Let's do some accounting

[waffledave]

Okay, so I see alot of PA supporters who seem to believe the union when they claim that the financial reports by the NHL were all BS and the owners were hiding revenues.

A few weeks ago, I quickly did some bookeeping in my head, and by my estimation, I came up with the habs losing 3 million by the end of the season. Unfortunately, I did this quickly at breakfast and didn't write anything down, and I don't feel like doing to all myself again, so lets do it together.

First of all, we need to agree on what generates revenue and what is a cost. Here is what I think...(I'm choosing the Habs for this)

Revenue:
Ticket sales
Merchendise
Concessions
Advertising revenue
TV deal

Cost:
Player salaries
Taxes
Arena fees
Travel expenses
Front office salaries
Coaches and trainers salaries
Currency conversion

That's all I can think of on the spot. Feel free to add anything you think I forgot, or take off anything you think doesn't belong. Once we have a general concensus on what the different revenues and expenses are, we'll do our own books and see if the team really is losing money (Owner of the Habs says the team must make the third round of the playoffs to break even).

Click to read more...

 

[crossxcheck]

I'd say corporate sponsorship is a decent chunk of revenue.

 

[waffledave]

Yeah, I include that in Advertising revenue, but it should be more clear. Good point.

 

[Jocus]

I think the biggest thing that is forgotten time and time again is the appreciation of the team.

The value goes up with time and by the time they sell, they can make quite a capital gain, which is only taxed 50%, instead of the full amount.

And, don't say this is not important. If I buy a share in Bombardier or IBM, I have yearly expenses, yet don't see much revenue. I have to pay transaction fees and research fees, and at the end of the term, I sell at a profit.

The bottom line is that most of these businessmen are just that, business men. There aren't too many that are in it just for the fun. So, they wouldn't do anything if it made good business sense. They all want to see a return between 5 and 15%, and I would bet anything that 90% of the teams do achieve close to that.

 

[waffledave]

I think the biggest thing that is forgotten time and time again is the appreciation of the team.

The value goes up with time and by the time they sell, they can make quite a capital gain, which is only taxed 50%, instead of the full amount.

And, don't say this is not important. If I buy a share in Bombardier or IBM, I have yearly expenses, yet don't see much revenue. I have to pay transaction fees and research fees, and at the end of the term, I sell at a profit.

The bottom line is that most of these businessmen are just that, business men. There aren't too many that are in it just for the fun. So, they wouldn't do anything if it made good business sense. They all want to see a return between 5 and 15%, and I would bet anything that 90% of the teams do achieve close to that.

Interesting, but the argument is that the owners are lying about their operating costs. The players claim the owners overstate their losses, and you'd think they were making billions by how the players make it sound. We are simply trying to find out whether or not the teams finish at a profit or loss at the end of one year of operations.

 

[Jocus]

Interesting, but the argument is that the owners are lying about their operating costs. The players claim the owners overstate their losses, and you'd think they were making billions by how the players make it sound. We are simply trying to find out whether or not the teams finish at a profit or loss at the end of one year of operations.

You can not figure out if the owners are making money or not just by one year. Those numbers are part of the game. A lot of owners buy teams as an investment with plans to sell them later. You put the building depreciation, equipment depreciation, so why not put appreciation.

If there's losing so much money, they would just fold. Nobody would run a business that loses 50 millions per year and no hope of making a profit. Nobody has pockets deep enough to support this, without a good reason.

The problem is that they follow the GAAPs(Generally accepted accounting practices), which are guidelines. Nothing is set in stones. It says what most people do, and you decide what is best for your company. You must decide what best shows the financial situation of your business. You can easily play with the bottom line. So, both the NHL and the NHLPA are right in their numbers, just a difference in opinions.

 

[Levitate]

completely pointless.

we have no access to the teams books, we have no idea what their revenues and costs are.

this is an incredibly useless post disguised as an attempt to mean something

 

[waffledave]

I didn't put depreciation in there...we are only talking about expenses for one year and the only depreciation to be taken into account is stuff like broken sticks, which I think we can just omit.

And I don't think teams are losing big money. Like I said before, I counted that the Habs lost 3 million before the playoffs. However, I don't think the owners are hoarding 30 million for themselves and depriving those poor players from even more money.

 

[Jocus]

There would be building depreciation if they own the team or arena lease contracts. There would also be depreciation for planes or buses if they own them. Also, Zamboni and other ice making equipment, concession equipment. Cleaning and maintenance equipment as well. These are all fairly small amounts, but they do add up.

I think it's pointless to look at a one year period. You have to look at the life of a team and try to average the results somewhat.

Insurance would also be fairly high. Probably a lot of liability insurance in regards to the arena and fans.

And, I think you should add donations. I know this is not like the other expenses, but the Canadiens must donate money and time to local charities in order to attract fan. So, instead of paying RDS for airtime, they pay the Ronald McDonald Foundation and the foundation provides free media coverage. It's just another cost of doing business.

 

[CoolburnIsGone]

I think its almost impossible to really do the accounting because of the landscape of professional sports & their arenas. Several owners have had local governments build arenas for their teams. These owners create separate corporations to operate the arenas. They associate certain type of revenue with those corporations (like concessions and parking) which could be associated to the team itself. In addition, some owners associate the revenue from luxury boxes with the arena operating corporation (and a lot of ownerships wanted new arenas built due to the money that luxury boxes can generate). Further, if the arena was government funded, some states give yearly rebates to the organization to assist in the building & depreciation of the new arenas (this is the case in Florida as the team is the one that receives the rebate and not the arena). Conversely, certain ownerships associate some depreciation expenses of the actual building to the team itself instead of the operating corporation. Its called creative accounting which is what business men do to avoid revealing the true status of their companies (sometimes its a way to keep investors from selling all the stock during a slow period because you're making decisions to rebound, other times you have situations like Enron).

 

[mudcrutch79]

I didn't put depreciation in there...we are only talking about expenses for one year and the only depreciation to be taken into account is stuff like broken sticks, which I think we can just omit.

And I don't think teams are losing big money. Like I said before, I counted that the Habs lost 3 million before the playoffs. However, I don't think the owners are hoarding 30 million for themselves and depriving those poor players from even more money.

The owners can depreciate the contracts of the players for god's sake. That's huge. There was an article when the Oilers got sold in an accounting magazine...here's an excerpt.

With the help of Durwood Ashcroft, another local chartered accountant, from Deloitte & Touche (who, like Pennock and company, volunteered his time), the once-laughable deal was quietly starting to look better. "We didn't find out until late in the game about some written understanding between sports teams and Revenue Canada on how certain things would be taxed," says Ashcroft. "The Calgary Flames has been a limited partnership, as has Ottawa [Senators]. This allows a flow-through. You hope that what you paid for the franchise doesn't go down in value and this understanding allows you to take 60% of the purchase price as players' contracts and amortize it on a straight-line basis over four years. It can provide a fair-sized tax deduction."

Adds Nichols: "If we did nothing more than break even over the first four years, at least [we] would be in a position where we could get almost 100% of the investment as a tax writeoff against other incomes and still have the paper, the shares of the Oilers." In other words, the investors could have their cake and eat it, too. "If we get to the point where we take this public, we should be in a position to roll those limited partnership shares into public ones," continues Nichols. "We will have been able to take advantage of the tax write-down and end up with negotiable public shares that have some liquidity to them, and which didn't cost us that much at the time."

There are enough tax loopholes, and so little quality information about the true state of the teams finances available that this is a pointless analysis. I refuse to believe that a bunch of billionaires are completely unable to make sound business decisions when it comes to their hockey teams. This is a fight about who gets the biggest slice of the pie, and the owners are just as venal as the players. The only difference is, the players do something for me while the owners don't.

 

[Jocus]

There is a taxable benefit and a corporate benefit. Those two concept are completly seperate.

The profit you make for the IRS or Revenue Canada is figured out by the law. You can have different corporations, divide salaries, use deductions, etc....

However, the profit you report in your financial statement include all companies associated. If the same group owns the arena and the team, they will be consolidated.

In a perfect world, you get the taxable one as low as possible and the one in your financial statement as high as possible(so it looks better to investors and bankers).

The numbers from GAAP(from financial statements) are the ones that give a better picture of the financial situation. It doesn't matter how many corporations they have, as long as they are linked together, all the revenues and expenses are consolidated.

You can make an argument that it's a distinct company. But, if the concession money comes from hockey operations, it should be included. However, you have to prorate the expenses and revenues between the hockey, basketball(if they share the arena) and other events in the arena. And, this is the problem they have right now. There's no clear answer, it's all about judgement, so every accountant will have a different opinion. They should sit down and decide which GAAP they will follow and how they will follow them before talking about revenue sharing.

 

[me2]

The owners can depreciate the contracts of the players for god's sake. That's huge. There was an article when the Oilers got sold in an accounting magazine...here's an excerpt.

Wouldn't that cut both ways though? If they were depreciating one set of contracts which came with the company they bought, they'd be paying taxes on contracts aquired during their ownership when they sold.

That makes sense to me (without knowing the exact details of the how the company taxes are calculated).

 

[Jocus]

Wouldn't that cut both ways though? If they were depreciating one set of contracts which came with the company they bought, they'd be paying taxes on contracts aquired during their ownership when they sold.

That makes sense to me (without knowing the exact details of the how the company taxes are calculated).

Yes, it goes both ways. I don't know the details of this exactly, but companies do this to push their income tax back a year. Basically, you don't pay income tax the first year, then it catches up to you and you start paying them. If profit goes up, you will only feel the increase a year later, if it goes down, same thing, it'll take a year to get the savings. In theory, this is good because you can earn some interest on the money.

 

[justapantherfan]

Revenue:
Ticket sales
Merchendise
Concessions
Advertising revenue
TV deal

Cost:
Player salaries
Taxes
Arena fees
Travel expenses
Front office salaries
Coaches and trainers salaries
Currency conversion

Parking revenue should be added to this also.

 

[justapantherfan]

One other thing. Don't the clubs pay for equipment? If so it may not seem like a lot but I am sure it is a factor.