• The Economics of The Southern NHL

    by Tyler Dellow • May 20, 2009 • Uncategorized • 52 Comments

    I’ve had someone pass on a bunch of stuff that’s been filed in the course of the Coyotes bankruptcy hearings. I don’t know that I can post the documents without his approval – if he happens across this, he can email me or leave a note in the comments – but I thought I’d post on some of the more interesting information.

    EDIT: Thanks to Gerald Carpenter, a lawyer who comments at various hockey sites, for passing this on to me.

    One of the things that people with an interest in this side of the NHL have always wondered about is the financial side of hockey. We see the salaries, have some ideas about what coaches are being paid and the rest of its a mystery. With all of the stuff that’s been filed in court in Phoenix, an awful lot of this once secret information is now becoming a matter of public record.

    The Coyotes are basically structured in the form of two corporations: Arena Management Group, LLC and Coyotes Hockey, LLC. Coyotes Holdings, LLC owns 100% of Arena Management Group, LLC. It owns 91.79% of COyote Hockey, LLC. The rest of Coyotes Hockey, LLC is owned by minority shareholders; most notably, Wayne Gretzky.

    In January of 2009, the Coyotes and the NHL came to an agreement whereby the NHL would provide further financing to Phoenix. As part of this agreement, the Coyotes filed a bunch of information with the NHL, including a document entitled “2008-09 Budget #2 (Solomon)”, which included budgets for Coyotes Hockey, LLC and Arena Management Group, LLC.

    Coyotes Hockey, LLC had the following budget:

    Revenues
    Ticket Revenue – $17,782,893
    Concessions & Merchandise – $2,078,497
    Box Office Revenues (service charge on tickets) – $417,792
    Suite and Premium Seating – $9,863,588
    Corporate Revenues (sponsorship and advertising) – $13,000,016
    Broadcast Revenues – $4,473,003 (This is apparently just local money, which is amazing to me, as they apparently draw about 7K viewers per game)
    NHL Revenues, Broadcast and Enterprises – $9,257,699
    NHL Revenue Sharing – $14,000,000
    Fan Development/Other – $147,199
    Hockey Operation Revenues (?) – $1,652,000
    Ticket taxes – ($2,163,479)
    Total Revenues – $70,479,188

    Expenses
    Hockey Development
    Player Salaries and Performance Bonuses – $43,911,000
    Player Benefits – $2,776,860
    Coaches, Equipment, Admin. etc. – $9,624,040
    Scouting Department – $1,900,000
    Farm System – $3,649,742
    Total Hockey Expenses – $61,861,642

    Business
    Finance & Administration – $2,999,418
    Ticket Sales Dept – $2,715,054
    Box Office – $750,591
    Fan Development – $323,433
    Advertising & Promotion – $2,328,181
    Game Operations – $625,727
    Sales Service Dept – $2,125,378
    Media Relations – $635,585
    Premium Sales – $993.910
    Corporate Sales Dept. – $1,633,985
    Community Relations Department – $281.160
    Broadcast Department – $2,166,101
    Business Operations – $629,797
    Total Business – $18,209,321

    Other
    Ownership – $514,410
    League Expenses – $3,811,389
    Other Management Expenses – $5,783,988
    Glendale Arena Other Expenses – $2,315,380
    Total Other – $12,425,167

    Total Expenses – $92,496,130

    EBITDA – (22,016,942)

    Interest Expense – $13,523,969
    Depreciation & Amortization (I assume that this is largely player contracts) $18,235,665

    Net Operating Loss – $53,776,576

    If anyone’s interested, I’ll throw up the Arena Management Group, LLC numbers tomorrow. There was another $7MM in projected loss there.

    There’s lots of interesting stuff there, I think. I’m surprised at the cost of the farm system – $3.6MM seems like a pile of money to pay to develop players. I’ve long wondered if the Oilers were avoiding having a farm team because it’s cheaper – it wouldn’t surprise me if they were saving $2MM or more annually by avoiding doing so.

    I wonder what the Oilers are pulling in in broadcast revenues. Their audiences are multiples larger than the Coyotes.

    I have no idea how reasonable that coaching line is – the big question is whether it contains some outrageous chunk of Gretzky money. It strikes me as being awfully high, given that it’s ostensibly just the hockey people, with the business people separated out. I’m amazed by the fact that the Coyotes are apparently pulling in $23MM in league revenues when you combine their revenue sharing and central operations money – I can’t believe that the existence of the Coyotes is making any sort of contribution to the centrally generated revenues, so that strikes me as being close to a pure drain on the league.

    That $14MM in revenue sharing is unbelievable, because it emphasizes how far the team is from respectability. As they improve financially, that money would be clawed back from them. The Coyotes have a long way to go revenue wise before they’re no longer a financial drain on the NHL as a whole. I figure that the earliest they’re a playoff team is 2010-11 – it’s probably going to get worse there before it gets better.

    For those interested in comparing and contrasting with the Forbes numbers, they’re here and don’t look half bad. They look to be way under the actual losses but who can imagine a team that misses the playoffs like the Coyotes do spending that kind of money on coaching?

    About Tyler Dellow

    52 Responses to The Economics of The Southern NHL

    1. PDO
      May 20, 2009 at

      Wow.

      That’s 10 different kinds of terrible.

    2. PDO
      May 20, 2009 at

      Didn’t mean to hit enter quite yet…

      That broadcasting # is mind blowing. I mean, surely the Oilers get at the very least seven times as many people tuning in?

      And that’s not even including PPV games…

      The numbers that really jumped out to me though, are scouting, coaches, admin…

      Basically, anyone employed by the team, who isn’t a player on the ice, seems to be ridiculously overpaid. I can’t wrap my head around how scouting costs $1,900,000 a season.

      Here’s there scouting staff:

      SCOUTING STAFF
      Director of Amateur Scouting Keith Gretzky
      Head Professional Scout Frank Effinger
      Professional Scout Derek MacKinnon
      Assistant Director of Amateur Scouting Steve Lyons
      Amateur Scout Keith Sullivan
      Amateur Scout Gord Pell
      Amateur Scout Rob Murphy
      Amateur Scout Barclay Parneta
      Head European Scout Christian Ruuttu
      European Scout Robert Nordmark
      Amateur Scout Patrick Augusta
      Video Scout David MacLean

      Now outside of a very interesting name to start the list… how on earth do you get $1,900,000 out of 12 people – mostly scouts – and whatever their expenses may be? (Presumably, mostly travel expenses)

    3. May 20, 2009 at

      Wow. Great post. What a money pit. How can they afford to pay Gretzky the reported $6-8 million?

      This franchise cannot survive no matter what happens with the judge’s decision.

    4. May 20, 2009 at

      I did some quick math on the scouting numbers that PDO provided, and that averages out to about 150,000 per year per scout. However, I imagine a large chunk of that money doesn’t go to salaries, since I’m assuming that $1.9 mil includes travel and accommodation costs (hotels, flights, meals, etc).

    5. Rick
      May 20, 2009 at

      Is that the complete breakdown?

      Maybe I just keep glossing over it but I don’t see travel accounted for.

      I would think that it would be a significant enough of an expense to warrant it’s own category.

    6. mc79hockey
      May 20, 2009 at

      Huh. Good question. Maybe it’s part of the coaching/admin line?

    7. Julian
      May 20, 2009 at

      Hot damn. Those are some crazy numbers, though obviously they’re “worst case scenario” numbers, it’d be good to have the same data on a middle of the pack team to compare… The leafs must be even bigger outliers from the mean than the Coyotes, no?

      That 4.4M for local broadcasting is crazy, 7000 per game, seriously? Anyone have any other local broadcasting fee numbers for other teams? I thought I heard the Islanders number once, but I can’t remember at all what it was.

    8. Julian
      May 20, 2009 at

      Oh, so that’s what happened to Christian Ruuttu. Huh.

    9. Rick
      May 20, 2009 at

      “Huh. Good question. Maybe it’s part of the coaching/admin line?”

      Could be, but $9,624,040 seems pretty light when you consider Gretzky is apparently being paid north of $4mil. Unless his salary is broken up and accounts for a good portion of the “Other Management Expenses – $5,783,988″.

      What would be reasonable for travel? Charter flights, hotels, buses and so on. I would think just accounting for a single nights hotel and a flight for each away game would put them over $3 mil, even that is probably conservative. Factor in extended road trips and the number goes up from there.

    10. Robert Cleave
      May 20, 2009 at

      That 4.4M for local broadcasting is crazy, 7000 per game, seriously? Anyone have any other local broadcasting fee numbers for other teams? I thought I heard the Islanders number once, but I can’t remember at all what it was.

      17 million a year until hell freezes over, IIRC.

      I haven’t been able to find a link, but my fading memory suggests the Oilers and Flames get about $150,000 per game from RSN. I’d guess total local broadcast revenues (including PPV) would be in the vicinity of 10 million.

      I guess the other thing that stands out for me is that the ‘Yotes expect general ticket revenues to be about $400,000 per game. I don’t take NHL attendance figures at face value, of course, but they are averaging about 30 dollars in ticket revenue for every ticket distributed. That won’t cut it. Even with a big chunk of dough from the city of Glendale, they’re screwed if those prices are all the market can bear.

    11. Gerald
      May 20, 2009 at

      Tyler, you’re quite welcome for the data. As you get further into the stuff, I imagine you could find a post a day if you felt like it.

      The big number that stands out for me in this section on the expense side (and there are a few in the arena side that give me pause as well) is the “Other Management Expenses” at $5.7 mil. I do wonder what this entails. Does Moyes pay his other companies a stipend (as you will note from the arena side, he does pay them $1-2 mil as allocated expenses for their services there).

      That $500k “ownership” expense is weird too.

      The other main thing to notice is this. As part of the disclosures a few years ago regarding the Predators, the Predators set forth both their 2005-06 and 2006-07 expenses and their projected expenses up to 2011-2012.

      The interesting part about THAT is that Nashville’s expenses going forward were (for 2008-09):

      Team Expenses (which includes some arena mgt) $68.1 million

      Depreciation/amort $13.0 million

      Interest (incl. payment of $2 mil to Boots)$5.7 mil

      In other words, it appears that Phoenix is running an extremely profligate operation, with team expenses of $20 million (!) more than Nashville.

      As well, Phoenix’s cost of borrowing is outrageously higher than Nashville, despite Nashville also carrying ~$85 million in outside debt (Phoenix is ~$79 mil plus $13 mil to the NHL that was not factored into the above budgets). I can only assume that the balance is interest that Moyes is charging himself on the $100 mil in debt to himself (although he is not paying it, most likely).

      Draw your own conclusions. I would be interested in some thoughts about all of that.

    12. Gerald
      May 20, 2009 at

      I thought I heard the Islanders number once, but I can’t remember at all what it was.

      17 million a year until hell freezes over, IIRC..

      Actually, it was renegotiated and extended a few years ago so that it escalates from the mid-twenties up to about $36 mil a year in the final years.

    13. Gerald
      May 20, 2009 at

      This franchise cannot survive no matter what happens with the judge’s decision.

      Interestingly enough, the team’s numbers seem to disagree with you. I amy be stealing a future post of Tyler, but one of the other interesting documents is an assessment of what is effectively the team’s revenue “inventory”, if you will (I know, it’s a weird application of the term). It is a calculation by the team of the revenue potential of the team on a category by category basis. It comes out to ~$103.5 mil. so, if the team was fully exploiting its revenue potential, by selling its suites, more sponsorships, etc., it could make more than enough to cover itself and be a solid mid to upper tier revenue generating team.

    14. Robert Cleave
      May 20, 2009 at

      Actually, it was renegotiated and extended a few years ago so that it escalates from the mid-twenties up to about $36 mil a year in the final years.

      Thanks, Gerald. I think it runs until 2030 or thereabouts, does it not?

      As to the potential revenue, even compared to a mid-revenue franchise for ticket sales, like St. Louis or San Jose, they must be leaving at least 10-15 million a year U.S. on the table. That’s just in ticket revenue. I must say, however, when it comes to Phoenix, “potential” should be regarded in the same way we regard a prospect’s on-ice potential. That is, easy to discuss, hard to get to fruition. I have no ill will to the ‘Yotes, so I hope for the sake of their fans things haven’t been fouled to the point where any growth gets choked off.

    15. coach pb
      May 20, 2009 at

      I can’t find it, but I believe the Penguins’ deal with Fox Sports is for just north of 9 million per year.

    16. Gerald
      May 20, 2009 at

      Thanks, Gerald. I think it runs until 2030 or thereabouts, does it not?

      Yep, 2030-2031, per the NY Times.

      As to the potential revenue, even compared to a mid-revenue franchise for ticket sales, like St. Louis or San Jose, they must be leaving at least 10-15 million a year U.S. on the table. That’s just in ticket revenue.

      The Coyotes see an extra $16.3 mil in extra ticket revenue as possible, based on a 17,300 sellout, as compared to a 14,000 average attendance and with a bump-up in ticket prices. The other big opportunity that they see is with corporate sponsorships (separate from suites, where they have sold 53 out of 89).

      That being said, their own work is extremely sloppy in this regard, as they assume $14 mil in revenue sharing even as they increase their revenue. Of course, as Tyler points out, that would be commensurately reduced if they bring their other revenues up. It is an either/or thing. Shoddy work by Shumway indeed, but it does give some indication. Even at $90 mil in potential, they do have the means to be viable in the NHL.

    17. coach pb
      May 20, 2009 at

      Broadcast Revenues – $4,473,003 (This is apparently just local money, which is amazing to me, as they apparently draw about 7K viewers per game)

      MC – is that 7k number in the documents you’re looking at – I can’t find a number like that anywhere.

    18. mc79hockey
      May 20, 2009 at

      Nope, just a number I’ve seen floating around. It seems to be legitimate though.

    19. mc79hockey
      May 20, 2009 at

      The Coyotes see an extra $16.3 mil in extra ticket revenue as possible, based on a 17,300 sellout, as compared to a 14,000 average attendance and with a bump-up in ticket prices. The other big opportunity that they see is with corporate sponsorships (separate from suites, where they have sold 53 out of 89).

      Without looking, do you know which document this is in Gerald? I’m interested to read this, if I can track it down.

      It all strikes me as very airy fairy. I mean, the Blue Jays revenue potential is potentially unlimited – they can charge an infinite amount for each of their 50K seats. Of course, there are maybe 30K hardcore baseball fans in Toronto, so how realistic is it?

      If you consider the Sun Belt teams – CAR, NSH, TB, FLA, ATL and PHX – none of them seem to have been able to make any sort of a run towards sustainibility. I suppose you could point to DAL as the counterargument but that hardly seems to be the norm to me. I’ll bet that they could all come up with numbers showing it’s possible for them to work.

    20. Robert Cleave
      May 20, 2009 at

      They average a .5 local rating, as per this story. I think that would convert to about 9,000 viewers in Phoenix, if memory serves. It’s certainly no hell.

    21. smytty777
      May 20, 2009 at

      Gerald:

      I’m not sure what you mean by full revenue potential. Wouldn’t this mean that the team is selling out, full corporate suite sponsorship etc., are their any teams that do this for a sustained period of time while having a basement payroll?

      I would think to maximize their revenue potential they would need to be spending at or near the cap to ice a consistently competitive team. Which would mean they would be incurring an additional $10-13M in payroll expense and would once again be in the red?

    22. Gerald
      May 20, 2009 at

      Without looking, do you know which document this is in Gerald? I’m interested to read this, if I can track it down.

      I had to look. It is in Shumway’s declaration, in the Powerpoint presentation that is Exhibit A. It is page 28 of 68.

    23. Gerald
      May 20, 2009 at

      It all strikes me as very airy fairy. I mean, the Blue Jays revenue potential is potentially unlimited – they can charge an infinite amount for each of their 50K seats. Of course, there are maybe 30K hardcore baseball fans in Toronto, so how realistic is it?

      I agree that there is a ton of guesstimates. They appear to be using an average ticket price of $49.50 or so, which is hardly “unlimited” (not to say it is achievable anytime soon, or even at all, mind you).

      If you consider the Sun Belt teams – CAR, NSH, TB, FLA, ATL and PHX – none of them seem to have been able to make any sort of a run towards sustainibility. I suppose you could point to DAL as the counterargument but that hardly seems to be the norm to me. I’ll bet that they could all come up with numbers showing it’s possible for them to work.

      TB certainly has. As for NASH, I actually also have their financial projections, and their pretty conservative projections actually translate into both significant positive EBITDA immediately after the purchase ($6.1 mil), and overall a pretty sustainable picture, all without anything close to an aggressive estimate (IMO).

      CAR seems to do pretty well. No one has remotely suggested that they are a significant cash drain.

      FLA and ATL are all hooked up in an arena deal that probably makes money when everything is netted out (minus deprec/amort, of course).

    24. Gerald
      May 20, 2009 at

      .I’m not sure what you mean by full revenue potential. Wouldn’t this mean that the team is selling out, full corporate suite sponsorship etc., are their any teams that do this for a sustained period of time while having a basement payroll?

      Keep in mind that these are Shmway’s #’s, not mine. His figures assume all 89 suites sold at existing prices and 17,300 tickets sold at ~$49.50 average ticket price.

    25. mc79hockey
      May 20, 2009 at

      I’m not sure about TB and CAR. As long as you’ve got a league where 47% of teams miss the playoffs, it seems to me that sustainable has to mean something other than “We can break even if we go to the conference finals.” Ticket prices in TB and CAR are very low, relative to CDN standards.

      As far as NSH, is that counting the government money? How much is that team costing the local taxpayers? You can make anything viable if there are enough tax dollars floated towards it.

    26. mc79hockey
      May 20, 2009 at

      The Shumway stuff is great. The obvious question: What would it take for you to sell all of your inventory at those prices?

    27. smytty777
      May 20, 2009 at

      Gerald: thanks for the clarification. It seems to me even if the Yotes can maximize their revenue in accordance with Shumway’s numbers they will still be walking a very fine line in terms of profitability given that their revenue sharing would likely decrease and their costs (particularly player expenses) would need to increase to maintain a competitive hockey club.

      I’m assuming the reason that consessions from the City of Glendale are such a key point for any potential investor is to allow for a bit more leeway in terms of profitability as the current finances don’t look to provide a lot of room for error.

    28. Gerald
      May 20, 2009 at

      I agree with all that, smytty.

      The concessions, both from the City and Westgate Developments ($12 mil each) are substantial indeed.

      As an aside, one thing that is probably quite attractive, but has not been mentioned on hockey sites, is that there is a very real possiblity that Glendale is going to be selected as an NCAA B-ball tourney site. That is a very lucrative asset, in terms of both ticket sales and (even more importantly) as an attractive inducement for suite purchases.

    29. Gerald
      May 20, 2009 at

      As far as NSH, is that counting the government money? How much is that team costing the local taxpayers? You can make anything viable if there are enough tax dollars floated towards it..

      “Floated” is quite the misnomer. Not many people understand what is going on there. The arena was losing money and costign the taxpayers money already. The essence of that deal was that the city is paying the Preds what they were effectively losing anyway (they were covering operating losses at the arena), in exchange for the Preds assuming the risk of further losses (and the benefits of loss reductions). that is hardly a handout.

    30. Robert Cleave
      May 20, 2009 at

      As an aside, one thing that is probably quite attractive, but has not been mentioned on hockey sites, is that there is a very real possiblity that Glendale is going to be selected as an NCAA B-ball tourney site. That is a very lucrative asset, in terms of both ticket sales and (even more importantly) as an attractive inducement for suite purchases.

      They’ve just had the West Regional in Glendale this past year, but it was in the University of Phoenix stadium (home of the NFL Cardinals). The NCAA likes to eat with a big spoon. You might get the first two rounds in Jobing Arena, but if they get another regional or a Final Four, it’ll be under the dome.

    31. coach pb
      May 20, 2009 at

      They average a .5 local rating, as per this story. I think that would convert to about 9,000 viewers in Phoenix, if memory serves. It’s certainly no hell.

      And not nearly the worst in the league. To everyone but Bettman, it’s obvious that southern hockey doesn’t work.

    32. May 21, 2009 at

      Sunbelt teams can make money–but like many US markets winning hockey games is very important (see the original six “Dead Wings” era and Blackhawks during the end of the father Wirtz period). Very few USA markets are going to support teams with zero playoff wins over a decade or so, even markets where Howe and Hull once played. The quality of the product matters to some consumers.

      The thing that jumps out at me about these numbers is the revenue ratio of money from ordinary folks compared to the revenue that comes from the corporate sponsors and box buyers.

      32% (the league) NHL joint revenues + revenue sharing.
      31% (big spenders) Luxury Boxes + Corporate Sponsorships
      28% (ordinary people) Tickets, Ticket surcharges, Concessions
      09% (other) Broadcast, Fan Development, Hockey Operations

      Of these two revenue streams the corporate money is certainly much more inelastic than than the individuals buying tickets. A corporation buys 5 year lease on a box and they will take clients regardless of the team’s record. The ticket sales side is where the elasticity of demand is going to come into play more often. Winning matters, imagine that?

    33. Gerald
      May 22, 2009 at

      Falconer, don’t forget that, among the “ordinary people” money (hate that term, BTW, but I know what you are driving at), a lot of that is driven by corporate purchases – the club seats, the rinkside $300 tickets, etc..

    34. Robert Cleave
      May 22, 2009 at

      a lot of that is driven by corporate purchases – the club seats, the rinkside $300 tickets, etc..

      Quoted for truth. I’d guess at least a significant minority of all lower bowl tickets for most NHL teams, and a majority in places like Toronto and New York, are corporate buys. It isn’t just suites. Anyone following the Nashville situation over the years has noted that the lack of corporate involvement often focused on lower bowl seat purchases.

    35. May 22, 2009 at

      @ Gerald: fair enough about my choice of “ordinary people” – it is a loaded term–I was making a crude attempt to separate out the corporate from individual purchasers.

      @ Cleve: I don’t have a breakdown for “lower bowl” versus upper bowl, but I was told by a NHL team’s Director of Marketing that across the NHL corporations on average purchase 60% of all seats. I would agree that the % is likely higher in Toronto, Detroit and New York.

    36. Robert Cleave
      May 22, 2009 at

      NHL corporations on average purchase 60% of all seats

      Not surprised, that was a low ball guess on my part. Thanks for the info.

    37. September 4, 2009 at

      Прикольный блог, по сравнению с моим на уровне. Умеют делать если захотят.

    38. September 8, 2009 at

      Меня эта статья очень заинтересовала. Но есть и другие, более детальные мнения на этот счёт.
      Автору всеровно спасибо

    39. September 9, 2009 at

      Мне интересно, сколько средств вложили в раскрутку этого блога. Кто как думает?

    40. September 14, 2009 at

      Побольше бы тематической информации, и будет респект полный.

    41. September 16, 2009 at

      По моему мнению Вы ошибаетесь. Пишите мне в PM, обсудим.

    42. September 22, 2009 at

      Полностью все усироило меня в этом блоге, нашел все что хотел. Везде бы так делали.

    43. September 26, 2009 at

      Я так и думал, автор спасибо)

    44. October 5, 2009 at

      Как раз то что искал, большое спасибо!

    45. April 6, 2010 at

      Класно! Нашел, наконец толковый блог на просторах интернета) Ура!

    46. May 17, 2010 at

      Где-то я уже встречал близкую статью, но все равно спасибо

    47. May 18, 2010 at

      С большего, тот кто писал недурно отжег.

    48. May 18, 2010 at

      Черт, для тех кто шарит работа

    49. May 18, 2010 at

      Уважаемый убейся

    50. June 13, 2010 at

      справочник по сертификации, стандартизации и метрологии.

    51. September 21, 2010 at

      Ура!, вебмастер убого отжег!

    52. July 13, 2011 at

      Интересный материал

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