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Volume 23 No. 24
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NHL: Teams lost $273 million last season

It's not everyday that a business calls a press conference to announce how much money it's losing, but desperate times call for desperate measures.

Last week the NHL unveiled a report by former Securities and Exchange Commission chief Arthur Levitt that said teams collectively lost $273 million last season, about $30 million less than what the league's "Uniform Report of Operations" had originally said, but enough for him to describe the NHL as "an industry headed down the tubes."

NHL Commissioner Gary Bettman termed the report "sobering" but necessary in order to silence any claims by the NHL Players' Association that the league is exaggerating its losses.

He concluded the press conference by stating that the percentage of NHL revenue that goes toward player salaries needs to be "lower than the other leagues" because of the economics of the sport. NBA players receive 58 percent of "basketball-related income," MLB players get 63 percent of their sport's calculated revenues and NFL players get 64 percent, less when including certain luxury suite income.

NHL players got 75 percent last season, according to the report.

The report said two teams could not provide audits because their financial condition was so tenuous that auditors would have been forced to notify their lenders. Three other teams' auditors issued "going concern" reports indicating there was some doubt whether they can last another 12 months.

Levitt, who asked that his $250,000 fee be paid in advance so his independence could not be questioned, said, "No rational person would invest in these clubs."

NHLPA Executive Director Bob Goodenow released a statement that blasted the league for not informing the union that it had hired Levitt until a day before the announcement, and called the report "simply another league public relations initiative."

He called the report "fundamentally flawed" because the methods it used did not, in his view, address the disagreement between the league and the NHLPA regarding "how to define the complete business of owning an NHL franchise."

For instance, the report excluded revenue from what were considered unrelated businesses like the arena management company owned by Philadelphia Flyers parent Comcast-Spectacor. It did measure revenue from related businesses like arenas or regional sports networks that had common ownership with teams, but the methodologies it used could be open to debate.

For tracking arena revenues, it applied a formula based on total tickets sold for all events at the arena, deriving a percentage of those tickets that were for hockey games and then crediting that percentage to all shared arena revenues.

Some may take exception to that method, noting that advertisers are far more interested in reaching fans at a major league sports event than fans of arena football, monster trucks or concerts. But Levitt defended the methodology, saying that the report covered 30 teams, and "individual aberrations are not material."

With both arena and broadcast revenues, the benchmarks on average showed lower figures than the teams had originally reported to the league. Although that may indicate some flaws in the method, it supports the overall message the league wants players and the media to accept — that the NHL is not trying to overstate losses in order to get negotiating leverage with its players.

"I wanted to make sure we had all the facts, and now we can put that debate behind us," Bettman said.

The report said 19 clubs lost money last season, with four clubs losing more than $20 million and one unnamed franchise losing $40.9 million. Of the 11 clubs that made money, nine made less than $10 million and the high-water mark was $14.6 million.

When Bettman was asked how much culpability he or team executives had for these losses, he said the league is saddled by a system that once worked and no longer does. But, he said, if the NHL doesn't fix it this time around, "then hold me accountable."