34
Photo Credit: Sergei Belski-USA TODAY Sports

The Flames probably did receive revenue sharing last season

Last week, Calgary Flames president Ken King spoke about the business of hockey at an event hosted by the Chamber of Commerce – taking great pains to avoid speaking much about the arena project, which is dead. One interesting piece of information was divulged by King at the luncheon: he claims the Flames received revenue sharing last year.

We took a dive into the Collective Bargaining Agreement and the best guesses we have for hockey-related revenue and arena expenses. Given the parameters of the revenue-sharing program used by the 30 National Hockey League clubs, King’s claim is actually fairly credible.

It’s probably worth going into a bit of an explanation of how the NHL’s revenue-sharing program works. It’s detailed in Section 49 of the CBA, but their explanation is a bit complex and frustratingly circular. The Hockey News’ Ken Campbell had a bit of a better explanation, so let’s see what he said:

Teams receive revenue sharing if they qualify for it under the terms of the collective bargaining agreement. One NHL executive said that, generally speaking, the way NHL revenue sharing works is that the teams that finish in the top 10 in revenues share some of those revenues with the teams that finish from 11 through 31. This isn’t always the case, but it appears to be a general rule. He said the Flames will not have finished in the top 10 in 2016-17 and are not in the bottom 10 either. That means they will receive somewhere in the neighbourhood of $1 million-$2 million at the upper end and $10 million-$12 million if they are down around 20.

At its core, the idea of the revenue-sharing program is to balance out the hockey-related revenues with the hockey-related expenses. Within Section 49, hockey-related expenses are branded as “arena expenses” which presumably include things like maintenance and player salaries. (It’s a bit unclear within the CBA specifically how things fit into hockey-related expenses, though.)

Since we don’t have the NHL’s actual revenue-sharing numbers, let’s try using the numbers that we do have to illustrate the general revenue and cost picture league-wide. For revenues, I’m using the Forbes projections from their 2016 team valuations. Since their revenue projections are from November 2016, I’m also using Cap Friendly’s 2015-16 cap hits to provide as close to an apples-to-apples comparison – going as close as we can to comparing 2015-16’s revenues with their most prominent expenses.

Neither numbers are likely to be perfect. But as an approximation to illustrate the Flames’ relative financial standing within the league, they’ll be good enough.

Since the player share of hockey-related revenues is 50%, we approximate the player share of each team’s revenues below, compare them to each team’s cap hit and then see the difference between each team’s cap hit and their player share. A positive number means the team is flush with cash, negative number means they’re probably looking for revenue-sharing from the league.

Team Revenue Player
Share
Cap
Hit
Diff.
NYR $219m $109.5m $71.3m +$38.2m
MTL $202m $101.0m $70.6m +$30.4m
TOR $186m $93.0m $71.3m +$21.7m
PIT $178m $89.0m $73.7m +$15.3m
CHI $173m $86.5m $71.4m +$15.1m
BOS $169m $84.5m $70.7m +$13.8m
PHI $160m $80.0m $70.6m +$9.4m
VAN $146m $73.0m $73.0m $0.0m
DAL $144m $72.0m $69.8m +$2.2m
LAK $142m $71.0m $71.9m -$0.9m
SJS $141m $70.5m $71.1m -$0.6m
DET $137m $68.5m $73.2m -$4.7m
MIN $136m $68.0m $70.8m -$2.8m
WSH $136m $68.0m $70.9m -$2.9m
STL $129m $64.5m $73.1m -$8.6m
TBL $127m $63.5m $73.3m -$9.8m
NJD $126m $63.0m $62.7m +$0.3m
CGY $121m $60.5m $69.0m -$8.5m
ANA $121m $60.5m $64.0m -$3.5m
OTT $118m $59.0m $65.0m -$6.0m
EDM $117m $58.5m $68.2m -$9.7m
NSH $116m $58.0m $62.0m -$4.0m
BUF $116m $58.0m $61.7m -$3.7m
COL $115m $57.5m $64.1m -$6.6m
NYI $114m $57.0m $66.3m -$9.3m
WPG $112m $56.0m $59.8m -$3.8m
ARZ $101m $50.5m $60.7m -$10.2m
FLA $100m $50.0m $67.5m -$17.5m
CBJ $100m $50.0m $68.0m -$18.0m
CAR $99m $49.5m $61.2m -$11.7m

In terms of revenue, based upon Forbes’ figures, the Flames are tied for 18th in the league. In terms of cap/revenue differential, they’re 22nd. This also discounts the possibility that maintenance costs on the ‘Dome – the third-oldest building in the league in 2015-16 – aren’t prohibitive by this point in the building’s life.

Oh, and also the Canadian dollar has crashed since 2013.

During the 2015-16 season the dollar was trading at around 75 cents, which would put the Flames’ 2015-16 revenues at around $150 million Canadian. When the dollar was stronger, the Flames were flirting with being a top 10 revenue team. With a weak dollar and a weaker Alberta economy, it’s no small wonder that the Flames’ financial standing isn’t quite as good relative to the rest of the league.

Is it a building issue? Sure! As far as I can discern, the Flames are on the hook for maintaining the Saddledome. After 34 years, that probably isn’t cheap. But the Flames’ drop into revenue-sharing territory is as much a large-scale economic issue – the drop in the world oil price taking its toll both on the Canadian dollar’s trading value and Calgary’s unemployment rate – as much as it is the ‘Dome being old and dusty.

  • freethe flames

    The drop in revenue is more to do with the global economy and it’s impact on the local economy than the dome being old. With reports of the average Canadian owing $22,000 in consumer debt and wages being stagnant for the average worker for decades now many people are having to make choices and one of those choices is where to spend your entertainment dollar. But i would rather be talking about the hockey product than another discussion that will lead to more discussion about the arena. Enough of these articles already.

  • Denscafon

    Err… the link you posted from forbes has the flames at 10th for operating income at $18 million. Operating income = gross income – operating expenses – depreciation – amortization. So flames for sure did not lose $8.5 million….

  • Styxx

    To me this issue should be jointly about risk sharing and city development through building/creating a new arena along with a convention facility, “red light” zone, and residential/commercial development. Part of the blueprint in how to achieve this lies up north with the new Rogers Place development (realizing some of the city development factors were slightly different than here).

    The city’s stance on providing a (fully repayable) loan plus receiving $125M in property taxes in return for being a centrepiece for $1-2 Billion of additional city development is short-sighted at best, and lacks real political leadership (not caring who wins!!).

    The Flames’ owners $275M investment that has erstwhile been chased away should be lauded for civic pride, but the the risk-sharing and ownership of the arena could/should be shared in a joint venture with the city (arms length from the politicians) opportunity. The owners should also be able to participate in Victoria Park development to help offset their arena investment risk (with nominal ROI upside) by balancing this with real estate development opportunities benefiting from the arena development. No property tax should be paid by the arena…as with the new library and other civic infrastructure!! Property taxes will be recouped over the next 35 years from area developments.

    These are just some basic guidelines; however with motivated owners the deal is there to be made if both parties were able to sit down and hammer it out. Not everyone would be happy except for those with vision for this city.

    As a sidebar, I was initially going to write “At the risk of igniting another discussion on the arena issue…” However I think this is a discussion that needs to happen on a regular basis, hopefully with new ideas for resolution as opposed to the inevitable (but tiresome) sparring between the rather dull sloganeering of “don’t give $$ to billionaires” and “if we don’t X then they’ll leave”.

    • BendingCorners

      That’s a lot of words just to say city taxpayers should fund the arena because it’s a public good. Put it to a plebiscite. Single question, divorced from whether the voters are tired of the current mayor, which is the main question in the current election.

      • freethe flames

        The mayor does not control the city council; I have contacted all my candidates for my ward and asked them their position. 4 of the 5 got back to me and all for of them reluctant to speed public money on the arena unless there is some way for fiscal return for the city.

      • Skylardog

        Plebiscites are dangerous. Part of the job of running a city is to look out for the good of all constituents, not just the most popular or largest base, as a plebiscite will do.

        Not saying an arena will get approval in a vote. But if you run a city like that, voting on every issue (vote on one, vote on all or most) then areas that matter to small portions of the population, say a performing arts centre, will never get funded.

        • BendingCorners

          If I had any faith in council’s ability to control spending is be have to leave the decision to them. I don’t and it’s my money so I do want a say on every large expenditure.

  • CDB

    I’m sorry but if they didn’t hedge the FX rate when they know for certain they have $60M in USD salaries against almost all CAD revenues then they’re incompetent. The CAD dollar falling should play nothing into it. If it did, that’s their own fault.

    • freethe flames

      You will likely be waiting a long time. I hope I’m wrong. Making this team better will require some real stones by the GM and that means moving some NHL dead weight. The game is about speed and skill;you can only have so many guys who can’t keep up and then you need a coach who can deploy them correctly. I’m not sure GG is the guy capable of this.

    • Rusty

      those numbers are from 2015. That was the last year they played in Rexall. I doubt the LOST money but it plausible they didnt make a ton either. Although, building revenue in edmonton would still have been better since the coliseum could host more concerts and dates than saddledome. I dont know its all very confusing. Its hard to take either side at face value. The only truth of the whole debate is that Calgary needs a new Arena, and stadium. Too bad egos from the league and City hall got in the way.

      • Flames fan since 83

        Rusty, your correct. The numbers above reflect the year before the new arena.
        Wouldn’t it be great to see the numbers from last year with the new building plus the playoff dates. Finally a bit of hard evidence would be nice to know.

  • beloch

    According to this page, the Flames reduced their ticket prices substantially over the last two seasons. This undoubtedly had a large impact on their bottom line.

    Why lower ticket prices? My guess would be it’s because of the recession. Flames tickets are bloody expensive and you can always watch the games elsewhere, so they’re one luxury that people probably cut back on in tough times (as opposed to alcohol). Even though the hype has built steadily over the last two seasons, the market just couldn’t support 2014/2015’s obscene ticket prices, which were fifth highest in the league. Given that the Saddledome also has one of the highest capacities in the league, the Flames were undoubtedly one of the very top earning teams in 2014/2015.

    So, is it the arena? No. It’s the local economy more than anything. If a shiny new arena were built tomorrow the Flames wouldn’t be able to jack up their prices much without risking a half-empty barn. The market just won’t support higher prices, or the Flames would already be charging them. A new arena would bring more concert revenue in, but would it be enough to pay the interest on a billion dollar loan? Probably not. That’s why the hat is out.

    Are the Saddledome’s maintenance costs out of control? I doubt it. If they were, King would be waving the bill around like a flag. The fact that he hasn’t pointed them out indicates the ‘dome is doing just fine. This is actually an advantage for King&Co.. Time is on their side. They don’t need to rush into a fair deal that serves the public interests. They can be patient and wait until City Hall is stacked with rubes, even if it doesn’t happen for another four years after this election.

    If the dollar rises and Calgary’s economy picks up, the Flames will wind up back in the top ten easily. Is the league going to let a net-contributor to revenue sharing move?

    • beloch

      It’s worth noting that Bill Smith was on the McMahon Stadium Society’s board (which operates McMahon stadium for CSEC) until very recently (presumably he’s resigned in order to run for mayor). Anyone voting for Smith should probably keep this past working relationship in mind.

  • Purple Hazze

    The largest driver of the difference in team revenue should be gate attendance. As the Flames easily average 19,000 fans a game, I am wondering how the Rangers are pulling in $100MM more than the Flames? Breaking down the $121MM of Flames revenue, it makes even less sense. For simplicity lets assume that is entirely derived from ticket sales, with 41 home games, that works out to roughly $2.95MM/game, which averages $15/ticket, Flames tickets do not average $15/game. Also once you factor in that the Flames derive revenue from the Rogers TV contract, concession sales, stadium naming rights, corporate sponsors, and merchandise sales, that revenue figure makes even less sense.

    Either Forbes has grossly under-calculated how much revenue is earned or I am missing something here. Ryan or someone else on here, can you provide some insights?

    • Purple Hazze

      ughh no edit function, scratch my whole post. Fat fingered an extra 0 in my average calculation, so it actually works out to an average ticket price of $155/game, which makes more sense.

      But my original question still stands of how the Rangers pull in so much more revenue? Are ticket prices at MSG that much more expensive?

      • Rusty

        10 million people live in new york. its literally 10 times the size of calgary. Sportnet averages 130,000 people watching the games on TV. If just 2% of the population of New york watches the game, they wil beat those numbers. That means greater ad revenue. Plus they are an original 6 team so they’re merchandising revenue is likely more stable and profitable.

  • Flames fan since 83

    Interesting article.
    For me, the revenue sharing disclosed by Ken King last week was eye opening if true.
    How fast did the Flames move from a top ten team to a bottom 10! And now, for a team to be viable, the city has to provide a world class arena, rent and property tax free. This is what the NHL (Bettman) is saying.
    It’s now apparent that the problem is the player salary deal. 50% of revenue going to salary is too high. (I can’t think of many successful businesses that this is affordable.)
    At the end of the day, taxpayers, are really contributing to Jack Eichel’s new 10 million dollar deal.

    • BlueMoonNigel

      If KT has a strong second season, and the trend continues of extending entry-level players after their second year, KT will sign his name to the richest contract in Flames’ history likely before the puck drops to open the 2018-19 season. Is KT going to be $10M a year? Smart money says he won’t be under $8M a season. I love it! Flames cry poverty and dole out this massive contract to a 2-year man and the struggling city, with oil at less than $50 a barrel, still finds the green in your pockets to build the Flames a world-class arena that will make the one in Edmonton look like the outdoor community rink in Westgate. Where will it all end?

      • Flames fan since 83

        BlueMoon, I don’t know where it ends. But the way it’s going the NHL will not be viable in Calgary or any city for that matter.
        In 2013 the NHL signs a $10.2 Billion/12 year TV contract. This year, there is a $500 million expansion payout which each team gets some kind of Share. Last year, Flames had two home playoff games which is (from what a read a few years ago) $1 million per game to the Flames.
        And with that, the Flames are still losing money.
        Flames and Bettman say they need a better rink to have more suites and more concerts to off set the Hockey Teams. It’s odd that that hockey needs Concerts, that make Money, to subsidize the Hockey Business.

  • Squishin

    A slanted article from a biased writer. The age of the dome is not what bumped the Flames down to 18th, it’s the poor economy and weak dollar. News flash: EVERYONE is having a hard time financially in Alberta right now, not just the rich-@ss owners. Ohhhh poor owners, going from ~140 million revenue PER YEAR to 121 million. Give me a frickin break. Why force taxpayers to pay more, when everyone is going through the same hardship? If they need revenue sharing, then fine. That’s what it’s there for.