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Hockey Related Revenue versus Direct Costs

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Old
09-11-2012, 03:30 PM
  #1
bozak911
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Hockey Related Revenue versus Direct Costs

Just what exactly is Hockey Related Revenue?

I think I need to have the current definition of HRR explained to me. I am not sure that I understand this term enough to have a fully educated opinion. Therefore, I pulled up the most recent version of the 2005 approved CBA.

From reading section 50.1 of the 2005 CBA, here are the (non-exhaustive) items which contribute to HRR:
  1. NHL Regular Season and Playoff Gate Receipts.
  2. Pre-season Games.
  3. Special Games. (Example of International Exhibition Games)
  4. Broadcast Revenues (non-inclusive of advertising revenue which goes to the networks in question)
  5. Revenue Generated by the NHL Networks (US/CAN) which includes ad revenue.
  6. Local Broadcasting (Channel 45 + ad revenue goes to the network)
  7. Local Over-the-air Broadcasts (Ad revenue goes to the network)
  8. Pay-Per-View Revenue
  9. Radio Broadcast Deals (ad revenue goess to station)
  10. Internet-based revenue (banner ads, click-throughs, licensing... etc)
  11. Printed Publication Revenue (Inline Pub ads)
  12. Merchandising (wonky rules around this, which makes me grumpy about the "Warehouse Sale" at the X during the scrimmages. That money not counted as HRR edit: oh, it actually is... nevermind)
  13. 54% of all concession revenue is counted as HRR (but again, only on NHL game day events)
  14. 65% of the Luxury box revenue (wonky rules again, dealing with two-tenant deals, single tenant deals, and the percentage which is kept by the league based on multi-use)
  15. Fixed In-Arena Signage (without getting into the details, there are again, wonky rules which dictate what percentage are considered part of HRR)
  16. Parking. Only parking paid to the club which applies to premium/suite owners.
  17. Other Revenues: Branded events. Disposition of game worn merchandise. Product Placement. Special Membership sales. Out of town exhibition games. Autograph sessions.

Relocation fees are, interestingly enough, NOT considered part of HRR. (Section B)

In each enumerated list, there are caveats as to what qualifies and what doesn't qualify as HRR. There are also plenty of exclusions in 50.1b which, unless exploited, wouldn't amount to much that an owner could hide "revenue" away from the calculations of HRR. Interestingly enough, insurance policy payments and suspension cash paid to the league are not qualified as part of the HRR.

Does that mean that basically, every time a player is suspended, that money seems to be "split" among the teams?

Also, curiously enough, the revenue generated by AHL games played in the arena of their parent clubs are not considered part of the League revenue source. If/when the Aeros play at the X, that mony is "split" between the AHL club ownership and the NHL club ownership.

If you are curious, the actual HRR Reporting Package begins on page 328 of the 2005 CBA.

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09-11-2012, 03:31 PM
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Now, what is a Direct Cost?

From page 161: Direct Costs shall mean any costs, including fixed and variable costs, attributable to a revenue-generating activity. Reading through the pertinent sections, there are clear definitions of what the max a team can claim as a Direct Cost. The costs of airing the games
  1. Admission Taxes
  2. Arena Costs
  3. TRAVEL
  4. Broadcast Production costs
  5. PLAYER SALARIES*
  6. Player Benefits (Pensions/Health/Dental/Other Team covered expenses)
  7. Staff Salaries** (management staff, coaches, trainers, any other staff directly tied to a revenue generating activity)
  8. Broadcast Staff Salaries

*Note about the "players share"... Any time that the Actual HRR is calculated to be over 2.7 billion, the Players' Share shall be 57%.
**Arena Management, finance, some support and some administration staff are NOT included in Direct Cost figures.

I have bolded the two largest Direct Costs associated with running a hockey club.

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09-11-2012, 03:42 PM
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bozak911
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and then i get distracted by work and don't get the subsequent conclusion saved and the stupid desktop crashed while i was away... edit; oh, and I also changed tense in the first post... /sigh


Last edited by bozak911: 09-11-2012 at 03:53 PM.
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09-11-2012, 04:03 PM
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Now, looking at this from a fan idea for a new look CBA in an attempt to make both sides happy.

The owners wanted a cap system in order to control their largest expense; Player Salaries. They got it. Little did they forsee the possible massive revenue increase which would push the player percentage to the max of 57%. Allan Walsh needs to **** about how it is really "50/50" already, because quite simply... IT ISN'T.

Another thing that the owners couldn't have foreseen in 2004-2005 was the huge increase in travel expenses. The price of a gallon of gas (as a simple comparison) in 2004, was just under $2.00. Today, it is just under $4.00. This trickles down through the entire travel and entertainment industry. That increase makes everything from gas, jet fuel, .... even food prices tick upwards.

Now, the players want the figures of HRR to include more things. In reading the current and soon to be expired CBA, I have to scratch my head at this. The current CBA includes almost EVERYTHING that is a revenue generator for any club or even the league. It includes every single usage of the NHL logo, FFS. Frankly, about the only big thing that I can't see currently included in the calcuations for HRR that the players would want a piece of would be the relocation fees.

The relocation fees go straight to the owners pockets and are not considered part of HRR. If I were a player, I'd see that as a bad thing. If I'm an owner, yay me! However, since only one franchise has relocated since the last CBA... as a fan... BFD.

Even something as simple as doing a graduated roll back to 50% under the current terms of the CBA will not make either party happy. They gradually increased that percentage based on revenue growth. That was short sighted, because with increased revenue, also came increased Direct Costs.

Which is why 18 clubs out of 30 are losing money under the current system...

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09-11-2012, 04:13 PM
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After all of this, I can now see why both sides see that the system is flawed. However, as a fan, I can see the negative flaws in both sides.

I think the owners have an obligation to fulfill their previously agreed upon legally binding contracts.
I think the players don't understand the massive costs that are present behind the scenes.

As a side note; I would be very curious to see the second proposal the NHL put on the table.

My brain is going down the path of trying to de-couple certain aspects of what is considered revenue from Direct Costs. Example; Make player salaries tied directly to the gate receipts of all games; Pre-Season, Regular Season AND the Play-offs. This fluctuating cap depends on the product on the ice... Bad idea at first read, but I haven't run the numbers yet.



Thinking outside of the box...

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09-11-2012, 04:16 PM
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Every hockey writer/blogger/fan who confuses profits and revenues should get fined $100.

They are not interchangable words.

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09-11-2012, 04:24 PM
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Quote:
Originally Posted by nickschultzfan View Post
Every hockey writer/blogger/fan who confuses profits and revenues should get fined $100.

They are not interchangable words.
That goes for everyone I would say. Not just hockey-related stuff.

And bozak, you quint-posting devil. By doing that you definitely avoided tl;dr from most here.

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09-11-2012, 04:33 PM
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Just kidding. Read it all.

I still find myself siding with the players on this issue.

Re-posting this from a previous post of mine:

Why NHL teams cry poor despite the league's record growth.

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09-11-2012, 05:14 PM
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Quote:
Originally Posted by bozak911 View Post
*Note about the "players share"... Any time that the Actual HRR is calculated to be over 2.7 billion, the Players' Share shall be 57%.
Ya gotta wonder if that provision wasn't in the CBA, if we'd be here right now. If the player's share was still at 54%. Gotta blame the league for that.

The thing is, it isn't an unreasonable assumption to think that certain costs are more thresh-hold based and don't increase as fast past a certain point, so at a certain point in revenue the owners share *should* become a higher percentage of gravy per marginal dollar of revenue.

At least in theory, and no doubt that was the theory behind that provision. But, still, one has to wonder if that extra 3% is what is going to buy us a major work stoppage.

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09-11-2012, 05:29 PM
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is travel more than arena costs? i know it costs a ton to fly a team an equipment everywhere but i think it costs around $20m a year to operate an arena.

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09-11-2012, 06:46 PM
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Originally Posted by rynryn View Post
is travel more than arena costs? i know it costs a ton to fly a team an equipment everywhere but i think it costs around $20m a year to operate an arena.
It'd be interesting to know what percentage of teams have private charters now vs 2003-2004.

I suspect the move to "palace" arenas has also impacted some of that thinking on what thresh-hold costs for infrastructure-like issues would be going forward. Tho that *should* have already been becoming apparent by then (the X, for instance).

European scouting operation costs?

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09-11-2012, 08:31 PM
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The arena operating costs vary significantly from team to team. I used to know verbatim how the Xcel operating costs worked out with the team, but I never followed through with that after Leipold purchased the team.

One of the reasons why the Swarm had to move out of the X was that after Leipold purchased the Wild, the team lost the "free rent" aspect of operating in the X. The concessions and most of the gate went with the owner and operators of MSE, not the Lacrosse team.

One aspect of why the Goldwater Institute was up in arms about the Glendale sweetheart deal is that the city was basically giving the arena to the new owners. That was deemed unconstitutional, therefore the summer before last sale was nixed. As it stands, the city plans on paying the Jamison group to operate the arena, which is considered separate from any HRR that team may generate.

Travel costs skyrocketed in 2008 when fuel prices were artificially inflated due to rampant speculation. This is similar to what is happening now. It costs plenty to operate a private charter for just a team. I would honestly be curious to see what the cost/price differential would be between "flying commercial" versus the private charter.

However, the players would pitch a fit at that, because commercial flights are nothing but cesspools of germs.

Back to what I know happened in 2008... With the spike in fuel prices, a lot of travel and entertainment companies went out of business and/or had to do massive overhead cuts. I made it through four rounds of cuts at the IT/BI group at CWT before it came down to a "me or you" decision between my boss and I. After fuel prices dropped, half the team was brought back as contractors, but the damage to that sector had already been done. Frankly, when business travelers realized that they could actually do business over video skype, the industry didn't really rebound.

How much of this is public domain, though? Could we request a HRR Report from the Wild so that we could see how much money is spent on travel? how about doing a comparison between the travel Direct Costs of a WC team versus a Boston or a Philly?

Considering that the average ticket price at the X is below the average ticket price at the Wells Fargo Center, Ed Snider is definitely making more profit than Leipold. Snider puts his players on trains. Leipold puts his players on a jet for ANY non-home game.

Hypothetically, if the gate receipts work out about as follows:
18,000 * $90 = 1,620,000 per home game for Leipold.
18,000 * $110 = 1,980,000 per home game for Snider.

If the Wild then spend $300k on travel expenses for the next away game and the Flyers spend $100k, that is a half a million dollar difference just on gross-expense based solely on comparing two teams made up numbers.

My brain is still thinking about somehow trying to work out the math to couple the player portion more closely to gate receipts. The product on the ice should invariably play a role in that portion, in my opinion. That wouldn't cover it all, though, which would lead to a complicated mess of algorithms to determine HRR and the split between buckets.

Anyway. Time for me to go play hockey rather than think about such things.


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09-11-2012, 08:46 PM
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I wonder if we're profitable even though we haven't made the playoffs ?

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09-11-2012, 09:13 PM
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the swarm didn't move out of the x, man.

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09-11-2012, 09:17 PM
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Quote:
Originally Posted by IHaveNoCreativity View Post
I wonder if we're profitable even though we haven't made the playoffs ?
that just depends on your definition of "we're". also the timing...paying the bonuses to Suter and Parise about guarantees there will be no profit outside a deep playoff run the next couple years.

MSE runs shows and everything at the X and the Rivercentre. if the off-season stuff is slow, the company as a whole might operate at a loss but the team may still be profitable.

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09-11-2012, 10:30 PM
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I wonder if we're profitable even though we haven't made the playoffs ?
I don't have the figures, but I'm pretty sure we lost money last season.

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09-12-2012, 12:52 AM
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Originally Posted by rynryn View Post
the swarm didn't move out of the x, man.
I thought they did for the years that Richards was coach...

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09-12-2012, 02:17 PM
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It sounds like the owners went back to the current definition of HRR with the proposal sent out today. I'd be curious to know what they dropped from the original proposed changes.

It includes a 9.7% rollback of player salaries immediately. Although, it sounds more like they would put that into escrow, rather than a direct scaleback, which equals essentially, the same thing.

So let's hypothetically say that the new proposal is the 2005 CBA with the following;
2012-2013: Player Portion of HRR = 47.3%
2013-2014: Player Portion of HRR = 48.5%
2014-2015: Player Portion of HRR = 50.0%

And then stays there for the duration of this CBA...

Do you think the players would balk at that?

The basic premise is that nothing else changes from the current CBA to a simple roll back of the Player Portion of HRR with a graduated increase to a true 50%.

No changes to contract length, term, etcetera...

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09-12-2012, 02:33 PM
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I like that they are moving back to the original HRR calculation. Don't muddy the waters. Scaling from 49% to 47% share for the players. They might actually be getting fairly close...but from what Russo is saying the league is dangling this as a "last resort" before 9/15, and then pull it from the table. Sounds dumb to me...just get on with it.

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09-13-2012, 03:01 AM
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Quote:
Originally Posted by bozak911 View Post
Interestingly enough, insurance policy payments and suspension cash paid to the league are not qualified as part of the HRR.

Does that mean that basically, every time a player is suspended, that money seems to be "split" among the teams?
No. A suspended player's lost salary is paid to the Players Emergency Fund, which I believe is administrated by the league. There needs to be a specific exemption that those monies are not counted as HRR because it's the league paying money to itself, which clearly is not income and should not be considered revenue generation.

In a similar vein, insurance receipts are not revenue as they're compensation for a loss, and not actual income generating events. They're transfer payments, not revenue.

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09-13-2012, 03:04 AM
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I like that they are moving back to the original HRR calculation. Don't muddy the waters. Scaling from 49% to 47% share for the players. They might actually be getting fairly close...but from what Russo is saying the league is dangling this as a "last resort" before 9/15, and then pull it from the table. Sounds dumb to me...just get on with it.
Russo's part of that cabal of writers desperately searching for a negative out of everything lockout related. The scaling 49-47 proposal combined with Bettman's statement that this deal is negotiable up to 9/15 is essentially an offering of the 50/50 or 51/49 split we all know is ultimately going to be the deal that's agreed to. The issue is in the players' hands now. Any failure to reach a deal by Saturday is 100% the fault of the NHLPA.

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09-13-2012, 05:19 AM
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Originally Posted by squidz View Post
Russo's part of that cabal of writers desperately searching for a negative out of everything lockout related. The scaling 49-47 proposal combined with Bettman's statement that this deal is negotiable up to 9/15 is essentially an offering of the 50/50 or 51/49 split we all know is ultimately going to be the deal that's agreed to. The issue is in the players' hands now. Any failure to reach a deal by Saturday is 100% the fault of the NHLPA.
or that issue is dumb because it still leaves the big problem that this CBA has. with out a system for teams that are in markets like Florida or Carolina or any other market where they struggle to generate revenue, we are still going to have the same damn problem.

Revenues go up so does the cap floor and those teams that have the player generated bandaid will go back to losing money, while the teams who are raking in are going to rake in more.

NHL is not doing anything to address this issue, i doubt players will agree to any deal that does not address this issue.

Now if the owners do something like this we might get a deal done, first under current HRR players go to 50%, 7% goes to ESCROW, owners give a good Revenue sharing plan that helps the struggling teams, and starting in the '13-'14 year, those players who gave money back have it returned to them as bonus payments in the 1-1.5% range per year, even if they retire in that time they get their money back, real money.

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09-13-2012, 10:46 AM
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The issue is in the players' hands now. Any failure to reach a deal by Saturday is 100% the fault of the NHLPA.
I started feeling this way a few weeks ago, when it was stated that what the NHLPA "countered" with was merely a list of suggestions.

Although, I'm still enough of a stickler on contracts to think it is pretty ****** for the owners to say "we want to reduce your contract terms". Once you sign a document, unless both parties are willing to renegotiate, you honor the contract, no matter how unsavory it is...

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09-13-2012, 10:59 AM
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Whenever I read anything lockout related, my eyes kind of just gloss over and this is what goes through my head:



Then I say bleep it and get back to me when you come to an agreement.

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09-13-2012, 11:35 AM
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Quote:
Originally Posted by bozak911 View Post
I started feeling this way a few weeks ago, when it was stated that what the NHLPA "countered" with was merely a list of suggestions.

Although, I'm still enough of a stickler on contracts to think it is pretty ****** for the owners to say "we want to reduce your contract terms". Once you sign a document, unless both parties are willing to renegotiate, you honor the contract, no matter how unsavory it is...
I guess I can see that a little, but the way I look at it, both sides agreed to the specific out clause in the 2005 CBA, so it's kind of hard for either side (especially the players who more desperately wanted that clause in the first place) to claim that either side is reneging on the deal. If they wanted the out so bad in 2005, they can't complain that the owners used it in 2012.

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