Richard Peddie says NHL lacks financial transparency

[Fugu]

http://www.theglobeandmail.com/spor...lacks-financial-transparency/article14945914/

An excerpt published on Oct 19 in The Globe & Mail.

Some interesting comments by the man who ran MLSE, although generally supportive of Bettman, the individual.

...
The Leafs’ operating profits number is a little lower than the figure listed in Forbes – but again that is operating profits, not net income. I agree with the assertion that at least eighteen teams lose money, and again that is at the operating line. The team losses and the total league losses would be much more at net income (after interest, depreciation, amortization and taxes – all legitimate expenses).
...
The NFL has a broadcast deal that gives each team about $110-million per year. That money essentially pays for each team’s payroll. By comparison, the NHL U.S. broadcast deal is tiny and distributes only $5-million per team. The impact of this amount of media revenue and the difference between operating income and net income are things that most sports writers simply do not understand.
...

For one thing, revenue sharing is not the answer when the entire league is losing money. That would be like moving deck chairs around on the Titanic. For another thing, the NHL simply spends too much on its players. And big clubs such as New York and Toronto have spent millions in capital to generate their high revenues. As I write this, the Rangers are spending $1-billion of their own money redoing Madison Square Garden.
...

Some fans want to know what Gary Bettman’s salary is. I actually don’t care what his salary is. I want to know about Phoenix. Why are we as a league keeping that franchise afloat? Should the Toronto Maple Leafs be helping out a chronically losing franchise? What’s happening with the New Jersey Devils? Are they in trouble? The problem is that some 100 people attend when every franchise is invited to NHL meetings, and there are always leaks to the media. Maybe that’s why Gary is not prepared to be fully transparent.
...


The other thing Gary Bettman and I disagreed about was the size of the league. A lot of good people are trying to make the Southern U.S. clubs succeed, but I simply don’t think that some of them will ever make it. I remember sitting in Gary’s office about three years ago talking about contraction. I said we should have only twenty-four clubs, but we agreed to disagree. Gary won’t talk about contraction, and to the best of my knowledge it was never fully analyzed – and, if it was, it never came to the board.

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[Killion]

Huh. Well those are most certainly some interesting & enlightening comments. He was clearly biting his tongue & holding back while sitting behind his desk at the ACC, and thats putting it mildly. I cant imagine Bettman wouldve been all that thrilled in reading those comments which interestingly may have precipitated his conversation with Duhatschuk more recently?... I'll have to read this more fully but on the surface, some almost Bombshell's. The inference that the Commissioners mildly delusional & completely myopic. Very interesting indeed.

 

[htpwn]

The comment on Phoenix is interesting.

How many other owners feel the same way?

No surprise, really, on the rest. A former NHL executive siding with the Owners in a labour dispute, disliking the "combative" way the media sometimes challenges Bettman, etc.

 

[Fugu]

The comment on Phoenix is interesting.

How many other owners feel the same way?

No surprise, really, on the rest. A former NHL executive siding with the Owners in a labour dispute, disliking the "combative" way the media sometimes challenges Bettman, etc.

I found his idea that contraction was necessary pretty interesting.

I tend to believe contraction is the best solution to finding a workable economic model for a league that probably will always have the majority of its revenue derived locally.

 

[Killion]

I found his idea that contraction was necessary pretty interesting.

... ya, and Id hazard to guess his opinion on that is shared amongst a number of
executives & members of the BOG's, and a lot more than just the Big 8 or Top 10.

 

[Avec Fromage*]

He certainly makes a good point on contraction, but the NHL will never go for that. It's geared to expand in the next few years, actually. No way they leave the conferences uneven for long.

 

[Dirty Old Man]

Of course contraction's a good idea.... for the Toronto Maple Leafs. But for the league at large?

The players will never think so. Never.

 

[Fugu]

Of course contraction's a good idea.... for the Toronto Maple Leafs. But for the league at large?

The players will never think so. Never.

The peripheral players? Agree. The stars and guys who believe they're better than peripheral players? Maybe not, as their own earnings could increase.

 

[cujoflutie]

Of course contraction's a good idea.... for the Toronto Maple Leafs. But for the league at large?

The players will never think so. Never.

The peripheral players? Agree. The stars and guys who believe they're better than peripheral players? Maybe not, as their own earnings could increase.

At the end of the day the players want the most cash paid out to them. So how would contraction achieve this?

Let's say they contracted by 2 teams;
-46 player jobs cancelled there
-that is still a loss of hockey related revenue so their pie shrinks.
-that being said the NHL roster size was reduced from 24 to 23 with the last expansion so with a 24 man roster and 2 teams nixed, that would create 10 more jobs for players.
-another solution could be to increase the players share of the pie. If they were to nix say Phoenix and Florida that would help the revenue per game as those teams are usually lower draws on the road too.


But here's why it wont happen; first off Bettman is incredibly stubborn at admitting his own faults. I mean he practically takes pride in the fact that he's locked out 10% of the games in his tenure. You could easily argue taht 1997 expansion was the biggest blunder during his tenure. The other reason is that it's my understanding expansion fees would not count as hockey related revenue so would contraction expenses not count as the same?

 

[aqib]

There is no need to cut 6 franchises when there are 6 places you can put teams like QC, Markham, Hamilton, Seattle, Portland, and Cleveland. You also have Houston and KC as options too.

 

[Fugu]

At the end of the day the players want the most cash paid out to them. So how would contraction achieve this?

Let's say they contracted by 2 teams;
-46 player jobs cancelled there
-that is still a loss of hockey related revenue so their pie shrinks.
-that being said the NHL roster size was reduced from 24 to 23 with the last expansion so with a 24 man roster and 2 teams nixed, that would create 10 more jobs for players.
-another solution could be to increase the players share of the pie. If they were to nix say Phoenix and Florida that would help the revenue per game as those teams are usually lower draws on the road too.

Let's say you cut 6 franchises, with an average HRR of $60 million. That's a loss of $360 million from overall HRR, leaving 24 teams to share: $3300 MM - 360 MM = $2940. The average HRR is now $122.5 million per team (assuming they keep the same 82 game schedule).

As far as distribution of the central revenue, you have 24 teams sharing the now greater proportion of central revenue, so each team actually receives more of the shared money.

6 teams x 26 avg roster spots = 156 fewer players

50% of $3.3 billion HRR @ [26 roster spots, 30 teams] = $1.65 billion/780 players = $2.11 million/player

50% of $2.94 billion = $1.47 billion/624 players = $2.36 million/player


I'm not sure the PA has ever been about preserving as many union jobs as possible over creating the best conditions for the majority of players (especially guys who will be there more than a token 1-2 yrs). The careers are too short to sacrifice value for quantity, and furthermore, the shots are called by the stars and players with some longevity in the league.

 

[No Fun Shogun]

Look.... you can have the opinion that the NHL should only have 24 teams, but at this point making this argument is about akin to a dog barking at a tree. What's it really accomplishing?

Unless he has a billion and a half or so dollars to pay for a multi-team buyout to allow for contraction, at which point his opinion may hold more water.

 

[MoreOrr]

I found his idea that contraction was necessary pretty interesting.

I tend to believe contraction is the best solution to finding a workable economic model for a league that probably will always have the majority of its revenue derived locally.

Now wait a minute, I've just gleaned so far, but he's saying that the League pays the players too much, and that there should be contraction to fewer teams. Aww, doesn't something sound odd about those two things together? Sounds like a guy who simply wants a smaller group of owners to pocket more money. Those two statements cause me to question the whole mentality of this guy; contrary to those who are probably grinning from ear to ear with the thought that this guy is confirming what they've always thought about contraction.


Ok, just to add that now I've done more than just "gleaned" and I haven't changed my original reaction. I will say though that I completely agree that NHL players are payed too much on the whole with respect to the overall revenue potential of the League; and yes, part of the reason that has become the reality may have to do with the League's lack of transparency. However, I can't see how Bettman can be fully responsible for that lack of transparency. And his point that revenue sharing in the NHL should not be at all compared with revenue sharing in the other Leagues, that also makes a whole lot of sense.

 

[Killion]

...However, I can't see how Bettman can be fully responsible for that lack of transparency.

Well if not Gary Bettman, Daly & the rest of Mandarins at NHL HQ then who? These guys set the agenda's for BOG's Meetings. Some subjects must be either deliberately left off the dockets or framed in such a way that the discussion wont veer into red zones whereby one or more of the attendee's becomes privy to whatever, then goes out & spill's the beans to a member of the media. Some information would be on a "need to know" only basis. Theres a real hierarchical & caste system going on there. Peddie as an employee of MLSE and even as an Alternate Governor wouldnt be on the "need to know" list and wouldnt have access to anything at the league level beyond cursory general inf. Doesnt rank or rate that kind of security clearance as he's not an actual owner & full Governor, member of the Insiders Club & even then & there; several more levels of security clearances & "need to know".... like in the opening sequence to Get Smart. Elevator, steel bars, multiple vault doors, another elevator, more hallways & doors, just on & on. Some tinfoilers' think there are 18 levels of security above the US President, stuff that even he doesnt know about because he's only there for 4 or 8 years but I digress.

 

[sawchuk1971]

There is no need to cut 6 franchises when there are 6 places you can put teams like QC, Markham, Hamilton, Seattle, Portland, and Cleveland. You also have Houston and KC as options too.

cross cleveland off the list.. please?.....

 

[CanadienShark]

The peripheral players? Agree. The stars and guys who believe they're better than peripheral players? Maybe not, as their own earnings could increase.

True, but I think there will be a substantial portion that think contraction would be detrimental to the development of the sport, and thus would be opposed to it. I have no doubt that many would be in favour of it though - but mainly those on expiring contracts. Those such as Weber, Crosby, etc. that are effectively locked up long term really don't have much to gain by contraction, and something to lose.

I'd love to hear your opinion on this though, as I feel like you often have good insights - usually ones that I lack.

 

[CanadienShark]

Let's say you cut 6 franchises, with an average HRR of $60 million. That's a loss of $360 million from overall HRR, leaving 24 teams to share: $3300 MM - 360 MM = $2940. The average HRR is now $122.5 million per team (assuming they keep the same 82 game schedule).

As far as distribution of the central revenue, you have 24 teams sharing the now greater proportion of central revenue, so each team actually receives more of the shared money.

6 teams x 26 avg roster spots = 156 fewer players

50% of $3.3 billion HRR @ [26 roster spots, 30 teams] = $1.65 billion/780 players = $2.11 million/player

50% of $2.94 billion = $1.47 billion/624 players = $2.36 million/player


I'm not sure the PA has ever been about preserving as many union jobs as possible over creating the best conditions for the majority of players (especially guys who will be there more than a token 1-2 yrs). The careers are too short to sacrifice value for quantity, and furthermore, the shots are called by the stars and players with some longevity in the league.

Somehow, I don't think it'd be so cut and dry. But that said, I'm drunk, and would need to run the numbers myself. I still don't think it's viable, simply because of marketing purposes. But that said, as an economics student, I've realized that a lot of theories sound great until they're put into practice.

 

[Killion]

cross cleveland off the list.. please?.....

Well, if the natural gas finds are as prolific as projected in the Ohio Valley & money starts rolling in to the state why not? Clevelands' got deep hockey roots and turned down an invite from the NHL in the 40's. Then fought to gain entry in the 50's but spurned. The AHL franchise through the 50's & 60's with its own Junior development system, whole 9 yards. Be an excellent rival for Columbus though many fear it would cause damage to the Blue Jackets. Im not so sure about that. I think it might actually do them a lot more good than harm.... another market that I find intriguing, but only if the NBA Bucks do leave in 2017 is Milwaukee. Great market for hockey, rivalry with several teams but most notably Chicago.

 

[Brick City]

I suppose Richard Peddie missed the sale of the Devils for $320m to an ownership group worth over $2b. A basic internet search would have answered his question about New Jersey's situation.

That aside, this article reeks of stereotypical traditional big market contempt towards the rest of the league. Especially the attempts to justify the NHL's completely anemic revenue sharing. It is well documented that the NFL owners decided to equally share their resources for the strength of the league - that 'all boats rise together' mentality completely eludes the NHL owners.

 

[Krishna]

I suppose Richard Peddie missed the sale of the Devils for $320m to an ownership group worth over $2b. A basic internet search would have answered his question about New Jersey's situation.

That aside, this article reeks of stereotypical traditional big market contempt towards the rest of the league. Especially the attempts to justify the NHL's completely anemic revenue sharing. It is well documented that the NFL owners decided to equally share their resources for the strength of the league - that 'all boats rise together' mentality completely eludes the NHL owners.

Yep, though I choose to believe that teams and ownership groups yhat are not about profit only would believe in the 'all boats rise together' mentality. The big market teams are likely the minority in being against that idea.

And regarding the us tv deal, I still think the league put itself in a bad spot. Signing a ten year deal with such a low value per year is going to look even more stupid in the future than it looked when it was signed. They could likely have gotten more had they signed a shorter term deal or didn't sign a mostly exclusive deal. Fox sports net and cbs sports net are increasing in popularity, albeit slowly, but getting money from more than one source would have been better.

 

[Fugu]

Look.... you can have the opinion that the NHL should only have 24 teams, but at this point making this argument is about akin to a dog barking at a tree. What's it really accomplishing?

Unless he has a billion and a half or so dollars to pay for a multi-team buyout to allow for contraction, at which point his opinion may hold more water.

We know the arguments as we've had them here, and there often some assumption that the league actually has to pay someone to shut a team down. What if an owner doesn't want to lose money any longer, and cannot find a buyer? So he hands the keys over to the NHL. They choose to relocate (if they have that option) or shut things down.

What actually is missing is how Peddie came to that conclusion, and what he considered. May need to read the book, but who knows if he really addresses it?

 

[Killion]

I suppose Richard Peddie missed the sale of the Devils for $320m to an ownership group worth over $2b. A basic internet search would have answered his question about New Jersey's situation.

This thread is based on excerpts from his book "My Dream Job" (re-printed just recently in the G&M) which was written before the transaction in NJ.

They could likely have gotten more had they signed a shorter term deal or didn't sign a mostly exclusive deal. Fox sports net and cbs sports net are increasing in popularity, albeit slowly, but getting money from more than one source would have been better.

Yes I agree, and particularly with the changing face of new technologies & media, to box yourself in like that long-term struck me then as being somewhat shortsighted. Just in the last 2yrs alone some major changes & shake-ups, for sure more to come.

 

[Fugu]

Now wait a minute, I've just gleaned so far, but he's saying that the League pays the players too much, and that there should be contraction to fewer teams. Aww, doesn't something sound odd about those two things together? Sounds like a guy who simply wants a smaller group of owners to pocket more money. Those two statements cause me to question the whole mentality of this guy; contrary to those who are probably grinning from ear to ear with the thought that this guy is confirming what they've always thought about contraction.

Could it not sound like he wants the group of teams that account for say the majority of the revenue to keep more of it instead of propping up teams that appear to never be able to make money? He knew the size of the checks being written to revenue transfer funding.

Ok, just to add that now I've done more than just "gleaned" and I haven't changed my original reaction. I will say though that I completely agree that NHL players are payed too much on the whole with respect to the overall revenue potential of the League; and yes, part of the reason that has become the reality may have to do with the League's lack of transparency. However, I can't see how Bettman can be fully responsible for that lack of transparency. And his point that revenue sharing in the NHL should not be at all compared with revenue sharing in the other Leagues, that also makes a whole lot of sense.

I think they became overpaid because too many teams were vying for elite talent. The players take the best deal they can get, and someone always seems to want to push that bigger check into their hands.

We have this debate every lockout, however the only way to reduce what the players are paid further to make it easier on the lower level teams is to let the biggest teams pocket an obscene amount of money. The revenue gap has always been the problem. (I'm starting to believe that about 5K of my posts here make mention of the revenue gap.)

 

[Fugu]

Well if not Gary Bettman, Daly & the rest of Mandarins at NHL HQ then who? These guys set the agenda's for BOG's Meetings. Some subjects must be either deliberately left off the dockets or framed in such a way that the discussion wont veer into red zones whereby one or more of the attendee's becomes privy to whatever, then goes out & spill's the beans to a member of the media. Some information would be on a "need to know" only basis. Theres a real hierarchical & caste system going on there. Peddie as an employee of MLSE and even as an Alternate Governor wouldnt be on the "need to know" list and wouldnt have access to anything at the league level beyond cursory general inf. Doesnt rank or rate that kind of security clearance as he's not an actual owner & full Governor, member of the Insiders Club & even then & there; several more levels of security clearances & "need to know".... like in the opening sequence to Get Smart. Elevator, steel bars, multiple vault doors, another elevator, more hallways & doors, just on & on. Some tinfoilers' think there are 18 levels of security above the US President, stuff that even he doesnt know about because he's only there for 4 or 8 years but I digress.

Bettman is a Stern acolyte. Stern always ran his BOG meetings as very controlled and limiting operations-- he sets the agenda and no one else gets to put up an agenda item. You cross him, you don't get your issue on his agenda. Bettman does the same thing. The meat of everything is discussed in the exec committees, and the rest of the BOG meets in the afternoon and basically gets to vote on a question or issue which they frame.

In this sense, Peddie is quite correct that there's little transparency for the full membership.

 

[Fugu]

True, but I think there will be a substantial portion that contraction would be detrimental to the development of the sport, and thus would be opposed to it. I have no doubt that many would be in favour of it though - but mainly those on expiring contracts. Those such as Weber, Crosby, etc. that are effectively locked up long term really don't have much to gain by contraction, and something to lose.

I'd love to hear your opinion on this though, as I feel like you often have good insights - usually ones that I lack.

Thank you.

If the goal of the NHL is to further develop hockey, then of course contraction would hurt. That said, I really just approached this from more of a numbers game vs personal feeling or preferences. I love hockey, obviously, and I don't mind the idea that more people might discover it and become as big fans as most of here are. The dollars and cents of it have to make sense. You can't just keep adding teams if you can't find the right things that make it viable-- and viability does mean coexisting financially with the existing teams.

Somehow, I don't think it'd be so cut and dry. But that said, I'm drunk, and would need to run the numbers myself. I still don't think it's viable, simply because of marketing purposes. But that said, as an economics student, I've realized that a lot of theories sound great until they're put into practice.

It's not that cut and dry, I agree. I ran a back of the napkin kind of exercise to illustrate how top heavy the NHL is in terms of where the revenue is derived. There is some return on an investment the NHL is counting on, and sometimes that's not very clear to me.

I suppose Richard Peddie missed the sale of the Devils for $320m to an ownership group worth over $2b. A basic internet search would have answered his question about New Jersey's situation.

That aside, this article reeks of stereotypical traditional big market contempt towards the rest of the league. Especially the attempts to justify the NHL's completely anemic revenue sharing. It is well documented that the NFL owners decided to equally share their resources for the strength of the league - that 'all boats rise together' mentality completely eludes the NHL owners.

Very true. The NHL's economic landscape could change drastically if they pooled all TV money. It also would result in loss of economic wealth to the bigger teams (and someone who paid $500 MM for that team wouldn't be happy). The guy who paid $100 MM and then got a boost that doubled or trebled that would indeed be quite happy.