterion, and excluding the losses that most teams have sucked up since they bought their teams (especially the newer franchises), $5.5 million on an $85 million investment is a ROI of 5.8%. That is what is known as a BAD investment. You can do virtually everything else investment-wise with your $85 million (short of stuffing it in a mattress) and do better than 5.8%, and with a considerably better risk profile at that.

Of course, when you top up the $85 million with operating losses from previous years,that 5.8% number plunges dramatically.

Lots of pro-player posters point to the "huge" capital gains thatowner reap when they sell their franchises. Based on published reports, that was/is a thing of the past. Now, when the NHLPA is finally beaten and done with, franchise values will increase substantially, but as stated above, those must be discounted by substantial operating losses. While raw numbers may seem large when an owner sells his franchise for even double what he paid for it, when you factor in the length of time the investment has been in place, and the previously mentioned operating losses, NHL franchises have not been even a decent investment for a long, long time.

Additonally, comparing operating profit margins of sports franchises and department stores is a silly exercise. Each industry has its own benchmarks, depending on a variety of factors. 5.8% or 7.9% might be great for Walmart, but it is disastrous for Microsoft or Dell. You aren't even comparing apples and oranges; it is more like apples and metal detectors.

 

[AM]

dont say ridulous things

well if thats the level of your discourse, go enjoy yourself.

dr

and then you wont be ridiculed.

 

[Brent Burns Beard]

and then you wont be ridiculed.

it wasnt ridiculas ... it was my opinion. as a Calgarian, i feel qualified to make the claim.

hey, if the Flames truly cant make it in a market like Calgary, one of the premier hockey markets on the planet and a city with lots of corporate money and personal income, then fold them.

dr

 

[AM]

yes very true...

heh... more than one report exists (on what actually determines success in the real world)... More than one book, also... Here are a couple suggested readings off the top of my head just for you to initially consider:

- The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action by Jeffrey Pfeffer, Robert I. Sutton
http://www.amazon.com/exec/obidos/t...r=8-1/ref=pd_csp_1/103-0335084-2831842?v=glan

ce&s=books&n=507846

- The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment by Robert S. Kaplan, David P. Norton
http://www.amazon.com/exec/obidos/t...=8-1/ref=sr_8_xs_ap_i1_xgl14/103-0335084-2831

842?v=glance&s=books&n=507846

BTW, my opinion is that money is important (included in the resource variable)... My argument is that competence is much more important than money... But this doesn't topologically imply that money isn't important...

If you truly want to create parity or closer to equal competitive balance, what you should actually be supporting is a competency cap... You may as well be supporting a luck cap instead of a salary cap... It will do about as good (limited success) in actually achieving competitive balance...

Show me a study done by a credible sports economist that proves that money is more important than competence in determining team success, and I'll definitely consider it (don't assume what I'd admit or not - doing this perhaps showcases your shortsightedness... I'm not on here to flex my brain... I'm here to learn something and discuss these issues that impact hockey)... My education suggests that your argument is based on your imagination... and while your imagination is creative, it needs to also take into account a bit more reality... That you're twisting the 'evidence' to fit what looks correct in your brain...

But I'm definitely open to the possibility that the many books and research reports are wrong, and that you are right...

You're missing one point though.

The idea that these guys arnt very good, so they spend their money foolishly is accurate.

But it still means that they spend their money and hurt other teams in the process.

Thats the telling point, and your analysis has nothing to say about it.

 

[AM]

Im not Genie

it wasnt ridiculas ... it was my opinion. as a Calgarian, i feel qualified to make the claim.

hey, if the Flames truly cant make it in a market like Calgary, one of the premier hockey markets on the planet and a city with lots of corporate money and personal income, then fold them.

dr

but, I have little doubt, if the old CBA comes back, you'll get your wish.

SO you're a Calgarian.... but who do you cheer for?

 

[CGG]

Actually, that is a fallacious argument. In business, the relevant number is ROI (Return on Investment). By that criterion, and excluding the losses that most teams have sucked up since they bought their teams (especially the newer franchises), $5.5 million on an $85 million investment is a ROI of 5.8%. That is what is known as a BAD investment. You can do virtually everything else investment-wise with your $85 million (short of stuffing it in a mattress) and do better than 5.8%, and with a considerably better risk profile at that.

Not at all. Prime rates are somewhere around 2% or 2.5%. That's the no-risk option, buy T-bills. Get 2%. If you want anything more, you get risk. Under the CBA that the owners want, so long as you're not a crap market OR there's enough revenue sharing, that's a pretty good guarantee of profit, and therefore minimal risk. If you absolutely know you can and will spend within the payroll range and make a decent profit, even if you miss the playoffs, I'd take that in a second.

You're also conveniently ignoring all of the other benefits that go along with owning an NHL team. Which include, but are not limited to, your municipality building you a shiny new arena, or at least providing funding for said shiny new arena, tax breaks on everything, synergies that go along with the team / arena, tax write-offs, programming for their cable tv networks, a chunk of all the other action at the arena (concerts, etc) and whole bunch of community goodwill.

I'll ask you again, if you think $5.5 million that's pretty much guaranteed profit for an average team isn't good enough, how much should these saintly owners be guaranteed to make in a year? $10 million? $30 million?

 

[GSC2k2*]

Not at all. Prime rates are somewhere around 2% or 2.5%. That's the no-risk option, buy T-bills. Get 2%. If you want anything more, you get risk. Under the CBA that the owners want, so long as you're not a crap market OR there's enough revenue sharing, that's a pretty good guarantee of profit, and therefore minimal risk. If you absolutely know you can and will spend within the payroll range and make a decent profit, even if you miss the playoffs, I'd take that in a second.

You're also conveniently ignoring all of the other benefits that go along with owning an NHL team. Which include, but are not limited to, your municipality building you a shiny new arena, or at least providing funding for said shiny new arena, tax breaks on everything, synergies that go along with the team / arena, tax write-offs, programming for their cable tv networks, a chunk of all the other action at the arena (concerts, etc) and whole bunch of community goodwill.

I'll ask you again, if you think $5.5 million that's pretty much guaranteed profit for an average team isn't good enough, how much should these saintly owners be guaranteed to make in a year? $10 million? $30 million?

Well, in regards to asking "again", you haven't asked ME before, but before I will answer I will respond as follows:

1. i agree that T-bills are the benchmark for a no-risk investment.

2. That being said, I have no idea where you get the idea of owners - even in a cap-based league - being "guaranteed" a profit. Revenues, costs (and obviously Profit) are far from fixed. Even if a cap is established, player costs can be affected in a number of ways, up to and including injuries. Revenues are often quite unpredictable, including playoffs. Other operating costs are also flexible; I am sure every owner is at least semi-thankful they are not bearing the huge increase in air travel expenses brought on by oil price fluctuations. Revenues can also drop based on overall ecomonic factors, including the overall economy and outside issues (i.e., 9/11). The point is that, even in a capped league, an owner's ROI is far from set in stone, whereas you compare it to T-bills. There is substantial risk even in a cap-based league - less than without a cap, but still substantial.

3. When buildings are built by public money, the common transaction vehicle is that the funding agency (city, state) owns the building and leases it to the team ownership on a sweetheart deal. Even so, those deals are done and, in most cases, ancient history. What's more, for every such deal, you have a team (such as Toronto) that built its own facility.

4. All of the other synergies that you reference are sometimes present (although not always). Some of them are of dubious value (community goodwill?!?). THe tax breaks that you mention (usually in the form of property tax breaks) are simply what is required for teams to turn your supposed $5.5 million profit at all, so actually the above numbers arguably DO include them. Certainly programming benefits those few teams who have broadcasting interests and do generate some synergy, but not as much as you suggest given the relatively low value of hockey as a media property. That is a better argument for the big 3 sports - not hockey. As for other arena events, those stand on their own as a profitable or unprofitable venture, to a great extent, and those revenues need to go against the financing and operating costs of the arena itself rather than the profitablity/unprofitability of the hockey team.

Thanks for your courteous reply, but i still do not buy the basic premise of your position, which is that 5.8% is an acceptable return for an average NHL owner. Now, to answer your question, by the tenor of your post you seem fairly knowledgeable, and are undoubtedly aware that anyone with $85 million to invest has a lot more avenues of investment than most people. There are many investment scenarios available to high-net-worth investors, most of which generate phenomenal levels of returns compared to your ordinary mutual funds in which people invest. Whiel I would not suggest that owners should attain the 40-75% that they can get in those senarios, I don't think an overall ROI of 20% would be out of line, considering the risk involved in even a cap-based league (cumulative, that is, including a year-by year return and any capital appreciation when the franchise is sold). To do that, the NHL hsa a lot of catching up to do just to get up to a Zero rate of return, given the reported operating losses to date and the inability of anyone to give away NHL franchises.

 

[I in the Eye]

Money without competence is by definition a recipe for failure.

Ask Chelsea what money + competence means, or Arsenal or ManU.

I agree that money without competence is a recipe for failure... As is, IMO, no money with no competence... as competence drives success or failure...

Money + competence is a big advantage, IMO... If English soccer wants to create parity amongst teams though, they have to limit the competence of the most successful teams - not the $... Caping the money won't create parity... If Chelsea is more competent than the other teams, IMO, they will have greater success regardless if they have less, equal, or more money...

 

[I in the Eye]

You're missing one point though.

The idea that these guys arnt very good, so they spend their money foolishly is accurate.

But it still means that they spend their money and hurt other teams in the process.

Thats the telling point, and your analysis has nothing to say about it.

I accept that it may hurt the economics of the game... and thus, why I am an owner supporter, and support some form of cap... Personally, I like the Brian Burke solution... Like him, I don't think that things are so dire that the only solution is the hard cap solution at the owner's desired numbers... It's a battle that I don't think is necessary... I think that the owners are asking for too much, too fast... and in the process are (and will to a much larger degree) do severe damage to NHL hockey...

I'm not even against a hard cap in theory (as I don't think it's going to do anything significant on-ice related - it just affects how the money is distributed in the office)... The most competent teams will still be at the top, the average competence teams will still be in the middle... and the least competent teams will still be at the bottom... It's just because of the length of time that I think will be necessary to get what the owner's want why I'm personally against the hard cap...

 

[I in the Eye]

You're missing one point though.

The idea that these guys arnt very good, so they spend their money foolishly is accurate.

But it still means that they spend their money and hurt other teams in the process.

Thats the telling point, and your analysis has nothing to say about it.

I accept that it may hurt the economics of the game... and thus, why I am an owner supporter, and support some form of cap... Personally, I like the Brian Burke solution... Like him, I don't think that things are so dire that the only solution is the hard cap solution at the owner's desired numbers... It's a battle that I don't think is necessary... I think that the owners are asking for too much, too fast... and in the process are (and will to a much larger degree) do severe damage to NHL hockey...

I'm not even against a hard cap in theory (as I don't think it's going to do anything significant on-ice related - it just affects how the money is distributed in the office)... The most competent teams will still be at the top, the average competence teams will still be in the middle... and the least competent teams will still be at the bottom... It's just because of the length of time (and related damage) that I think will be necessary to get what the owner's want why I'm personally against the hard cap...

 

[PecaFan]

I think it's more like this:

Top of the league: Money+Competence

Middle part of league: Money, no Competence
Middle part of league: Competence, no Money

Bottom feeders: No Money, No Competence

Money can overcome a lack of competence (buying out mistakes, signing free agents if you draft lousy), and competence can overcome a lack of money (drafting cheap stars, etc).

 

[Weary]

Thanks for your courteous reply, but i still do not buy the basic premise of your position, which is that 5.8% is an acceptable return for an average NHL owner.

Your calculation of 5.8% ROI is return is faulty. That would only be the ROI if franchises were sold for their purchase price. The 5.8% equates to what an owner can take out of the business each year. A stock that offered a 5.8% dividend along with appreciation in overall value would be a quite popular investment vehicle.

Now, to answer your question, by the tenor of your post you seem fairly knowledgeable, and are undoubtedly aware that anyone with $85 million to invest has a lot more avenues of investment than most people. There are many investment scenarios available to high-net-worth investors, most of which generate phenomenal levels of returns compared to your ordinary mutual funds in which people invest. Whiel I would not suggest that owners should attain the 40-75% that they can get in those senarios, I don't think an overall ROI of 20% would be out of line, considering the risk involved in even a cap-based league (cumulative, that is, including a year-by year return and any capital appreciation when the franchise is sold).

If the team owners were making 40-75% on their other investments, they wouldn't even notice what they were losing on their hockey teams. But I don't think the value of the owners' other investments are doubling every 14 to 25 months. An investment that earns 20% over the long haul is considered spectacular. That's why Warren Buffet is so famous.

 

[kdb209]

I think it's more like this:

Top of the league: Money+Competence

Middle part of league: Money, no Competence
Middle part of league: Competence, no Money

Bottom feeders: No Money, No Competence

Money can overcome a lack of competence (buying out mistakes, signing free agents if you draft lousy), and competence can overcome a lack of money (drafting cheap stars, etc).

There is one more important factor in the money vs competence debate - margin of error.

A small market team with a good GM can be competitive (at least in the short run) but has little (no) margin of error. One bad signing or significant injury that he cannot afford to replace, and it becomes very hard to adapt.

A large market team can (currently) try to solve those problems by throwing money at it - eat a contract, sign or trade for an expensive replacement mid season, etc.

 

[I in the Eye]

I think it's more like this:

Top of the league: Money+Competence

Middle part of league: Money, no Competence
Middle part of league: Competence, no Money

Bottom feeders: No Money, No Competence

Money can overcome a lack of competence (buying out mistakes, signing free agents if you draft lousy), and competence can overcome a lack of money (drafting cheap stars, etc).

Change 2 and 3, and then it's right

In your example, you assume that the team was able to at least adequately buy out their previous mistakes, which demonstrates a certain level of competence (assuming a team has been able to 'buy out their mistakes time and again - if they only do it once or twice, I attribute this to luck)...

There's a great summary on this ('competence over money') in a book by Jon Spoelstra (sports marketing expert) that I'd love to post... But unfortunately, it's at home... When I get home, I'll post it...

 

[I in the Eye]

Actually, I cannot accept that. I'd say that they're about equal.

Fair enough... What evidence could I provide you to perhaps change your mind - or is your mind made - therefore, no further exploration required?

And assuming that you are correct, and they are about equal, then in order to truly create parity (which the league has communicated they want to do), doesn't money and competency need to be capped? Why cap just money - if both are about equal to the success equation?

 

[I in the Eye]

There is one more important factor in the money vs competence debate - margin of error.

A small market team with a good GM can be competitive (at least in the short run) but has little (no) margin of error. One bad signing or significant injury that he cannot afford to replace, and it becomes very hard to adapt.

A large market team can (currently) try to solve those problems by throwing money at it - eat a contract, sign or trade for an expensive replacement mid season, etc.

Very true, IMO... $ is an advantage... Teams with more $ have the luxury to take larger risks...

Another important factor in the debate - can small smarket teams with competence generate enough revenue to also have a $ advantage - growing their money to allow for a growing margin of error?

Teams have $ because (1) they have rich owners; and (2) because they have success year-after-year - while running their teams the smart way, on a budget...

The only way Vancouver could afford Bertuzzi at 8 million is because (1) the Canucks run their team on budget; and (2) because the Canucks had enough playoff success to generate enough money to do so... If Vancouver continues to have playoff success, we'll also be able to keep the majority (if not all) of our core together... If we don't, then IMO, the team only has itself to blame, as the team wasn't competent enough to do what was necessary to achieve playoff success year-after-year - and nor do we deserve to keep our team together... Why keep Cloutier at his growing contract, if he can't get consistently the job done when it matter most? Why keep Naslund if he consistently chokes? Why keep Linden if he can't consistently lead us to further success?

 

[ti-vite]

Your calculation of 5.8% ROI is return is faulty. That would only be the ROI if franchises were sold for their purchase price. The 5.8% equates to what an owner can take out of the business each year. A stock that offered a 5.8% dividend along with appreciation in overall value would be a quite popular investment vehicle.

If the team owners were making 40-75% on their other investments, they wouldn't even notice what they were losing on their hockey teams. But I don't think the value of the owners' other investments are doubling every 14 to 25 months. An investment that earns 20% over the long haul is considered spectacular. That's why Warren Buffet is so famous.

50 million today, sold in 10 years for 75M, is 4% I believe. wow. Now what were the ana numbers again...

 

[GSC2k2*]

Your calculation of 5.8% ROI is return is faulty. That would only be the ROI if franchises were sold for their purchase price. The 5.8% equates to what an owner can take out of the business each year. A stock that offered a 5.8% dividend along with appreciation in overall value would be a quite popular investment vehicle.

If the team owners were making 40-75% on their other investments, they wouldn't even notice what they were losing on their hockey teams. But I don't think the value of the owners' other investments are doubling every 14 to 25 months. An investment that earns 20% over the long haul is considered spectacular. That's why Warren Buffet is so famous.

5.8% was admittedly used as an illustration, based on a return of $5.5 million (no idea where that comes from - was in the original post) on an $85 milllion purchase price. Different owners have paid different amounts to acquire their franchise. Also, I noted that it excluded the impact of operating losses from previous years - an admittedly critical factor for which none of us have valid information.

I agree that, while a stock with a 5.8% dividend would be popular, a stock that paid MAYBE 5.8% with the possiblity of the stockholder paying money to the company in some years would be dramatically less popular.

I would not be surprised at all if some owners have investments that pay huge (40-75%) returns - albeit not their NHL holdings. Any successful businessman will also tell you that, just because he wins a few big bets, he is not willing to throw money down a sinkhole from time to time.

I repeat that, in those leagues, a 20% return is no big deal. That is not that "spectacular". Warren Buffet got famous from the ability to double his investments in 2-3 years.