November 19th, 2012, 4:13 pm
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:
- 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 .
- 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.