Why a Luxury Tax will never work

[thinkwild]

I still find the concept of a salary floor really curious. If you need to force an owner to spend a minimim amount, is that to mollify other teams fans that they have a reasonable chance, or convince their own season ticket holders that they should renew because he met the minimum spending.

THE luxury tax is not designed to be a cap. Its probably an amount that should fall somewhere between a consumption tax and a sin tax like gas or cigs. Its purpose is to raise money for the revenue challenged, presumably because they are rebuilding. But they are rebuidling. They arent one of 30 equal teams, so why worry if they are half as good or a quarter as good?

I've always loved the idea of making the luxury tax award draft picks more than money a really smart idea, because the rebuilding teams need talent. Perhaps trading cap space would also be a good idea too as a revenue sharing idea. If Detroit wants to sign a rebuilding teams UFA, they buy the cap space which replaces the revenue drop they experience by rebuilding and missing playoff revenue.


But definitely looking at baseball luxury tax and saying therefore it wont work in hockey forgets the point of the UFA age in baseball, not to mention the much smaller revenue disparities.

A luxury tax will work to raise money. It wont work, if by work, you mean it acts like a cap. Its not a cap.

 

[nyr7andcounting]

I still find the concept of a salary floor really curious. If you need to force an owner to spend a minimim amount, is that to mollify other teams fans that they have a reasonable chance, or convince their own season ticket holders that they should renew because he met the minimum spending.

THE luxury tax is not designed to be a cap. Its probably an amount that should fall somewhere between a consumption tax and a sin tax like gas or cigs. Its purpose is to raise money for the revenue challenged, presumably because they are rebuilding. But they are rebuidling. They arent one of 30 equal teams, so why worry if they are half as good or a quarter as good?

I've always loved the idea of making the luxury tax award draft picks more than money a really smart idea, because the rebuilding teams need talent. Perhaps trading cap space would also be a good idea too as a revenue sharing idea. If Detroit wants to sign a rebuilding teams UFA, they buy the cap space which replaces the revenue drop they experience by rebuilding and missing playoff revenue.


But definitely looking at baseball luxury tax and saying therefore it wont work in hockey forgets the point of the UFA age in baseball, not to mention the much smaller revenue disparities.

A luxury tax will work to raise money. It wont work, if by work, you mean it acts like a cap. Its not a cap.

Anything that stops salaries from topping a certain point is a ceiling. A cap is a certain kind of ceiling. A luxury tax is a different kind of ceiling. By definition, they act alike. Difference is one is absolute and the other isn't.

 

[NYIsles1*]

If you support the NHL and you would take a cap at $30 something million, wouldn't this hard cap result in the same problem as would a luxury tax without a floor? Think about it, a team like the Rangers would have about $75-$90 million in profit every year. Talk about an owner lining his pockets!

That's simply not correct.

The Rangers are a team like St.Louis. Only exceptions being the garden does not have it's seats filled or sold for several weeknight games and the Saavis center is a more modern facility with far more luxury boxes (profit) yet both franchises are reportedly losing about thirty million a year and those have been the numbers for years now.

If the Rangers drop their payroll to thirty million and fans are willing to support the team exactly the same way (which is questionable after a long work-stoppage) with far fewer name players the team would make twenty million. There is also the ten precent Dolan must cut off all his ticket prices so even that number is reduced.

The idea the Rangers under any circumstances could make a profit of 75-90 million is simply not realistic in any way. That's where revenue sharing in general has some problems and why it's not black and white. The Wings lost nineteen million do they lose that much and share revenue as well?

Bottom line outside of Toronto, Vancouver and Minnesota there is very little revenue to share.

 

[nyr7andcounting]

That's simply not correct.

The Rangers are a team like St.Louis. Only exceptions being the garden does not have it's seats filled or sold for several weeknight games and the Saavis center is a more modern facility with far more luxury boxes (profit) yet both franchises are reportedly losing about thirty million a year and those have been the numbers for years now.

If the Rangers drop their payroll to thirty million and fans are willing to support the team exactly the same way (which is questionable after a long work-stoppage) with far fewer name players the team would make twenty million. There is also the ten precent Dolan must cut off all his ticket prices so even that number is reduced.

The idea the Rangers under any circumstances could make a profit of 75-90 million is simply not realistic in any way. That's where revenue sharing in general has some problems and why it's not black and white. The Wings lost nineteen million do they lose that much and share revenue as well?

Bottom line outside of Toronto, Vancouver and Minnesota there is very little revenue to share.

Once again, for some reason, you are arguing that there is no profit to be made in NYC. I won't get into that again.

Anyway, the Rangers make much more than $50 million, even in a bad year. The profits to be had in big markets with a $38 million are off the charts.

 

[NYIsles1*]

Anyway, the Rangers make much more than $50 million, even in a bad year. The profits to be had in big markets with a $38 million are off the charts.

That's simply not realistic in any way.

The Washington Times, Arthur Levitt, several publications and for what it's worth even Forbes claim the Rangers lose revenue. Several claimed the Rangers lost over thirty million dollars and have for a few years running.

These are not my numbers, this is what's been reported...

If this is the case and the Rangers make exactly the same revenue they make now they would break even with a fifty million dollar payroll. With the ten percent reduction Dolan must give the ticketholders and with likely reduced fan interest after a long stoppage it's likely closer to forty five million or even forty to break even.

 

[thinkwild]

The Rangers are reported by Forbes to declare a debt equal to their annual revenue. While the parent company's share value rises.

 

[NYIsles1*]

Where's the profit?

http://www.nydailynews.com/sports/hockey/story/232240p-199467c.html

The Daily News has learned that the Rangers were among the teams to have claimed to have lost the most money last season - approximately $40 million. The Players Association finds that claim incredulous.

http://www.nypost.com/business/28740.htm
9/17 article-link does not work..

The owners of the perennially money-losing Rangers hockey team are going to plug up a big red-ink hole with the National Hockey League shutdown of the season.

The Rangers haven't made the playoffs in seven years or any profits
in years. In fact, industry sources say the team loses between $25 million and $30 million a year with its highly paid players and steep overhead in Madison Square Garden arena.

http://washingtontimes.com/sports/20040910-124222-3766r.htm

But union officials say more than two-thirds of a listed $224 million loss for the 2003-04 season was because of six teams and about a third arose from just New York-area teams. Saskin declined to identify those teams, but both the Rangers and Islanders have sustained heavy losses in recent years.

 

[nyr7andcounting]

Most likely, the profit is in the Rangers parent company, Cablevision, and is helping their stock to quite well.

 

[thinkwild]

That the Rangers had a high payroll of UFAs, were losing money, and had low attendance in interest, is a good thing in my opinion. THis is the proper check and balance that show the system can work and has the proper incentives to do the right things and rebuild, while allowing their high priced players to be deadline traded to other teams, the 6 Canadian teams in Sathers case last year, who find them valuable. Washington onec scorned for ruining the game by signing all the high priced UFAs had to do the same thing. Whats wrong with that?

NYR should be losing money. It shows to me the system works.

 

[NYIsles1*]

Most likely, the profit is in the Rangers parent company, Cablevision, and is helping their stock to quite well.

Second quarter 2004, or the last time hockey was played..

http://www.cablevision.com/index.jhtml?id=2004_08_09

Madison Square Garden's second quarter revenue increased 25% to $165.8 million. Operating income for the second quarter totaled $107.7 million compared to an operating loss of $9.3 million in the prior year period.Second quarter AOCF was $119.9 million compared to AOCF of $9.2 million in the prior year period. The second quarter operating income and AOCF include the recognition of a $54.0 million payment received from the New York Mets(related to the exercise of a termination option under their rights agreement, effective for the 2006 season) and the related reversal of a $41.8 million purchase accounting liability. Additionally, the quarter includes aone-time expansion payment from the NBA of $10.3 million, which is recorded in net revenue.

Excluding these one-time items, second quarter net revenues would have grown 17% and AOCF would have grown $4.7 million or 49%, driven by playoff revenue from the Knicks and more event bookings.

 

[NYIsles1*]

Here is an article on 1/13:

[url]http://www.nydailynews.com/sports/hockey/story/270716p-231824c.html[/url]

Now, the club is hemorrhaging money - it claimed $31 million in losses last season - is nowhere near contention and is selling a rebuilding program that was desperately launched on the fly at the end of last season.

According to league sources, Dolan has little to say at Board of Governors meetings. And Sather's high-spending/low-winning tenure in New York has cost him the considerable influence he once wielded.

 

[nyr7andcounting]

Neither of these pieces of info really proves anything in regard to the Rangers.

The Rangers claimed a loss of $31 million last season. They didn't account for that, they claimed that. Still shows me they could be playing with their revenues.

As for the second quater numbers I don't see how thatis relevant. You said where is the profit, and I said well some of the revenue may be in entities other than the New York Rangers. By showing that Madison Square Garden as a whole have more revenues last year than the year before can support my point.

If you use numbers consistent with the Levitt report, which is all you can do because the NHL won't allow it's team to open it's books, in a bad year, like last year, with a $38 million hard cap the Rangers make $20 million. Minimum. In a bad year.

 

[NYIsles1*]

The Rangers claimed a loss of $31 million last season. They didn't account for that, they claimed that. Still shows me they could be playing with their revenues.

For openers it proves the idea the Rangers make seventy million in profit is simply not correct.

It's kind of interesting the garden claims high attendance but now they could be playing with their revenues?

It should also be noted these articles mention industry sources, not only the Levitt report.

As for the second quater numbers I don't see how thatis relevant.

It shows where the Msg revenue came from, clearly it was not from hockey, that's the relevance. If these are figures they give to the SEC they have to be correct because this help influence stock prices for Cablevision.

If you use numbers consistent with the Levitt report, which is all you can do because the NHL won't allow it's team to open it's books, in a bad year, like last year, with a $38 million hard cap the Rangers make $20 million. Minimum. In a bad year.

A bad year is when a team takes the ice with little expectation of winning, that may be the case with the next Ranger team if they follow thru on the youth movement they say they are going to do.

If the Ranger payroll was 77 million and they lose 25-40 million or more (we have seen one as high as a 40 million loss) AND by some mircale they can produce the exact same revenue's after a lockout without the star players and the ten percent ticket reduction the payroll would have to be forty seven million to break even with all things exactly the same before the lockout. I think it's fair to say things will not be the same when this is over for any American team, especially one that could only draw a rating equal to 60,000 homes with a 77 million dollar team over 82 games.

Do you really think the same corporations are going to support a Ranger youth movement, especially with Comcast and Time Warner taking over the garden's best television draw in the Mets next year?

The Knicks had over 2,000 empty seats for their last home game and the Rangers had attendance problems before the lockout. The television ratings for 82 games were horrible.

I think I'm being very conservative when I write the Rangers can only spend forty million and just break even.

 

[Jaded-Fan]

I admit to not having looked at the Rags finances at all. But a bit of common sense people. Even in NY with that market, with the payroll that team has, moron signings that they have made, missing the playoffs for a time closing in on a decade in a league that has mostly gate driven revenues and you need playoffs to make your money, would anyone be surprised if the Rags lost money?

The point is though that they can lose bundles of money and not really care about it, because of their ownership. It is a write off. So they are the sort of franchise that a Luxury tax would do nothing toward stopping the inflationary stupid signings. They could easily pay even a huge tax and fine and be just great.

 

[NYIsles1*]

The point is though that they can lose bundles of money and not really care about it, because of their ownership. It is a write off. So they are the sort of franchise that a Luxury tax would do nothing toward stopping the inflationary stupid signings. They could easily pay even a huge tax and fine and be just great.

All based upon the corporation that owns them at this time, which is of no value to the NHL because that is not what's best for the business as a whole. Not all teams are owned by billion dollar corporations, some have former players as owners with their money people backing them.

Cablevision, Walmart, Comcast, Little Ceasars...All these companies overspend and lose revenue operating NHL teams. Eugene Melnyk is a billionaire, Tom Golisano is a billionaire, it does not mean they have to destroy the NHL with bad contracts just to ice a hundred million dollar team in Ottawa or Buffalo.

Msg has had a lot of owners over the years. Paramount, Gulf and Western, ITT. Ownershps change. Charles Wang was listed as a billionaire, Howard Milstein is a billionaire.

The point is things can be run properly.

 

[nyr7andcounting]

If you use the numbers from the Levitt report, and make them consistent throughout all 30 teams, which is all you can do since the NHL won't allow us to see the books, than in 02-03 you have the Rangers revenue at about $80 million. What was their payroll in 02-03? $65 million? If $65 million is 75% of revenue then their revenue was $87.5 million. They lose money because they spend 40% of revenue on costs other than player salaries, which comes out to about $35 million. Thus, they spend $100 million with $87.5 million in revenues, according to the Levitt report. Now, the loss there is only $13 million. The reason for this is because the the Rangers probably spend more than $35 million on costs other than player salaries. But, either way you are looking at an 02-03 NYR revenue of about $80-$90 million.

Now, with a $38 million hard cap and continuing to have non-player related costs of around $35 million, you are looking at what would have been about a $14 million profit for the Rangers last year. Now, I still believe that some revenues of the Rangers are being hidden in other entities owned by Cablevision, so I believe that they would make a little more than that. Either way, you are looking at atleast $15 million in revenue in a season where the Rangers were not only bad but hadn't made the playoffs in 5 years and as you would say, couldn't sell out their arena and had horrible TV ratings. That is a horrible season with horrible management by the Rangers, and they are still making that much money. Thus, this is the only reason the big market owners are going along with this lockout. They know they have an advantage now and they don't like not playing because in a big market every day with no hockey the attention the hockey team gets is smaller and smaller, but they know that if they go along with it they are going to have automatic profits when the league comes back with a hard cap, and if they have any degree of success their profits are off the charts.

 

[Double-Shift Lasse]

I still like nyr7's hard floor/tax level/hard ceiling idea, although the concept of taxing at different amounts for different payrolls is also appealing, as I'd be willing to raise nyr's ceiling some in an effort to encourge and reward teams for building revenue. And I agree that a floor is needed to ensure that hared revenue is spent to keep the team competitive. And I'm not good with percentages, but I would think that a tie between revenues and payroll would have to be based on a median, rather than average or total revenue, given the current disparity in payrolls. One or two high payrolls can drive up the average.

Like other posters, I'm little concerned with teams with corporate ownership claiming losses. The corporation supplements the team to cover expenses. If my wife earns $100,000/year and writes me monthly checks for $100 to support my beer habit (which currently consumes all of my salary) while still paying our household bills, I may be losing money, but our family isn't.

 

[A Good Flying Bird*]

The point is, without a Cap and a Floor, there is no guarentee that a luxury tax will do anything but line the pockets of owners. That is not why I am pro-owner in this argument. And it is not just the Pirates, but other of the small market teams that took the money and ran. As was pointed out in another thread, the TB Devilrays did the same.

A Luxury Tax would like result in the same result in hockey. Can you or anyone else say otherwise?

The owners don't need and don't deserve guarantees.
A good luxury tax is good enough to help all franchises that can be helped.

If Pittsburg has good attendance, a good tv deal, a good stadium deal and still can't make it, then there must be something fundamentally wrong with the franchise and its management

 

[Jaded-Fan]

The owners don't need and don't deserve guarantees.
A good luxury tax is good enough to help all franchises that can be helped.

If Pittsburg has good attendance, a good tv deal, a good stadium deal and still can't make it, then there must be something fundamentally wrong with the franchise and its management

Really? With all of those factors being a given in your hypothetical it is the franchises fault and not the league environment? Give me a break. By the way, that sounds just like the Pirates in the example thread that I gave, doesn't it? Now hockey is not the mess that baseball is but that is what this is all about in my book, assuring that it does not get there (where it seems on a slide toward).

 

[A Good Flying Bird*]

Really? With all of those factors being a given in your hypothetical it is the franchises fault and not the league environment? Give me a break. By the way, that sounds just like the Pirates in the example thread that I gave, doesn't it? Now hockey is not the mess that baseball is but that is what this is all about in my book, assuring that it does not get there (where it seems on a slide toward).

Look, if Pittsburg has few big salaries to pay, if they have good attendance, a good tv deal, baseball's national contracts, luxury tax money, a good stadium deal, and more revenue sharing and then they still can't break even, something is wrong. Drastically. And it's not the system in this case.
DOn't get me wrong, baseball may as well not even have a luxury tax, the way they do it.
But something is wrong with baseball in Pittsburg if all of the above is true.

 

[Jaded-Fan]

Look, if Pittsburg has few big salaries to pay, if they have good attendance, a good tv deal, baseball's national contracts, luxury tax money, a good stadium deal, and more revenue sharing and then they still can't break even, something is wrong. Drastically. And it's not the system in this case.
DOn't get me wrong, baseball may as well not even have a luxury tax, the way they do it.
But something is wrong with baseball in Pittsburg if all of the above is true.

Yeah, a friggin' lousy luxury tax and though the contract with the players calls for spending the money on 'team development and/or players' (or something pretty close to that, I forget the exact language) obviously that can mean lining the owner's pockets. It is the system that sucks, not the franchise or fans, same with hockey, Pittsburgh supports the Pens very well since 1986. All that I have been saying that hockey needs to look at that when putting any new CBA together and be sure not to fall into the same trap.

 

[NYIsles1*]

If you use the numbers from the Levitt report, and make them consistent throughout all 30 teams, which is all you can do since the NHL won't allow us to see the books, than in 02-03 you have the Rangers revenue at about $80 million.

That's a very creative estimate on the Rangers actual revenue and only based on Levitts percentages of all teams. It's very fair to say the Rangers likely go well over the seventy five percent based on insurance (Bure-Richter) where the players make their full salary for a percentage of the season before insurance kicks in. Cash payment to Pens for Kovalev (3,999,99.99) and paying all eight players on both sides of that deal for the rest of 2002-03 which was part of that deal in exchange for the Sather demanding LaCouture. Just this year Tikkanen's lawsuit vs Msg nets him $250,000. Even Messier in his last deal has some salary deferred until
2010-2011. That's why Ranger payroll estimates went as high as ninety four million dollars the last two seasons alone and why your comparative just does not work.

What was their payroll in 02-03? $65 million? If $65 million is 75% of revenue then their revenue was $87.5 million.

Estimated Ranger payroll was 76 million, not counting some things I mentioned. It's very fair to say Ranger revenue (not Forbes estimates or the percentage in Levitt's report just do not apply to a team with this much extra expense, they are more the exception than the rule.

http://asp.usatoday.com/sports/hockey/nhl/salaries/teamresults.aspx?team=20

Either way, you are looking at atleast $15 million in revenue in a season where the Rangers were not only bad but hadn't made the playoffs in 5 years and as you would say, couldn't sell out their arena and had horrible TV ratings. That is a horrible season with horrible management by the Rangers, and they are still making that much money. Thus, this is the only reason the big market owners are going along with this lockout.

You cannot put the Rangers in the same boat with Philadelphia or Colorado or any team with a modern building withi those revenues. You also cannot include them with teams like them losing money and having playoff games. Your only estimate of Ranger revenue is Levitt's general application to all teams based on the seventy five percent figure. Meanwhile in the articles I posted industry sources are reporting the Rangers losses, regardless of the revenue. Not just Levitt.

They know they have an advantage now and they don't like not playing because in a big market every day with no hockey the attention the hockey team gets is smaller and smaller, but they know that if they go along with it they are going to have automatic profits when the league comes back with a hard cap, and if they have any degree of success their profits are off the charts.

I think they will make a marginal profit with a 35-40 million dollar team and I think if they do well they will make more. Profits off the chart just are not possible.

You really have to stop comparing the Rangers revenue producing sources with the major sports teams in the region. The game here only plays to one hardcore demographic of fan and nothing that happens over a six month season is going to change that because the media gave up on covering hockey so there is nothing to draw in casual fans or create revenue.

 

[nyr7andcounting]

I know it is a creative estimate based on the Levitt report... unfortunetly that's all we can base our numbers on since the NHL won't allow it's teams books to go public. I would love if they did but unfortunetly doing so would most likely hurt their cause. As for the Rangers, if you have some numbers from their books you would like to show me that would be great, and hopefully you can prove me wrong and they aren't losing the money they say they are. Until than all you can do is take the Levitt report and use those numbers for teams as well.

"That's why Ranger payroll estimates went as high as ninety four million dollars the last two seasons alone and why your comparative just does not work."

Do you really think they would have spent $94 million on salaries alone if they were only taking in 60 or 70 million in revenue? Considering their costs other than salaries are probably around $25-$35 million, do you really think they would have spent $120 million dollars in one season when it was obvious they were only taking in $60 or $70 million. Come on, Dolan is stupid, but not that stupid. The revenues are there and the little that the team does lose is by choice or simply because their team is run so horribly.