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Are They Losing Money?

from Jonathan Wills of The Cult of Hockey,

There is a strange dichotomy in NHL ownership. The owners, whether as companies or individuals, are extremely wealthy. Yet many teams reportedly lose money every year, and with few exceptions even the profitable clubs don’t make that much money. Why would phenomenally successful men sink money into a black hole like that? Is it simply a case of viewing hockey teams as luxuries where they can afford to bleed red a little?

While non-financial considerations undoubtedly come into play, the simplest explanation is that the financial picture for various NHL teams is a lot healthier than it is typically reported to be.

Take the Florida Panthers as an example. For many, the Panthers are a great case in point of what went wrong with the NHL’s expansion into the Sunbelt. Attendance has improved of late, but on a percentage basis still easily falls into the NHL’s bottom-third. The team has struggled for respectability on the ice, and off the ice the financial picture is generally seen as gloomy.

continued

Filed in: NHL Teams, Florida Panthers, NHL Talk, | KK Hockey | Permalink
 

Comments

J.J. from Kansas's avatar

Hey look, evidence which supports the theory that the Forbes numbers can be off a great deal because they don’t take into consideration the nepotistic relationships between NHL teams and their parent companies!

Evidence which shows an actual tangible link between there being a hockey team in Florida and the benefits to the company which also runs the arena.

Studying a team whose arena lease/parent company management relationship is very similar to that of the “$15M loser San Jose Sharks” who continue to spend big dollars despite claiming that the team’s a money-pit.

SO WEIRD!

Posted by J.J. from Kansas on 11/16/12 at 03:20 PM ET

WingsFaninCO's avatar

Posted by J.J. from Kansas on 11/16/12 at 02:20 PM ET

EYEROLL.

CBA>SPC

Posted by WingsFaninCO on 11/16/12 at 03:49 PM ET

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Evidence which shows an actual tangible link between there being a hockey team in Florida and the benefits to the company which also runs the arena.

1) So how many NHL teams are owned by the company that also owns where they play?

2) Should the finances of a league be based on owners of an NHL team also owning the building in which the team plays?

It’s odd that you think a report which demonstrably proves that owning an NHL hockey team is a fairly big money loser somehow proves your position correct, JJ.

Golly, you mean if in addition to a hockey team an owner can own a whole arena and end up being able to make money?

Wow.  What a huge surprise.

Now all we need to do is make sure every NHL owner owns the arena in which they play and VOILA!  Everything is fixed.

Wow.

Posted by HockeyinHD on 11/16/12 at 04:26 PM ET

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EYEROLL.

CBA>SPC

First off, I’m glad it’s finally starting to sink in for you.  I had doubts for a while, but you appear to be coming around.

Second, weren’t you someone who whined about posts not having any value or some such?  Seems odd you’d say something like that and then post something like that.

It’s almost like you were just blowing smoke or something.

Posted by HockeyinHD on 11/16/12 at 04:29 PM ET

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Second, weren’t you someone who whined about posts not having any value or some such?

I found value in it.  It made me laugh.

Maybe a sense of humour is as alien to you as the concept of principles.

Posted by Garth on 11/16/12 at 04:33 PM ET

J.J. from Kansas's avatar

It’s odd that you think a report which demonstrably proves that owning an NHL hockey team is a fairly big money loser somehow proves your position correct, JJ.

So you either didn’t read or didn’t understand the post. Cool.

You want to know how many teams’ arenas are operated by hockey-operations companies?

Every one except Columbus and Phoenix.

Posted by J.J. from Kansas on 11/16/12 at 04:43 PM ET

WingsFaninCO's avatar

Posted by Garth on 11/16/12 at 03:33 PM ET

The Forbes numbers say that senses of humor operate in the red 5/6ths of the time.  Also, Forbes says that it is better to have T-bills than principles.

 

Posted by WingsFaninCO on 11/16/12 at 05:08 PM ET

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It’s more than just team and arena, too. Aquallini buys the Canucks and Rogers Arena, at the same time acquiring an adjacent parcel of land his development company can use to put up condos or shopping or something else.

All pro sports teams exist within a larger corporate structure. Paper losses on a sports franchises are used to offset tax liability on the owners’ other businesses. Teams are also a great way for owners to raid the public treasury when they want a new arena, or some special tax break. They would not own a team if they simply lost money year over year with no benefit at all.

Unless you are a forensic accountant, it’s really impossible to properly contextualize teams’ reported losses. Best to take the figures with a grain of salt.

Posted by YouppiKiYay on 11/16/12 at 05:43 PM ET

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So you either didn’t read or didn’t understand the post.

Wrong twice.  What the article said was that while the hockey team itself was a money loser, owning the building and then being able to make money off of events within the arena was a money maker.

You want to know how many teams’ arenas are operated by hockey-operations companies?

Bzzt.

“So how many NHL teams are owned by the company that also owns where they play?”

That’s what I want to know.

The rabbit hole you are gleefully hurling yourself down is this:  Since an entire business unit makes money, that must mean that hockey ops are fine and shouldn’t be touched.

When you add in what a business unit can make from running a whole building, which includes revenue from dozens of non-hockey events, and then paying off the actual owners, and then covering the losses from hockey ops… you may end up with a plus.

That’s definitive proof that the hockey ops ends up being a minus.  Which is the point you’ve finally acknowledged.  So thank you.

Posted by HockeyinHD on 11/16/12 at 06:49 PM ET

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I found value in it.  It made me laugh.

It did?  Wow.  Cheap giggler.

Posted by HockeyinHD on 11/16/12 at 06:51 PM ET

J.J. from Kansas's avatar

Wrong twice.  What the article said was that while the hockey team itself was a money loser, owning the building and then being able to make money off of events within the arena was a money maker.

No it did not. What happened to the parent company’s operating income during the last lockout? If the Panthers were a drag on them, they should have claimed larger profits during a lockout.

The article clearly explains that it is easy to slide losses to hockey operations from larger companies because it is more-beneficial to do that… hockey operations appear to be a net plus for the company while appearing a net minus for themselves.

If you didn’t pick that up, you either didn’t read the article, or you didn’t understand it.

The second option much more clearly explains why you keep ramming your head up against the logic of how multi-tier operational entities exist as though hockey ops is somehow a static piece.

Again, I have given you more credit for being able to understand these things than you apparently deserve.  I’ll eventually learn to stop doing that if you promise to eventually learn how things like this actually work. Deal?

Posted by J.J. from Kansas on 11/16/12 at 07:10 PM ET

creasemonkey's avatar

Hockey-related revenue is defined in such a way so as to maximize the appearance of losses on the hockey side.


Any article discussing any HRR lockout info should have this posted at the top.  This needs to be repeated over and over for anyone claiming that a 50/50 split of revenue is “fair”.

Posted by creasemonkey from sweet home san diego on 11/17/12 at 12:26 AM ET

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No it did not. What happened to the parent company’s operating income during the last lockout? If the Panthers were a drag on them, they should have claimed larger profits during a lockout.

Sigh.

JJ, the cost of operating the building is a constant, for the most part.  That amount needs to be paid whether the Panthers play their 41 games or not.  There are certain hockey specific costs associated with having a hockey team play in the building, but those are mostly specific to actual arena set up and operation on the specific night of the specific event.  All of the other stuff (ticket taking, advertising, marketing, etc) is stuff that is done generally for all events within the arena.

Where your point of confusion lies is in the degree to which you seem to imply that all profits for all events held within the building should be thrown into the finances of the NHL team, while the expenses for operating the building should be borne by external units outside the hockey team.

When you enter your analysis from that flawed perspective, as you have, of course it’s going to look like the hockey team is a profitable enterprise.  How not?  All expenses are pushed elsewhere and all revenue exists as profit.

My point is that if the NHL team is the primary tenant it should be assumed to share at least equally if not proportionately in the operating costs of the arena in which it plays.  When you do that, it’s a money loser.

When you pretend that everything else that happens in the arena exists solely to pay the NHL teams overhead so that you can present the revenues of the hockey club as ‘profit’, well, you end up where you are.

I will point you to an addendum to the piece in question:

“As Erin Bolen points out at SBNation, the audit by Broward County is limited to financial date for the Arena Operating Company, the division of Sunrise Sports & Entertainment.

This doesn’t shift the two basic points of this piece highlighted in bold. The AOC is incredibly profitable, and SSE only gets to run it because of the Panthers, so the Panthers still serve as a gateway. Additionally, a 90% drop in total AOC profitability in a lockout year remains highly interesting when the number of hockey events should only represent roughly one-third of their total revenue.

However, with that said the above piece at times confuses the financial data for the arena operating company with the financial data for Sunrise Sports and Entertainment, due to my misreading portions of the audit. That’s an important distinction to make, and one that I failed to make in my reading of the audit.”

Ding!

Now that, that I agree with.  I would quibble with the phrase ‘incredibly profitable’ because we’re talking about a 5% ROI give or take, which isn’t remotely close to incredibly profitable, but the general point is correct.  The NHL team in this case serves as a ‘loss leader’-ish product for SSE.  The NHL team operates at some level of loss because it’s presence a) assisted in the creation of a new publicly-financed arena in the first place and b) serves as an anchor tenant in the arena so that the structure is sufficiently used with both hockey and other events to make the arena as a whole profitable.

Your position is that since the whole arena is profitable, well, that means the hockey ops side is fine.

That you foolishly believe that and then try to pretend this means other people don’t understand how tiered business are set up, well…

 

Posted by HockeyinHD on 11/17/12 at 05:22 AM ET

J.J. from Kansas's avatar

Where your point of confusion lies is in the degree to which you seem to imply that all profits for all events held within the building should be thrown into the finances of the NHL team, while the expenses for operating the building should be borne by external units outside the hockey team.

It’s incredible the lengths you must have gone to in order to create the assumption that this was my position. Absolutely incredible strawman work here. Unbelievable.

My point is that if the NHL team is the primary tenant it should be assumed to share at least equally if not proportionately in the operating costs of the arena in which it plays.  When you do that, it’s a money loser.

What part of the analysis done explains how operating costs are shared between the tenant company and the AOC? That data is not presented in this analysis, nor is it available, but you’re making a claim as though it is. This is unfortunately both in keeping with the way you do things and irresponsible.

In order to make this position tenable, you have to assume from data you do not have. The data that is available shows a drop in profitability during the lockout that is not adequately explained. If we’re to go by your logic, it would be from the parent company simply choosing not to ascribe the relatively static arena maintenance costs to the Panthers and instead placing them all on the books of the AOC. Why would they do that from a business perspective? If the relationship weren’t nepotistic, a locked out team would still be expected to maintain their arena during a lockout.

The answer of course has already been presented:

2. Hockey-related revenue is defined in such a way so as to maximize the appearance of losses on the hockey side.

Your position is based on magic math where an overall profitable organization is somehow worse off when you eliminate a piece you’re supposing to be a negative because you’d simply rather believe a simpler set of numbers which takes less data into consideration but fits better to you. It’s a sad sort of religious fervor.

Posted by J.J. from Kansas on 11/17/12 at 09:19 AM ET

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Paul Kukla founded Kukla’s Korner in 2005 and the site has since become the must-read site on the ‘net for all the latest happenings around the NHL.

From breaking news to in-depth stories around the league, KK Hockey is updated with fresh stories all day long and will bring you the latest news as quickly as possible.

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