Kukla's Korner Hockey
by George Malik on 07/18/13 at 12:32 AM ET
I did my best to explain the context of the Bloomberg News's Scott Soshnick's report that the NHL's 'credit facility' has increased by a whopping $200 million, but I'm no financial expert, and a gentleman named CapnCornelius on Twitter informed me that my reasoning was inaccurate. After trying to defend my opinion, which is always the first resort when somebody says, "You're wrong," he let me know that he actually understood this stuff on a much better fundamental level than I did, so, being a blogger, I figured, "Hell, if I'm wrong, the best thing I can do is ask to be corrected."
So CapnCornelius penned the following explanation as to what the NHL's 'credit facility' is, and why it is not related to the health of its 30 franchises. Here's his "simplified" summary of the concept:
As an initial matter, it is important to realize that the NHL and its franchises are distinct legal entities and that each of these entities has its own set of revenues and expenses as well as assets and liabilities.
The NHL, as a legal entity, gets revenues for things like the national television contracts for the rights to the league's games, for league-wide sponsorships (ex. the "official beer of the NHL") and for the variety of things you might see an NHL logo on. The NHL, as a legal entity, also has expenses which it has to pay--ex. the rent on the league offices, Gary Bettman's salary, Gary Bettman's secretary's salary, legal costs, etc., etc. The NHL also has certain assets, including its intellectual property (ex. the NHL logo and, I believe, the Stanley Cup). It also has liabilities, including the amounts it owes under its credit facility.
Don't forget jet fuel massages!
Each NHL franchise has its own distinctive revenues, expenses, assets and liabilities which are separate and apart from those of the league. For example, a team may have revenues from its local TV deal and from local sponsors, but for most teams their biggest source of revenue is their ticket money. The team also has its own set of expenses which would include player salaries. The teams also get distributions of the league's revenues...after the league's expenses, including the amounts due to its creditors, are paid.
When the league gets a credit facility, the terms of that credit facility reflect its overal economic health as a legal entity and NOT the financial health of its 30 franchises. So, it is based on the league's revenues, expenses, assets and liabilities. And, again, since the league as an entity gets its revenue for big ticket items like the national TV deals and national sponsors not from the ticket revenues and since the league's expenses as an entity do not include player salaries or other team-specific expenses the changes to the CBA's structure do not have a great impact on the NHL's income statements or balance sheets, which are the basis of underwriting a credit facility. There is an indirect impact since having labor peace for the better part of a decade allows the league to more easily get national sponsors because there will not be a disruption in the benefit of their sponsorship and it means there will not be a disruption in TV revenues, but I think the biggest reason for the jump we are seeing is the new TV deals (as the league now has 2 seasons worth of financial data it could use in getting a new deal for a credit facility) and sponsorships associated with the new series of outdoor games.
So new CBA = good but new CBA =/= only reason why the league's credit facility has increased.
Keep in mind that the league's credit facility has sky-rocketed in recent years unrelated to any CBA change. In 2009, the league's credit facility went from $70 million up to $200 million. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGusFb_nTT2s Part of the reason for the dramatic increase over 4 years has nothing to do with the league and everything to do with loosening credit markets and an improving economy. Part of it is related to Bettman successfully finding new revenue streams like the Winter Classic (sponsored by Bridgestone, etc.).
Huh. Go figure.
Teams often have their own, separate credit facilities. The Predators have one, for example. http://predators.nhl.com/club/news.htm?id=548375 Those facilities could be impacted greatly by the benefits you mentioned regarding the CBA--i.e. fixed player costs--because ultimately it is the individual teams that pay those costs and they effect their bottom line as evidenced by their financial statements. However, there is still a bit of a disconnect because the CBA bases the salary cap on overall league-wide revenues (in this case including both the league's revenues such as the TV deal which get distributed out to the teams after paying league expenses AND the local revenues of all 30 teams) and some teams overperform while others underperform financially.
Think of it this way--McDonald's is a corporation that sells franchises to individuals in local communities. The McDonald's corporation makes revenues based on the sale of its franchises and the use of its logo, etc. but not on the sale of each hamburger per se. Individual McDonald's franchises hire workers to cook burgers, etc. If the minimum wage dropped to $1/hour, the McDonald's corporation would be indirectly impacted (perhaps demand for franchises would increase or it would see its royalties for the use of its logo increase, etc.) but the real impact would be at the franchise level where profit margins would soar. The overall impact might not change McDonald's outlook for getting additional financing because the benefits might be too remote. It would have a huge impact on the finances of individual franchisees.
I hope you get it. I kind of understand what he's talking about, and that's at least better than what I offered.
Many thanks to CapnCornelius for the explanation!
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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.
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