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Micklebot

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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.

The whole argument is that it is inherently misleading to split the team and the arena when discussing whether Melnyk is losing money on the Sens or not. The two entities are linked in a symbiotic relationship, and while it is perfectly ok to split them from an accounting perspective, it would be asinine to split them when talking about an overall business plan.
 
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BonkTastic

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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.

Eh, it really will only make him significantly wealthier because he's moving money around to profit off of the arena side of the business, and running the team at a deficit in order to justify borrowing money to cover costs, a debt that will be passed on to a new owner if he sells the team.

Like... let's say hypothetically, Melnyk running the arena and running the team completely breaks even. They are exactly $0 over/ under budget when both sides of the business are put into a lump sum. Totally even.

Let's imagine two different scenarios
1) Melnyk moves money around (through strategic accounting) in order to show a $3mil profit on the arena side of the business, and a $3mil deficit on the Senators side of the business.
2) the reverse - Melnyk moves the money to show a $3mil deficit on arena business, and a $3mil profit on the team.

In the first scenario, Melnyk makes $3mil on the arena, and that's pure profit in the sense that it's all his. He owns the building, the building is a private business. Profit is profit. The $3 deficit the team ran that year does a few things: reduces HRR by $3mil, which (very subtly, and by an understandably very small amount) helps keeps the cap down. That part isn't super relevant, because it's such a small drop in the water, but it is a side effect. The other thing to consider though is that the NHL has a revenue sharing program. This is the more important part - it allows the Sens to stay in the lower half of the league as far as revenue is concerned, and potentially qualifies them to receive money from other teams/ the league if they fall into the bottom-10 in the league in revenue... and from what I understand, we have received revenue sharing money for years. Melnyk makes $3mil on the arena side, and the league helps recover part of the $3mil loss, so we end up making more money off of the team through league programs simply by moving money around through accounting.

In the second scenario, Melnyk loses $3 mil on the arena - that's all losses, because private business and all that. The $3mil profit he reports to the league helps (very negligibly, like discussed above) raise the salary cap by a bit, but more importantly might take the team out of being a bottom-10 league revenue team, which would cancel our revenue sharing cheques we get. We end up losing more money this way.

I mean, it's a very simple example, but it goes to show you why there is a significant advantage to cook the books if you can get away with it.
 

DaveMatthew

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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.

No, he's not lying, technically.

But when he says he needs to cut costs to keep the team afloat, and he's doing everything he can to build a winner, he's also not being very truthful.
 
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DaveMatthew

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Eh, it really will only make him significantly wealthier because he's moving money around to profit off of the arena side of the business, and running the team at a deficit in order to justify borrowing money to cover costs, a debt that will be passed on to a new owner if he sells the team.

Like... let's say hypothetically, Melnyk running the arena and running the team completely breaks even. They are exactly $0 over/ under budget when both sides of the business are put into a lump sum. Totally even.

Let's imagine two different scenarios
1) Melnyk moves money around (through strategic accounting) in order to show a $3mil profit on the arena side of the business, and a $3mil deficit on the Senators side of the business.
2) the reverse - Melnyk moves the money to show a $3mil deficit on arena business, and a $3mil profit on the team.

In the first scenario, Melnyk makes $3mil on the arena, and that's pure profit in the sense that it's all his. He owns the building, the building is a private business. Profit is profit. The $3 deficit the team ran that year does a few things: reduces HRR by $3mil, which (very subtly, and by an understandably very small amount) helps keeps the cap down. That part isn't super relevant, because it's such a small drop in the water, but it is a side effect. The other thing to consider though is that the NHL has a revenue sharing program. This is the more important part - it allows the Sens to stay in the lower half of the league as far as revenue is concerned, and potentially qualifies them to receive money from other teams/ the league if they fall into the bottom-10 in the league in revenue... and from what I understand, we have received revenue sharing money for years. Melnyk makes $3mil on the arena side, and the league helps recover part of the $3mil loss, so we end up making more money off of the team through league programs simply by moving money around through accounting.

In the second scenario, Melnyk loses $3 mil on the arena - that's all losses, because private business and all that. The $3mil profit he reports to the league helps (very negligibly, like discussed above) raise the salary cap by a bit, but more importantly might take the team out of being a bottom-10 league revenue team, which would cancel our revenue sharing cheques we get. We end up losing more money this way.

I mean, it's a very simple example, but it goes to show you why there is a significant advantage to cook the books if you can get away with it.

Sure, there's some creative accounting that can help Melnyk do better year over year. But, the franchise's value is where Melnyk will really feel the bump to his wealth.

He bought the team and arena for ~$100 million. Today, the two would be worth ~$500 million. That's a 500% return in 15 years. Not a bad investment.
 

BonkTastic

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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.

OK, so I know I said that I'd get back to that post where I'd go into more detail when I was at a real computer and not my phone, but between the post I made just now a few minutes ago, and with what you covered here as well, it does cover most of it. This is a pretty succinct list of basically what I was going to say.

Basically, it's about taking advantage of the systems in place in the league to help recover losses by being a bottom-10 revenue team from a hockey perspective, while still running the arena businesses at a profit because that money isn't touched by NHL mechanisms, and then finding tertiary outlets to move arena money to in order to avoid being in a higher tax range to take advantage of provincial and federal corporate tax rates and perks (your point on tax credits is on point).

I dunno... is there anything else to really go into that hasn't been covered by either your post here or mine this morning?
 

BonkTastic

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Sure, there's some creative accounting that can help Melnyk do better year over year. But, the franchise's value is where Melnyk will really feel the bump to his wealth.

He bought the team and arena for ~$100 million. Today, the two would be worth ~$500 million. That's a 500% return in 15 years. Not a bad investment.

Oh yeah, for sure.

It's no secret that unless you are lucky enough to own one of the premiere franchises in your respective sport, that the profit in professional sports like Hockey happens when you sell the team, not when you own it.

Return on investment in the NHL from a year-to-year perspective is terrible as far as average-to-below average teams are concerned. You aren't running a business as much as you are "buying stocks", so to speak. Buy low, sell high.

Also, I should add here - the profit in owning a professional sports team can often be found in tertiary revenue streams associated with the team - the team acts as a "loss leader" in order to profit elsewhere (like: if you own the arena and make profit on parking/concerts/etc, or own surrounding commercial land and make a profit on rental space -a shopping mall, for example- due to proximity of the team and arena, like the Florida Panthers have).
 
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BonkTastic

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He bought the team and arena for ~$100 million. Today, the two would be worth ~$500 million. That's a 500% return in 15 years. Not a bad investment.

I think it ended up being something like ~$125mil(ish) for everything after restructuring for the debt Bryden had accumulated with the org was agreed upon. I'm going off of memory at this point, and the exact figure I don't think was ever clearly released, but it was suggested to be in that ballpark range.

Your point obviously still stands, I'm just clarifying the numbers up a bit.

Also: Seattle just applied for an expanson team based off of a $600+ mil expansion fee. If they end up being awarded the 32nd team and pay that much, it raises the value of the Sens by another $100 mil.
 

coladin

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Sep 18, 2009
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Eh, it really will only make him significantly wealthier because he's moving money around to profit off of the arena side of the business, and running the team at a deficit in order to justify borrowing money to cover costs, a debt that will be passed on to a new owner if he sells the team.

Like... let's say hypothetically, Melnyk running the arena and running the team completely breaks even. They are exactly $0 over/ under budget when both sides of the business are put into a lump sum. Totally even.

Let's imagine two different scenarios
1) Melnyk moves money around (through strategic accounting) in order to show a $3mil profit on the arena side of the business, and a $3mil deficit on the Senators side of the business.
2) the reverse - Melnyk moves the money to show a $3mil deficit on arena business, and a $3mil profit on the team.

In the first scenario, Melnyk makes $3mil on the arena, and that's pure profit in the sense that it's all his. He owns the building, the building is a private business. Profit is profit. The $3 deficit the team ran that year does a few things: reduces HRR by $3mil, which (very subtly, and by an understandably very small amount) helps keeps the cap down. That part isn't super relevant, because it's such a small drop in the water, but it is a side effect. The other thing to consider though is that the NHL has a revenue sharing program. This is the more important part - it allows the Sens to stay in the lower half of the league as far as revenue is concerned, and potentially qualifies them to receive money from other teams/ the league if they fall into the bottom-10 in the league in revenue... and from what I understand, we have received revenue sharing money for years. Melnyk makes $3mil on the arena side, and the league helps recover part of the $3mil loss, so we end up making more money off of the team through league programs simply by moving money around through accounting.

In the second scenario, Melnyk loses $3 mil on the arena - that's all losses, because private business and all that. The $3mil profit he reports to the league helps (very negligibly, like discussed above) raise the salary cap by a bit, but more importantly might take the team out of being a bottom-10 league revenue team, which would cancel our revenue sharing cheques we get. We end up losing more money this way.

I mean, it's a very simple example, but it goes to show you why there is a significant advantage to cook the books if you can get away with it.

That 3M profit on the arena, how much tax will he have to shell out for it? If he has a corporate tax rate, it will now be higher than before, thanks to Trudeau. Plus, but showing a $3M profit, he can use a depreciation expense, for whatever is left, which I imagine every time they add something to the arena, they can start depreciating, like the scoreboard, renovations, Club Bell etc...

The $3M loss on the team side will have implications as you have alluded, I am just not sure that it is that big of a deal at the end of the day as far as savings. Although with this owner, every little bit counts.

I understand your premise about demonstrating lower revenues on the hockey side, but the numbers on Forbes typically do not include lending costs because they are not disclosed, unless I am mistaken. In my business, when I report my financials, and my operating income, it does not include my lending costs.

Reality is you talk about "strategically doing this" and "potentially" doing that. No one knows for sure the what and the how, but any "profit" that the team shows when doing a corporate review does not include his lending costs. That is a big hole in the equation.
 

coladin

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Sep 18, 2009
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Sure, there's some creative accounting that can help Melnyk do better year over year. But, the franchise's value is where Melnyk will really feel the bump to his wealth.

He bought the team and arena for ~$100 million. Today, the two would be worth ~$500 million. That's a 500% return in 15 years. Not a bad investment.

And that bump in cash is what is going to help him borrow more for Lebreton, and the addition of Las Vegas and now possibly Seattle will make NHL franchise values escalate higher and suddenly he is going to be able to add more money into Lebreton, the risk here that he may lose his franchise over it if things don't go well , cost overruns which are bound to happen, and diminishing revenues at CTC.
 

coladin

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Sep 18, 2009
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I think it ended up being something like ~$125mil(ish) for everything after restructuring for the debt Bryden had accumulated with the org was agreed upon. I'm going off of memory at this point, and the exact figure I don't think was ever clearly released, but it was suggested to be in that ballpark range.

Your point obviously still stands, I'm just clarifying the numbers up a bit.

Also: Seattle just applied for an expanson team based off of a $600+ mil expansion fee. If they end up being awarded the 32nd team and pay that much, it raises the value of the Sens by another $100 mil.

I can tell you with certainty that is was 136M CAD, because I erroneously received the fax addressed to Sheldon Plener from Price Waterhouse Coopers back then lol. What a surprise that day!
 

JD1

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Sep 12, 2005
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It's no secret that unless you are lucky enough to own one of the premiere franchises in your respective sport, that the profit in professional sports like Hockey happens when you sell the team, not when you own it.
This is the key statement right here. Regardless of how many related companies there are and whatever ability exists to move money between them....the entire operation is not printing money. These companies year over year are not making an operational profit. There are a few people here that seem to understand accounting.....if you believe he is making money and the debt is risen, explain the accounting behind that.

I read the article Chezz linked....I am not going to pick it apart however it is trash. The writer clearly doesn't understand some of what he is posting about.
 

Micklebot

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but the numbers on Forbes typically do not include lending costs because they are not disclosed,

From the Forbes Valuation article"

Revenues and operating income (earnings before interest, taxes, depreciation and amortization) are for the 2016-17 season and net of revenue sharing and arena debt service. Our income statements include revenue team owners get from non-NHL events at their arena, but do not include the expansion ...

Credit where it's due, Forbes tries to account for everything. Whether or not their estimates are accurate are debatable (they were pretty off from the disclosed Arizona numbers that came out because of the bankruptcy filing), but they know enough to ask the right questions and give estimates on all the right stuff.
 

coladin

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From the Forbes Valuation article"



Credit where it's due, Forbes tries to account for everything. Whether or not their estimates are accurate are debatable (they were pretty off from the disclosed Arizona numbers that came out because of the bankruptcy filing), but they know enough to ask the right questions and give estimates on all the right stuff.

Lending costs are not necessarily arena debt service. Especially if he has consolidated mortgages to cover costs that he needs cash for. Like a line of credit for starters. If he is using the valuation as a credit card, he is destroying the equity of his corporation. But it may give him more liquidity.

Borrowing $150M could be lending costs of upwards of $7M, depending on if he is floating or doing 10 year money, or whatever. If he makes $10M last year, he could be left with a profit after lending costs. I remember he said that he has lost $100M or something to that effect a while ago, it is conceivable that he is just paying the interest through a line of credit.

The refinancing is not anything more than getting better rates as interest rates plunged over the last 10 years. Even after penalty he is in much better shape than people may think.

So many questions, so little answers!
 

Micklebot

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Apr 27, 2010
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Lending costs are not necessarily arena debt service. Especially if he has consolidated mortgages to cover costs that he needs cash for. Like a line of credit for starters. If he is using the valuation as a credit card, he is destroying the equity of his corporation. But it may give him more liquidity.

Borrowing $150M could be lending costs of upwards of $7M, depending on if he is floating or doing 10 year money, or whatever. If he makes $10M last year, he could be left with a profit after lending costs. I remember he said that he has lost $100M or something to that effect a while ago, it is conceivable that he is just paying the interest through a line of credit.

The refinancing is not anything more than getting better rates as interest rates plunged over the last 10 years. Even after penalty he is in much better shape than people may think.

So many questions, so little answers!

It would be odd for Forbes to have an estimate of total debt load, and then only estimate the cost of servicing one portion of that debt. Why would they stop at just one form of debt servicing?
 

coladin

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It would be odd for Forbes to have an estimate of total debt load, and then only estimate the cost of servicing one portion of that debt. Why would they stop at just one form of debt servicing?

Because Melnyk's closets are overflowing with skeletons! Who knows, I am just guessing as others, but I would suspect that line of credit is not part of the equations...
 

BonkTastic

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That 3M profit on the arena, how much tax will he have to shell out for it?

He has to pay federal and provincial tax regardless of if it's through the arena or the team. This isn't really relevant, outside of some narrow side cases where he might get a different tax break based on property valuation or some similar aspect of the taxation particularities between owning a property vs owning an organization.

If he has a corporate tax rate, it will now be higher than before, thanks to Trudeau.

And our corporate tax rate is still significantly less than in the United States. What is your point here? Are you just getting in a personal jab at Trudeau, or does this have anything to do with the topic at hand?


Reality is you talk about "strategically doing this" and "potentially" doing that. No one knows for sure the what and the how, but any "profit" that the team shows when doing a corporate review does not include his lending costs. That is a big hole in the equation.

I'll agree to this, seeing as how by all reports all of his investment in the team is via loans and credit, and none of his actual personal fortune (however much is left after his divorce) is invested into the team.
 

JD1

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Because Melnyk's closets are overflowing with skeletons! Who knows, I am just guessing as others, but I would suspect that line of credit is not part of the equations...
I'm not sure lines of credit play into the equation, AR least not in anything other than a marginal way. He's referenced having to "write a cheque" and in that scenario it would be to cover operating losses
 

JD1

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He has to pay federal and provincial tax regardless of if it's through the arena or the team.
there are certainly taxes he pays throughout the supply chain but as far as income tax goes....that' on income and if he isn't making income...no tax
 

JD1

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From the Forbes Valuation article"



Credit where it's due, Forbes tries to account for everything.

yes they do.

their methodology in assessing value and the footnotes to their numbers are all there.

What's also there is a bio on the guy that does that work for them. He's highly qualified and has made a living out of his passion. Yes...he knows what questions to ask and has the education to sift thru the data.

I've read the threads here for near 3 months now with people debating all kinds of financial matters, watching people guess and bullshit knowing there really is a fair bit of detail in those numbers if you read and understand them.
 

Micklebot

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Apr 27, 2010
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yes they do.

their methodology in assessing value and the footnotes to their numbers are all there.

What's also there is a bio on the guy that does that work for them. He's highly qualified and has made a living out of his passion. Yes...he knows what questions to ask and has the education to sift thru the data.

I've read the threads here for near 3 months now with people debating all kinds of financial matters, watching people guess and bull**** knowing there really is a fair bit of detail in those numbers if you read and understand them.
Sure there is, nobody debated that, but there is also a history of them being substantially off when true numbers come out (like the Arizona bankruptcy papers) which is why they can't be taken as gospel. They are a great talking point, and give insight into what kind of things need to be considered, but still leave a lot in the dark.
 

coladin

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Sep 18, 2009
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He has to pay federal and provincial tax regardless of if it's through the arena or the team. This isn't really relevant, outside of some narrow side cases where he might get a different tax break based on property valuation or some similar aspect of the taxation particularities between owning a property vs owning an organization.



And our corporate tax rate is still significantly less than in the United States. What is your point here? Are you just getting in a personal jab at Trudeau, or does this have anything to do with the topic at hand?




I'll agree to this, seeing as how by all reports all of his investment in the team is via loans and credit, and none of his actual personal fortune (however much is left after his divorce) is invested into the team.

Corporate tax rates after a certain threshold of income are pretty high right now, regardless of property valuation. It is just income. There aren't tax breaks, just what ever he has to pay he will pay, but he will be able to use depreciation expense to cut down on his taxes.

Just stating that rates are higher than before, thanks to Trudeau. It is a fact, and that is my only point actually.

Melnyk just strikes me as a credit line type of guy...don't know why. Even if he strikes the proverbial cheque as he states, I think it can mean a lot of things in reality. I don't see him writing cheques from his savings, he is leveraging and leveraging, etc...it just seems to fit his persona. That is totally an educated guess.

Refinancing no question has made his bottom line significantly better, but he is cutting into his equity to do it. He can cut a rate in half, but the penalties to break the existing are eating away at his equity in the team.

The more I type, the bleaker this gets in my mind.
 

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