Phoenix LXXII: Send in the Clowns

[goyotes]

I'm not defending Phoenix as a "viable" market. But, if you look at the loses for more than half the NHL teams, one observation becomes clear. The current NHL business model makes it difficult for many markets to be viable in a gate driven economy. Couple that problem with potential fluxuations in currency between countries, and the NHL has serious problems as a league, IMO.

What is missing is significant television revenue in all but a select few markets with their own local deals. Television revenue allows NFL and NBA teams to be sustainable while their gate revenue falls well below other more successful teams. That, and signficant revenue sharing.

I think the NHL missed out in not adjusting revenue sharing, but I understand why the have's would not want to share more with the have not's. Particularly when the have's may believe that the have not's will always lose money since the demand for the product isn't present.

 

[Killion]

They should call in some independent financial consultants, who could help them get it right. But, they won't. Too much pride, greed, selfishness, etc.

Yes, the old "if its not my idea, its not a good one". Or deceitfully & manipulatively, tearing it to pieces, then pasting it all back together again with Elmers Glue. Claiming its now your idea, re-designed, much much better. Never mind the missing pieces. Massive holes in the sheet because you chewed up a few pieces of the paper & swallowed them in order to hide the evidence of your full-on thieving & plagiarism... as a Lawyer once accused me of the nasty.... but I digress.

The league couldnt withstand a full forensic accounting because almost all of their numbers are bogus, made the eff up. Look at whats going on in St.Louis? Checketts for years claiming the Scottrade was at full capacity, including 1000's of comp's & freebee's as being "sold tickets". I heard from someone who reviewed Greg Jamisons prospectus for investment in the Coyotes that the losses as reported were not nearly as severe as suggested by the NHL when one factors in Revenue Sharing & other mechanisms. We know that post Moyes, gone are the freebee's & comps, obviously admin & mgmnt cut to the bone, combined with savings elsewhere and on just about every front. Some interesting tax benefits/advantages & so on.

Sure the NHLPA was given access to the leagues books, but to conduct the kind of audit required, really figure whats going on, well, good luck with that. Best chance they had to do so was when Kelly was Exec Director, hiring a former World Class top flight ex-FBI Forensic Accountant. White collar fraud expert. Guy never really got started, resigning when the PA itself imploded in its power struggles. Was going to go over every single solitary franchises financials with a microscope. Until that actually done, and I just cant see it happening, well, here we are.

 

[CasualFan]

The other point I've been trying to make, which apparently gets ignored, is that the cap range system is so top heavy driven that it makes it that much harder to get a scenario where viability is possible for a handful of teams. The NHL itself created that situation in an attempt to actually ameliorate the effects of the revenue gap.

For whatever it's worth, I agree completely. I always attempt to phrase the statement as "Glendale is not a viable market for the NHL business model" or similar. If the wealthiest teams were willing to share more revenue, more markets would be viable. To date, through several work stoppages, there appears to be no appetite to share revenues in that manner. Stating that Glendale is not a viable market for the NHL business model is not a statement about Arizona as a hockey consuming market. As you point out above, the league creates the non-viability by virtue of it's policies.

QC, as an example, can't make it happen without taxpayers gifting an arena that's going to cost north of a half billion dollars, when all is said and done. This amounts to a net subsidy of similar scale to CoGs. Does that mean QC is also not "market viable"?

You've been posting this erroneous comparison for as long as I can remember. MOD

1) The business model of professional sports is predicated on publicly subsidized facility construction. With very rare exceptions NFL, MLB, NBA, NHL, and even MLS facilities are constructed largely with public funds, ie- "Construction Subsidies". Claiming that any market, in any sport, cannot "make it happen without taxpayers gifting an arena" is a demonstration of complete unawareness of how sports businesses operate.

2) Construction subsidies have little or nothing to do with market viability. MOD

3) To compare construction subsidies between Glendale and Quebec, you would likely need to use Glendale's construction subsidy from 2001 converted to today's dollars, then converted to CAD. You make no discernible attempt to obtain that data or make the subsequent conversions. MOD

4) Next, you'd have to look for operational subsidies. These are separate and apart from the construction subsidies outlined above. In Glendale, the city pledged $50MM for two seasons to the team owner. The city then approved $300MM more over 20 years to a potential owner in exchange for nominal rent and surcharges. In Quebec, the lease requires the team to pay substantial rent to the city. Further, the team owner is required to pay a substantial amount for naming rights to the arena.

5) Finally, to accurately compare Quebec and Glendale, you would need to calculate the net effect of Construction and Operational in each location to determine the total subsidy amount. Again, you make no discernible attempt to do this.

MOD

 

[Fugu]

With all due respect Fugu - I highly doubt that I'm the only one who has reached the conclusion that NHL "ice hockey" has not and never will be viable in the desert.

I think that's too broad a stroke of the brush. The following two posts represent what I'm getting at, specifically in bold:

Fugu -

This is what I have said as well. It's really strange. The League creates the cap, for the sake of the lower revenue teams, and 'competitive equity.' Then, they create the floor, so "the lower equity teams have to spend enough to field a decent team." (Never mind that it is to their advantage to do so, because in those markets, years of losing teams = no fans). Then, they link the floor to the revenue brought in my the higher revenue teams, which is essentially inflation. However, the lower revenue teams, whom the system is supposed to support, can't make enough to keep up, so they get left with losses.

Then, the league decides "Something must be done. We are paying the players too much." So, there is a lockout. And, the league puts the same system right back in place. It guarantees there will be another work stoppage, because the same thing will happen again.

And, long term, it means that there will likely never be expansion. No future possible market except Toronto2, and perhaps Quebec, could ever jump into this game and make it.

It's just amazing to me.

Like I say, I can't stop watching the train wreck...

I'm not defending Phoenix as a "viable" market. But, if you look at the loses for more than half the NHL teams, one observation becomes clear. The current NHL business model makes it difficult for many markets to be viable in a gate driven economy. Couple that problem with potential fluxuations in currency between countries, and the NHL has serious problems as a league, IMO.

What is missing is significant television revenue in all but a select few markets with their own local deals. Television revenue allows NFL and NBA teams to be sustainable while their gate revenue falls well below other more successful teams. That, and signficant revenue sharing.

I think the NHL missed out in not adjusting revenue sharing, but I understand why the have's would not want to share more with the have not's. Particularly when the have's may believe that the have not's will always lose money since the demand for the product isn't present.

Factor in that they make the decisions on where to move teams, without much support in helping things take root, and allowing situations that use arena placement (a critical factor as we've seen in several markets) to be determined by real estate development plans, and not something that contributes to the viability of an NHL franchise.

That's why I'm making this distinction between between market and current franchise viability. Even the current franchise might stand a chance if the baggage could be expelled (like the NHL's asking price as a starting point).

 

[CasualFan]

But there is still a subsidy as Quebecor will enjoy the full benefits of an arena without supporting the full costs.

That is wrong.

Actually, it looks exactly correct. Quebecor enjoys a large scale subsidy when they assume control of all building revenues without having any construction debt service obligations. Granted, they lease with multi-million dollar rent and naming rights payments. But those lease payments pale in comparison to the debt load on building the facility.

 

[cbcwpg]

Directed at me?

.

Nope... just an observation that it is going to be a stretch for anyone to break even.

 

[Fugu]

Nope... just an observation that it is going to be a stretch for anyone to break even.

Well, I answered it anyway. No worries.

 

[Nordskull]

Actually, it looks exactly correct. Quebecor enjoys a large scale subsidy when they assume control of all building revenues without having any construction debt service obligations. Granted, they lease with multi-million dollar rent and naming rights payments. But those lease payments pale in comparison to the debt load on building the facility.

CF, lemme give some info Dado is not reporting. You do know I respect the quality of your posts. But more information sharing is in order. I agree in part with you but...

First off, the city needed a new building anyway. The current arena is near 60 years old, and its was obvious a replacement was in order. City would probably go ahead with a new building.

Then, let me specify 25% shares of Quebecor media are owned by the public corp. This is'nt an entirely private owned corporation.

For some reason, Dado posted many months ago this made the "subsidy" badder and less acceptable then Glendale's. For god sake. We never to this day knew who were the supposed partners in Jamison's adventure, if there were. Glendale was giving 330M to somebody they did not know themselves! To this day, I never had the chance to understand his allegations.

The naming rights provided i the deal are 63,5M in the case of Quebecor media operating an NHL team in the building, and 33M in the case no NHL team end up in Qc city.

The lease is 25 years.

Now, rent and profits sharing depends on wheter or not an NHL team end up in Qc.

In this case, the rent Quebecor will have to pay is 4.5M a year with an NHL team. Quebecor media will also have to pay Qc city 10% of the profits generated by any non-hockey activities held in the building.

In the case of no NHL hockey team in the building, Quebecor media will pay 2.5M rent a year as well as 15% of any profits generated by any activities held in the building.

Quebec city will not have to pay a single cent for the management, heating, employees etc of the new bulding, which the current Colisee cost 500K a year to the city. City saves 500K a year.

The city will have the right to use the building for activities for a certain amount of days, this with no fees payable to Quebecor media.

I know current dollars versus future dollars is more complicated but Quebec city is not different then all the other cities mentionned in some previous posts.

Everybody here understood that an NHL team in Qc city will have a positive impact for the city, taxes, hotels, etc..., which justify an certain amount of investments by the city.

Of course Quebecor media gets some benefits, call it subsidy if you want, but nobody can say here Quebecor media is getting ALL the benefits out of this deal. Its the ALL benefits that I don't agree with.

Find a higher naming rights deal then 63M in the NHL? Hint: don't waste your time.

The single fact Dado and others constantly compare Glendale's situation to Quebec city is totally beyond me. Therefore, some have the right to rectify things and correct facts. I am doing it politely as I assume its the way some could answer me.

But I won't stay in a sterile discussion for a long time, lifetime is precious... I'll always enjoy a serious discussion.

Still want to know what was the rent Jamison was to pay ;-)

 

[Whileee]

Is it insignificant in your evaluation that the NHL needs someone to give them $170 MM as a starting point?

Noting that that figure has nothing to do with the market value of that team in that market.

The price is significant. But then if you want to compare "viability", then isn't the fact that other markets are more than willing to pay that price, even without substantial subsidies, speak directly to the viability of a franchise in that market?

I suppose you could say that any franchise is viable in any market as long as the league and the local municipal government ensure that the franchise owner receives enough subsidies on the price and ongoing operating costs to make it a viable proposition. But that doesn't take us too far with respect to analyzing this situation in relation to other markets.

 

[Confucius]

For whatever it's worth, I agree completely. I always attempt to phrase the statement as "Glendale is not a viable market for the NHL business model" or similar. If the wealthiest teams were willing to share more revenue, more markets would be viable. To date, through several work stoppages, there appears to be no appetite to share revenues in that manner.
MOD

If the wealthiest teams shared more revenue, ANYmarket would be viable. When is enough, enough. Halifax is a viable market if MLSE would only send them 25% of their revenue.

 

[Major4Boarding]

Find a higher naming rights deal then 63M in the NHL? Hint: don't waste your time.

Wasn't Xcel's naming rights deal north of $63M?

 

[MNNumbers]

If the wealthiest teams shared more revenue, ANYmarket would be viable. When is enough, enough. Halifax is a viable market if MLSE would only send them 25% of their revenue.

There are other ways to help the markets, too, SandS.

For one, write the CBA so that if the cap is X, then the floor is 50% of X. So, then you argue that "Columbus, Nashville, Minnesota, etc won't spend a dime more than 50% of X." If they don't, they will have boatloads more empty seats. I can't afford to go to games, but I can tell you that even here in Minnesota, which calls itself TheStateOfHockey, until Leipold broke open his piggy bank for Suter and Parise, the crowds were diminishing. The owners will figure that out - you have to give the fans hope. Or, the players will say "We want guarantees of more money being spent on salaries." Well, you have linkage in the CBA. That protects the players. No, the issue here is really that writing cap/floor language like that MIGHT cost the high revenue teams more, because they supposedly pay more in salaries, so if there needs to be a bonus to make the PA's %age, the high revenue teams pay more of it. That is a very small bit for something like the viability of the League.

 

[MNNumbers]

Wasn't Xcel's naming rights deal north of $63M?

$3M a year for 25 years.

http://hockey.ballparks.com/NHL/MinnesotaWild/index.htm

 

[Nordskull]

Wasn't Xcel's naming rights deal north of $63M?

... in this case, what I read was not accurate.

 

[Dado]

For some reason, Dado posted many months ago this made the "subsidy" badder and less acceptable then Glendale's.

Dado did no such thing.

All Dado did was point out that paying below replacement cost on a half billion dollar building (in Quebecor's case, WAY WAY WAY below replacement cost) is every bit as much a subsidy as being paid for a parking lot you don't even own. In the Quebecor example, it is in fact such a large subsidy that, dollar-wise, it is in the same ballpark as the all-in number in Glendale.

Dado has also repeatedly said that he doesn't see anything wrong with subsidies, if that's how the region's voters want to spend their money.

I'm fairly confident that Dado doesn't mind if I speak for him/her on this issue.

 

[aqib]

J


True that he could make it a NBA-centric arena only. The Arena Agreement has both a NBA/NHL and NBA only clause. The thing is though, the City has expressed it's interest in having a NHL team co-occupy the Arena, hence the $80M kicker.

Because of a referendum passed years ago Seattle and King County are required to make a profit on any arena investment. A second team and the associated home dates and spin off revenue gives them more revenue to play with to justify the expense.

 

[Nordskull]

Internet firm Jobing.com paid $25 million for 10-year naming rights in 2006.

 

[Nordskull]

Dado did no such thing.

All Dado did was point out that paying below replacement cost on a half billion dollar building is every bit as much a subsidy as being paid for a parking lot you don't even own. It is, in fact, such a large subsidy that, dollar-wise, it is in the same ballpark as the all-in number in Glendale.

Dado has also repeatedly said that he doesn't see anything wrong with subsidies, if that's how the region's voters want to spend their money.

I'm fairly confident that Dado doesn't mind if I speak for him/her on this issue.

Could you please ask Dado what was the rent Jamison was to pay?

 

[gstommylee]

Because of a referendum passed years ago Seattle and King County are required to make a profit on any arena investment. A second team and the associated home dates and spin off revenue gives them more revenue to play with to justify the expense.

I-91 is a Seattle city law not county law. King County doesn't have to make a profit on the arena.

I-91 doesn't apply to this deal (Deal uses public bonds (debt capacity) thus Seattle isn't investing anything directly into project) nor is it enforceable in courts. Seattle could easily exempt it.

 

[Dado]

Could you please ask Dado what was the rent Jamison was to pay?

No problem. His reply was:

"If I give you $5, I gave you $5. If I give you $10 and you give me $5 back, I gave you $5."

 

[Nordskull]

No problem. His reply was:

"If I give you $5, I gave you $5. If I give you $10 and you give me $5 back, I gave you $5."

Awesome deal for Glendale.

Tell him to a Have a good night and I am not interested in sterile discussions.

 

[aqib]

The potential issue is that while Hansen would get an additional $80 million if an NHL team is a co-tenant, he could easily save that same amount if he were to make the arena a primarily basketball facility, like Phoenix, Brooklyn, San Antonio, etc. By having a much smaller building, the will save quite a bit in construction costs and materials. Until final designs are released, we don't know exactly what the arena will look like.

I disagree. If you look at the going rate for hockey arenas now they aren't less than NBA arenas. Go back and look at the American Airlines Arena and BB&T center. They were built at the same time in the same market and the BB&T Center cost less primary due to lower land costs.

Jobing wasn't significantly more expensive than AT&T Center in San Antonio which was built at the same time.

 

[MNNumbers]

No problem. His reply was:

"If I give you $5, I gave you $5. If I give you $10 and you give me $5 back, I gave you $5."

Dado, Blizzard, CF --

Can we do this calculation please? I see on the jobing.com arena website that the arena cost $180M in 2003. Let's assume the team paid that out of pocket, ok? What number should we use for interest so we can compare it to the new QUE arena? And, how should we compare currencies? I would like to see this settled, so can we actually do this?

Thanks.

 

[CasualFan]

Dado, Blizzard, CF --

Can we do this calculation please? I see on the jobing.com arena website that the arena cost $180M in 2003. Let's assume the team paid that out of pocket, ok? What number should we use for interest so we can compare it to the new QUE arena? And, how should we compare currencies? I would like to see this settled, so can we actually do this?

Thanks.

I'd be interested to see Dado provide the analysis. After all, it is his claim that the subsidies are similar. I don't think we will be seeing that though, since it will only further demonstrate that his comparison is laughably inaccurate.

FYI: the team didn't pay out of pocket for the arena. Also, Glendale has refi'd their debt obligations several times so the interest costs are going to be a complex equation. On a napkin, without interest, the subsidy comparison is roughly QC $270MM CAD vs Glendale $590MM USD; all figures in 2013 dollars.

it is in the same ballpark as the all-in number in Glendale.

Must be a really big ballpark

 

[Confucius]

Internet firm Jobing.com paid $25 million for 10-year naming rights in 2006.

In 3 years could be another payday for the arena manager. Jamieson must have went on an allweek drunk after his opportunity went by.