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11-16-2012, 05:40 PM
smackdaddy's Avatar
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Found this very interesting in regards to Katz and his arena, and the way the people of Edmonton view him as snake in the grass. There has been much discussion as to why Katz needs a new arena for long term sustainability of the Oilers, and due partly to much of the economics of the NHL changing at a rate that has a lot of teams including Edmonton lagging behind in the near future. Much of those teams have the benefit of being in a large market, while Edmonton has all but reached its peak in profitability from a hockey revenue only standpoint. While it's debatable how much more can be squeezed out of the Edmonton fans moving into the future, what's not is the very real economics of the Oilers and their new arena.

KevFu over on the business boards unwittingly explained exactly why a city-funded arena that reaps all extra revenue from events would leave Edmonton in a hurting position 5-10 years from now:

Arena management from OUTSIDE events is not propping up the team. The lockout-year numbers indicate how much arena-based (but not necessarily HRR) revenue SSE gets off Panthers hockey compared to everything else. And the numbers for outside events are "inconsistent" or "unreliable" (for lack of a better word), because each outside event is a different negotiation on the terms for the arena.

The Panthers are an anchor tenant. Having the Panthers lends the venue credibility as a "big league venue" and you need a balance of events that establish your venue as a destination for marquee events -- like NHL hockey, or someone like Bruce Springstein playing there -- even though the marquee events probably don't make you the most money (you can bilk the up and coming acts with inexperienced management a lot easier, while someone like Bruce has a "take it or leave it" negotiation with the venue or else he'll just play somewhere else; and the Panthers have an enormous expense in player payroll).

Divesting the Panthers to a separate owner WOULD get rid of that expense and make SSE more profitable… However, you have the hurdles when you don't own the building and only operate it (Tampa for example has their operations contract tied to the ownership of the team. They cannot divest the hockey team and operate the arena).

Finding an owner willing to be a tenant that lets the arena management company syphon off revenues is hard to do. Especially because Forbes' numbers show how, when isolated, the hockey side isn't making a significant amount of money without those other revenue sources. (See: The Atlanta Thrashers, whom no one would buy the team to be a tenant in Philips Arena).

Essentially, what the article reveals (to me, anyway) is that the NHL's labor negotiations have to separate the hockey business from the entire enterprise; and when you do that, it's easy to jump to conclusions about the hockey FRANCHISE as being unprofitable in a lot of markets, when it's not necessarily the case for the Hockey-Based Businesses that own the teams, because the team is part of a larger entity.

The end result to me, as it applies to the Business of Hockey, is that isolating profit/loss for a hockey team is a worthless endeavor. You have to seek the big picture for the entire hockey-related operation; and that answers the question of why a bunch of billionaires who didn't get rich by being stupid, keep buying teams that "lose money."

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