Disecting the Levitt Report

[habitual_hab]

Dissecting the Levitt Report

Interesting read:

link

Questions concerning Levitt's mandate and NHL owners' accounting practices.

Click to read more...

 

[mr gib]

Interesting read:

link

Questions concerning Levitt's mandate and NHL owners' accounting practices.

wow that was awesome - did you hear steve shutt today?

 

[victor]

It appears that someone should disect the disection....

"And that's 75% of net revenue of nearly $2 billion (aka gross profit), not gross revenue, going for total player costs, not just salaries."

???

Where the author of the article really goes off the rails is his attempt to put into question Levitt's independence ("No surprise, despite his so-called independence, that Levitt came within $12 million of the league's own loss declaration and within 1% of its player cost ratio.")

Given that the author is a skeptic - I'll venture that he or she needs a refresher on auditing.

To quote, "To characterize an audit as "unqualified" is the best opinion an auditor can give. "

Not true - an unqualified opinion merely means:
1) An audit engagement has been undertaken.
2) The general standard has been followed by the auditor in all respects on the engagement
3) Sufficient appropriate evidence has been accumulated, and the auditor has conducted the engagement in a manner that allows him or her to conclude that the three examination standards have been met.
4) The financial statements, which include the balance sheet, the income statement, the statement of retained earnings, and the notes to the financial statements are fairly presented in accordance with an appropriate disclosed basis of accounting, which is generally accepted accounting principles
5) There are no circumstances which, in the opinion of the auditor, would require him or her to modify the wording of the report or to add an additional explanatory paragraph.

(From Auditing- An Integrated Approach - Lemon, Arrens, Loebbecke)

A qualified opinion (such as the "going concern opinion") expressed by the author may be issued in the event that the current financial statements do not reflect the above.

In short, this weblog appears long on rhetoric, and short on facts.

You'll forgive me for listening to the former chairman of the SEC, who puts his accounting designation on the line, over a weblog written by,

Well, by whom???

 

[me2]

I'm surprised they included travel costs in the "player costs", unless it was specific player costs such relocation allowances and local travel allowance and and not team travel costs between cities.

However I don't see what the author has against injury insurance, benefits, social security, and minor league player salaries. Both are genuine player costs.


"Levitt even includes minor league salaries, which would be fine if minor league revenues were included, but they were not."

Anyone know how much the minor league teams pay the NHL clubs for their prospects/players in the AHL? Are the free?

 

[SuperUnknown]

I'm surprised they included travel costs in the "player costs", unless it was specific player costs such relocation allowances and local travel allowance and and not team travel costs between cities.

However I don't see what the author has against injury insurance, benefits, social security, and minor league player salaries. Both are genuine player costs.


"Levitt even includes minor league salaries, which would be fine if minor league revenues were included, but they were not."

Anyone know how much the minor league teams pay the NHL clubs for their prospects/players in the AHL? Are the free?

Also, I don't remember the exact rule, but not all minor league salaries were included.

 

[habitual_hab]

Despite the author not being an accountant of Levitt's ability, he clearly raises some very serious doubts about how the NHL states its operational losses and how it arrives at its 75% player cost ratio. Combine that with NHL owners under-reporting revenues, as was clearly shown in the article, and one can see how the NHLPA feels about the NHL's salary cap argument based on its (fictional) 75% player cost ratio.

 

[habitual_hab]

I'm surprised they included travel costs in the "player costs", unless it was specific player costs such relocation allowances and local travel allowance and and not team travel costs between cities.

However I don't see what the author has against injury insurance, benefits, social security, and minor league player salaries. Both are genuine player costs.


"Levitt even includes minor league salaries, which would be fine if minor league revenues were included, but they were not."

Anyone know how much the minor league teams pay the NHL clubs for their prospects/players in the AHL? Are the free?

Benefits, NHL awards money etc. are paid by the NHL and are not individual team costs.

The owners clearly overstate player costs and operational losses and understate revenues.

 

[shadoz19]

As a Finance/Accounting professional, this is probably the best article I have read on the CBA situation. The author may not be someone of Levitt's background, but he makes some very good points.

 

[shadoz19]

To quote, "To characterize an audit as "unqualified" is the best opinion an auditor can give. "

Not true - an unqualified opinion merely means:
1) An audit engagement has been undertaken.
2) The general standard has been followed by the auditor in all respects on the engagement
3) Sufficient appropriate evidence has been accumulated, and the auditor has conducted the engagement in a manner that allows him or her to conclude that the three examination standards have been met.
4) The financial statements, which include the balance sheet, the income statement, the statement of retained earnings, and the notes to the financial statements are fairly presented in accordance with an appropriate disclosed basis of accounting, which is generally accepted accounting principles
5) There are no circumstances which, in the opinion of the auditor, would require him or her to modify the wording of the report or to add an additional explanatory paragraph.

(From Auditing- An Integrated Approach - Lemon, Arrens, Loebbecke)

A qualified opinion (such as the "going concern opinion") expressed by the author may be issued in the event that the current financial statements do not reflect the above.

Are you an accounting student? While the author may not be right in everything he/she says, I suggest you read up.

 

[ladybugblue]

I am not an accounting person but I did read the Levitt report and two things that most people are forgetting (or don't know) is
1. Two teams were in bankruptcy when this report was being prepared and there were a large amount of losses that aren't in the report because an audit was not possible on these two teams.

2. Interest and taxes are not included in the report. This is not necessarily just interest on your investments. This is interest and taxes on the arenas!! Think about the number of arena deals that are not working? Even if the NHLPA thinks the numbers are off slightly if you take into account the costs of interest on the building they need to play in the NHL is in much worse shape.

The author of the link is who exactly? I am sick and tired of the players whining that they will only make and average $1.3 million a year...most fans are blue collar and may not make that in a lifetime. I hope in a year they bring in replacement players and then the rich, greedy, players will realize the fans are the most important part of the deal.

 

[Legolas]

The problem for the NHLPA, as I think we all can clearly see, is that the Leavitt report, while often cited (although probably never read), has become basically irrelevant. Bettman's magic 75% ratio, while perhaps incorrect, has done its job - it's convinced most, if not all of us, that players are overpaid, the NHL makes no money and the system needs to be fixed. Even the most ardent of NHLPA supporters (such as myself) has a very difficult time trying to defend millionaires in the face of overwhelming public opinion along the lines of "The owners own the teams, they can do whatever they want to make money. The players are lucky they're being paid to play hockey". I'm not saying all of us have such a basic argument, but I think most people have some kind of sentiment along those lines.

So, the NHLPA has basically lost its chance to dissect and discredit the Leavitt report. All they've said, as far as I know, is that "we weren't consulted". Now Bettman gets to bring out the 75% number and it gets repeated and repeated and nobody even remembers anything about the report itself, except that Leavitt wrote it.

Dissecting the report, while raising serious questions, still doesn't get the players off the hook. Even if the ratio is exaggerated, if it dropped to even 60% or 55% which would represent a huge drop, I still think most people would think players are overpaid and most people would still take the owner's side. Essentially, for the players to win any kind of public support, I honestly think there needs to be information that all the NHL franchises are actually making huge profits, and I doubt that is coming.

 

[habitual_hab]

I am not an accounting person but I did read the Levitt report and two things that most people are forgetting (or don't know) is
1. Two teams were in bankruptcy when this report was being prepared and there were a large amount of losses that aren't in the report because an audit was not possible on these two teams.

2. Interest and taxes are not included in the report. This is not necessarily just interest on your investments. This is interest and taxes on the arenas!! Think about the number of arena deals that are not working? Even if the NHLPA thinks the numbers are off slightly if you take into account the costs of interest on the building they need to play in the NHL is in much worse shape.

The author of the link is who exactly? I am sick and tired of the players whining that they will only make and average $1.3 million a year...most fans are blue collar and may not make that in a lifetime. I hope in a year they bring in replacement players and then the rich, greedy, players will realize the fans are the most important part of the deal.

The author is Dubi Silverstein of Ranger Fan Central. On point 1, the author addresses the bankruptcies. On point 2, investment interest is deductible up to the amount of your investment income less any other investment expenses deducted on Schedule A. Investment income includes dividends, interest income and royalties. Disallowed investment interest is carried forward to future years. Margin interest is also deductible on Schedule A.

And how do you feel about Oprah's salary? Or Tom Hank's salary? Should get rid of that union too and bring in scab actors/entertainers. Most fans are blue collar and won't make in a lifetime what Janet Jackson makes in a year. She should be replaced by a scab.

 

[Sammy*]

I dunno, its the owners league. I think they should be able set whatever salary scale they want. Its no different than normal franchises where the franchisor is able to tell the franchisee what they are able to sell their product for & how much they are to pay for certain of their product.
No one is forcing these guys to play in the NHL. They are free to go & negotiate any sort of a deal they want in another league.

 

[habitual_hab]

I dunno, its the owners league. I think they should be able set whatever salary scale they want. Its no different than normal franchises where the franchisor is able to tell the franchisee what they are able to sell their product for & how much they are to pay for certain of their product.
No one is forcing these guys to play in the NHL. They are free to go & negotiate any sort of a deal they want in another league.

The owners cannot dictate players' salary scale without the blessing of the union. Otherwise it's illegal.

 

[ceber]

Someone should take the time to email Levitt with questions and concerns about the report. Maybe there'd be a response that settled a lot of the questions and finger-pointing.

 

[ladybugblue]

Someone should take the time to email Levitt with questions and concerns about the report. Maybe there'd be a response that settled a lot of the questions and finger-pointing.

That is a good suggestion. How would you go about doing this?
It is hard enough trying to email the NHL organization.

Here is a quote from Arthur Levitt in his press conference:
"Second, I am satisfied that, conservatively speaking, the League had a combined operating loss of $273 million for the 2002-2003 season. I say "conservative" because as a business person if I had looked at any of these teams, and I looked at their numbers, I would say, okay. That's well and fine. How about interest and depreciation? That's not included and that would have increased the magnitude of that loss to some $374 million. "
Here is the link...http://www.nhlcbanews.com/levitt_transcript021204.html

The interest in the report is not what some people are suggesting. Contact Levitt to clarify some of these issues but I don't know how as I am sure his email is private. But if others get clarification please share.

 

[ceber]

That is a good suggestion. How would you go about doing this?

Well, I found his address and phone number without too much searching... no email, though.

 

[Sammy*]

The owners cannot dictate players' salary scale without the blessing of the union. Otherwise it's illegal.

I know that. I take it you know that the union/players cant go out there & demand whatever they want without the blessing of ownership.
I had understood when you were talking about Oprah et al you were speaking philisophically. My bad.

 

[thinkwild]

OrdinaryLeastSquares site I think has done a great job examining the issues and using some critical thinking and some good links to backup his claims. I'd recommend anyone who hasnt checked it out to read it. I particularly liked his examing of who are all the owners. He has 3 or 4 really good articles there, they are all good.

I am not an accounting person but I did read the Levitt report and two things that most people are forgetting (or don't know) is
1. Two teams were in bankruptcy when this report was being prepared and there were a large amount of losses that aren't in the report because an audit was not possible on these two teams.

Probably Ottawa and Buffalo. Neither of which was in bankruptcy because of the CBA. Bot h would have been in bankruptcy if there was a $25mil hard cap.



Here is one article that really made me question Levitt:
Link

After the Levitt Report came out, Philadelphia Flyers chairman Ed Snider revealed his team was one of the 19 NHL teams the report said lost money in 2002-03. Team president Ron Ryan said the Flyers weren't among the teams whose bottom line was colored in red ink. So how does that work?
"Where it becomes confusing," Ryan told the Philadelphia Inquirer, "is that it sounds like there are two sets of books. The difference is that the report we make to the league, as directed by the players' association, is different from our own internal audited statement, which we view as the more accurate statement. So we were talking about two different reports."

The report given to the PA is different from their internal AUDITED books? Well first we learn there is 2 sets of books depending on the point they are trying to make. And we learn that their internal ones that show the profit are the AUDITED ones.

So what Levitt did wasnt an Audit. An audit is a very specific term as im sure our CRA poster will attest. To lie on an audit would mean you go to Jail. So obviously the levitt report wasnt an audit, because otherwise he would be in jail. Because as we know the real audited statements disagree with him

It was a consultants report to management. Based on books different from those that are AUDITED. And asks him to come to a conclusion, write a report, and make a PR appearance. He didnt do an audit.

 

[victor]

Are you an accounting student? While the author may not be right in everything he/she says, I suggest you read up.

No - I have worked public practice in audit - however.

I am very familliar with current GAAS standards - want to compare CV's?

 

[victor]

The report given to the PA is different from their internal AUDITED books? Well first we learn there is 2 sets of books depending on the point they are trying to make. And we learn that their internal ones that show the profit are the AUDITED ones.

I highly doubt that there are two sets of books - perhaps two different interpretations of the same books?

So what Levitt did wasnt an Audit. An audit is a very specific term as im sure our CRA poster will attest. To lie on an audit would mean you go to Jail. So obviously the levitt report wasnt an audit, because otherwise he would be in jail. Because as we know the real audited statements disagree with him

No, the auditor would not go to jail (even under the current SAROX provisions) - the CEO and CFO of the corporation would. That said, what Levitt agreed to meets the provisions of a professional audit.

It was a consultants report to management. Based on books different from those that are AUDITED. And asks him to come to a conclusion, write a report, and make a PR appearance. He didnt do an audit.

Did this audit meet the requirements of generally accepted auditing standards? If not, where does it not meet?

 

[thinkwild]

Oh I dont know, how about the part where the actual AUDITED books said the opposite of what he did? Is that a generally accepted auditing procedure to not notice the real audited statements and then come to a different conclusion that shows you lost money when in fact you made money?

Id say thats not meeting it, wouldnt you?