• Everyone’s got an angle

    by  • September 26, 2011 • Hockey • 24 Comments

    Michael Parkatti points out something interesting from Pat LaForge:

    Oilers’ president and CEO Patrick Laforge notes how NHL teams pay their players in US dollars. He says a one-cent fluctuation, either way, can be worth $4-5 million, for a team with a payroll in the neighbourhood of $60 million.

    Now…I’d like to hear the audio on this. If anyone knows where it is, by all means provide a link. The quote is so goofy (and it’s not presented as a direct quote) that I’d like to hear it before whacking Laforge too much for it.

    With that said, if it is an accurate quote, it’s not the first time that the Oilers have played games with numbers. The statement is technically accurate – if the Canadian dollar was valued at between 44 and 34 cents US, a one cent drop would cost the team between $4MM and $5MM but, of course, the Canadian dollar is worth substantially more at the moment. If this is an accurate summary of what he said, well, it’s pretty terrible.

    I thought the next bit was interesting too:

    We don’t sell tickets daily, we sell them in advance, so people pay for their Edmonton Oilers’ season tickets back when the dollar was $1.05, US, and everybody was thinking life’s beautiful,” says Laforge. “We can’t go surcharge everybody for a crumbling Canadian dollar, so it is a big risk on (Oilers’ owner) Daryl Katz’ back.”

    Now, I don’t live in Edmonton, so I don’t know precisely how payment for Oilers’ tickets work but if people pay for them in advance, when the dollar is US$1.05, doesn’t that mean that the Oilers have a large chunk of their 2011-12 revenue in the bank and can choose to hedge the currency risk as much as they want? If Katz wants no risk, he can just take the money and buy US$. If he’s adventurous, he can let it ride. They’d be in a worse position if they sold tickets daily than they are getting their money up front. Simple financial rule: getting your money now is always better than a promise that you’ll get your money later.

    * * *

    Interesting story about the Canucks gaming the CBA’s rules on pre-season games on Puck Daddy. If you had tickets to the Oilers-Canucks game the other night, you might have noticed that the Canucks’ roster was horrible. Harrison Mooney explains that the Canucks have brought in a bunch of guys who meet the definition of veterans who they use to meet the CBA mandated minimums. I can’t blame the Canucks too much – they’re in the business of winning hockey games, not ensuring that Edmonton’s fans get value for the dollar (nobody, as far as I can tell, is in that business).

    It strikes me that this is a case in which Oilers’ fans might benefit from a decent supporters’ group, one that would put some pressure on the organization to tell the Canucks that there won’t be any exhibition games for them in Edmonton next year but that Minnesota is probably available. A few years of that might convince the Canucks that complying with the spirit of the CBA might be wise in some circumstances. The Oilers presumably sold out or came close to selling out this game; they don’t really care who the Canucks ice. The only people who suffer from not seeing anything close to a respectable lineup from Vancouver are the people footing the bill.

    * * *

    It looks like there are a couple of interesting stories developing in training camp as far as who makes the team. I’m a firm believer that training camp is largely uninteresting in that the team is basically already set; to me, it’s not much more than a chance to eyeball some guys who might be interesting down the road.

    Up front, the following guys are on one-way contracts or spent last year in the NHL: Smyth, Horcoff, Hall, Eberle, MPS, Belanger, Eager, Hemsky, Hordichuk, Jones, Brule and Gagner. That leaves two holes into which to cram Hartikainen, Omark, Lennart Petrell, RNH and Lander.

    Personally, I think Omark has to be a lock for the team. Which leaves one spot for the other four guys. If you assume that RNH gets that spot to start, there are three guys who are knocking on the door who are going to be stuck in the American League (two if Gagner is injured). I don’t have a major issue with that in the cases of Hartikainen and Lander; there’s nothing wrong with a year or two in the AHL for young guys, but in the case of Petrell, it’s a little frustrating, as he sure sounds like he might be an actual honest to goodness hockey player and, at 27, it’s not like there’s much to be gained by sending him down and waiting.

    On the one hand, I’m thrilled to see the Oilers going out and signing guys from Europe; sifting coal, to use Tom Benjamin’s expression. The roadblocks of last year’s training camp have been reduced. On the other hand, it’s a little frustrating to see the roster spots that those guys might potentially fill being taken up by guys like Brule, Eager and Jones. Eager’s a bit different – in signing him for three years, the Oilers have basically made a statement that they see him playing a role on a team that does something other than take beatings between September and April and then see how the lottery goes – but Brule and Jones are both players whose signings were defended by supporters of them, at least in part, on the grounds that it didn’t matter too much if they couldn’t live up to their contracts because they’d be gone before the Oilers were competitive.

    The problem with that (just like it was the problem with JDD and Jacques, to pick two recent examples) is that they soak up roster spots that could be used to take a look at other players, guys who might actually play a role in the bottom half of a competitive team. If Petrell has some game – and Renney seems to think he might – he’s going to have to rely on injury in order to get a chance to show it at the NHL level.


    24 Responses to Everyone’s got an angle

    1. September 26, 2011 at

      I get progressively more and more angry every time Pat Laforge opens his slimy little wordhole.

    2. justDOit
      September 26, 2011 at

      Did Laforge forget that it’s not the 90s any more? Sounds like more ‘positioning’ on the arena talks – ‘boo hoo, poor old us…’

      Agreed on the roster log-jam. Brule would find himself riding a bus next month, if it was my decision, but Jones and Eager? I feel that they play important roles and that it would be a mistake to jettison them.

      I did (and still do) have questions about why we needed Hordichuck AND Eager. Eager is bigger, and clearly the better player while still being a major league tough guy. I mean, it’s WAAAAAAY better than seeing two roster spots go to 2 guys who can’t fight (Storts tried, and SMac didn’t have many takers after almost killing that Flambe).

    3. David S
      September 26, 2011 at

      It looks to me like Brule is on the thinnest of ice right now. If he continues to disappoint and/or gets hurt/sick/undisclosed, Petrell will be in the show.

      Jones? Well he’s here so we may as well move on.

    4. September 26, 2011 at

      Brule has been pretty brutal. Can they just waive him and give him his release? They’d have to pay him but other than the money (and admitting another mistake) I don’t see the harm. Also would give them another contract under the 50 man limit.

      I think injuries may save their bacon anyhow in Petrell’s case. If Eager and Gagner are out then he makes the team and by the time they get back someone else will likely be out.

    5. September 26, 2011 at

      To be honest, I think Laforge’s comments are probably exactly what he intended to say to the public, based on history. The fact that I haven’t read or heard any dissent to those obviously misleading quotes (outside of a few blogs/tweets) shows that, whatever you may think of how they handle their business, the Oilers know their audience/customer.

      As for the roster, the comment about reduced roadblocks is key. It seems like this scenario should work (since Gagner’s probably out for a few weeks, that looked bad): farm out Harski and Lander, send RNH for 9 games then back to RD, recall Lander, and likely recall Harski once the injury gorilla mangles someone’s limb by the start of November. And, Brule will eventually play himself out of a spot, leading to demotion or trade.

    6. Colby Cosh
      September 26, 2011 at

      Every year, Warren Buffett mentions in his letter to stockholders how awesome a business insurance is because of the “float”–the time difference between receipt of the premiums and having to provide the quid pro quo. It is amazingly bold for a businessman to try to spin float as a fucking DISadvantage.
      “Poor us, we have to hold onto your money for months and give you no interest or other benefit in exchange for it! And we actually have to figure out what currency we want to denominate this free money in! Sometimes we might guess wrong! Boo hoo hoo!”

      • Woodguy
        September 27, 2011 at

        Ha! I clicked the Michael Parkatti link before I read Tyler’s post to try to come to my own conclusions first and one of the first things I thought of was “You don’t like sitting on cash for months before you pay it out!?!??!”

        What a complete and utter douchebag.

        He probably says that shit to see if the reporter has clue or the balls to call him on it.

        He certainly can’t believe it.


    7. Saj
      September 26, 2011 at

      “they’re in the business of winning hockey games, not ensuring that Edmonton’s fans get value for the dollar (nobody, as far as I can tell, is in that business).” love it!

      Maybe there are some significant costs other than salary that are in US dollars, however. Hotels, flights, arena and/or player equipment, bail-money for goaltenders etc.

    8. Tyler Dellow
      September 26, 2011 at

      Kish – I suspect so too. I would have contacted the Oilers and asked if it was accurate but my understanding is that they don’t talk to bloggers.

      Saj – Well, do the math. If they have $400MM or $500MM in $US expenses, Laforge’s comments are sensible.

      • David S
        September 26, 2011 at

        It’s not just bloggers. The Oilers don’t talk to anybody they don’t have under lock and key.

      • Saj
        September 26, 2011 at

        Agreed, the alleged changes to the bottom line still appear exaggerated, especially considering taxes would reduce the effect in either direction.

    9. godot10
      September 26, 2011 at

      If the Oilers did not hedge their currency risk when they took in the season ticket money, shame on them and not on anybody else.

    10. Mike
      September 26, 2011 at

      I read Laforge’s comment as future-looking: This year we cashed in before the slump, but it’s a risk going forward.

      • Tyler Dellow
        September 26, 2011 at

        That doesn’t make sense. For one, he refers to the dollar being $1.05, so we’re talking this year. Next year, they can budget for the risk.

    11. Coach Pb
      September 26, 2011 at

      It strikes me that this is a case in which Oilers’ fans might benefit from a decent supporters’ group

      You can’t help yourself with the soccer references.

      As for the roster, they’d be in much better shape if they’d flush Brule (or they would have traded him last year like we knew they should have) and waive Hordichuk. No one’s claiming him and they can move him back and forth from OKC to Edmonton as needed.

    12. tangotiger
      September 26, 2011 at

      A 1-cent fluctuation, either way, can be interpreted as +/- .01 cents, or a two cent gap. A team with a 60MM$ payroll would have total revenue of say 105MM$. So, that’s 2.1MM$ of range, not 4-5MM$.

      Maybe he said “2 cents movement”, and the reported interpreted that a “1 cent either way”. So, maybe he meant +/-2 cents, or a 4 cent gap.

    13. tangotiger
      September 26, 2011 at

      Actually, forget what I said. The rest of the expenses will still be in Canadian $. It’s just the players.

      So, yeah, forget that.

    14. Woodguy
      September 27, 2011 at

      Just when you think Laforge couldn’t get any worse.

      He does now his audience though.

      He throws shit like this around and no one ever calls him on it.

      The worst was when a reporter asked him if the Edmonton Capitals made money in their first year of operation.

      His reply was (slightly paraphrased) “We didn’t pay off what we paid for the team, so yes we lost money.”

      Thanks Pat! Let me know of the business where you can pay off the purchase price with one year’s profits.

      I’ll buy two.

    15. Woodguy
      September 27, 2011 at

      Michael Parkatti should go ask him how the Oiler’s finances are when Oil hits $90 and the 1C$=US$1.05 again.

      Should also ask him if as President and COO of the Edmonton Oilers if he knows how the Oilers invest the $ the season ticket holders shell out for the months it sits in the organization before it gets paid to the players.

      • M Parkatti
        September 29, 2011 at

        I should probably point out that I’m not the guy who wrote the above story, I simply called Laforge out on twitter for BS. At a ~$51M payroll, the Oilers would stand to lose about $600K instead of $6M for the dollar dropping a cent around parity. Seemed to fit his MO, comical and guiltless obfuscation…

    16. Vic Ferrari
      September 27, 2011 at

      From a 2008 Globe & Mail article, in italics:

      The calculation is simple, Edmonton Oilers president Patrick LaForge said. “We’re at $55-million [U.S.] in player comp and it’s easy to calculate what every penny difference means. For every 10-per-cent drop, it moves down $5.5-million. So a 20-per-cent drop costs us around $11-million.”

      Hedging strategies adopted by the Oilers and most other clubs when the dollar was stronger limit the currency damage, but do not eliminate it.

      “I doubt anyone is hedged to cover this level of drop,” Vancouver Canucks president Chris Zimmerman said.

      The Oilers, for example, bought commitments to buy U.S. dollars at a prefixed price for delivery in November, December and some more in January.


      That makes more sense.

    17. Silver
      September 28, 2011 at

      LaForge is an absolute clown.

      Keep in mind, Katz is paying the guy. He must think the fans are total idiots, or Katz is a total idiot. Either way, that’s not reassuring.

    18. DeadmanWaking
      September 28, 2011 at

      If you receive revenue against a future expense (conveniently denominated in a known currency), your window of exposure is how long it takes to perform the currency exchange of the fraction at risk. Perhaps one business day, if you’re mostly concerned about tee time. If the Canadian dollar falls by ten percent in the interval of one business day (perhaps over a long weekend), then I agree that few teams lax in currency conversion are fully hedged against this risk.

      I don’t know much about how banks work, but I do know that on Wall Street you can take a billion dollar position in 30ms or some similar blink-worthy number. Maybe the problem here is that there’s a bonus for the comptroller to minimize banking fees, so rather than hedge prudently he dithers to save a shard.

    19. Vic Ferrari
      September 29, 2011 at

      No matter what happens internally with the Oilers financial situation it seems likely that Pat Laforge will stand in front of a microphone somewhere and plead poverty.

      As of this morning you can insure (take a synthetic position with options contracts) Canadian dollars at 1.040 per US dollar for March at an insurance cost of 0.29%

      And as of this morning you can insure Canadian dollars at 1.035 per US dollar for December at an insurance cost of 0.05%

      Bear in mind that there is a significant chance of making money with this insurance, whether the value of the Canadian dollar goes up or down. A significant drop or rise in the Canadian dollar relative to the greenback could make this a very lucrative investment. And obviously the premium is paid immediately, and these options can only be exercised at closing, so there is an interest cost. Still, not that expensive.

      I have no idea how the Oilers hedge, or how much of their revenue is already in USD. They may write a contract with a third party whose business is positively affected by a drop in the CAD (oil production, etc). If they do, it’s because it’s cheaper than the insurance costs I’ve ball parked above. That’s the open market price.

      And if Katz chooses to go without currency insurance (perhaps he’s a gambler at heart and feels bullish about the CAD). That’s his business, and so long as he doesn’t cry aloud when he loses bets … I couldn’t care less.

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