I’ve been researching the Tampa Bay sale a bit. Some bloggers (and some newspaper reporters) have been looking at the sale price ($206 million is the reported number) and using it to justify all sorts of statements, from the “owners get rich when they sell a team” to “hockey has failed in the US” (popular in Winnipeg, but it’s really unclear to me how they made this leap of logic).

But is it really true? The numbers, when you look at them in more detail, aren’t quite so rosy…

The numbers as I’ve been able to find: Absolute Hockey is a new partnership led by Doug MacLean and backed by Jeff Sherin, a real estate developer, Oren Koules, a hollywood type best known for the “Saw” series of films.

They’re buying the Tampa Bay Lightning and other properties for $206 million, from Palace Sports and Entertainment. Palace Sports bought the team for $115 million eight years ago, and have reported about $70million in losses since. (throw enough zeroes at it, and it starts looking like real money).

So if you just take those numbers at their base value, Palace has put in $185 million to reap $206m, a net profit of $21 million. Seems like a not-bad investment.

Life’s never that simple, and raw numbers don’t tell the real story. Just on these numbers, starting with $115m and adding in about $8.5m per year for every year, your rate of return is a lousy 2.3%. That’s worse than investing in money markets, S&P 500, or even 12 month CDs over that term (right now, I can get 5.35% from ING on a 12 month CD). They seem to be selling this off having made money — but they could have made more money with less (or zero) risk by simply parking the money somewhere.

There are complications here, of course.

The first one is that losses generated by the team can be used to shield profits by the owners elsewhere. Part of that $70m/ loss will get recovered by keeping money elsewhere from going to Uncle Sam. Let’s assume (since there are no real numbers available) that half that loss is a “paper” loss, that it’s recaptured away from the team. In other words, every year the owners were writing a check for $8.5m to cover operating losses, but writing a tax check that was, say, $4m less to the government because the losses shielded profits elsewhere. If you roll that tax gain back into the the franchise as an asset, you see a rate of return around 5%.

That’s actually a decent rate of return for that time period. Maybe not great; at least it’s not insanely bad.

On the other hand, let’s look at that $206 million number. It’s not for the hockey team.

It’s for a set of properties including the team. The three key components:

The hockey team.

The lease at the arena and the right to operate it

Two pieces of property near the arena totalling 5.5 acres.

The property is on the books and assessed at $17.5 million. They are evidently (from researching them through the tampa papers and local real estate info I could find) properties that have high potential for condos or mixed condo/retail development, except that the market is down right now. But in a longer-term look, these properties have a huge upside to someone experienced in Florida real estate. Oh, gee, one of the partners is a Florida real estate developer. What a coincidence.

So, what are these properties worth? well, they’re assessed at $17.5m, so I’ll go with that, but their value to someone who can develop them is a lot more; This is, if you ask me, the investment upside of the deal.

The arena operations? Tampa’s arena is one of the more profitable in the country; it grossed $18m last year, and is on pace to match that this year. Half of its light dates are non-hockey, but it’s also a business much like a movie house: much of the “profit” goes back to the act, not the house.

But the ticket take isn’t the only story; there’s signage, naming rights, sponsors — and every team/arena deal differs in how these are split between the sports team and the arena, but some of those dollars end up with the hockey team (and factor into the $70m loss above), and some end up as part of the arena management agreement.

All told, it’s not unreasonable to assume around a 10% profit off the arena management — say, $2m a year or so. It’s value? A good round number would be 6x or 7x that profit number, or $12-15m.

So now we can get at least into the ballpark of the value of the hockey team.

$206m for the sale, minus $17.5m minus, say, $12m, or about $175m.

The franchise was awarded in 1991 for $50m. If you just look at that price and the $175m, you get a rate of return of 7.2%. That’s pretty good over 15+ years. But that ignores that the owners were continuing to “invest” by covering operating losses every year. Even at $3m a year, that drops the rate of return to well under 4%, and given the numbers the current owners have announced and taking into consideration both tax advantages and the probably profit on the arena side, your rate of return drops under 4%.

That’s a lousy investment over that time period, even trying to make it as rosy as I can. It wasn’t bad for Palace, but the earlier owners — they didn’t do well.

How does this make things look for the new owenrship?

I’m encouraged. here’s why

Doug MacLean — as a hockey guy, he understands the core of the franchise. By the way, while it looks like all of the money is to be made away from the team — and that’s actually true! — if you don’t own the team, none of the other opportunities exist. you can’t do the arena without the team, and you can’t develop the property without the arena. So to some degree, the Lightning need to do what the Sharks do, which is manage expenses and limit the “losses” in such a way that the arena income and tax offsets make up for the losses.

In other words, you don’t need to be profitable to be profitable. But that doesn’t mean you should assume that any loss is acceptable… By my guesses and assumption, a team like the Sharks or Lightning can “lose” about $5m a year in “team losses” and do okay because of the other aspects of the situation. That’s roughly where I’d put the “break even” point on the entire financial picture, as opposed to just looking at team numbers, if the team manages the arena and the partnership can take advantage of the losses in the taxes.

If MacLean can keep the team competitive on a decent budget and help the organization succceed, they ought to do fine. I’m especially happy to hear they’re planning on moving in and being local owners. that’ll help engage the business community and it’ll also keep someone with motivation to make it work close at hand and watching.

Second, they have a guy from the entertainment industry; increase the entertainment factor, and you can improve your attendance and ticket revenues.

Third, they have those plots of land, and a good person to figure out what to do with them. If they can make that work, they can turn this into a great investment. As it is, it’s a good investment, from what I can see.

Some really good quotes and information from Dean Lombardi on Cammalleri and the arbitration process. A good window into some of the complexities of these situations.

In my mind, this is the kind of case that arbitration was made for: the two sides were a huge gap apart (millions of dolllars per year) and saw the situation very differently; not a lot of common ground to build from. Arbitration allows both sides to make their case and get an outside party to come up with a solution both sides live with.

It isn’t perfect — far from it — but to me, that’s actually a good thing, it’s a motivation to both sides to avoid it and find a way to make a deal without it. I do wish there was some formal mediation process that could be implemented short of arbitration — they’re very different things — but we have what we have. In this case, I think it worked as well as can be expected.

Read the whole thing. well worth it..

Inside the Kings:

Lombardi: Yeah, that’s fair to say. What I don’t want to do here is… nobody wins at these things. I think it is safe to say that it came out closer to our end, but these situations aren’t for winning and losing. The L.A. Kings and Cammalleri have got to be on the same team. So that’s the danger of saying, `Well, it was closer to us,’ is that you have to connotation of winning and losing, and that’s not what this is all about.

[....]

Lombardi: Yeah, I certainly hope so. You know, athletes are competitive people, or they don’t get this far. That’s unfortunately what can happen, and that’s why I say that this process itself is dangerous, because you’re looking for a resolution rather than turning it into a battle for a loose puck, where there’s a winner and a loser. This was kind of new ground too, don’t forget. The concept of young players getting so much now, so early, is fairly new. I don’t think there (previously) would have been an issue like this, where the spread was based upon the formation of this new market for players with one or two years under their belt. Usually you’re able to see a player for six years or seven years.

So I think part of this was a theoretical discussion about how the market is evolving under this new system, with free agency at such a young age, and its impact on young players getting a lot more money than they did in the past. So I think in a lot of respects, for the union and the league there was a bigger issue here than just Michael. Michael and the Kings couldn’t get caught up in that. But to answer your question, if there’s one thing we know about him, he’s a competitor and he’s driven. I do believe, as I’ve said before, I certainly prefer parts of the old system, where players had to pay more dues before they maybe got into this rent district.

But this is what we have to deal with, so the challenge for him, as well as the team, is to go to another level and take responsibility for winning. He had a good year last year, but it’s one year. The team still has not had success. He has to take responsibility, especially when you start getting in this (salary) neighborhood. Obviously I’m not saying that not making the playoffs in the last two years in Mike Cammalleri’s fault. Of course not. But there still is an element of, `As the team goes, the young player goes.’ When he takes responsibility for winning, with that comes more dollars too. Steve Yzerman learned to win, and Joe Sakic. What those guys went through to become the great players that they were, part of their greatness was learning to win. That takes time and I think Michael, given the driven kid that he is, I don’t think he’s going to let this hinder him from anything. If anything, knowing him, he might use it for incentive. With other players, yes (it might be a problem), but I don’t think that’s the case with him. I really don’t.

[....]

And like I said, this wasn’t the typical arbitration, where you go in and say, `OK, these are the 10 players,’ and the other side comes in with five different ones and you’re just looking at who is comparable. This had some bigger issues, as I said earlier, in terms of this shift in the marketplace.

Quite frankly, one of the things was the relevance of (Thomas) Vanek. So there was an issue there. That was an offer sheet, so (there was the question of) should that be applied in this setting? So like I said, there were larger policy issues here than in your normal arbitration hearings. I’ve had six of these and this, more than any other one, had more theoretical discussion than I guess practical discussion, where you’re just arguing about which (comparable) player is more relevant. I think that probably might have had something to do with it.

james mirtle: Avery’s arbitration hearing – A hockey journalist’s blog:

And while Brooks rips the Rangers for penny-pinching, the same can certainly be said for Avery who, in fighting for a $2.6-million contract after a career-high 48-point season, surely presented an eye roll-inducing argument as to his value to the team.

This has been almost a classsic example of “how not to make friend and influence enemies” — the joys of arbitration.

The case for Avery: when he was traded to the Rangers, the Rangers DID catch some fire and go on a roll. We have to face the fact that these things did happen together, and it’s unlikely a coincidence.

The case AGAINST Avery: The Rangers are basically correct when they say: “Avery is not a mature player. He plays, at times, like an individual rather than a member of a team. This is sometimes referred to as an inability to see the ice, and in Avery’s case this seems to fit with his overall approach to the game.”

Now, Avery may not like hearing that. But it’s true.

Let’s not forget that Avery is basically one season away from being kicked off a team and sent home, where he was considered such a detriment to the Kings he was told to pack and leave. Where he was put on double-triple-secret-probation by Lombardi and told to keep his nose clean and mouth shut — or else.

I swear, the best thing someone could do for Sean Avery is sign him to a multi-year deal and then trade him to Edmonton or Buffalo, away from the lifestyles of LA or New York. But he’d probably find a way to cause problems anyway.

Avery has always seemed to have a much higher regard for his talent level than his teams. He’s a feisty player with attitude who actually has some talent — but not nearly the talent he thinks he has. His off-ice attitudes reminds me of Link Gaetz in some ways. Yeah, the Rangers got better when he got there; they needed some grit. They can get that grit many other ways than Avery if they need to, though, he’s a very replaceable player. There’s also no indication — or track record — that he would be able to sustain that kind of spark for the entire season for them. Given his career numbers, the chances he’d maintain the scoring impact is zero.

So for me, this one’s a no-brainer. Avery’s feelings might be hurt, but tough. He doesn’t seem to worry about other people’s feelings much (ask Bryan Hayward), and he played way over his head, and way more disciplined, for a short period of time. To believe he can continue that for a full season with that impact is unrealistic.

And he’s once again shown he has trouble handling the truth. A sad reality for a player so happy to get in everyone else’s faces…

I’m with the Rangers here. And if Avery wins arbitration, I’d walk. He’s not worth it, epsecially given the risk for a badly timed off-ice controversy. Not a small issue, given his history.