Forbes list foregrounds the not-so-hidden benefits of franchise ownership

I was trying to find an image for this post, but figured you don’t want to see another photograph of Gary Bettman making a turgid face as he strains to offer another non-answer at a press scrum…

I don’t know what it says about me that Forbes puts out some of my favorite hockey analysis, but they’ve done it again with their annual report on the value of hockey franchises. In it, they illustrate that the media’s focus on the operational losses of franchise ownership–which are themselves specious claims for owners who also own their arenas–are nothing more than the short-term price one pays for what can be staggeringly lucrative mid-term investments.

We mortals are expected to get by on the sort of paltry returns available to people playing with mere hundreds or thousands of dollars. What Forbes’ list indicates is that if you can afford to sink $200MM into a franchise, you’ll probably get the kind of increases in overall value, year over year, that make losing $5MM a year in the short term more than palatable. (Presuming you’ve got it to lose after buying the thing, admittedly.)

I won’t focus on Toronto, where all sense and logic are destroyed in the void of abject homerism. Or on New York, where they have a license to print money. ($74MM in cool cash year-over-year, zero debt.) But Melnyk’s looking at a nice little $100MM return on his $120MM investment in the Sens about a decade ago. Double your value in 10 years? Anyone who even bothers to look at their RRSPs will tell you that’s a pretty good deal.

Ottawa’s operating income was probably slim to nothing – $14.5MM before taxes, etc. But between all of the undeclared revenues that are made possibly through owning a hockey team – non-hockey events at ScotiaBank Place, television revenues, merchandise – in addition to the return when Melnyk gets around to selling the team, even a small market team like Ottawa, presents an enviable investment.

Maybe more suprising is how much debt Ottawa is carrying. At 59% of value, Ottawa is eighth overall is debt load, among the likes of the Islanders, Panthers, Hurricanes and Stars. They’re worse off than Nashville and St. Louis. This seems strange since Melnyk’s had a decade to pay off that arena. This may speak to his financial woes at Biovail. He has a profitable franchise. He just isn’t paying down his principle fast enough to be able to enjoy it.

More surprising still is that despite all this debt he’s carrying, Melnyk doesn’t seem to be a hardliner in this lockout situation. Sitting right there with him, in 10th, are the Washington Capitals, and their owner Ted Leonsis has long been suspected of being a hawk in all of this. Though he’s got a few looooooong term deals, and he might be feeling buyer’s remorse, in many ways the Caps are better off than the Sens financially.

Over on Puck Daddy they’re talking about the gap between rich and poor teams, but I don’t know if that’s really the point. Teams, even the exceedingly poor ones, can claim to be losing money operationally, but the overall value of the franchises don’t go down at the rate that most franchises go up. Only three franchises went down in value last year – St. Louis, Columbus, and Carolina. Two remained neutral – Tampa and Phoenix. (That’s right, Phoenix did not lose overall sale value despite losing more money operationally than any other this season.) And everyone else experienced at least marginal growth. The middle of the pack franchises increased in value between 4% and 11%, which ain’t a bad return in one year for your $150MM-$300MM investment. Especially considering, you know, you get to own a hockey team on top of all that.

2 thoughts on “Forbes list foregrounds the not-so-hidden benefits of franchise ownership

  1. Pingback: Senators News: November 29th | eyeonthesens

  2. Pingback: Contradictory messages on hockey economics |

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