Which franchises have been the best investments?

Discussion in 'Fugu's Business of Hockey Forum' started by mfw13, Oct 30, 2006.

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  1. mfw13

    mfw13 Registered User

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    Please note that this analysis was completed using data from the annual Forbes magazine surveys of NHL franchises. It covers data from the beginning of the 1997 season through the end of the 2004 season, as Forbes has not completed any surveys on the NHL since then.

    My methodology was to add net operating income for those seven years to the change in franchise values over that same time period, thus arriving at return on investment (ROI).

    Here's what I found (all figures in US dollars):

    Toronto: + $255 million
    Dallas: + $143 million
    Boston: + $117 million
    Colorado: + $113 million
    Philadelphia: + $100 million
    Los Angeles: + $89 million
    NY Rangers: + $83 million
    Minnesota: + $83 million
    Montreal: + $76 million
    Chicago: + $71 million

    Edmonton: + $51 million
    San Jose: + $36 million
    Pittsburgh: + $35 million
    NY Islanders: + $34 million
    Tampa Bay: + $34 million
    Calgary: + $32 million
    Nashville: + $30 million
    Ottawa: + $22 million
    Columbus + $16 million
    Detroit: + $13 million

    Vancouver: + $11 million
    New Jersey: - $7 million
    Atlanta: - $7 million
    Florida: - $11 million
    Phoenix: - $12 million
    Buffalo: - $42 million
    Carolina: - $58 million
    Anaheim: - $59 million
    St. Louis: - $96 million
    Washington: - $138 million

    Please note that I know nothing about how Forbes made their calculations regarding either the franchise values or operating income.

    Also note that due to the lockout and missed season, it is likely that all franchises values have decreased since the end of the 2004 season, as well as that most owners could have made anywhere from $15-30 million dollars risk-free during the same seven year period just by putting their money in CD's.

    Therefore, my conclusion is that the NHL has been a good investment for the onwers of the top eleven franchises on the list (Toronto through Montreal), an break-even investment for the six middle franchises (San Jose through Nashville), and probably a losing investment for the bottom thirteen (Ottawa through Washington).
     
  2. Hawker14

    Hawker14 Registered User

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    interesting. with two cups in that timeframe i'm surprised the devils have been that unsuccessful financially. i knew they had some issues but wasn't aware that they actually have lost money in that time period.

    also, i would've thought the red wings would've had a much higher increase.
     
  3. mfw13

    mfw13 Registered User

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    The Red Wings franchise value increased by $64 million (from $184 million to $248 million) but they had an operating loss of $51 million due their very high payrolls.

    As to New Jersey, my guess is that the franchise has been a poor investment because they have had fairly low attendances despite their success on the ice. The arena is hard to get to, and I'm guessing that their local TV and radio deals aren't too great since they are the third most popular team in their market. Maybe a Devils fan can speak more to this.
     
  4. 17*

    17* Guest

    Chicago: + $71 million - now that's interesting.

    Maybe the owner figures he doesn't need good attendance, his investment has increased anyway.

    But I guess we have to take into consideration the last 2 seasons.
     
  5. vbet*

    vbet* Guest

    You have to give the Dallas mgmt credit for doing that well with being screwed division wise.
     
  6. Sotnos

    Sotnos Registered User

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    There you have just one reason for the state of that team.

    This is the first I've ever heard of the Devils losing money though. :huh:
     
  7. mfw13

    mfw13 Registered User

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    The value of the Blackhawks franchise only inched up by $8 million, but Wirtz generated $63 million in operating profits by keeping payroll near the bottom of the league. Not quite sure how he did it, but I'm guessing that due to the size of the Chicago market he was able to make a lot of money of things besides ticket sales even with low attendance and everyone in town hating his guts.

    If there is one thing that seems to show through in the data, its that payroll size is a huge variable (as it should be), and that it is very hard to make money with a large payroll, even if you are successful on the ice.

    Because the playoffs are so much of a crapshoot, it seems like the best business model is to keep your payroll low and make an occasional run deep into the playoffs when everything clicks.

    In 2003 (New Jersey, Ottawa, Anaheim, Minnesota) and 2006 (Edmonton, Anaheim, Buffalo, Carolina), all four of the conference finalists were middle/low payroll teams, as were three of the four finalists in 2004 (San Jose, Tampa Bay, Calgary).

    Not since 2002 have the high payroll teams made a serious mark in the playoffs, and even then, low-payroll Carolina made the finals in the East by beating high-payroll Toronto.

    Notice that the two teams at the bottom of the list (St. Louis and Washington) are teams which spent huge amounts of money on payroll but didn't get the results on the ice to match.
     
  8. mfw13

    mfw13 Registered User

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    Sotnos, just so you know, the data for the Devils was a $1 million decrease in franchise value (from $125 million to $124 million) and a $6 million operating loss over the seven year period (i.e. about $1 million a year). Not a horrible performance financially until you consider that the $125 million would have been turned into about $145-$150 million had it just been left in the bank to collect interest.
     
  9. XX

    XX Sticky Icky Icky

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    How do the Devils do so poorly yet have such a great franchise lately? (winning wise)
     
  10. Irish Blues

    Irish Blues Present once again

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    The number for the Blues is more than driven by losses from 2001-2006. By some accounts that's almost $120 million. It's probably more important to realize that Bill Laurie bought the team and the lease to the arena for $100 million and took on all of the debt accordingly; when he sold in June to Dave Checketts, he got $150 million but had to keep all of the debt (somewhere in the neighborhood of $175-185 million).
     
  11. mfw13

    mfw13 Registered User

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    Xavier,

    Look at their attendance numbers. They've only averaged over 17,000 fans in a year once despite being perennial Stanley Cup contenders and have averaged under 16,000 each of the last four years, including a figure of just over 15,000 the year after winning the cup.
     
  12. mfw13

    mfw13 Registered User

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    Irish Blues,

    The numbers for the Blues break down as a $14 million dollar decrease in franchise value (from $154 million to $140 million) and $82 million in operating losses. Also note that the data is through the end of the 2003-2004 season, not 2005-2006.

    As to what extent the Forbes data incorporate the arena debt payments into the operating income numbers, I don't know. I don't think it includes arena related financial issues, but I'm not 100% sure. My instinct tells me that the huge operating loss is more reflective of the Blues huge payrolls (average of $44.2 million per year, 6th highest in the league) than anything else.
     
  13. Egil

    Egil Registered User

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    It would be interesting to see what Forbes says now, as two important things have occured:

    #1 The Canadian dollar has increased from $0.75US to around $0.90US since 2004. That is a significant increase in revenues for the 6 Canadian teams (which should in turn be seen in their franchise values).

    #2 The lockout. IMHO, the lockout has increased franchise values. As you mention, teams with HIGH payrolls had a hard time making money no matter how well they did on the ice. Well, the cap just nuked high payrolls, which means that teams like the NYR, Toronto, Detroit, etc. should have their franchise values shoot through the roof.
     
  14. SGY19

    SGY19 Registered User

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    Not necessarily. Not if the fan support isn't there anymore. Detroit is struggling to sell tickets now. They had to use Yzerman's retirement game to sell tickets to the other Red Wing games.
     
  15. Irish Blues

    Irish Blues Present once again

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    Ya think? Considering that for at least 3 consecutive years they spent more on player salaries than they took in as revenue, ...

    To suggest that the debt load the team was carrying wouldn't have an impact on the value of the franchise is to suggest that the Hurricanes, Panthers, Stars, Coyotes, or any other team would be just as valuable if they were debt-free as if they were saddled with $200 million in debt - something that no one here would suggest is true.
     
  16. mfw13

    mfw13 Registered User

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    Irish Blues,

    I wasn't saying that the debt load wouldn't have an impact on the value of the franchise. I was saying that I didn't know if/how Forbes had incorporated the debt load into its calculation of the franchise's value.
     
  17. mfw13

    mfw13 Registered User

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    Here are the updated ROI figures through the end of the 05-06 season based on the new numbers Forbes released last week.

    Toronto: + $348 million
    Dallas: + $142 million
    Montreal: + $128 million
    NY Rangers: + $125 million
    Boston: + $121 million
    Los Angeles: + $108 million
    Edmonton: + $104 million
    Colorado: + $92 million
    Minnesota: + $88 million
    Philadelphia: + $83 million
    Pittsburgh: + $72 million
    Chicago: + $64 million
    Tampa Bay: + $61 million
    Ottawa: + $60 million
    Vancouver: + $56 million
    Calgary: + $53 million
    Nashville: + $52 million
    San Jose: + $34 million
    Detroit: + $29 million
    Columbus + $12 million
    New Jersey: + $10 million
    Atlanta: + $10 million
    Buffalo: + $9 million
    Florida: + $8 million
    NY Islanders: + $5 million
    Anaheim: - $10 million
    Phoenix: - $11 million
    Carolina: - $14 million
    St. Louis: - $85 million
    Washington: - $121 million

    I should be noted that only two clubs saw substantial decreases in ROI from the end of 03-04 to 05-06, Colorado and the NY Islanders. Generally, most teams saw an increase in ROI, indicating that the negative effects of the lockout were superseded by the positive effects of the new CBA. The Canandian franchises also benefited from the increasing strength of the Canadian dollar.

    On the downside, it should be noted that even under the new CBA, eight franchises still had substantial operating losses (Nashville, Columbus, New Jersey, Atlanta, Florida, Anaheim, NY Islanders, and Phoenix). The situation in Anaheim is very worrying because they suffered an operating loss even in a year in which the made it to the Conference Finals and hosted 9 playoff games. The situation in Columbus is also slightly worrying, since the BlueJackets have had consistently strong attendance and still do not appear to be able to make an operating profit unless they make it to the playoffs.

    It should also be noted that of the 30 franchises, the ROI for 12of them (Detroit on down) is less than what their owners could have earned by simply putting their money in the bank for nine years.
     
  18. Skroob*

    Skroob* Guest

    you would think so, but in neo-Socialist-NHL, those successful teams have to take their money and give it to the teams where they get no fan support, or just don't know how to handle finance.
     
  19. GSC2k2*

    GSC2k2* Guest

    mfw, you must not lose track of one key aspect of all this.

    Forbes is making up these numbers out of whole cloth. They are pulling them out of their a**. As such, your ROI figures, while well-intentioned, are based on thoroughly unreliable data.
     
  20. mfw13

    mfw13 Registered User

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    I doubt they are pulling them completely out of their a**es. They are a reputable business magazine with a lot of pretty smart researchers working for them, so I'm sure their methodology is decent, if not 100 percent accurate.

    Anyway, their numbers are the only ones out there that have been reliably collected over time....so if their numbers are unreliable, then there probably aren't any useable numbers for data analysis, in which case half the threads on this board become dubious due to their usage of unreliable data.
     
  21. GSC2k2*

    GSC2k2* Guest

    "A lot of smart researchers"? You won't find many smart guys at any magazine, man, let alone guys in research.

    Methodology doesn't mean anything when you have no sources for numbers. The vast majority of hockey clubs are privately owned. As such, there is truly no way to properly determine franchise values or anywhere near accurate P&L's. The league released the collective P&L in the Levitt Report, but that is as far as that went.

    As far as half of the threads being dubious, I suggest you may be underestimating that number; I would put it at double that. Seriously, this board is really not for data analysis. It is really more for speculation, both informed and uninformed. There is no data to be crunched.
     
  22. Pepper

    Pepper Registered User

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    This board is mostly for fans of big market teams, here they can vent their frustrations about unfair CBA, the supposed extra they are paying for tickets to support small market teams etc.

    Basicly a lot of crying based on wrong information and even more faulty logic.
     
  23. iamcaper

    iamcaper Registered User

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    Based on that same Forbes release, here are the current values for each team:

    Value of team is based on current arena deal (unless new arena is pending) without deduction for debt (other than arena debt).

    1 Toronto Maple Leafs 332
    2 New York Rangers 306
    3 Detroit Red Wings 258
    4 Dallas Stars 248
    5 Philadelphia Flyers 246
    6 Boston Bruins 235
    7 Montreal Canadiens 230
    8 Colorado Avalanche 219
    9 Los Angeles Kings 205
    10 Vancouver Canucks 192
    11 Tampa Bay Lightning 172
    12 Chicago Blackhawks 168
    13 Minnesota Wild 163
    14 Ottawa Senators 159
    15 Anaheim Ducks 157
    16 St Louis Blues 150
    17 Buffalo Sabres 149
    18 New Jersey Devils 148
    19 Edmonton Oilers 146
    20 San Jose Sharks 145
    21 Carolina Hurricanes 144
    22 Phoenix Coyotes 143
    23 Florida Panthers 142
    24 New York Islanders 140
    25 Columbus Blue Jackets 139
    26 Calgary Flames 135
    27 Nashville Predators 134
    28 Pittsburgh Penguins 133
    29 Atlanta Thrashers 128
    30 Washington Capitals 127
     
  24. iamcaper

    iamcaper Registered User

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    Also, to answer the question of which franchises have been the best investment. In 05-06 the top 5 were, in order:

    Toronto
    NY Rangers
    Montreal
    Edmonton
    Dallas

    These are the only teams to net more than $10 million (before taxes, interest, amortization)
     
  25. Titan124

    Titan124 Registered User

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    NJD and NYI probably have the best 2 tv deals in the league. Cablevision is owned by the owner of the Rangers, and he had to pay a lot in order to keep his competitors down.
     

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