Phoenix CXXXVI - Coyotes up for sale again

[MNNumbers]

I think the mistake is taking the Coyotes at their word on losses. IceArizona was “losing tons of money” at a time when they were claiming they needed money to not move.

The fact that they haven’t moved makes me think they’re stretching the truth.

With a $70MM player payroll and no rent to speak of, I don’t see how it’s possible that they’re losing $33MM/year.

Well, let's try this:
Forbes says $46 is the average ticket price. 46 x 41 x 13500 = about 26M in ticket revenues. Less than 3M a year in Naming Rights = about 29M in revenues.
What else do they get money from?
In house concessions? Would you guess $15 per game per fan? That's 8M. Now we're up to 37M in total.
National TV? About 22M
National merchandise? GUESS!!!!! 5M
Total = 64M in revenue.
Then, add revenue sharing. They get the max. I think I calculated this at 22M earlier...
Now we're at 86M in total revenue.
As you say, 70M of that is eaten up by player salaries.
How much goes to coaching and training staff, other employees, travel and hotel costs, equipment, etc??? I don't know, but it has been said that player costs are only 50% of the cost of running a team. I'm perfectly willing, off the top of my head, to say that you could cut staffing and make that 60% goes to the players. If that's the case, then the support costs are 45-50M.
Add that up, and you have about 120M of costs. With 86M of revenue. There's your 30+M in losses.

Nevertheless, I see your point. It would seem fiscally wise to relocate from a place with those losses. This is, of course, the continual mystery.

As to the present rumor, I stand behind my earlier post:
This rumor is clearly NOT associated with a relocation, for any such information would be on a 'if you leak this, it's your life' basis, especially this early in the season.
This rumor suggests a local consortium.
We've heard rumblings about this for a long time.
No information on who. No firm information about a new arena.

It's still my opinion that there is a time line which has been established internally be the NHL, which is a deadline of sorts for a new arena, and if there is no firm commitment on a new arena by that time, then 'conversations' about 'things' will need be happen.

 

[cbcwpg]

I think the mistake is taking the Coyotes at their word on losses. IceArizona was “losing tons of money” at a time when they were claiming they needed money to not move.

The fact that they haven’t moved makes me think they’re stretching the truth.

With a $70MM player payroll and no rent to speak of, I don’t see how it’s possible that they’re losing $33MM/year.

It's not clear because all we have to go on are "published" reports like this one:

Arizona Coyotes Burned Through About $50 Million Last Year

Sources familiar with the team’s situation, but not authorized to speak about it publicly, say the Coyotes have been averaging cash losses of around $30 million a year the past five years, and during the latest fiscal year they estimate team lost some $50 million.

Take it for what it is, but I read a detailed article a few years back that stated it cost between $90MM and $115MM annually to operate and run a NHL team. The cap at that time was ~$65MM. So if you were a cap team you could still be spending anywhere from $25MM to $50MM above player salaries to run your team. There are so many factors that add to the expenses and it is a know fact that it costs more for the Western teams vs the Eastern teams to operate.

I like MN's break down above.

And I have no problem seeing teams in the NHL losing $30MM / year. Even my hometown team ( Jets ), which has some of the highest priced tickets in the league, some of the highest priced concessions in the league, and basically sells out every game... is not exactly rolling in the dough. So if they have a hard time making a profit, I would estimate a good 1/3rd of this league is losing money without too much trouble.

 

[The Feckless Puck]

I think the mistake is taking the Coyotes at their word on losses. IceArizona was “losing tons of money” at a time when they were claiming they needed money to not move.

The fact that they haven’t moved makes me think they’re stretching the truth.

With a $70MM player payroll and no rent to speak of, I don’t see how it’s possible that they’re losing $33MM/year.

IceArizona went from saying, "We're above revenue projections and will break even in two years or less," to, "Our losses are enormous," in about the same amount of time as it took for Glendale to read the Compliance Review report and renegotiate the Gila River Arena lease.

I have no doubt that the franchise has losses - perhaps even large ones, although the way the team has been managed recently I'd have to wonder whether they're under better control - but I wouldn't trust the accounting of IceArizona farther than I could throw Anthony LeBlanc. We have documented evidence that their methods are suspect.

 

[BattleBorn]

Well, let's try this:
Forbes says $46 is the average ticket price. 46 x 41 x 13500 = about 26M in ticket revenues. Less than 3M a year in Naming Rights = about 29M in revenues.
What else do they get money from?
In house concessions? Would you guess $15 per game per fan? That's 8M. Now we're up to 37M in total.
National TV? About 22M
National merchandise? GUESS!!!!! 5M
Total = 64M in revenue.
Then, add revenue sharing. They get the max. I think I calculated this at 22M earlier...
Now we're at 86M in total revenue.
As you say, 70M of that is eaten up by player salaries.
How much goes to coaching and training staff, other employees, travel and hotel costs, equipment, etc??? I don't know, but it has been said that player costs are only 50% of the cost of running a team. I'm perfectly willing, off the top of my head, to say that you could cut staffing and make that 60% goes to the players. If that's the case, then the support costs are 45-50M.
Add that up, and you have about 120M of costs. With 86M of revenue. There's your 30+M in losses.

Nevertheless, I see your point. It would seem fiscally wise to relocate from a place with those losses. This is, of course, the continual mystery.

As to the present rumor, I stand behind my earlier post:
This rumor is clearly NOT associated with a relocation, for any such information would be on a 'if you leak this, it's your life' basis, especially this early in the season.
This rumor suggests a local consortium.
We've heard rumblings about this for a long time.
No information on who. No firm information about a new arena.

It's still my opinion that there is a time line which has been established internally be the NHL, which is a deadline of sorts for a new arena, and if there is no firm commitment on a new arena by that time, then 'conversations' about 'things' will need be happen.

If we're willing to accept the Forbes estimate of ticket prices, why not accept the Forbes estimate of annual losses which averages out to $9MM over the past five years?

If they've only lost $45MM over the last five years as Forbes estimates then the team staying in Arizona waiting it out makes a lot more sense. At $9MM/year in Glendale, you can figure out a way to average 13,000/game as usual and somehow collect $17/person more and break even OR sell 4,000 more tickets per game and break even while keeping the same prices.

It makes a lot more sense than staying while losing tens of millions of dollars every year.

 

[Dirty Old Man]

In those 4 years, I estimate the total losses at 50M, because they extorted Glendale for 25M/yr for 2 years..

Um, a bit severe choice of words, eh? I'm no lawyer, but I don't think 'threatening to leave town' constitutes a criminal offense. If the NHL were going to kidnap council members' wives, publish revealing photographs, well, that's different. I mean, is there really a criminal offense here? Or just something you don't agree with? (yes, I know the textbook definition is "threatening for money", but that word implies something more severe) If you truly suspect a criminal offense, please explain, because I'm willing to learn.

They WERE PAID 25M/yr for 2 years by Glendale. See the neutral tone there?

 

[MNNumbers]

If we're willing to accept the Forbes estimate of ticket prices, why not accept the Forbes estimate of annual losses which averages out to $9MM over the past five years?

If they've only lost $45MM over the last five years as Forbes estimates then the team staying in Arizona waiting it out makes a lot more sense.

I would love to see the links that say 45M accumulated losses in the last 5 years. Can you supply?

 

[BattleBorn]

I would love to see the links that say 45M accumulated losses in the last 5 years. Can you supply?

Forbes.

EBITDA estimates are the second bar graph down: Arizona Coyotes on the Forbes The Business of Hockey List
Obviously it won't include interest and taxes, but I don't imagine taxes are much of a consideration on a losing venture and interest costs can't be that crazy. Even if they are, the incoming owner could likely get those under control if Barroway hasn't already.

 

[MNNumbers]

Um, a bit severe choice of words, eh? I'm no lawyer, but I don't think 'threatening to leave town' constitutes a criminal offense. If the NHL were going to kidnap council members' wives, publish revealing photographs, well, that's different. I mean, is there really a criminal offense here? Or just something you don't agree with? (yes, I know the textbook definition is "threatening for money", but that word implies something more severe) If you truly suspect a criminal offense, please explain, because I'm willing to learn.

They WERE PAID 25M/yr for 2 years by Glendale. See the neutral tone there?

Hey, I've got no problem with the team itself. What I HATE, because I distrust him completely, is the NHL brass and Bettman specifically.

The reality is that they said, "We have a sale for the team. It's going to go through. But, in the mean time, you need to put 25M in escrow for us, to cover the losses...." When, in actuality, there wasn't a sale.

So, maybe 'extortion' isn't the right word. Maybe, 'fraudulent extraction' is better.

What they did with the IA negotiations was nearer to extortion, in the sense that they preyed upon the very vulnerable city council with emotional threats of how awful an empty arena would be, even though every honest analysis had the city at least neutral with the team leaving. But, I don't mean extortion in the legal sense. I'm not really sure which unethical word would be correct there.

And, again, it's true that the city council fell for the whole thing. They SHOULD have been more savvy. I won't deny that. But, the way Bettman and the NHL gang dealt with the whole thing from the time they bought the team out of bankruptcy until Barroway had full possession was a reign of dishonesty. (And, that's the reason that I don't trust anything about the ownership situation there yet.)

And, DOM, please allow me to reassure you that I have no issue with the team being there, especially in the current situation. What I absolutely despise is the taxpayers being taken for a ride. Which they surely were in that case.

 

[MNNumbers]

Forbes.

EBITDA estimates are the second bar graph down: Arizona Coyotes on the Forbes The Business of Hockey List
Obviously it won't include interest and taxes, but I don't imagine taxes are much of a consideration on a losing venture and interest costs can't be that crazy. Even if they are, the incoming owner could likely get those under control if Barroway hasn't already.

That particular link also lists debt/value at 83%. With a value of 305M, that's about 250M in debt. I assume that is not counting the original 140M that the NHL put in, so adding that gets you 390 by my earlier analysis. Add one more year and you are very close to what I have been calculating.

EDIT: This is part of the mystery. It's a private organization. The real numbers are not available. That means the matter could be discussed forever with no clear answer.

My feeling is: If the Coyotes only lose 9M a year, then the entire league is awash in cash, because they have to be at the very bottom. That COULD be true. But it doesn't seem reasonable to me in the sense that owners continue to lose to the point where they need out. And, if the league were in that good of shape I think that Carolina would have sold much quicker, and that Florida wouldn't need the kind of subsides they negotiated from Broward County recently.

However, I respect your thoughts as well.

 

[BattleBorn]

That particular link also lists debt/value at 83%. With a value of 305M, that's about 250M in debt. I assume that is not counting the original 140M that the NHL put in, so adding that gets you 390 by my earlier analysis. Add one more year and you are very close to what I have been calculating.

I'm totally okay with the estimate of total debt, there's a ton of debt there even in the most conservative estimates. However, there's a major difference in the whole scenario if the team's cash is flowing out at $9MM/year instead of $30+MM/year.

With sports franchise values appreciating like crazy, an owner can pay to hang out in Glendale for a while trying to figure things out at a loss of $9MM/year with hopes that you'll have a great season or two and cut those losses down in the short term, you can't do that losing $30+MM/year.

 

[HisIceness]

I will do it. I will purchase the franchise.

 

[TheLegend]

That's because they have heard it before, seen what becomes of it, and decided it's not worth giving it any notice.

Not every 40 car pile-up is worth stopping to look at.

Yet it still can command pages worth of innuendo and snark.

 

[TheLegend]

Re: Forbes

Always felt something was weird when Ozanian (née Forbes) writes the Coyotes had cumulative losses over a period of years of $45 million then a few months later claims they burned through $50 million in a single one.

I’m going to presume some accounting practices are involved here. Like when a contract buyout being paid out over several years get recorded as one single transaction.

 

[MNNumbers]

My calculations include interest, of course. That goes away if some owner is actually paying out of pocket on the losses. The reason I calculate it that way is that, if the league is back-stopping the whole operation, which I still believe likely in some sense or another, then I'm sure the owners aren't paying that out of their pocket.

That particular part doesn't really matter in the large picture.

One thing that does apply here is that, for one season anyway, the losses would be 16+M less because of the Vegas expansion.

Also connected, and perhaps justifying my own thought unnecessarily, is that there is a big dive under IA's ownership as the various iterations of the arena management contract went through. Perhaps Forbes, in that bar graph, was calculating the effect of that differently than I am.

In any case, on average, even Forbes estimates 250M of debt a year ago, so more now. All of that is accumulated since 2009, so, quickly, 270/9 is 30M a year. Obviously, that's ballpark only.

 

[cbcwpg]

Re: Forbes

Always felt something was weird when Ozanian (née Forbes) writes the Coyotes had cumulative losses over a period of years of $45 million then a few months later claims they burned through $50 million in a single one.

I’m going to presume some accounting practices are involved here. Like when a contract buyout being paid out over several years get recorded as one single transaction.

Was just thinking what you wrote...

You are right. How can the same organization and same reporter even, have two totally opposite sides to the same story. You would imagine he or Forbes has sources that they would use all the time, yet ends up with such a wild difference. Doesn't make sense. And if the worst year the Coyotes ever had was say $9MM in a season, they would probably get that much in revenue sharing to cover it, or even a decent post season of 5 or 6 games might cover it, and it wouldn't be an issue.

$9MM / yr - an issue that can be fixed

but $30+ MM /yr - a problem.

 

[GJB]

I will do it. I will purchase the franchise.

You can do it tomorrow because it will still be for sale then.

OR 2 weeks from now....

 

[MNNumbers]

Was just thinking what you wrote...

You are right. How can the same organization and same reporter even, have two totally opposite sides to the same story. You would imagine he or Forbes has sources that they would use all the time, yet ends up with such a wild difference. Doesn't make sense. And if the worst year the Coyotes ever had was say $9MM in a season, they would probably get that much in revenue sharing to cover it, or even a decent post season of 5 or 6 games might cover it, and it wouldn't be an issue.

$9MM / yr - an issue that can be fixed

but $30+ MM /yr - a problem.

And, to further the mystery.....If 9MM/yr is accurate, which is obviously either covered by rev sharing or folds into franchise value going up, why is it so hard to draw good ownership?

The picture just doesn't go together well.

In reality, I'd like to see the actual equation for revenue and for operating income in that bar graph.

 

[BattleBorn]

And, to further the mystery.....If 9MM/yr is accurate, which is obviously either covered by rev sharing or folds into franchise value going up, why is it so hard to draw good ownership?

The picture just doesn't go together well.

In reality, I'd like to see the actual equation for revenue and for operating income in that bar graph.

$9MM/year is still a lot of money. If they're going to fix $9MM/year they've either got to spend to the cap and get some talent in hopes that they can purchase a winner or get some money together for an arena so they can make money on the arena and draw more people for a higher price in a better location so spending to the cap isn't a major issue.

I'm guessing the list of people willing to spend tons of money to get into a illiquid, money losing venture that almost definitely needs to lose more money in the near future or requires a massive (arena-sized) investment in the short-mid term future is fairly short at $9MM/year.

 

[aqib]

Just a few random comments/questions about Forbes and the Phoenix area in general:

Lets start with Forbes

1) When I was in the States doing financial research for a living a never used Forbes. I found they often had a flimsy basis for their articles and the quality if their analysis was below that of a freshman year intern, but when it comes to their franchise valuations people seem to trust them without question.

2) If you look at any franchise sale and the most recent Forbes valuation prior to the sale they are almost never accurate. Yes there are cases where some rich dude wants a team so bad he way overpays but he has so much money it doesn't matter (see Ballmer, Steve) but even outside of that their most recent valuation has nothing to do with what the teams sell for.

3) Is there any source that can full flesh out all the different revenues that are flowing into the team? For example you go on the Coyotes website and there are ads for Mayo Clinic and Geico. How much are those companies paying? I haven't been to a Coyotes in AZ, but if they are anything like every other sporting event I've been to there are promotions and an official airline/govery store/gast station/cookie/etc of the team. What does that bring in? We know the value of the NBC and SportsNet deals but do we know what revenues from Center Ice, Game Center or any overseas broadcasting deals? I remember reading in 2012 that the rule of thumb for valuing sports teams was 4x revenue. So if all these sources add up to $25 million a year thats $100 million in value.

Phoenix in general

4) I remember Reinsdorf saying when he was looking to buy the team that the Valley was sprawling West and that eventually Glendale would be the center of the valley. Now I know the recession derailed a lot of development but since the economy is better now has that picked up? Is there more going on in the West Valley that would make Glendale less undesirable as an arena location than before?

 

[KevFu]

2) If you look at any franchise sale and the most recent Forbes valuation prior to the sale they are almost never accurate. Yes there are cases where some rich dude wants a team so bad he way overpays but he has so much money it doesn't matter (see Ballmer, Steve) but even outside of that their most recent valuation has nothing to do with what the teams sell for.

Fair value for a franchise is never going to be the sale price.

Sales happen two ways:
- I want out, who wants this team? Sure, I'll take it... for ____. Okay, fine, it's yours.
- I want to buy your team, let me make you an offer you can't refuse. (Very, very, rare).

Forbes is taking the average of the two. Which means they're always "wrong" on a sale price.

Two billionaires are never going to reach a fair agreement. Someone is going to take advantage of the other in a negotiation. That's how they became billionaires in the first place.

 

[varano]

It's not clear because all we have to go on are "published" reports like this one:

Arizona Coyotes Burned Through About $50 Million Last Year

Sources familiar with the team’s situation, but not authorized to speak about it publicly, say the Coyotes have been averaging cash losses of around $30 million a year the past five years, and during the latest fiscal year they estimate team lost some $50 million.

Take it for what it is, but I read a detailed article a few years back that stated it cost between $90MM and $115MM annually to operate and run a NHL team. The cap at that time was ~$65MM. So if you were a cap team you could still be spending anywhere from $25MM to $50MM above player salaries to run your team. There are so many factors that add to the expenses and it is a know fact that it costs more for the Western teams vs the Eastern teams to operate.

I like MN's break down above.

And I have no problem seeing teams in the NHL losing $30MM / year. Even my hometown team ( Jets ), which has some of the highest priced tickets in the league, some of the highest priced concessions in the league, and basically sells out every game... is not exactly rolling in the dough. So if they have a hard time making a profit, I would estimate a good 1/3rd of this league is losing money without too much trouble.

Forbes had some articles about team profit etc a few years ago that you can reference. Its a bit of a mixed bag. It think 25% of the league makes 10m+, 50% make between 0-9Million, and 25% had losses. Give or take.

 

[varano]

Just a few random comments/questions about Forbes and the Phoenix area in general:

Lets start with Forbes

1) When I was in the States doing financial research for a living a never used Forbes. I found they often had a flimsy basis for their articles and the quality if their analysis was below that of a freshman year intern, but when it comes to their franchise valuations people seem to trust them without question.

2) If you look at any franchise sale and the most recent Forbes valuation prior to the sale they are almost never accurate. Yes there are cases where some rich dude wants a team so bad he way overpays but he has so much money it doesn't matter (see Ballmer, Steve) but even outside of that their most recent valuation has nothing to do with what the teams sell for.

3) Is there any source that can full flesh out all the different revenues that are flowing into the team? For example you go on the Coyotes website and there are ads for Mayo Clinic and Geico. How much are those companies paying? I haven't been to a Coyotes in AZ, but if they are anything like every other sporting event I've been to there are promotions and an official airline/govery store/gast station/cookie/etc of the team. What does that bring in? We know the value of the NBC and SportsNet deals but do we know what revenues from Center Ice, Game Center or any overseas broadcasting deals? I remember reading in 2012 that the rule of thumb for valuing sports teams was 4x revenue. So if all these sources add up to $25 million a year thats $100 million in value.

Phoenix in general

4) I remember Reinsdorf saying when he was looking to buy the team that the Valley was sprawling West and that eventually Glendale would be the center of the valley. Now I know the recession derailed a lot of development but since the economy is better now has that picked up? Is there more going on in the West Valley that would make Glendale less undesirable as an arena location than before?

Theres way too much that goes into a business valuation for forbes to ever be accurate to a proper degree. They might get to about 80% accuracy of the value.

 

[StreetHawk]

Theres way too much that goes into a business valuation for forbes to ever be accurate to a proper degree. They might get to about 80% accuracy of the value.

Well, they don't have all of the information. These are private entities, so the information isn't public. I only look at the Forbes valuation in terms of how they rank teams in each league from #1 to the lowest valued team. Blues, prior to the Rams moving were like #25/26 in value in the NHL. The year the Rams leave, the Blues move up to #17/18 or something.

 

[Tom ServoMST3K]

I don't think I've ever had faith in Forbes evaluations.

 

[aqib]

Fair value for a franchise is never going to be the sale price.

Sales happen two ways:
- I want out, who wants this team? Sure, I'll take it... for ____. Okay, fine, it's yours.
- I want to buy your team, let me make you an offer you can't refuse. (Very, very, rare).

Forbes is taking the average of the two. Which means they're always "wrong" on a sale price.

Two billionaires are never going to reach a fair agreement. Someone is going to take advantage of the other in a negotiation. That's how they became billionaires in the first place.

Well for the most part intermediaries are involved. Its usually Goldman Sachs, Morgan Stanley, or JP Morgan Chase that brokers majoy league sports sales. They have the contacts within the leagues so they know the guys who maybe interested in selling and who is interested in buying. I remember Browns owner Jimmy Haslam talking about how he wound up being part owner of the Steelers and he was at a meeting at Chase and he happened to meet a sports banker and he gave him his card and said if any teams came up for sale to let him know so when the Steelers were looking for investors the guy called him. So I figure these banks would have better numbers than Forbes.