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.