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The Business of Hockey Discuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, expansion and relocation, and NHL revenues.

Edmonton Journal: Why do billionaires keep buying teams that lose money?

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Old
11-17-2012, 06:59 PM
  #76
Cawz
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Quote:
Originally Posted by Ola View Post
You obviously fail to understand the article, that's all lol...

...you can get an favorable arena deal -- if you own a pro team or two.

Lol just look at the headline "Why do billionaires keep buying teams that loose money?". That's the reason why. It enables you to own an arena.

God this place at times. Do you really believe what you are writing or are you, what was it you wrote, "a liar or an idiot"?
I wasnt talking about the article. I was pointing out his biased way of providing info. If you cant see that, I'm not going to explain to you.

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Old
11-17-2012, 07:01 PM
  #77
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Originally Posted by flapanthersfan View Post
this is where you (and others) are misunderstanding. the sun-sentinel is correct in referring to SSE as the Panthers. SSE includes the Panthers losses in their books. They own the Panthers. They ARE the Panthers.

So their revenues of $10.4 million that the Sun Sentinel article is claiming for 2011 is just that, $10.4 million profit for Viner.
Here's the quote from the Sun Sentinel:

Quote:
The Panthers made $10.4 million in profits at the county arena in 2011
The bolded part is where the Sun Sentinel mixes up SSE and AOC. Viner makes his 10.4 through AOC but that's before he loses on the Panthers. 10.4million AOC profit falls in line with the historical trends that were referenced in the auditor's report.

The entire Sun Sentinel article focuses on arena operations run by a company owned by SSE. The article implies that SSE is the Panthers. SSE does own the Panthers but the two businesses are separate.

The SunSentinel article is probably what steered the EJ author astray because they use the term "Panthers" to describe SSE without distinguishing hockey operations from arena operations and the associated companies. Arena operations are very profitble but hockey operations (the actual hockey franchise) is not. If the arena was the Panthers, and if they were making 8 figure profits most years, Forbes probably would have them valued at well over most NHL franchises.

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11-18-2012, 06:03 AM
  #78
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Originally Posted by Crease View Post
I thought I already went through this Pepper.

Some franchise owners also own the arena, the arena management company, the local broadcast company, etc. If it wasn't possible to hide revenues of the NHL team elsewhere, why would the NHL and NHLPA bother specifying punishments for that exact behavior in the last CBA? Am I saying it definitely happens? No. Am I saying its possible? Yes.
How do clubs get around the clause from the CBA below (50.11 or thereabouts, p.183)? All HRR is defined as being earned by the club or club affiliated entity, and they define it as such below. How do you get around this? I'm not disputing there accounting tricks, I just want to know what they are.

Quote:
(c) "Club Affiliated Entity." "Club Affiliated Entity" means, with respect to a
Club, its parent company, subsidiary company, sister company, or any other entity which
shares common or family operating control with that Club, or which is controlled by a
member of that Club's senior management (i.e., the Club's Chief Executive Officer, Chief
Operating Officer or President), as set forth in the HRR Reporting Package, and subject
to the following:

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11-18-2012, 09:40 AM
  #79
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Originally Posted by mossey3535 View Post
How do clubs get around the clause from the CBA below (50.11 or thereabouts, p.183)? All HRR is defined as being earned by the club or club affiliated entity, and they define it as such below. How do you get around this? I'm not disputing there accounting tricks, I just want to know what they are.
Here's an example:

Article 50 stipulates that if a team plays in an Arena that is a Club Affiliated Entity, 65% of Luxury Box and Premium Seating revenues from all NHL and non-NHL events are included in HRR. 32.5% if the Arena is shared with an NBA team. If the team plays in an Arena that is an Unaffiliated Entity, then Luxury Box and Premium Seating revenues from only NHL events are included in HRR.

So there are financial implications to HRR if an Arena is defined as a Club Affiliated Entity or an Unaffiliated Entity. Here's how the CBA defines a Club Affiliated Entity:

Quote:
"Club Affiliated Entity" means, with respect to a
Club, its parent company, subsidiary company, sister company, or any other entity which
shares common or family operating control with that Club, or which is controlled by a
member of that Club's senior management (i.e., the Club's Chief Executive Officer, Chief
Operating Officer or President)
Back in 2010, Ted Leonsis held a 44% interest in the Verizon Center. The controlling majority was held by the estate of Abe Pollin. The Washington Post article reporting Leonsis' bid for the remaining 56% stated that by making the purchase, Leonsis could begin directing arena revenue on to the Capitals books. That seemed to indicate that 44% ownership in the Verizon Center was not sufficient to make Verizon Center a Club Affiliated Entity. What I'm getting at is it's plausible that a club's owner can take on limited ownership of the Arena so that the club owner can pocket their share of non-NHL event Luxury Box and Premium Seating revenue without any of it required to go into HRR.

I wouldn't call the above an accounting trick. More like a loophole.


Last edited by Crease: 11-18-2012 at 09:54 AM.
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11-18-2012, 09:57 AM
  #80
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Originally Posted by Cawz View Post
I wasnt talking about the article. I was pointing out his biased way of providing info. If you cant see that, I'm not going to explain to you.
I am not sure I follow, but I'll take your word for it and I appolgoise.

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11-18-2012, 11:42 AM
  #81
Gallatin
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Review of Auditor's Report

I just finished my review of the Florida Panthers Arena Operations Auditor's Report for the years 1999-2008.

The parent company is Sunrise Sports & Entertainment Ltd. (SSE) and the sister corporations under that company are the Arena Operating Company Ltd. (AOC), and Florida Panthers Hockey Club Ltd. (FPHC). There was no information on whether SSE owned any other subsidiary corporations.

It was actually not too bad of a read, these guys did not go into nearly as much detail as I am used to with the Auditor's Reports for the businesses I have operated.

Miami is considered a strong entertainment market. When this very large Arena opened in 1999 there was a lack of Miami area facility competition for shows, and the Panthers were coming off a streak of several years good play that included a run to the finals. It holds 19k+ for 41+ hockey games, and 22k+ for 70-100 shows per year.

The first 3 years of 1999, 2000, 2001, they absolutely crushed it on pre-tax net profit, averaging well over $13 million per season. In 2002 another Miami area facility opened, driving increased competition that severely impacted pre-tax net, practically cutting it in half. Then the Lockout came in 2004/2005, damaging pre-tax net again.

Based on profits around the strike years, I would assume AOC makes more from hockey games than shows. They don't have to compete for the Panther's business like they do everything else after all.

There was a nice rebound in 2006 to $11.7 million, but pre-tax net was consistently eroded the next two years, to the point that in 2009 at the time this report was written, the Panthers sister corp owed the county more than $8 million, and there was concern voiced by the Auditor's that AOC did not have enough cash in the bank to meet it's future debt service obligations for their part of Arena development costs.

If FPHC did indeed average 7.5 million in losses from 2002 through 2008, AOC pre-tax net profit has not covered all of those loses, and they are 3 to 4 million in the red for the period 2002 through 2008 if you add the two subsidiary corporations together.

The significant downward trend in AOC pre-tax net profit from 2006 to 2008, combined with the increased costs of the FPHC as the cap floor increased significantly, would lead a logical person the conclusion that SSE losses excellerated at a high rate since 2008.

Knowing what little I know of the industry, I would not be surprised to find out the combined losses of AOC and FPHC have grown to over 5 million a year recently.

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Old
11-18-2012, 12:18 PM
  #82
Tawnos
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There are some people in this thread who get it and some who don't. The sticky details don't really matter so much here. The point of the article is that owning a hockey team that loses money by itself gives the owner the opportunity to make money through other avenues. Without the hockey team, those opportunities would not be open to him. The hockey team might be a loss, but the whole venture of owning a hockey team is not.

And this belies the public point of this lockout, from the league's standpoint, which is to reduce costs in order to stop the bleeding. The truth is that the vast majority of owners aren't all that concerned over whether or not their hockey operations make money by themselves. The point of this lockout is an attempt to increase profits, not create them.

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Old
11-18-2012, 01:01 PM
  #83
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Quote:
Originally Posted by Gallatin View Post
I just finished my review of the Florida Panthers Arena Operations Auditor's Report for the years 1999-2008.
Yeah, paints a much different picture than the blogger's interpretation. Rather than arguing his points, everyone should read this and make their own interpretations.

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Originally Posted by Tawnos View Post
There are some people in this thread who get it and some who don't. The sticky details don't really matter so much here. The point of the article is that owning a hockey team that loses money by itself gives the owner the opportunity to make money through other avenues. Without the hockey team, those opportunities would not be open to him. The hockey team might be a loss, but the whole venture of owning a hockey team is not.

Read the auditors report, and see if you come to the same conclusion. The umbrella corp is probably operating at a small net loss.

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Originally Posted by Tawnos View Post
And this belies the public point of this lockout, from the league's standpoint, which is to reduce costs in order to stop the bleeding. The truth is that the vast majority of owners aren't all that concerned over whether or not their hockey operations make money by themselves. The point of this lockout is an attempt to increase profits, not create them.
Well, this model of profitability (assuming it is even profitable) involves basically screwing over the city they are in. Yeah, hockey teams can be lynch-pins to larger business deals, which may (but I don't think there are guarantees) net a profit. However, wouldn't it be better if hockey operations could, in and of themselves, net a profit, and a large enough one that hockey teams could finance their own arenas, without needed to put city councils over the barrel (although that could still happen)? Basically, if you believe that umbrella companies make money, and would only be able to make that money through team ownership, even though the team itself loses money, the business model seems to be based around municipal handouts. The players certainly win, the owners might be winning (although I somehow doubt they don't care about hockey team profits), due to subsidies to other ventures. City taxpayers lose. Not sure how this can be considered a sustainable model.

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11-18-2012, 01:30 PM
  #84
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City taxpayers still win in the long term through community effects. This is a much researched and often conflicted topic of course, but I'm of the belief that pro sports teams are a huge boon for local business. Municipalities get far more out of it than they put in.

Of course it would be better if hockey operations could net a profit for themselves. I'm just making the point that, while it is desirable, it is not necessary.

The audit seems to say that Viner is making money off of the whole deal. Obviously this has been under dispute in the whole thread. But even if he isn't, he's not losing money on the order of $7m per year. If this franchise is in the basement of the league in profitability and the whole organization isn't losing a whole lot, that means the vast majority of organizations are likely making money even if their hockey operations aren't. The point still stands.

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11-18-2012, 02:10 PM
  #85
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Originally Posted by Crease View Post


Back in 2010, Ted Leonsis held a 44% interest in the Verizon Center. The controlling majority was held by the estate of Abe Pollin. The Washington Post article reporting Leonsis' bid for the remaining 56% stated that by making the purchase, Leonsis could begin directing arena revenue on to the Capitals books. That seemed to indicate that 44% ownership in the Verizon Center was not sufficient to make Verizon Center a Club Affiliated Entity. What I'm getting at is it's plausible that a club's owner can take on limited ownership of the Arena so that the club owner can pocket their share of non-NHL event Luxury Box and Premium Seating revenue without any of it required to go into HRR.

I wouldn't call the above an accounting trick. More like a loophole.
The 32.5% that would be HRR if Leonsis had a controlling interest in the arena, is the agreed upon estimate of an NHL teams contribution to luxury seating value in a NHL/NBA/concert hosting arena. It isn't supposed to go into HRR.


Last edited by epo: 11-18-2012 at 02:57 PM.
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Old
11-18-2012, 05:59 PM
  #86
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Originally Posted by Tawnos View Post
City taxpayers still win in the long term through community effects. This is a much researched and often conflicted topic of course, but I'm of the belief that pro sports teams are a huge boon for local business. Municipalities get far more out of it than they put in.

Of course it would be better if hockey operations could net a profit for themselves. I'm just making the point that, while it is desirable, it is not necessary.

The audit seems to say that Viner is making money off of the whole deal. Obviously this has been under dispute in the whole thread. But even if he isn't, he's not losing money on the order of $7m per year. If this franchise is in the basement of the league in profitability and the whole organization isn't losing a whole lot, that means the vast majority of organizations are likely making money even if their hockey operations aren't. The point still stands.
Well, the debate about the impact of arenas to municipalities is far from cut and dry. Probably depends on a given situation.

That said, if the argument is that hockey operations can get by as long as you get a sweet-heart arena deal, and a business plan that revolves around the arena itself being profitable, I don't think you can really say that a profitable hockey team is only a luxury. Once the sweet-heart deals dry up, what then?

On the whole, the audit is saying they lost money (at least within the scope of the operations that the audit analyzed - maybe the AOC has other arms collecting money). The magnitude depends on if the Panthers lost additional money over the amount that the auditor reported the AOC subsidized them with.

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11-18-2012, 08:32 PM
  #87
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Originally Posted by LickTheEnvelope View Post
Uhh... the audit is only on the company that controls the arena...



So yes... 1 part of the company that owns the Panthers might make money... that doesn't mean the Panthers make money...
I think it would be great if a fan group could buy a team. It could turn into the Green Bay Packers of Hockey.

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11-18-2012, 09:32 PM
  #88
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I know the debate isn't cut and dry. As far as the "sweetheart" deals, I don't consider them to be that. This goes back to the discussion in the article itself. Without the hockey team, the arena itself doesn't exist. The "sweetheart" deal is just a function of bringing in the economic activity that surrounds a venue of that size. In most cases, the city needs the anchor tenant more than the arena really does. I mean, look at Kansas City, whose arena was built with the express purpose of luring an NHL or NBA team in, but who is doing just fine without them. If the sweetheart deals dry up, there will be a major problem, but that's really not in danger of happening. Somebody has to run the arena, and it makes the most sense for publicly owned buildings to have the anchor tenants do it, since they have a pretty big stake in ensuring the building's success.

As for the audit report, it neglects to find whether or not the subsidies to the Panthers organization put the team in the black, therefore we have no way of knowing if SSE is actually losing money. Broward doesn't have access to SSE's books, only the AOC branch. Forbes doesn't either. However, if the auditor's own findings are that the AOC brought in $89m in net income over those 10 years, and Forbes' estimate of $7.5m in losses for the Panthers per year applies to the Panthers arm of SSE, then SSE is making money. Not a ton, although $14m or so would look nice sitting in any of our bank accounts. But this is the point the article makes. The article is implicit in the idea that these numbers are all accurate and mean only what they mean. We don't really need that explained to us. Once again, this push for 50/50 by the owners is not about creating profit, it's about increasing profit.

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11-18-2012, 10:04 PM
  #89
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A window into the real +/- of a "losing club"?

Article I saw on another forum, Broward county apparently loaned the Panthers money and thus have access to the books. Figured I'd see what people around here have to say. If this is a case for one of the "struggling teams", can anyone blame the players??

The Panthers made $10.4 million in profits at the county arena in 2011 and expect to make $21 million this year. - January 31, 2012 - Brittany Wallman, Sun Sentinel http://articles.sun-sentinel.com/201...rena-operating

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11-18-2012, 11:18 PM
  #90
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Its from ownership of the Florida hockey team that the owner is able to accumulate wealth from the arena. The Sens were similar in their bankruptcy when the prospectus revealed the team was losing money but the arena made enough to make the owner overall profitable. Similar to how it was recently revealed that the previous Sabres owners claimed to lose money each year but sold for a healthy capital gain which even after paying back the debt was a solid roi.

The point i take is that trying to look at those forbes profit figures, even if they werent dismissed by Bettman and every owner, as somehow meaningful misses the point that the owners accumulation of wealth derived from owning a hockey team is hardly correlated at all with what those profits would show.

Profit != Wealth accumulation

Ever since league came into existence, its owners have claimed they are struggling to make a profit, and over time their franchise values have risen at the rate of the stock market indicies. Franchise values talk. Marketing statements about profitability walks.

The lockout might be said to be to increase profits, but i somehow doubt we will be here next lockout admiring those profits. We will probably notice much higher franchise values and non hrr gains.

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11-19-2012, 08:30 AM
  #91
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The question does remain, though. If these hockey clubs are such notorious money losers, the going price for them should be close to zero. Smart business people should know they aren't going to make any money and stay away. If they know they are going to lose money, and even expect to lose money, that goes against the very idea of two lockouts in the recent past. Something isn't adding up.

The truth is more likely that most (if not all) of them are actually turning a profit. Their claims otherwise are all very deceptive and intended to fool everyone (and they seem to fool quit a few). If they aren't going to be honest about it, they might as well shutdown. I won't cry for them.

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11-19-2012, 09:15 AM
  #92
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This panthers article linked above provides no details. Profit in 2011? What are the cumulative profits? Maybe a lot of fixed costs were written off pre-2011. Maybe a lot of other events/ inter company revenue went through a holding company. I have no idea and neither does anyone here. Its impossible to know for sure. Thats a big problem for the players and should have been resolved last time. Personally, I think revenue should be factor of seat sales, season seats, box seats, advertising, TV deals, etc. Only what is directly related to the game itself. Ancillary revenue should be excluded as not every team owns the arena. if they dont like that part, increase the factor slightly to account for it.

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11-19-2012, 09:35 AM
  #93
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Originally Posted by Tekneek View Post
The question does remain, though. If these hockey clubs are such notorious money losers, the going price for them should be close to zero. Smart business people should know they aren't going to make any money and stay away. If they know they are going to lose money, and even expect to lose money, that goes against the very idea of two lockouts in the recent past. Something isn't adding up.

The truth is more likely that most (if not all) of them are actually turning a profit. Their claims otherwise are all very deceptive and intended to fool everyone (and they seem to fool quit a few). If they aren't going to be honest about it, they might as well shutdown. I won't cry for them.
Of course...they all make profits thus shutting down the league makes sense.

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11-19-2012, 09:59 AM
  #94
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Of course...they all make profits thus shutting down the league makes sense.
What other theory makes sense? That these people made a lot of money and had no idea that owning an NHL club was going to lose them money? Did they not ask the other owners before coming in? Somebody didn't do their due diligence, or losing money isn't as important as they're indicating with these lockouts (or maybe they aren't losing money at all).

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11-19-2012, 10:07 AM
  #95
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Originally Posted by Tekneek View Post
The question does remain, though. If these hockey clubs are such notorious money losers, the going price for them should be close to zero. Smart business people should know they aren't going to make any money and stay away. If they know they are going to lose money, and even expect to lose money, that goes against the very idea of two lockouts in the recent past. Something isn't adding up.

The truth is more likely that most (if not all) of them are actually turning a profit. Their claims otherwise are all very deceptive and intended to fool everyone (and they seem to fool quit a few). If they aren't going to be honest about it, they might as well shutdown. I won't cry for them.
IMO....

10 teams make money
10 teams are around the break-even mark ( some above some below )
10 teams lose money

The NHL wants all the teams making money, hence the CBA talks to do just that. How the NHL is going to accomplish that, well, that's debatable.

What isn't debatable is that by most published reports, 50% of the teams are either just breaking even or are losing money. The problem is that a lot of teams are owned by larger entities that are in fact profitable when you look at the whole picture. So it can be said that team XYZ is losing money, but owner ABC is actually profitable when you add up everything ABC owns.

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11-19-2012, 10:11 AM
  #96
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What isn't debatable is that by most published reports, 50% of the teams are either just breaking even or are losing money.
Is this a new development? Seems unlikely. So, why do these owners actually exist? They, more than likely, knew they were buying a money losing operation. If you know you're buying a business that consistently runs into the red, whose fault is it that you're losing money? Yourself.

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11-19-2012, 10:45 AM
  #97
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Originally Posted by Tawnos View Post
There are some people in this thread who get it and some who don't. The sticky details don't really matter so much here. The point of the article is that owning a hockey team that loses money by itself gives the owner the opportunity to make money through other avenues.
The sticky details do matter. And the point of the article was primarily this quote:
Quote:
While non-financial considerations undoubtedly come into play, the simplest explanation is that the financial picture for various NHL teams is a lot healthier than it is typically reported to be.
This is often a false statement. The article focused on hockey clubs being profitable (and he screwed that up). The Panthers are incredibly unhealthy, as are a number of clubs. The parent companies are healthy and that's a different discussion that usually has different sticky details from franchise to franchise. The author mucks up the picture by failing to distinguish or use good examples.

Quote:
Without the hockey team, those opportunities would not be open to him. The hockey team might be a loss, but the whole venture of owning a hockey team is not.
I think this is where more of the confusion begins, this is kind of a "chicken or the egg" point depending on the franchise. Some owners want the assets and have to take the team and others want the team and get other assets. There are plenty of examples where franchise owners are closed off to other revenue generating opportunities, and more examples of wasting those opportunities or local governments taking them away.

One of the major issues for the owners that don't own their own arena is that even though they can make money overall (and would love to make more), many of the individual franchises are completely unable to stand alone for the long term. Those ownership interests are unable to use the franchise asset unless the franchises are tied to other healthier assets. HRR manipulation helped the parent companies but was far from enough to make the individual franchises healthy standing alone.

The question of the article was, "why do billionaires keep buying teams that lose money?" He did almost nothing to articulate that point accurately. His example does almost nothing to explain why somebody would buy the team just a few hours north of Florida either. The article did more to confuse the conversation than anything. His conclusion about HRR is one everyone agrees (in the sense the owners will manipulate where they can like almost any business) with but his implication is that it's of much more significance to weak franchises than it actually is.

One can make the opposite point about how the players are stealing suite money from the franchises because so many of those sales have little to nothing to do directly with hockey operations. Specific HRR accounting arguments go both ways and the argument is much different among different groups of franchises.

It was a bad piece and a very poor argument. Some of the points are probably valid, but the author didn't validate any of them well.


Last edited by hockeydoug: 11-19-2012 at 10:53 AM.
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11-19-2012, 11:01 AM
  #98
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Originally Posted by Tekneek View Post
What other theory makes sense? That these people made a lot of money and had no idea that owning an NHL club was going to lose them money? Did they not ask the other owners before coming in? Somebody didn't do their due diligence, or losing money isn't as important as they're indicating with these lockouts (or maybe they aren't losing money at all).
SSE is what was purchased. SSE is worth money. AOC is worth good money. The Panthers are big losers. Each is their own business and no parent company wants to own a business that's dead weight.

One of the issues is that the Panthers (like many franchises) cannot stand alone and cannot be sold without being tied to other valuable assets.

Viner is fine, SSE is fine, the Panthers are not and drag SSE down. I'm confident many ownership groups would love to be able to split and sell so many of these assets that are forced to be tied together because a franchise cannot stand alone. It's not all about immediate direct profit or immediate minimized losses.

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11-19-2012, 11:10 AM
  #99
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Originally Posted by hockeydoug View Post
SSE is what was purchased. SSE is worth money. AOC is worth good money. The Panthers are big losers. Each is their own business and no parent company wants to own a business that's dead weight.

One of the issues is that the Panthers (like many franchises) cannot stand alone and cannot be sold without being tied to other valuable assets.

Viner is fine, SSE is fine, the Panthers are not and drag SSE down. I'm confident many ownership groups would love to be able to split and sell so many of these assets that are forced to be tied together because a franchise cannot stand alone. It's not all about immediate direct profit or immediate minimized losses.
That's exactly what ASG did in Atlanta. The ownership group as a whole liked what they owned, but they didn't like carrying the Thrashers along for the ride any more.

The Thrashers were losing money, ASG was not. So if ASG came out and said the team is / was not profitable they would be correct. Has nothing to do with ASG being profitable.

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11-19-2012, 11:41 AM
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Finlandia WOAT
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Quote:
Originally Posted by hockeydoug View Post
Viner is fine, SSE is fine, the Panthers are not and drag SSE down. I'm confident many ownership groups would love to be able to split and sell so many of these assets that are forced to be tied together because a franchise cannot stand alone. It's not all about immediate direct profit or immediate minimized losses.
The only reason SSE makes money is because of the Panthers.

The lease that SSE has with Broward is contingent on the Panthers being the anchor tenant in the newly rechristened BB&T Arena. No Panthers, and SSE gets no money from the other events in the stadium.

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