We have a new Sens CEO!

[thinkwild]

How is he any further ahead? He is paying either way, whether it is profit from CTC , or profit from the Senators, it will cost money. Whether CTC as a business loses money or Sens make money, it is the same tax structure.

Well im anxious to hear BonkTastics reply too, but one difference i could think of would be the offsets. The depreciation for one and real estate special rules.

 

[Caeldan]

How is he any further ahead? He is paying either way, whether it is profit from CTC , or profit from the Senators, it will cost money. Whether CTC as a business loses money or Sens make money, it is the same tax structure.

For one, he lowers HRR according to the CBA which means more escrow returned back to him.

Also, a building has capital depreciation that could help offset any taxes related to profits, while running a debt on another company could mean write-offs personally depending on the structure.

The most basic idea is to run a shell game where no business actually makes a profit. Just shift expense around such that everyone breaks even and then you're not paying taxes.

As opposed to having one business paying taxes and another sitting there with unused tax credits. Same idea as income splitting was for couples.

 

[JD1]

the assumption with any kind of strategy of moving mones around within a group of companies only fundamentally works if the group as a whole is making profit...if total revenue exceeds total expense you can move money around to take advantage of all kinds of things....if it doesn't....you're kinda f***ed....it's just a matter of how badly....I think it is pretty well documented that this is a small market, with low attendance with the lowest ticket prices in Canada and a CTC that does host other events but not that frequently. He can access a ton of built up equity from years of appreciation but all in cash flow wise there doesn't appear to be a whole lotta profit going on.

 

[Golden_Jet]

Melnyk doesn't increase the parking, parking is sub contracted, as is refreshments/food. Sub contractors determining price.
Luckily for our group parking is free, after being STH long enough.

 

[Tuna99]

Andre Desmarais supporting B2ten on Twitter - just letting us know how amazing an owner he’ll be in ottawa with our athletes.

Can’t wait. Dream Owner

 

[Sensung]

the assumption with any kind of strategy of moving mones around within a group of companies only fundamentally works if the group as a whole is making profit...if total revenue exceeds total expense you can move money around to take advantage of all kinds of things....if it doesn't....you're kinda ****ed....it's just a matter of how badly....I think it is pretty well documented that this is a small market, with low attendance with the lowest ticket prices in Canada and a CTC that does host other events but not that frequently. He can access a ton of built up equity from years of appreciation but all in cash flow wise there doesn't appear to be a whole lotta profit going on.

Honest question as I know you have a better grasp of this type of arrangement than I do.

How much of a role do you think the debt load plays in the lack of profit you cite?

 

[JD1]

Honest question as I know you have a better grasp of this type of arrangement than I do.

How much of a role do you think the debt load plays in the lack of profit you cite?

when he bought the team I recall hearing he kicked in 50 M cash and financed 75M. If the team is worth 420 and has 30% debt level that is 126M in debt. The difference is 51M.

I think the 51 represents his combined cash flow loss since acquiring the team. If the combined companies lose 5M he has to float that. He likely does that by injecting 5M cash which is recorded as a shareholder loan. The shareholder loan rises and rises as time goes by due to injecting more and more money and then he refinances. So say it rises to 25M. When he refinances he can take back what he "lent", plus interest if he charged it, so he is even but the debt is up. That is the most logical explanation for the rise in debt. It is also legal. If he was simply jacking the debt and taking money the tax implications would make that an unrealistic method of accessing cash for other business interests. I think he's lost money but recouped it by refinancing.

Apparently the NHL has a revolving credit facility that teams can access at 2%. There's been some debate whether the Canadian teams can access that. But if they cannot, his equity and revenue streams with a physical asset imply that lenders are competing for his business. They are playing a game of "how low will you go" as opposed to the board narrative of him paying exorbitant financing. Regardless of any other interests he has and any difficulty he may have his financing would be secured against his guaranteed revenue streams and building asset making the loan low risk.

You are correct that he stands to make a lot of money if he sells. His original 50 right now is worth roughly 300. But that doesn' help year over year cash flow and if the cash flow doesn't improve eventually the debt load rises to a problem level.

 

[coladin]

For one, he lowers HRR according to the CBA which means more escrow returned back to him.

Also, a building has capital depreciation that could help offset any taxes related to profits, while running a debt on another company could mean write-offs personally depending on the structure.

The most basic idea is to run a shell game where no business actually makes a profit. Just shift expense around such that everyone breaks even and then you're not paying taxes.

As opposed to having one business paying taxes and another sitting there with unused tax credits. Same idea as income splitting was for couples.

I would say that depreciation expense after 20 plus years would be inconsequential at this point...alot has already been written off. Plus you need profit to write off expenses like depreciation.

 

[Sensung]

when he bought the team I recall hearing he kicked in 50 M cash and financed 75M. If the team is worth 420 and has 30% debt level that is 126M in debt. The difference is 51M.

I think the 51 represents his combined cash flow loss since acquiring the team. If the combined companies lose 5M he has to float that. He likely does that by injecting 5M cash which is recorded as a shareholder loan. The shareholder loan rises and rises as time goes by due to injecting more and more money and then he refinances. So say it rises to 25M. When he refinances he can take back what he "lent", plus interest if he charged it, so he is even but the debt is up. That is the most logical explanation for the rise in debt. It is also legal. If he was simply jacking the debt and taking money the tax implications would make that an unrealistic method of accessing cash for other business interests. I think he's lost money but recouped it by refinancing.

Apparently the NHL has a revolving credit facility that teams can access at 2%. There's been some debate whether the Canadian teams can access that. But if they cannot, his equity and revenue streams with a physical asset imply that lenders are competing for his business. They are playing a game of "how low will you go" as opposed to the board narrative of him paying exorbitant financing. Regardless of any other interests he has and any difficulty he may have his financing would be secured against his guaranteed revenue streams and building asset making the loan low risk.

You are correct that he stands to make a lot of money if he sells. His original 50 right now is worth roughly 300. But that doesn' help year over year cash flow and if the cash flow doesn't improve eventually the debt load rises to a problem level.

Thank you for the detailed response

 

[Tnuoc Alucard]

You really need to google the term "Hollywood Accounting", and expose yourself to the seedy underworld of vertical integration and the tactical art of spreading profit and debt around to your advantage.

Melnyk owns the arena. Arena revenue is not included in hockey revenue. Melnyk the arena owner (not an NHL revenue stream) charges Melnyk the Senators owner (an NHL revenue stream) a high rent fee. To Melnyk, it's all the same, because to him it's money in/ money out. But for accounting purposes, it adds more revenue to the Arena side of the business (non NHL revenue), and creates artificial debt on the Sens ledger, and then can claim a loss at the end of the year.

Yes, that is how it works for all 31 NHL franchises, the teams all pay rent to play at whatever Arena they play their home games at.

Some people are suggesting that the Owner, in Ottawa, is "fixing the books", which implies that he is charging the Senators a much higher rent than what would be considered the "market rate" , and is therefore cheating.

But the NHLPA has an accounting firm that audits the Senators franchise each and every year, to determine what the actual revenue, net of direct costs, the Senators generate, in order to determine CBA mandated division of HRR.

I've posted parts of Article 50 of the CBA a few time now,that clearly outlines this, and with Rent paid to the CTC being a "direct cost" of the Senators, the suggestion that Melnyk is "fixing the books" and the Accounting firm not noticing an "issue" with the amount of rent being charged, is ridiculous.

It seems there are some people that just want to believe that Melnyk is cooking the books, and the NHLPA's accountant are idiots...... despite the facts, as laid out in the CBA ........ and ignoring facts is the only way to do this.




AGAIN, from Article 50 of the CBA


The parties have described Hockey Related Revenues with a non-exhaustive list of Hockey Related Revenues (net of Direct Costs as defined herein, where specified herein), in order to permit the inclusion of new revenue streams (net of Direct Costs where agreed upon between the parties herein, or, failing agreement, by ruling of the System Arbitrator), to be included automatically, without a new or separate negotiation, subject to the provisions below.

 

[Tnuoc Alucard]

I never claimed Melnyk hadn't set up the Sens hockey operations to lose money. The rent angle is just one way he can manipulate the books.

You've been claiming, for about a week, that he's "fixing the books", and that the NHLPA has no idea how much rent is being charged to the Senators, because they only see the HRR.

I've shown that you're wrong on both counts.

 

[Tnuoc Alucard]

The NHLPA does not care if the Sens Hockey Operations make an operating profit or not. They would have zero interest if Melnyk had set up the Sens to lose money. They only care that every penny of HRR is accounted for.

For instance, the Rent the CTC charges the Sens is NOT revenue and would not be something they care about.

HRR is calculated by using the revenues less Direct Costs.


What do you think "Direct Costs" means?

 

[Tnuoc Alucard]

Step 1 REPLACE THE OWNER

And who can do that?

 

[BonkTastic]

The parties have described Hockey Related Revenues with a non-exhaustive list of Hockey Related Revenues (net of Direct Costs as defined herein, where specified herein), in order to permit the inclusion of new revenue streams (net of Direct Costs where agreed upon between the parties herein, or, failing agreement, by ruling of the System Arbitrator), to be included automatically, without a new or separate negotiation, subject to the provisions below.

I'm not sure this means what you think it means.

All this excerpt is saying is that the list of Hockey Related Revenues is formally incomplete (ie: non-exhaustive) in order to allow the inclusion of new revenue streams agreed to by both the league and NHLPA (ie: agreed upon between the parties herein) without having to re-write the entire CBA (without a new or separate negotiation).

In lay terms, it's saying "if both the league and NHLPA agree to it, we can add to the list of what is considered Hockey Related Revenue."

I'm not sure what your argument is, here.

 

[Tnuoc Alucard]

Yeah, to be clear, I'm not defending EM.

BUT, I do think the general concerns about Ottawa as a market are valid. And smart hockey fans know that you can't expect to win the Cup every year. Or even every 20 years. That side is just icing on the cake if it ever even happens. Fans want to show up and be entertained. Winning is an extra bonus. The on-ice product has to be entertaining. Trap-style defence first hockey is not. I can't even watch a full game at home on my TV. It's too boring. I was at the TBL-OTT game last month and it was crazy. Nine goals scored. Lots of fun. I don't want to watch robots implement a system. Just let the talent play.

Which makes me wonder how much of the attendance issue is directly linked to implementing tedious boring systems?

I don't think to many people stay away from Sens games, based on the "System" being used.
Last Season that "system" generated 44 wins, home ice in the first two rounds of the playoffs and a berth in the ECF.

Yes there were attendance issues in the playoffs, but I think the "system" was not near the top of the list.

This season the poor record and no prospects of making the playoffs so early in the season have probably kept more people away than the "system" .......... I know I passed on some free tickets for a game last week vs the Sabres, but if they were in the hunt for the playoffs I would have gone for sure.

BTW, the "system" looks a LOT worse on TV, but it's not nearly as bad when you're in attendance watching live .......... well that's how I've seen it for the number of games I attended last year, and the playoffs.

 

[Micklebot]

Yes, that is how it works for all 31 NHL franchises, the teams all pay rent to play at whatever Arena they play their home games at.

Some people are suggesting that the Owner, in Ottawa, is "fixing the books", which implies that he is charging the Senators a much higher rent than what would be considered the "market rate" , and is therefore cheating.

But the NHLPA has an accounting firm that audits the Senators franchise each and every year, to determine what the actual revenue, net of direct costs, the Senators generate, in order to determine CBA mandated division of HRR.

I've posted parts of Article 50 of the CBA a few time now,that clearly outlines this, and with Rent paid to the CTC being a "direct cost" of the Senators, the suggestion that Melnyk is "fixing the books" and the Accounting firm not noticing an "issue" with the amount of rent being charged, is ridiculous.

It seems there are some people that just want to believe that Melnyk is cooking the books, and the NHLPA's accountant are idiots...... despite the facts, as laid out in the CBA ........ and ignoring facts is the only way to do this.




AGAIN, from Article 50 of the CBA


The parties have described Hockey Related Revenues with a non-exhaustive list of Hockey Related Revenues (net of Direct Costs as defined herein, where specified herein), in order to permit the inclusion of new revenue streams (net of Direct Costs where agreed upon between the parties herein, or, failing agreement, by ruling of the System Arbitrator), to be included automatically, without a new or separate negotiation, subject to the provisions below.

Who is arguing that Melnyk is cheating? I've seen people say it's disingenuous for him to claim he's losing money on the team, because the non-hockey arena revenues are inherently linked to owning the team; they are a package deal and separating them wasn't part of the business plan when the team was conceived, nor would it have been part of the business plan when Melnyk purchased the team.

You seem to have created a red herring to distract from the actual argument; that treating the team and the arena as distinct businesses while technically fine ignores that they're inherently linked to one another, and crying poor about one half of the overall business plan while ignoring the other linked portion is at best disingenuous, and downright deceitful at worst.

 

[DaveMatthew]

I'm not sure this means what you think it means.

All this excerpt is saying is that the list of Hockey Related Revenues is formally incomplete (ie: non-exhaustive) in order to allow the inclusion of new revenue streams agreed to by both the league and NHLPA (ie: agreed upon between the parties herein) without having to re-write the entire CBA (without a new or separate negotiation).

In lay terms, it's saying "if both the league and NHLPA agree to it, we can add to the list of what is considered Hockey Related Revenue."

I'm not sure what your argument is, here.

He doesn't have one. Being the owner of both the Senators and CTC, there are numerous ways that he can manipulate the profitability metrics of both businesses (none of which are in any way illegal or would involve the NHLPA).

At the end of the day, TNUOC is arguing that Melnyk's cost-cutting is justified because the Senators, as a stand-alone business, aren't posting an operating profit at the end of each year, ignoring the fact that owning the team, and its associated businesses, has made Melnyk, and will make Melnyk, significantly wealthier.

Eugene is coming out ahead, no matter what TNUOC says.

 

[BonkTastic]

Further, let's dive into the term "Direct Costs", as is defined by the CBA:

"Direct Costs" shall mean any costs, including fixed and variable costs, attributable to a revenue-generating activity. For example, the salary of an individual employed by a Club or Club Affiliated Entity whose duties contribute to revenue activities specified in this Article 50 may be apportioned among such revenue activities specified in this Article 50 as a Direct Cost to the extent such netting of Direct Costs is permitted, except that no portion of the salary of an individual who, in the ordinary course, works on any non-revenue generating activity of a Club or Club Affiliated Entity, as defined herein, may be included as a Direct Cost. Further, an allocation of arena occupancy costs, and general and administration expenses, such as finance, support and general management function costs, may not be included as Direct Costs.

So, things to highlight here:

1) the straight definition - "any costs, including fixed and variable costs, attributable to a revenue generating activity". Basically, how much money you spent trying to make money. All of your expenses in running the organization from a hockey-specific standpoint.
2) the caveat - "no portion of the salary of an individual who, in the ordinary course, works on any non-revenue generating activity of a Club (etc...) may be included as a Direct cost" Basically, you can't charge Labor that wasn't involved in league business as a Direct Cost. So the GM's salary is a hockey cost, that's a Direct Cost... but the Arena Manager, for example, is employed by Melnyk the Arena Owner, not Melnyk the Senators Owner, so that cost wouldn't be included in Direct Costs
3) The Hammer Drops - an allocation of arena occupancy costs, and general and administration expenses, such as finance, support and general management function costs, may not be included as Direct Costs.

... wait what was that last part?

"arena occupancy costs... may not be included as Direct Costs"

... hold on, let me go back and re-read that last part...

"arena occupancy costs... may not be included as Direct Costs"

Soo... explain to me again what your argument here is, Prof. QuotesTheCBA?

 

[Micklebot]

I'm not sure this means what you think it means.

All this excerpt is saying is that the list of Hockey Related Revenues is formally incomplete (ie: non-exhaustive) in order to allow the inclusion of new revenue streams agreed to by both the league and NHLPA (ie: agreed upon between the parties herein) without having to re-write the entire CBA (without a new or separate negotiation).

In lay terms, it's saying "if both the league and NHLPA agree to it, we can add to the list of what is considered Hockey Related Revenue."

I'm not sure what your argument is, here.

Can't resist opportunity to post princess bride meme... even if it's not a perfect match.

"direct costs"

 

[Sensung]

You've been claiming, for about a week, that he's "fixing the books", and that the NHLPA has no idea how much rent is being charged to the Senators, because they only see the HRR.

I've shown that you're wrong on both counts.

You have proved two things

1) You post things you don't understand.

2) You love to argue and really aren't very good at it.

See if you can answer the following.

Is there a range of rent charged by NHL arenas?

Who determined how much each team is charged?

Does the NHLPA have the right to tell the CTC how much to charge the Sens for rent?

The NHLPA agreed to a split of REVENUE, not PROFITS.

RENTAL COST HAS ZERO TO DO WITH REVENUE.

 

[Tnuoc Alucard]

He doesn't have one. Being the owner of both the Senators and CTC, there are numerous ways that he can manipulate the profitability metrics of both businesses (none of which are in any way illegal or would involve the NHLPA).

At the end of the day, TNUOC is arguing that Melnyk's cost-cutting is justified because the Senators, as a stand-alone business, aren't posting an operating profit at the end of each year, ignoring the fact that owning the team, and its associated businesses, has made Melnyk, and will make Melnyk, significantly wealthier.

Eugene is coming out ahead, no matter what TNUOC says.

I've said all along that he's "coming out ahead", when his Ottawa based operations are combined (Senators, CTC, Sen Plex whatever).

But when Melnyk says the "Senators lost money this season", he's not lying. The Senators books will be audited by the NHLPA as per the CBA, and it would be revealed quite easily, if he were not teelling the truth.


But one poster claims the "Senators" are not losing money, when the Owners says they are, and he combines all Melnyk's Ottawa based operations, as proof, and that is misleading.

 

[Sensung]

And who can do that?

The fans by emptying the arena till he sells

 

[Tnuoc Alucard]

The fans by emptying the arena till he sells

Is it happening?

 

[Sensung]

I've said all along that he's "coming out ahead", when his Ottawa based operations are combined (Senators, CTC, Sen Plex whatever).

But when Melnyk says the "Senators lost money this season", he's not lying. The Senators books will be audited by the NHLPA as per the CBA, and it would be revealed quite easily, if he were not teelling the truth.


But one poster claims the "Senators" are not losing money, when the Owners says they are, and he combines all Melnyk's Ottawa based operations, as proof, and that is misleading.

It is misleading for Melnyk to portray his operations in Ottawa as losing money based on the Sens alone.

 

[PeterSidorkiewicz]

Is it happening?

If the Sens actually trade Karlsson as a vehicle to dump Ryans contract, I see it happening.

Now I am not sure if that is going to happen, but if it actually did, wowzers.