Excellent and well reasoned response to Wyshynski ‘s rant. Living in Atlanta, I also get tired of the speculation about US franchises but Shoalts’ article was much more in depth. One thing Shoalts didn’t mention was that Moyes’ troubles seem to have begun with an insider trading allegation by the SEC,something he could commiserate about with many other NHL owners. He paid a hefty fine and also was involved in a complicated (and expensive)family dispute regarding his buyback of a failing company called Central Freight and borrowing from from his children’s trust fund. He took Swift Trucking private at exactly the wrong time, in the middle of a gas crisis and beginning of a recession, in a highly leveraged deal put together by Wall Street investment bankers. Also over-leveraged is the city of Glendale, a mostly working class suburb at the heart of the subprime crisis, which has invested heavily in sports facilities (U. of Phoenix stadium as well as the arena) and recently was had its application for a NCAA Final Four turned down.

Every year, with perhaps the Leafs being an exception, we hear it seems that every team is losing millions.

Most teams are privately owned, are they not? If so, this means that their books are not open to scrutiny; which also means that “creative accounting” can take place. A team can announce any loss it wants — who can say it’s inaccurate?

Not to say that this is the case here, but…

If so many teams are losing so much money, why are pro sports franchises, including NHL teams, so hotly pursued? It can’t all be the “billionaire’s plaything” answer.

And those billionaires didn’t get to that level by making stupid investments, so what do we believe?

James, here is a copy of a post I made at HFBoards on this topic which hopefully sheds some light on the alleged losses.

… we now have a data point from which to intelligently speculate on the team’s actual financial performance.

Per this article:

http://www.azcentral.com/arizonarepublic/sports/articles/2008/11/11/20081111biz-coyotes1112-ON-CP.html

The team’s CEO stated that:

arena isn’t filled to 17,000 plus ’Yotes fans, but the organization reports ticket sales are 55,000 ahead of this time a year ago. sales make up about 30 percent of the team’s revenue.[/QUOTE] Cash flow from corporate sponsorships, which is tough during a weak economy, is holding steady, Shumway said.[/QUOTE]

From the per-game gate figures from last year, Phoenix gate revenue was $450,000 per game. Multiplied by 41, this means that Phoenix’s gate revenue was $18,450,000 last year, give or take a little. As an aside, I would suggest that this is a minimum level, as the leaked gate revenues came from a report that came out before the end of the season and presumably did not fully reflect the usual second-half bump that most US markets experience. Either way, though, this is good enough for estimating purposes.

Using the 30 percent figure posted above, this would mean that Phoenix’s revenue base was $18,450,000 divided by 30%, or $61,500,000.

With “tickets sold” up by a large amount, one would conclude that revenue is higher than that this year, but that is more speculation than we need to engage in at this time. For example, who knows how the average ticket price has been affected? Either way, let’s see if we can reach a conclusion for last year first, since people seem to be focusing on allegedly historical losses from previous years.

From my understanding, Phoenix’s salary obligations last year were in the $37-38 million range. I couldn’t find the 2007-08 figures on nhlscap.com, so I checked nhlnumbers.com.

As for other expenditures, historically the figure of $25 million has been cited as a reasonable estimate of non-player costs for average NHL teams. It was in this range in the Levitt Report, although that is a few years old by now. Given that Phoenix is a little more removed geographically, arguably their costs might be a bit higher than the average, so let’s use $30 million as a figure (20% above the average).

Based on this, we have costs of $67-68 million and revenues of $61.5 million.

What is unstated is whether the revenue figure above is inclusive of or net of revenue sharing.

Either way, I would be interested in getting feedback as to how this can add up to $25-30 million in losses.

Of course, one could say Phoenix CEO Jeff Shumway is simply lying. If one uses that approach, however, I would suggest that is more indicative of a rationale that is purely based on a made-up mind before one even considers the math.

Actually, James, he doesn’t – at least not when I have listened to him. He has indicated that his rule of thumb for Columbus was that ticket revenue must equal salary.

“Generally acknowledged” in the media doesn’t cut much mustard with me, to be frank, since most of your colleagues never take the time to do basic math. I am sure some of them look at your hockey sabermetric efforts with bafflement (and probably some derision, when it results in conclusions that don’t match their preconceived notions).

There is nearly $16 million revenue difference between what one needs to be “healthy” at the bottom end of the cap, like Phoenix, and the top of the cap. As such, the “generally acknowledged” number is more than a little meaningless.

Things have changed quite a bit just in the last few years even since MacLean soldiered away in his market.

Now Gerald knows more about running an NHL franchise than a guy who’s only 18 month removed from his GM post.

Too funny.

I doubt that the Coyotes are really losing $25-30 million. I’m sure I could put together a set of books that would show that, but it wouldn’t all be real losses. However, I do think that it’s plausible that they are losing somewhere in the $8-10 million range. Given Shumway’s position, that may be enough to sink them.

I would also like to know how the NHL would enforce those debt covenants Gerald mentions at the moment. If the franchise is losing money, and there isn’t a ready buyer, what are they going to do? I can easily see both the numerator and the denominator of their debt-to-equity ratio going the wrong way purely from operations. If they were close to the limit before, they could be over it now. A lot of those covenants are going to be with the banks rather than the league, but enforcing them might just push the team into bankruptcy, and the creditors may or may not think that they’d get more back doing that.

Purely as an intellectual exercise, I’d be fascinated by what a Chapter 7 for a modern professional sports team in one of the big leagues would look like. I hope it doesn’t happen, but, if it does, I’ll get plenty of entertainment following it. Yes, I am that much of an accounting nerd.