rulururu
Two dudes blogging and podcasting about the San Jose Sharks, straight from sunny California.

post The Panthers are Sly Like Foxes

November 19th, 2012, 4:13 pm

Filed under: blog — Written by Mike

I’ve wondered for a long time how owners can buy teams for hundreds of millions of dollars, and lose cash every single year.  I had two theories:

  1. Owners don’t view teams as a business (as Malcolm Gladwell and Bill Simmons have written about before), and more as a luxury objects to enjoy, like paintings .
  2. There are some accounting tricks being played in order to maximize losses.

I still think 1) is true and now it appears 2) could be true as well.  Jonathan Willis wrote an interesting article, using some data he found about the Florida Panthers, a team that has claimed to lose $7M or more per season.  There is a little controversy about Willis’ points (and conclusions) but I think these facts are undisputed.

  • A company called Sunrise Sports and Entertainment (SSE) owns the Panthers.
  • This company has a division called Arena Operating Company (AOC), which runs the arena, and is an entity to which SSE apparently pays rent, because the Panthers use the arena.
  • Because of the sweetheart deal the Panthers got, AOC also makes money on the other events in the area, paying some back to the local government.
  • AOC has made $90M or so in profit between 1999 and 2008.
  • The only reason AOC makes money on concerts is because it’s the Panther’s arena, and controlled by SSE.
  • However, the Panthers (SSE) do not claim this profit as hockey related revenue, and get to cry poor to the league and held up as a model of why the current system is failing.

Since the audit Willis references is only in relation to AOC, and not SSE, it’s not entirely for certain SSE is in fact turning a profit every year.  But if they are claiming a $7.5M loss per year on average, $90M profit over that time period is more than enough to wipe away that red ink.

All in all, this is a nice deal if you can have it.  The only reason Willis got access to any of this is because the county performed an audit.  Otherwise SSE could keep on making money every year, having their initial investment in the team appreciate, and claim they are losing money all the while.  It should be mentioned that the Sharks (Silicon Valley Sports & Entertainment) also operate HP Pavilion, though the details of their deal with the city is not public information.  It’s entirely possible (though certainly not proven) that SVSE is turning a profit each year as well, due to those extra revenue streams- revenue streams that would not be available if they did not own the Sharks.

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    11 Comments to “The Panthers are Sly Like Foxes”

    1. dayno66 says:

      Still worth noting that the Panthers don’t make enough money to support themselves.

      • Mike says:

        The point is the company that owns the Panthers is making money. The distinction between AOC and SSE is legal only. Plus, AOC wouldn’t have the deal they have without the Panthers, so trying to separate them out is misleading at best and deceitful at worst. Besides, the Panthers are 23rd in the league in sales percentage, and 21st in ticket sales. Should there be any conditions under which a team should lose money? Or should being a part of the NHL owners club just mean profits every year until infinity?

    2. WingsFanInSharkLand says:

      I have zero doubt that the Sharks ownership group is pulling the same bullshit. No F’ing way in hell that Sharks Sports and Entertainment lost $15 million last year and that they’re simply “ok with it” as they claimed in that article someone posted a few months back. They also own Sharks Ice, right? And every season we play there, the fees go up and yet the product they provide doesn’t improve year to year. Sound familiar? If these owners expect the fans to believe them when they say they are losing money, then let’s open the books and settle it once and for all. If they are losing money like they claim, I’d be more inclined to side with the owners but there’s nothing so far that tells me that the owners are as bad off as they say they are.

      As people have said before, these greedy owners didn’t become wealthy by making bad business decisions. They know what they’re doing and it’s unfortunate that they get away with it. Would love to see other owners audited.

      • Bryce says:

        The corporations have multiple entities for asset protection. Do you say, ok your hockey operations lost $15m, but because another entity, that has nothing to do with hockey or the NHL profited 30m you should go suck a duck? How deep do you audit the owners? Do you audit them for everything they do where you see a net gain? Or so you audit them for their NHL franchise where they may be operating at a loss?

        • WingsFanInSharkLand says:

          The thing is, “hockey operations” don’t include everything related to hockey. Concessions, parking and concerts should all factor in when you own an arena. However, I wouldn’t expect to include entities like the Earthquakes (assuming they still own them) that have no relation to the Sharks.

    3. Bryce says:

      Mike, separating AOC and SSE isn’t misleading. In regards to the NHL and the labor negotiaions they are only looking at the one entity and that entity that is operating at a loss. Because they both fall under the same parent corporation that operates at a net gain shouldn’t make a difference in the negotiations. It might make the owners OK with operating at a loss for one entity if they are overall profiting, but they would be foolish to not try and find a way to at minimum limit their loses.

      • Mike says:

        Of course, I’m not saying the owners just woke up and said “Huh! The Panthers organization is booking a loss while the arena organization is making money hand over fist! What a coincidence!”

        They specifically structured these companies so that the overall org would make money, while making the Panthers’ finances look as bad as possible. That sounds like the definition of misleading to me. A reasonable argument could be had about which expenses are legit, which profits and losses should be booked to the Panthers, and so on, but we don’t have that information. There are lot of shenanigans that can be done when you have control over multiple entities, like Enron did. I don’t have an MBA or a finance background, but just off the top of my head, what if the rent charged to the Panthers is too high? What if the deal negotiated with AOC is terrible, and the Panthers get little money for concessions, parking, and other things that would normally count towards HRR? I’m sure there are dozens of other ways for AOC to maximize profits while the Panthers show losses.

        The players complained heavily in the 04-05 lockout about not getting all the information they requested about the teams’ finances, and I’d be shocked if they got any more this time. This story suggests to me that the owners clearly can and do manipulate finances in order to strengthen their bargaining position.

        • Andy C says:

          I read this article the other day & was tempted to post it as a link on here: I’m glad I didn’t after last time I did this I got called out for depriving you of a good post :-)

          I agree 100% with your view Mike: the profitability of internal companies is basically decided upon by transfer pricing and the only true picture is at the group level once it is all pulled together & if there are other operations in there, then it is practically impossible.

          Pulling this trick doesn’t surprise me 1 bit & if 1 team is at it, it wouldn’t surprise me if every team was to some degree. Any additional income? Take it in the parent co. Any additional cost? Take it in the hockey team. We hear all this about hockey related revenue – surely they need a hockey related expense which is audited separately to give a true hockey related income & expenditure statement.

          Not sure I’ve heard it mooted at all, but why couldn’t they have just agreed to a 50/50 split straight away. However, for every contract already signed, the players get their money as written in the contract, but the cap hit is 50/57ths of that amount. That way, the payers get their money, all teams are automotically where they would have been under the existing salary cap & the only teams than are disadvantaged are the teams with lots of long contracts – the perfect payback for signing these deals!

          Enough common sense & suggestions – it sounds as though the negotiations are more about name calling than getting a way forward…

    4. evilducks says:

      You left out a key point in his report.

      If AOC was making all of this money just because of concerts and other events you could almost argue it’s a fair separation and the team is actually losing money. But the interesting bit is what happened during the previous lockout.

      AOC averages about 10 mil in profit every year. One would think, with the hockey team cleared out of the arena for an additional 41 nights plus whatever conversion takes there would be even more room to make a ton of profit that year. Except their profit actually dropped to 1 mil during the lockout. Which means that the AOC makes about 9 mil a year due entirely to the Panthers hockey team.

      That means the Panthers are making money on hockey. Not concerts (which they do make some on) or other events, they make money on the Panthers playing.

    5. Rude says:

      Basing an entire post on this amount of half-assed speculation, inference and conjecture is laughable. I mean, seriously… just go march in your own one-man picket line already. At least this stuff hasn’t *completely* bled over into the podcast.

      If you’re so in the tank for the players… how about some news *about* the players? We’ve got Thornton & Nash reunited in Switzerland, Couture playing for Geneva, Greiss signed in Germany, Pavelski injured in Belarus… Heck, Clowe signed with the San Francisco Bulls who have played against Setoguchi and the Ontario Reign more than once already, and what do we get? A forty-five minute NHLPA-endorsed commercial for “Les Mis”!

      Yeah, there’s a league-wide lockout. But you need to stop using that as an excuse to be lazy week after week. Isn’t this a podcast about the Sharks? Stop being the Marleau of podcasting. Pick up the slack, do a little research before you record, step off your soapbox and start making informative and entertaining podcasts again.

      Sorry if that seems harsh guys, but you’ve been coasting lately. I can get more Sharks-related news from a drunk at a Bulls game these days.

    6. Slappy_SEZ says:

      I remember calling the owners out for this very thing – how ever many months ago – and some TOOL bitching about my ‘ranting’.

      It isn’t difficult to spot ‘the bad guy’ in this whole cluster-f_ck, when The Owners continually refuse to open up their books.

      IF our government(s) was not so OWNED by rich d-bags, like these owners, I’m guessing they’d have stepped in to mediate negotiations by now.

      B/c “the little people” . . . those people whom voted our gov’t officials into their respective office(s) . . . THEY’RE the ones being ‘royally f_cked over’ right now.

      Anyway . . . Go, Niners.

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