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What is 500 Million Among Friends? – Pittsburgh Penguins – PenguinPoop Blog

What is 500 Million Among Friends?

Dear Santa,

I have been a really good boy this year so I am putting my Christmas wish list in early. Can you please bring me my own NHL franchise for Christmas next year? I hear they make lots and lots of money…Jim

I rushed out mailed my letter last week. I sent it Priority Post to the South Pole. They tell me the North one is melting! To my shock, Santa sent a reply back today. Let me read it to you all.

Jimmy,

Ho, ho, ho! Are you crazy son? I do not know which of my naughty elves spiked your egg nog, but I can tell you for certain that I have 31 other little boys and girls who would disagree with you about the NHL teams making lots and lots of money. Some of these kids do not play nice together either Jimmy. They only care about themselves. Did you know they shut the league down one year?

So I am going to save you a lot of trouble and money and not grant your wish. Instead you can have a copy of the Forbes Business magazine that tells you what really is happening in the NHL today. Read it carefully. There is a lot of scary stuff if you dig deep enough.

I remember one nice boy; 26 years ago asked me for an NHL team and I granted him his wish. He used to be a billionaire, but today he is only a multi-millionaire because he lost over 250 million dollars on the present I left him. No wonder he does not write me letters any more. Careful what you wish for Jimmy. Maybe you should learn how to play football. They make real money…Santa      ( Forbes: 2017  Dallas Cowboys Valued at $ 4.2 Billion )

Now that I have all attention let me start by publishing the latest NHL numbers from Forbes Magazine in an article dated November 2016. These audited numbers are based upon the 2015-2016 season and were supplied by the NHL. It is important to note that Forbes rates many major sporting leagues and they apply the same criteria to all their articles posted. Meaning they have no predetermined prejudice for one team over another.

So if you disagree with their findings you would do yourself good to remember this fact. No place for emotions or personal favourites in this exercise. Hope you enjoy the read.

Forbes Magazine – November 2016:  NHL by the Numbers for 2015 -2016 Season
Rank/Team Current Value  1-Yr Change   Debt to Value  Revenues Operating $
1. NYR $1.25 billion up 4% 0-No debt $219 mil. $74.5 mil.
2. MON $1.12 billion down 5% 19%-$213 mil. $202 mil. $76.9 mil.
3. TOR $1.1 billion down 4% 10%-$110 mil. $186 mil. $68 mil.
4. CHI $925 million No change 0-No debt $173 mil. $34.4 mil.
5. BOS $800 million up 7% 0-No debt $169 mil. $33.5 mil.
6. PHI $720 million up 9% 0-No debt $160 mil. $24.7 mil.
7. VAN $700 million down 6% 11%-$77 mil. $146 mil. $29.6 mil.
8. DET $623 million up 4% 0-No debt $137 mil. $6.1 mil.
9. LAK $600 million up 3% 12%-$72 mil. $142 mil. -$0.4 mil.
10. WSH $575 million up 2% 23%-$133 mil. $136 mil. $11.7 mil.
11. PIT $570 million up 2% 20%-$114 mil. $178 mil. $25.7 mil.
12. DAL $500 million up 11% 29%-$145 mil. $144 mil. $20.9 mil.
13. SJS $470 million up 6% 11%-$52 mil. $141 mil. $7.1 mil.
14. EDM $445 million down 2% 21%-$94 mil. $117 mil. $15.4 mil.
15. ANA $415 million up 4% 15%-$62 mil. $121 mil. -$1.2 mil.
16. CGY $410 million down 6% 7%-$29 mil. $121 mil. $18 mil.
17. MIN $400 million up 5% 28%-$112 mil. $136 mil. $5.6 mil.
18. NYI $385 million up 18% 52%-$200 mil. $114 mil. $2.7 mil.*
19. COL $360 million No change 0-No debt $115 mil. $6.3 mil.
20. OTT $355 million down 4% 32%-$114 mil. $118 mil. $6.3 mil.
21. WPG $340 million down 3% 38%-$130 mil. $112 mil. $11.4 mil.*
22. NJD $320 million down 3% 81%-$259 mil. $126 mil. -$0.9 mil.*
23. STL $310 million up 15% 21%-$65 mil. $ 129 mil. $3.2 mil.
24. TBL $305 million up 17% 0-No Debt $127 mil. $3 mil.
25. BUF $300 million No change 27%-$81 mil. $116 mil. $1.1 mil.
26. NSH $270 million up 6% 31%-$84 mil. $116 mil. -$2.2 mil.
27. CBJ $245 million up 8% 31%-$76 mil. $100 mil. -$2.4 mil.
28. ARI $240 million up 9% 57%-$137 mil. $101 mil. -$8 mil.*
29. FLA $235 million up 26% 49%-$116 mil. $100 mil. -$15.4 mil.*
30. CAR $230 million up 2% 54%-$125 mil. $99 mil. -$15 mil.*

It is unfortunate not to have the latest info that would take into account the 2017 season, but you have seen the patterns. For example all the Canadian teams lost market value due to the falling Canadian dollar. But factor in the fact that Ottawa had a long term run in the Stanley Cup playoffs in 2017 and Toronto and Edmonton also played in the postseason in 2017 and that would definitely increase their bottom line over 2016.

Surprises in the above Forbes information:
Teams with No Debt:  Rangers, Hawks, Bruins, Flyers, Wings, Avalanche, and the Lightning.
Teams with Lots of Debt (*): New Jersey, $259 million in debt, 81% Debt to value; Arizona at $137 million in debt, 57% Debt to value; Carolina $125 million in debt, 54% Debt to value; New York Islanders, $200 million in debt, 52% Debt to value, Florida,$ 116 million in debt, 49% Debt to value; Winnipeg, $130 million in debt, 38% Debt to value. ** As of June 30, 2017, Arizona is now $ 250 million in debt and lost $ 20 million dollars for year 2017. The NHL holds $ 100 million of their debt.

This illustrates a key point that Other Rick and I were discussing in a previous post…Debt to Value ratios. Think of it as equity in your home. When you go to mortgage your home and the bank looks at the value of your home and the percentage you wish to borrow against it…same idea. The second part of your mortgage application is your income and daily expenses.

With the NHL, the bank looks at the value of your team. That usually corresponds to the income your team generates every year after paying annual operating costs. So the more money you make the higher the value of your team usually. They also consider local market factors.

Here is the rub. You have to make money! You can’t just print it. When you have eight teams posting a loss in 2016 and eight more only making from 1 to 7.1 million dollars a year profit…that is half the league!

That keeps the values of NHL franchises in those cities low. No income.

What did the NHL do?? Somebody in the NHL brass got the bright idea to sell new franchises for $500 million dollars each. Their logic was if they sold new franchises for $500 million dollars, then everybody’s NHL franchise would be worth at least $500 million dollars!?

Do you realize how stupid this logic was?

They could not fudge the team’s annual incomes so they created an artificial value for a NHL team.

Back to my home mortgage example. The next time you go and ask to remortgage your home, be sure to tell your loan officer it is worth 40 percent more now. If they ask why, tell them,      “Well that is what the NHL did.”

Part two of this fascinating story will follow shortly. We will examine the income side of the ledger and see who is in real trouble. More teams than you think.

Thanks for reading.

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12 Comments

  1. James Arthurs's Gravatar James Arthurs
    August 16, 2017 at 4:20 pm | Permalink

    Hey Guys,
    I see below that Matt Cullen is returning to Minnesota to play one final year.
    I am sure Rick,Phil and OTR will be posting something soon about this situation.
    More than ever we need two center men to 3 peat. JR’s day just got a lot more difficult.
    cheers.

    • August 16, 2017 at 4:48 pm | Permalink

      Ouch. Not a super big problem, but I wish he would have stayed.

      • James Arthurs's Gravatar James Arthurs
        August 16, 2017 at 4:55 pm | Permalink

        Hey Phil
        What do we do now? Rowney takes over 4th line center ? Still a big hole at # 3 spot. I never thought that trading Oscar S. for Reeves would come back to bite us this quickly.Does JR trade a Sheary or a d man??
        JIM

        • the Other Rick's Gravatar the Other Rick
          August 16, 2017 at 5:21 pm | Permalink

          Hey Jim,

          I am contemplating a rant so I won’t go over board just yet, needless to say, I am a little worried now as well as a little miffed.

          • James Arthurs's Gravatar James Arthurs
            August 16, 2017 at 5:29 pm | Permalink

            Rant on my friend. Is that not the purpose of this wonderful blog that Phil ,Rick and their buddies started so long ago? A venue to express different points of view in a civilized and informed manner.I can not wait to read your rant Coach !! 🙂

  2. the Other Rick's Gravatar the Other Rick
    August 15, 2017 at 8:33 am | Permalink

    Hey Jim,

    I have been trying to digest these numbers. Less than half the leagues teams are worth $500 mil but the league wants to charge $500 mil for a new franchise? I guess the league is relying on the old saying, “Lie loud enough and long enough and somebody is bound to believe you.”

    I would assume after back to back Cups, the Pens should be in a much better position.

    It also supports our discussion of the other day; with the number of teams over 50% debt, particularly the ones who are operating in the red as well, there is at least 4 teams ripe for relocation rather than expansion.

    • James Arthurs's Gravatar James Arthurs
      August 15, 2017 at 2:26 pm | Permalink

      Hi Other Rick,
      This is the Hockey Game being played off the ice we always talk about. What business is it of the NHL to have a 100 Million dollar investment in Arizona in August 2017 ? It makes you wonder what other things have the NHL done in the past to keep franchises located in markets where they obviously could not survive long term with out outside help?
      In my second piece of this article I look into the income side of the NHL including players salaries. It is very revealing.
      Just a couple of previews Other Rick.
      The New York Rangers, the top rated NHL team by value: 2015-16 season:
      Player Salaries were $ 73,150,000. Revenues as posted $ 219,000,000 and they reported a $ 74.5 million dollar profit from Hockey operations year ended 2016. So by simple math.. $ 219 million Revenues minus $ 73,150,000 players salaries leaves other operating expenses to be $ 71,350,000 for a posted profit of $74,500,000 dollars.

      Our Pittsburgh Penguins salaries were $ 79,565,300. Same exercise.
      Revenues $178,000,000 minus players salaries $ 79,565,3000 leaves $ 72,734,700 operating expenses for a posted profit of $25,700,000 dollars.

      Lets examine a few weaker teams for comparison.
      # 30…Carolina. Players salaries are $ 56,495,000. Revenues of $ 99,000,000 minus players salaries $56,495,000 minus operating expenses of just $ 57,505,000 leaves you a loss of $ 15,000,000 dollars for 2015-2016.

      # 28… Arizona. Players salaries are the league mandated cap floor minimum allowed under the CBA agreement of $ 49,682,500. Revenues of just $ 101,000,000 minus players salaries of $ 49,682,500 minus operating expenses of $ 59,317,500 leaves you a loss of $ 8,000,000 dollars 2015-16.
      In 2017 they lost $ 20,000,000 million dollars!!! People never learn.

      I will do the complete list in my next post. But this information is very clear to me that the NHL has a real problem a head. Forget about the revenue sharing program where by the NHL takes some money from the rich clubs to help off set the losses of the others. The NHL is very hush, hush about who and how much money they give to.
      The real issue is salaries for mid level talented players and below are rising at a rate much to fast for the weaker teams to possibly absorb.
      Secondly, how can you compete with the elite teams that are spending $ 71- 74 million on operational budgets alone and the weaker teams are spending $ 57 – 59 million on operational budgets and still are losing $ 15 to 20 million a year ??? That is a formula for long term disaster my friend.
      This is why I was so upset about the salary arbitration awards and the crazy offers being paid out for only short term gain.

      Your thoughts?? others too?
      Cheers OTR…

      • the Other Rick's Gravatar the Other Rick
        August 15, 2017 at 8:22 pm | Permalink

        What I am wondering here is how do bought out contracts affect these financials as well as LTIRs. I am not all that versed in the LTIRs. Do insurance companies pick up the full salaries or do teams have to pay something?

        FLA is weak as it is, but did they add to their debt buying out Jagr and Jokinen and does NYR drop a notch with their buyout of Girardi when the 2018 numbers come out?

        Also how much does merchandising affect these numbers? Do big market teams like NYR not only benefit at the box office but how much do they benefit from having all those fans wearing their jerseys?

    • James Arthurs's Gravatar James Arthurs
      August 15, 2017 at 5:36 pm | Permalink

      FYI OTR,
      This latest evaluation ends only after 1 cup win in 2016. I would believe that since we repeated in 2017 as Cup Champions we will see an increase in over all team value in the next Forbes rankings of the NHL, which should appear late November.
      I do not think the Pens will increase much beyond 625 million because the team will be one year older and the KEY pieces will have a diminishing rate of return.If we had a well stocked farm system with future stars to take over from Sid and Geno it would be different.
      Plus Coach this article above only confirms what Mario said last year before the play offs started.He said” IF WE DO NOT MAKE THE PLAY OFFS WE WILL NOT MAKE A PROFIT ” !!
      If it is true that every home play off game is worth 2 to 3 million dollars depending on the round, and given the fact we posted a profit in 2016 of $ 25.7 million……That is about 10 home play off games my friend. Meaning we did not make a profit until half way thru the second round of the play offs in 2016. Scary stuff…
      We rank 7th in league profits and 4 in league revenues mainly due to the strong merchandise sales through out the league of our star players jerseys.
      This is why there were NO TAKERS to buy the Pens for 700 million last season and just like no one is going to pay 500 million for Carolina,Arizona or
      New NHL franchise unless it is in Toronto or maybe California.
      Cheers.

      • the Other Rick's Gravatar the Other Rick
        August 15, 2017 at 8:39 pm | Permalink

        Hey Jim,

        This is why I have always supported the idea of trading away some existing starts while their value is high in terms of prospects and draft picks. If Sprong and Aston-Reese are anywhere close to Hornqvist, in terms of team impact the Pens need to trade him before the deadline and get some high picks in return. I know you know I am a fan of Hornqvist, but if anyone who hasn’t read too many posts here, I am not writing this because I don’t like Hornqvist, I love his game and attitude but I love the Pens over-all, more and understand that it is a business.

        This is also why I still say that if JR didn’t try and work a deal to trade MAF, rather than just giving him away he really wasn’t dong his job and why I still list the Reaves deal as a big mistake; Hague or the Russian would seem to have added much more value to the team. I really wanted Hague and will be watching his season as well as the Russian’s.

        To that end, I read a couple of days back that Detroit is in trouble financially and may not be able to sign Athanasiou. According to Cap Friendly, our flightless foul have room for 5 more contracts, so they could sign not only Cullen, but Butcher, and Athanasiou. Unfortunately, the Pens only have 1 more open spot for the big roster, so signing Athanasiou could cost the team a different player clearing waivers to go down to WBS. A smarter move would be trading a player to also open a cap space to ensure signings. Sorry, just thinking out loud.

        • James Arthurs's Gravatar James Arthurs
          August 15, 2017 at 9:19 pm | Permalink

          OTR.
          Fully agree.This is business. Really easy to see that many NHL teams are a break even at best.When you have a 500 million business and you only make 3 or 4 %… Unless they have another related business it really does not make finacial sense. IE. ROGERS WHO OWN TORONTO ARE A GIANT MEDIA COMPANY AND THE LEAFS ARE JUST CONTENT FOR THEIR MEDIA NETWORK.

          You were asking about merchandise and revenues.
          The Pen’s have tremendous revenue stream from their merchandise. 87 and 71 are great numbers to have.
          With regards to insurance for players contracts they can offset the actual payment for the loss but they would not change the operating numbers. A loss of 15 million is a loss.
          Your points are well taken Coach. What scares me is the fact that if we have a team of high priced, aging veterans whose talent starts to wane and they take 60 % of your salary cap space and you have no young super stars to pick up the slack…You are disaster waiting to happen.
          I try to get u answers for the buy outs.
          Cheers


            

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