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Old
08-18-2004, 07:29 PM
  #1
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A must-read for Oiler fans ...

A must-read for Oiler fans ... or at least I think so. Props to copper&blue for providing the link on another thread.

http://www.camagazine.com/index.cfm/...96/la_id/1.htm

Sobering indeed. Excellent stuff.

I have some thoughts on this, and a couple of questions for the accountants that come here. Hopefully most people here will give this a read and share their thoughts.

(BTW: A couple of years ago I remember arguing adamantly with Smyth94 about the motivations of the ownership group, maybe here but probably at OF. I think I called him a cynical #$%^ !!! I think almost everyone else was in agreement with me. And now I think I was probably wrong. Whoops. )

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08-18-2004, 07:49 PM
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A couple of early snippets for those who aren't keen readers:

"Ultimately, the agreement will see the investors' group continue to pocket all Oilers-event revenues from ticket sales, from advertising and concessions sold inside, arena parking charges, about $2.2 million annually from a city-approved ticket surcharge plus the $2.4-million rent break each year until 2004"
As I read that ... the city (via Northlands subsidy) pays for the employees to work the parking lot and concessions ... and the Oilers scoop up the revenue. Plus the city effectively pays the Oilers $2.4M for rent.

And this:

Confident that they could secure most of the required cash, Nichols' group still had a couple of deals that needed to be made - and so, like Pocklington before them, they went to City Hall. On February 21, 1998, local news media reported EIG had asked the city to purchase a 22.2% stake in the team for $14.2 million. The money was to be used only if an operating loss was incurred, but the request nearly split the city in two and was withdrawn before council could vote.

"They waited until the last minute before making this demand," steams Coun. Mason. According to him, John Butler (the group's lawyer), made "political threats" to several of the councillors, thus burning a few bridges in the process and alienating from EIG key members of the council. For his part, Butler says this didn't take place


Hmmm.

.
.
.

And this:

By a vote of seven to four, with one abstention, the city agreed to pay the $2.4-million rent subsidy every year until 2004, when the Location Agreement expired.

Mason tried to extend the Location Agreement to 2008 in return for the city's support but his pleas were rejected. "I was appalled," he says. "I thought it was inappropriate for the city to provide operating subsidies for the team while it's here and not have some way to recoup our investment."



Things that make you go Hmmmm.

One thing for certain ... I'm glad that Nicholl, Gregg, etc. won the power struggle with Hole, Saville, etc. Just a gut feel thing ... but the lesser of the evils I suspect. In fact, call me naive, but maybe they are straight up.

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08-18-2004, 07:58 PM
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Saville was rich enough to buy the team on his own, though its better this way I think.

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08-18-2004, 08:12 PM
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As I recall, the split in EIG was the pro-Sather faction (Saville, et al) vs. the anti-Sather faction (Nichol et al). So in a purely hockey sense, I'm much happier to see Lowe as GM over the past several years over Slats.

Interesting stuff, though - thanks!

Bart

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08-18-2004, 08:19 PM
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Quote:
Originally Posted by barto
As I recall, the split in EIG was the pro-Sather faction (Saville, et al) vs. the anti-Sather faction (Nichol et al). So in a purely hockey sense, I'm much happier to see Lowe as GM over the past several years over Slats.

Interesting stuff, though - thanks!

Bart
Ya, Hole and Saville had been the lead men for the ownership group until then. I don't think it was the GM issue though (I prefer Lowe too BTW) as much as the president issue.

I remember Sather making glib remarks about EIG input, obviously aimed at Nichol. Something along the lines of "I've heard guys comparing this to running gas stations, this is the NHL, it's completely different, you can't run things that way :lol " ... that was the last straw for me, personally. Because business is business ... and HIS remark was the foolish one, and he didn't realize it. The Dolan's, quite rightly, haven't let Sather touch the business ops in NYR-land.

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08-18-2004, 08:57 PM
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I may irk a few people with what I am gonna say, but I'll say it anyways.

I think, Sather would have preferred if Oilers moved to Houston in 1998. He was great friends with Pockilington, Alexander was Pockilingtons find to buy the team.
My reasoning is that Sather seemed like he almost didn't care whether the team won or lost after EIG took over, and being 4mil over budget. I can understand being over budget, but by that much, it couldn't have been accidental or in good meaning. Also I think he was fired, but due to his standing in the community was given the choice of resigning.
Kevin Lowe has some shortcomings, but he's been at or under budget every year, Pat Laforge has had the team in the black for most of the time too.

So all in all, I am glad Sather is gone.

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08-18-2004, 09:59 PM
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In the book The Glory Barons, it was mentioned that Slats didn't think he needed to draft well. He thought the team was good enough and didn't need to draft well. Any other GM would have fired Fraser for those crappy draft from approximately 1982-1998.

The funny part is Lowe has been blamed for things that Slats did. If Slats is as good as people have said, why do Rangers fans want him fired?

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08-18-2004, 10:11 PM
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Quote:
Originally Posted by Hemsky83
In the book The Glory Barons, it was mentioned that Slats didn't think he needed to draft well. He thought the team was good enough and didn't need to draft well.
That kind of cockiness and arrogance is what lead to the horrible mid 90's teams. Sather just seems smug to me, and while that isn't always a bad thing when your team is collecting Cup after Cup, it's not the best attitude to have when you're trying to rebuild a Rangers team decimated by years of baseball "sign the big name" thinking.

Lowe, on the other hand, seems to me to have a kind of quiet confidence. The kind where you don't brag around or lay back in a chair smoking a cigar, but that gives me an indication that he knows where he wants to take this team and how he has to do it.

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08-19-2004, 09:54 AM
  #9
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Quote:
Originally Posted by igor
(BTW: A couple of years ago I remember arguing adamantly with Smyth94 about the motivations of the ownership group, maybe here but probably at OF. I think I called him a cynical #$%^ !!! I think almost everyone else was in agreement with me. And now I think I was probably wrong.
I am curious as too what the argument was about? Who was cynical of whom and in what regard?

Quote:
Originally Posted by igor
As I read that ... the city (via Northlands subsidy) pays for the employees to work the parking lot and concessions ... and the Oilers scoop up the revenue. Plus the city effectively pays the Oilers $2.4M for rent.
I don't know if I read that the same way (I may very well be wrong). Aren't they just saying that by the Oilers only having to pay 1 dollar a year in rent, the city eats 2.4 mil in losses? So the subsidy isn't like the city is cutting a cheque directly to the Oilers although the effect is the same.

Then the rational behind that is if the City didn't do that and the Oilers indeed did move, the city would be on the hook for twice that amount due to the 4.8 mil in losses that would occur without a major tenant? (in addition to the percieved economic spin offs to the community of 74 mil?)

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08-19-2004, 10:17 AM
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Quote:
Originally Posted by copperandblue
I am curious as too what the argument was about? Who was cynical of whom and in what regard?
Smyth94 was cynical of the motivations of the EIG, or at least some of them.

And one has to wonder how the City could manage to negotiate a deal where they gave away so much and got nothing in return. (i.e. no extension of Pocklington's team-sale condition)

Also the investment seems less like charity than it was presented as. And it wouldn't surprise me if many of the investors would be interested in selling the team if/when the franchise values stabilize.


Quote:
I don't know if I read that the same way (I may very well be wrong). Aren't they just saying that by the Oilers only having to pay 1 dollar a year in rent, the city eats 2.4 mil in losses? So the subsidy isn't like the city is cutting a cheque directly to the Oilers although the effect is the same.

Then the rational behind that is if the City didn't do that and the Oilers indeed did move, the city would be on the hook for twice that amount due to the 4.8 mil in losses that would occur without a major tenant? (in addition to the percieved economic spin offs to the community of 74 mil?)
You may very well be right, but I read that as saying that the original rent was $1 ... and the EIG asked for an annual subsidy from Northlands in addition to being rent-free ... and were granted $2.4M per annum.

Also ... I read it as saying that Northlands covers the costs of running the parking and concessions ... and the EIG claim the revenues from both. Is that wrong?

And how on earth could Northlands lose $4.8M by not having the Oilers here? I struggle to understand this. In St. John's (granted a smaller facility) the additional cost associated with running the facility without a major tennant is $0.075M. What am I missing?

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08-19-2004, 10:41 AM
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Quote:
Originally Posted by igor
You may very well be right, but I read that as saying that the original rent was $1 ... and the EIG asked for an annual subsidy from Northlands in addition to being rent-free ... and were granted $2.4M per annum.
But Bill Smith, the city's mayor and one of the most vocal advocates for the subsidy, makes no apology for backing the group. He admits the money indirectly helps the team by providing free rent

To me that sounds like after the subsidy is factored in, the Oilers get free rent (or $1... whatever).

Quote:
Also ... I read it as saying that Northlands covers the costs of running the parking and concessions ... and the EIG claim the revenues from both. Is that wrong?
It doesn't say... it just says the Oilers get revenues from parking and concessions... nothing about who pays for the employees, the purchasing of said concessions (from the wholesaler), or anything like that. That part there is interesting.

Quote:
And how on earth could Northlands lose $4.8M by not having the Oilers here? I struggle to understand this. In St. John's (granted a smaller facility) the additional cost associated with running the facility without a major tennant is $0.075M. What am I missing?
No idea... I have no idea what it costs to run an arena.

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08-19-2004, 10:48 AM
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Quote:
Originally Posted by igor
Also the investment seems less like charity than it was presented as. And it wouldn't surprise me if many of the investors would be interested in selling the team if/when the franchise values stabilize.
The owners may disappoint me on this but I still firmly believe that they bought the team for the right reasons.

The fact that a purchase of this type HAS to make business sense is besides the point.

I will say that I have never been convinced that the gamble is quite what it is sometimes made out to be. If the owners had the ability to finance the purchase and can afford to operate it with soem moderate losses (that is the biggie) then they will likely always be able to not only recoup their losses but still make money on their investment through another sale. That said, for people of this business savvy and proven success.... there is probably easier ways to make the dough so I don't believe that this factored into their motives at all.

Quote:
Originally Posted by igor
Also ... I read it as saying that Northlands covers the costs of running the parking and concessions ... and the EIG claim the revenues from both. Is that wrong?
It's likely, but depending on which interpretation of the 2.4 is right... that cost may be part of the subsidy.

Quote:
Originally Posted by igor
And how on earth could Northlands lose $4.8M by not having the Oilers here? I struggle to understand this. In St. John's (granted a smaller facility) the additional cost associated with running the facility without a major tennant is $0.075M. What am I missing?
It doesn't say it in this article but I thought that I recall reading that the Oilers essentially operate the building. So things like renovations, maintenance, utilities and so forth are paid by the Oilers. (Someone correct me if I am wrong)

So that said, without the Oilers, Northlands would be on the hook for heating, maintaining, renovating ... an empty building.

Off the top of my head, the heating alone for a building of that size is likely over a million dollars a year.

Add in a depreciation factor (abstract I know but still valid) and although 4.8 seems like a lot of money, it very well be possible.

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08-19-2004, 11:19 AM
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Quote:
Originally Posted by copperandblue
The owners may disappoint me on this but I still firmly believe that they bought the team for the right reasons.

The fact that a purchase of this type HAS to make business sense is besides the point.

I will say that I have never been convinced that the gamble is quite what it is sometimes made out to be. If the owners had the ability to finance the purchase and can afford to operate it with soem moderate losses (that is the biggie) then they will likely always be able to not only recoup their losses but still make money on their investment through another sale. That said, for people of this business savvy and proven success.... there is probably easier ways to make the dough so I don't believe that this factored into their motives at all.
Ya, that seems like a fair assessment. I have to say, that after reading this ... the EIG seem a bit less like 'white knights' and a bit more like Peter Pocklington to me. And really, that just makes sense, and should have from the start. And Smyth94 is an accountant (I think) ... I'm not ... I should have listened in the first place.

My gut feeling on this is that Nichol really has his heart in the right place here. Probably the single-share guys too. Not so sure about many of the others.

How long before the EIG rattle the 'we need a new stadium or we'll have to move the team' pail ... probably fairly soon. Just like every other pro sports ownership group on this continent has (or will).

And though the tax advantages are not perfectly clear to me ... this doesn't seem to be a bad investment, so long as one has other business ventures that are profitable. And so long as the value of the franchise rises ... which in turn is contingent on the willingness of other non-NHL cities to build stadiums and provide incentives to lure a team.

Quote:
It's likely, but depending on which interpretation of the 2.4 is right... that cost may be part of the subsidy.
Okay. Is there any way to find out the details on this?

Quote:
It doesn't say it in this article but I thought that I recall reading that the Oilers essentially operate the building. So things like renovations, maintenance, utilities and so forth are paid by the Oilers. (Someone correct me if I am wrong)

So that said, without the Oilers, Northlands would be on the hook for heating, maintaining, renovating ... an empty building.

Off the top of my head, the heating alone for a building of that size is likely over a million dollars a year.

Add in a depreciation factor (abstract I know but still valid) and although 4.8 seems like a lot of money, it very well be possible.
I know that the EIG did foot the bill to convert a lot of the cheap-seats into luxury boxes a couple of years ago.

I don't remember about the scoreclock refit ... I think the EIG and Northlands shared the cost on that, just by memory.

But would EIG actually be paying for utility and maintenance cost for the whole facility? Even when the CFR or Brier or Concerts are going on? I dunno. But that seems unlikely to me.

To me it sounds like Smith just spun the numbers to rationalize the sweetheart deal. He was in a tough spot ... lose the Oilers and he's a goat with a lot of voters ... openly give taxpayers money to a group of millionaires and even more voters are pished with him. Its a tough spot ... and likely his solution (give money, and rationalize it with terrible math perhaps?) is the only way out for him.

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08-19-2004, 11:25 AM
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Quote:
Originally Posted by igor
And though the tax advantages are not perfectly clear to me ... this doesn't seem to be a bad investment, so long as one has other business ventures that are profitable.
I beleive that is really the key... it's not so much that they are losing money from it, as they simply use the costs to buy the team, as well as the losses, as write-offs for their other holdings.

The problem being is, you have to be earning enough in your other ventures for the write-off to have a positive impact on you.

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08-19-2004, 11:33 AM
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Quote:
Originally Posted by dawgbone
I beleive that is really the key... it's not so much that they are losing money from it, as they simply use the costs to buy the team, as well as the losses, as write-offs for their other holdings.

The problem being is, you have to be earning enough in your other ventures for the write-off to have a positive impact on you.
Yup. And the size of the shares would make that a reasonable for the investors.

We've already heard 'new stadium' murmurs though. Let's hope they don't play that card in the near future. Tough though ... when almost all the other franchises in the league are gifted huge amounts of cash from their local governments ... the Oilers are at a competitive disadvantage if they don't get the same. Not that there deal doesn't seem pretty sweet already. Still, continent-wide ---> this pro-sports-subsidization madness has to stop. Props to L.A for making the first stand (NFL), and for PIT for holding ground with the Pens ... hopefully others will follow suit.

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08-19-2004, 11:37 AM
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Quote:
Originally Posted by copperandblue
...It doesn't say it in this article but I thought that I recall reading that the Oilers essentially operate the building. So things like renovations, maintenance, utilities and so forth are paid by the Oilers. (Someone correct me if I am wrong)

So that said, without the Oilers, Northlands would be on the hook for heating, maintaining, renovating ... an empty building.
This from a Robin Brownlee article ...

Quote:
Originally Posted by brownlee
Under the current lease, the Oilers pay Northlands $750,000 a season as a contribution to operating costs. In return, the Oilers receive all the revenue from ticket sales, luxury suites and signage and a percentage of concessions from home games.

As a significant aside, Northlands has put in place a plan in which they will oversee repair and upgrading of the building at a cost of about $1 million a year.

"There are some of the major components of the building that will need more attention and money as it ages and they (Northlands) will oversee that part of it," Nichols said.
Which makes a bit more sense than the camagazine information. And seems a lot fairer to Northlands and the city. The subsidy isn't as over-the-top as it seemed at first blush.

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08-19-2004, 11:49 AM
  #17
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Quote:
Originally Posted by igor
I have to say, that after reading this ... the EIG seem a bit less like 'white knights' and a bit more like Peter Pocklington to me.
Exactly how many millions of dollars would you contribute to a business venture in which you are virtually guaranteed a cash call within the first five years?

Quote:
Originally Posted by igor
How long before the EIG rattle the 'we need a new stadium or we'll have to move the team' pail ... probably fairly soon. Just like every other pro sports ownership group on this continent has (or will).
Hopefully soon.
The current facility needs replacement. Just factoring in the maintenance of a 30+ year old facility, along with the limited revenue generation potential, makes this a foregone conclusion.

Quote:
Originally Posted by igor
And though the tax advantages are not perfectly clear to me ... this doesn't seem to be a bad investment, so long as one has other business ventures that are profitable. And so long as the value of the franchise rises ... which in turn is contingent on the willingness of other non-NHL cities to build stadiums and provide incentives to lure a team.
Take a look at the current legislation on cumulative net investment loss provisions.

Quote:
Originally Posted by igor
But would EIG actually be paying for utility and maintenance cost for the whole facility? Even when the CFR or Brier or Concerts are going on? I dunno. But that seems unlikely to me.
Maintenance costs are covered under a subsidy that will run out this year (as part of the location agreement)

Quote:
Originally Posted by igor
To me it sounds like Smith just spun the numbers to rationalize the sweetheart deal. He was in a tough spot ... lose the Oilers and he's a goat with a lot of voters ... openly give taxpayers money to a group of millionaires and even more voters are pished with him. Its a tough spot ... and likely his solution (give money, and rationalize it with terrible math perhaps?) is the only way out for him.

In short, knowing the financial picture, as an investor, what is an acceptable return on your investment?

Would you invest a great deal of capital, knowing that;
1) CPI is eating at your inital investment.
2) You could earn a great deal more investing in guaranteed bonds.

and lastly

3) In the (albeit) odd chance you make any money, someone will accuse you of no longer being a "white knight"

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08-19-2004, 11:53 AM
  #18
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Quote:
Originally Posted by igor
Yup. And the size of the shares would make that a reasonable for the investors.

We've already heard 'new stadium' murmurs though. Let's hope they don't play that card in the near future. Tough though ... when almost all the other franchises in the league are gifted huge amounts of cash from their local governments ... the Oilers are at a competitive disadvantage if they don't get the same. Not that there deal doesn't seem pretty sweet already. Still, continent-wide ---> this pro-sports-subsidization madness has to stop. Props to L.A for making the first stand (NFL), and for PIT for holding ground with the Pens ... hopefully others will follow suit.
Let's put it this way... you only need an arena in a couple of instances...

1). to generate interest in the team.

2). because you have far more willing to pay fans than seats

3). the condition and state of the building would cost far more to repair and maintain than a the cost of building a new one.

The Oilers and the first one don't matter... unless Northlands is being turned down by things like concerts and that because of a poor facility, but that isn't part of the Oilers.

The 3rd one doesn't apply, because from what I have heard Northlands has been able to conform more to the modern arenas with their increased luxury seating and that. The building is a long ways from being shabby and falling apart.

Thereby leaving #2... and I don't think the Oilers saying that they need a new $135 million arena to attract 2000 more fans is going to go over well.

The only way the Oilers get a new arena is if they are paying for a decent sized chunk of it.

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08-19-2004, 11:57 AM
  #19
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Quote:
Originally Posted by igor
How long before the EIG rattle the 'we need a new stadium or we'll have to move the team' pail ... probably fairly soon. Just like every other pro sports ownership group on this continent has (or will).
I think that a decision will have to be made quite soon. The age of the Coliseum is such that there will be quite a few infrastructure capital costs creeping up shortly. If the Oilers move on these improvements, I think the question will be answered on its own.

In fact, from what I recall, they are already starting to move forward on some things with making decisions on new ice making equipment, heating equipment and so on...

Personally, I love our arena, in a day when most places have shiny new buildings with out personality and character, Edmonton is quickly becoming the next generation of MLG, Boston Gardens or The Forum or the old Chicago arena.... something to be said for that kind of atmosphere.

I suspect a lot will have to do with the new CBA (like everythig else) and the viability of a franchise in a 16,000 seat arena.


Quote:
Originally Posted by igor
Okay. Is there any way to find out the details on this?


Dawgbone had a good point in that the article just says the Oilers get the revenue but it is possible that the Oilers pay Northlands liek a staffing service.

Just from some observations/recollections, when things like the type of beer is sold or type of hotdogs are changing, those releases all come through the Oilers which would lead me to believe they are carrying the costs of providing it.

The ushers at the arena all have Northlands uniforms on so they are obviously not provided by the team but I suspect the Oilers would cover the cost of the service the same way they cover the cost of the people selling programs...

Quote:
Originally Posted by igor
I know that the EIG did foot the bill to convert a lot of the cheap-seats into luxury boxes a couple of years ago.

I don't remember about the scoreclock refit ... I think the EIG and Northlands shared the cost on that, just by memory.
Yeah and I think the perimeter light board was by the Oilers, and as mentioned above, I seem to recall Pat Laforge talking about the Oilers needing to address the ice equipment and mechanical systems...

Who knows the exact details but most impressions I have been left with are that the Oilers cover off an aweful lot for that building.

Quote:
Originally Posted by igor
But would EIG actually be paying for utility and maintenance cost for the whole facility? Even when the CFR or Brier or Concerts are going on? I dunno. But that seems unlikely to me.
I don't really know, I have the same questions. I think I do recall last winter when gas prices were soaring and the weather was pretty cold, there was a reference to how the Oilers were paying 180K a month in heating bills (or some huge ugly sum).

The other thing I was wondering, which would probably answer things like the Brier and CFR is if the Oilers have a seperate company for the Coliseum operation. In doing a search all I could find was a reference to Pocklington organizing things this way but in the back of mind I though the current Oilers did that as well.

Even if not, it wouldn't be that tough to extrapolate 2 or 3 weeks of operation out of the operating costs.

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08-19-2004, 12:00 PM
  #20
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Quote:
Originally Posted by igor
This from a Robin Brownlee article ...


Ahhh, good stuff, nice find.

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08-19-2004, 12:29 PM
  #21
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Quote:
Originally Posted by victor
Exactly how many millions of dollars would you contribute to a business venture in which you are virtually guaranteed a cash call within the first five years?
Lots actually. If:

- I knew I could finance the remaining purchase of the asset out of existing cash flows
- I knew that existing cash flows could be increased with a modicum of improved marketing (just getting of Pocklington was a huge boon to the team's marketing efforts)
- I knew I could get deals that left the vast majority of ALL generated revenues in my hands WITHOUT an associated cost (i.e. getting subsidy)
- I knew that I had VERY favorable accounting rules that allowed me to build losses, independent of cash flows, that I could then use to reduce gains elsewhere and thus save me bucketloads in tax
- I knew that NO MATTER WHAT I would not lose money on the investment as I was buying it for a multi-million dollar discount right off the top (the guaranteed price of 70 vs. allowable market of 84+)

etc, etc.

You sound like you are as conversant with financial info as I am victor so please don't try to simplify and snow me. The fact is that EIG had a business that would succeed even if the team failed.

The cash call itself, btw, was:

- required by the bank because of Slat's going overbudget, and
- went directly against the debt (as the bank had provision for requiring a cash call if certain budget covenants/ratios weren't met)

WHICH WAS NOT A BAD THING as the money was not used for operations. i.e. IF the dollars had been used for operations then the arguement could be made that they (EIG) had reason to worry as they may have faced a situation where they were pouring money into a sinkhole BUT that was not the case - all they did really was reduce their loan term via early payment.

I had actually tried to stay out of this thread but the comment above required me to make answer.

As for the guaranteed bonds thing:

That MAY have been true during some of the years between when they bought the team and now, however the value of bonds is about to hit a wall (the money has already been pulled out of the bond market as interest rates have stopped falling) which means they are better off now then aren't they? That essentially means that all things are equal over time.

You are also not factoring in the capital appreciation of the team over time in terms of conventional return vs bond return. I suspect it would mean quite a bit.

A more pertinent point is this - a great deal of the cash flow of the Oilers is currently tied up in debt repayment (original dollars less the cash call). Get that out of the way (I forget the original term of that loan but I am thinking that 10 years is probably a fair estimation) and the team will be well positioned to pay an excellent dividend rate.


YKOil

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Old
08-19-2004, 12:57 PM
  #22
igor*
 
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Quote:
Originally Posted by copperandblue
Ahhh, good stuff, nice find.
Ya, but its just a newspaper article ... and the source is the EIG.

A quick google turned up minutes of a City Council Meeting that contained some very pertinent questions for Northlands. But i can seem to find the responses anywhere online.

The $2.4 figure seems to have come from a City tax on Oiler tickets that was used to subsidize Northlands during Pocklington's last deal. It seems that the EIG required the City to return this to them (not Northlands) as a condition of keeping the team here.

Northlands did some math and determined that they would require $4.8 M to run the facility without the Oilers (How they came up with this number is beyond me ... I'll search for it another day). It seems (I could be wrong here ... info is a bit sketchy) that Northlands and the City agreed to split the difference and provided a separate annual subsidy of $2.4 M per annum to compensate for this ... which works out to the same amount of tax that they agreed to remove from Oiler tix.

Hmmm, $2.4 M. A striking coincidence? Perhaps.

As taxpayers we're paying for this team ... and i'm okay with that. In the grand scheme of things its not that much per tax-payer ... and I'm happy to have a NHL team in town.

If the EIG ever want the City to profer up even a penny towards a new stadium though ... the correct answer from City Council is "Bite me!".

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Old
08-19-2004, 01:05 PM
  #23
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Quote:
Originally Posted by YKOil
...
I had actually tried to stay out of this thread but the comment above required me to make answer.
...
YKOil
Good stuff, YK. Thanks for contributing.

I'm glad that yourself and other accountant-types have jumped in here to help the rest of us understand this whole thing a bit better. It's appreciated.

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Old
08-19-2004, 02:08 PM
  #24
Big T
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Quote:
Originally Posted by igor
How long before the EIG rattle the 'we need a new stadium or we'll have to move the team' pail ... probably fairly soon. Just like every other pro sports ownership group on this continent has (or will).

I'm not sure on this either, but didn't the Oilers just renew the lease on Rexall for another 10 years?


T

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Old
08-19-2004, 02:12 PM
  #25
victor
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Quote:
Originally Posted by YKOil
You sound like you are as conversant with financial info as I am victor so please don't try to simplify and snow me.
I am very conversant with a particular owner's financial info -> I am not trying to snow anyone.

Put simply, the opportunity cost of this venture is not justified by it's return.

Quote:
Originally Posted by YKOil
The fact is that EIG had a business that would succeed even if the team failed.
Simply moving the team to the US would require a large cash infusion, as it equates to the disposition of the asset, which will require the owners (new or current) to pay the capital gain on the asset at it's current fair market value. So, if as I've seen asserted above, the team is appreciating, the difference between the purchase price (which I'm sure you'll agree is low) will have to be paid in a capital gain, provided that the team has used up it's investment loss provisions. Is the expected value of the disposition of the team, less the purchase price plus interest, less taxes on disposition, worth more than could be made on another investment?

Quote:
Originally Posted by YKOil
The cash call itself, btw, was:
- required by the bank because of Slat's going overbudget, and
- went directly against the debt (as the bank had provision for requiring a cash call if certain budget covenants/ratios weren't met)
Where did you get this information?

The cash call was used to service the debt. The reason for it, and the bank's provsions, have not been publically disclosed. Perhaps you know someone I don't?

Quote:
Originally Posted by YKOil
WHICH WAS NOT A BAD THING as the money was not used for operations. i.e. IF the dollars had been used for operations then the arguement could be made that they (EIG) had reason to worry as they may have faced a situation where they were pouring money into a sinkhole BUT that was not the case - all they did really was reduce their loan term via early payment.
If the organization was making money, wouldn't they have used that money to service the debt, which wouldn't require the bank covenant (as you asserted above) to be called?

Quote:
Originally Posted by YKOil
I had actually tried to stay out of this thread but the comment above required me to make answer.
So did I, but considering the speculation, I felt that a little insight into the owner's position was warranted.

Quote:
Originally Posted by YKOil
As for the guaranteed bonds thing:

That MAY have been true during some of the years between when they bought the team and now, however the value of bonds is about to hit a wall (the money has already been pulled out of the bond market as interest rates have stopped falling) which means they are better off now then aren't they? That essentially means that all things are equal over time.
?????

You must know something about the markets that I (and all other investors) do not.

Quote:
Originally Posted by YKOil
You are also not factoring in the capital appreciation of the team over time in terms of conventional return vs bond return. I suspect it would mean quite a bit.
Capital appreciation is valued upon disposition of an asset. If they sell the team (or move it to the US, for that matter) they will find that our Federal government will be the first in line.

Quote:
Originally Posted by YKOil
A more pertinent point is this - a great deal of the cash flow of the Oilers is currently tied up in debt repayment (original dollars less the cash call). Get that out of the way (I forget the original term of that loan but I am thinking that 10 years is probably a fair estimation) and the team will be well positioned to pay an excellent dividend rate.
Given that the owner's hold the debt positon (secured with their own capital assets), and not the team, shouldn't this mean that the team is profitable now?

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