Would the owners accept their own offer?

Discussion in 'Fugu's Business of Hockey Forum' started by LordHelmet, May 19, 2005.

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  1. LordHelmet

    LordHelmet Registered User

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    Owners want to tie player salaries to revenues. Put the shoe on the other foot - Would owners be willing to tie their profits to revenues?

    Based on the Levitt numbers ($2.1B revenues, $775M operating costs) and what the league is proposing (54% hard linkage) the owners would take home 9% of revenues as profit.

    So lets use that as a guide. Agree on an accounting system. Then take revenues minus operating costs and divide that up between the owners & players.

    Using the owners proposed ratio of 9/54, you'd divide it up 16.6% to the owners and 83.4% to the players. Change it from a hard number into a range (say 81%-85% with a stiff, time adjusted tax starting at 84%)
     
  2. nhlfan79

    nhlfan79 Registered User

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    That doesn't make any sense at all. Profits (and losses) by definition always are tied to revenue. Player salaries *are* an operating cost that first must be subtracted before you can even determine if you've made a profit all. Under your theory, players would be entitled to profit-sharing above and beyond their salaries. That can't possibly be what you mean, can it?
     
  3. Weary

    Weary Registered User

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    It happens all the time. "Sweat equity" is a well known concept. Your market might have more validity if players salaries were determined in a free market. The NHL is attempting to ensure those salaries are artificially limited. In that situation, profit sharing is a fair idea.
     
  4. RLC

    RLC Registered User

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    So if you suggest.
    take all opperationg cost off and split the rest.
    Then you must incorporate the current valuation or each club into the opperation costs.
    The Players did not contribute to the money each owner spent to aquire his franchise and today's worth of the franchise.
    Return 50% worth cost of each club over the next 10 years. then you can split the pot 50/50 not before.
     
  5. LadyByngJeanRatelle

    LadyByngJeanRatelle Registered User

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    Did you just throw some numbers and percents around and hope it will all jive? This makes no sense. You were right with 54%, and 2.1 b revenues...the rest... :dunno:
     
  6. Weary

    Weary Registered User

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    In that case, the players should given a cut of the profit made whenever a franchise is sold (or contribute to cover the difference if a franchise is sold at a loss).
     
  7. GSC2k2*

    GSC2k2* Guest

    Actually, this was offered by the owners, in essence, when the offered their plan to share 50/50 on profits over and above a certain amount to be negotiated.

    Based on the reported value of $115 million as the 50/50 threshold, that is far less than 9% of $2.1 billion.

    Of course, that does not take into account that owners take all the financial risk of owning a franchise, they work hard to run their franchises, etc.
     
  8. RLC

    RLC Registered User

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    Players come and go, no way you can ask a player that played for a club 7 years ago that is now defunct to pay up 2 million. He wont have it anymore.
    Only thing to do is to factor this up forward. If the players want a 50/50 split let them buy into the franchise like the owners did.
    Allow a 10% contribution of each salerie paid over a ten year perion maximum. and each player gets stock of each club to the extent of his contribution to each club he playerd for.
    A player that played 4 year only for the same club get stock in that club only. If he played 10 years for 4 clubs he gets 4 different packs of stock.
    one pack for each club he played for. At the end of the 10 years the owners have received 50% of the culd worth. then you can go with a 50/50 split after opperation expences. Dont forget the players a getting paid all along.
     
  9. Kritter471

    Kritter471 Registered User

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    It took me about five reads to get what you were saying, EB, and although I see your hypothetical, I'm not sure I see the point you're trying to make, unless it's such -

    It's fairly dumb (in a theoretical ecomonic sense) to construct a labor agreement in which supposedly stagnant and fixed costs (labor) is tied to revenues, as you could hypothetically reach a point should revenue fall dramatically that you could no longer "afford" set costs.

    But if that's a system you are to employ, then you would necessarily limit all costs to a percentage basis.... or... ick.

    Okay, I've lost it. But here's a question to throw out based on all this percentage math -

    What happens if committed fixed costs (i.e., already signed player contracts) are higher than an adjusted percentage (i.e., the 54% or whatever of a new fiscal year). So the Bruins have $30 million in contracts committed to 16 players, and the new linked 54% is at $28.2. What happens then?
     
  10. King_Brown

    King_Brown Guest

    No idea what you are talking about?
     
  11. LordHelmet

    LordHelmet Registered User

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    Not trying to write a CBA, just trying to broaden the perspective of the owner-lovers.

    The owner side wants to base player profits (salaries) on revenues. They call it a 'fair' deal. If it's fair, then they should be willing to base their profits on revenues as well..

    The league offered a version this with their 50/50 profit sharing plan, and in my opinion the new CBA we see will have something along these lines in it.

    - They also receive 100% of the capital appreciation of their franchises.

    - Owning a franchise in one of the big four sports leagues isn't all that risky from the standpoint of appreciation. When was the last NBA, NHL, NFL, or MLB franchise to completely shut it's doors and cease to exist? When was the last time one sold for less than it was purchased for?

    - The 'risk' of these franchises is relatively small when compared to the overall size of most owners' assets. In other words, Jeremy Jacobs isn't exactly going to be holding up a piece of cardboard on the street corner if the Bruins fold.

    The math works. Do you really want me to go through it?
     
  12. Timmy

    Timmy Registered User

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    Yeah, Jagr's already rich, so he should just play for free from now on.
     
  13. Weary

    Weary Registered User

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    Actually, there are a couple of math errors. Levitt actually had revenues at a little less than $2B. The 9/54 should be 9:54 (i.e. 9/63).
     
  14. GSC2k2*

    GSC2k2* Guest

    Agreed. THe only issue is who gets the upside. While the NHL has offered its 50/50 plan, I do not see any compelling rationale why players should get a share of the upside.

    Yes, that is the flip side of the risk.

    Are you kidding? Two NHL franchises bankrupt, tow more with "goiing concern" letters from their auditors, many on the market for months without buyers. Molson looking to divest their portion of the Habs for far less than the price that Gillett bought it for (proportionally). But to answer your question: Anaheim.

    I agree that it is generally a small fraction of owners' assets. That goes to the materiality of the loss, not whether there is risk in the investment or not. As a stand-alone investment, it is risky. That is how a businessman looks at an investment - not whether he will survive if it busts, but if it has merit standing on its own (or with otehr synergies for his other businesses, of course).

    I am not sure if you are directing that at me or another poster whom you quoted.
     
  15. This is the important part of your post, the rest is irrelevant. The simple answer is YES, and they backed it up by making a written offer to the NHLPA that included 54% of revenues, AND 50% of PROFITS over $115 million. So in essence, they have already given that commitment in writing.
     
  16. Weary

    Weary Registered User

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    Which does not tie their profits to revenues. As revenues increase, profits increase at a much higher rate. So, the simple answer is NO.
     
  17. So when the owners guarantee the players 54% of revenues (a direct tie in) and also see the players are guaranteed 50% of profits above $115 million (that's $3.5 million per team btw) you do not see that as a direct tie in to revenues? I would like to know what you have in mind???

    :amazed:
     
  18. Weary

    Weary Registered User

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    The players earnings are directly tied to revenues. The owners earnings are not. Let's say the owners make a profit $115 million on revenues of $2B. The next year revenues increase to $2.5B with fixed costs remaining the same. The players would receive 36% more money. The owners would receive 100% more money.
     
  19. WC Handy*

    WC Handy* Guest

    At that rate, after a decade maybe some of the owners would recoup their losses from the last decade.
     
  20. Weary

    Weary Registered User

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    Sorry, but the owners should be expected to lose money until it equals the profits they earned while ripping off the players in the prior decades. (Time-value adjusted, of course.)
     
  21. Timmy

    Timmy Registered User

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    I didn't realize that all thirty current owners owned the teams that ripped off the players.

    My bad.

    Guess I'll give my house to First Nations, but keep making the mortgage payments on it.
     
  22. LordHelmet

    LordHelmet Registered User

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    Posts 15-18 are the kind of discussion I'm trying to spur. Good posts guys..

    Icon, I have always applauded the league for the profit sharing proposal. That concept was the one example of compromise, concession, and creativity that I have seen from the owners. I was suprised when that concept didn't get legs and turn into something - perhaps there were strings attached that we didn't know about. Whatever the case, I think that there will likely be some version of profit sharing involved in the new CBA.

    Weary is dead on with this. If revenues grow faster than expectations during the new CBA - and in my opinion, this will happen - the owners would rake in tons of profit in addition to collecting huge capital gains.
     
  23. LordHelmet

    LordHelmet Registered User

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    You are correct, Levitt used $1.996B. Not sure where I came up with 2.1... :dunno: Posting on less than 4 hours of sleep will do that to you..

    9/54, 9:54? what's the difference? The owners get 9% (actually 7% based on the corrected reveneue number above), the players get 54%.. that's a 7 to 54 ratio.. Apply that ratio to whatever's left after operating expenses and you're good to go (unless non-player operating expenses exceed revenue, which is highly unlikely)
     
  24. Lorenzo1000

    Lorenzo1000 Registered User

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    OMG, owners of a business making profit, will wonders never cease. Well we'd better steal away the means of production from them before capitalism sets in. :biglaugh:
     
    Last edited: May 19, 2005
  25. LordHelmet

    LordHelmet Registered User

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    OMG, players being paid according to what the market values them at.. :eek:

    Pay attention skippy, I'm as capatalist as they come...
     
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