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Photo Credit: Sergei Belski-USA TODAY Sports

How long can the Flames ‘hang on’ in the Saddledome?

Last September, fans of the Calgary Flames were dealt a gut-punch as the organization made a startling announcement on the eve of training camp. Having seemingly exhausted efforts to negotiate with the City of Calgary for a new home for the hockey club, the team announced they were no longer exploring a new arena. In attendance for the announcement, National Hockey League commissioner Gary Bettman declared “they’re going to hang on as long as they can” in the Scotiabank Saddledome.

If you’re a curious type, like our staff are, you’re probably wondering precisely what that statement means. Are the Flames in serious economic trouble? Is there a specific timetable for when the finances of the club just don’t make sense in the Saddledome anymore? We asked around, dug into the numbers, and have roughly modelled how things look for the club going forward.

What are their revenue streams?

The Flames get their revenue from a few sources.

  • They sell tickets to Flames games (and other events in the Saddledome)
  • They sell food and beverages during Saddledome events
  • They get a cut of the NHL’s television deals
  • They get parking revenue from a few lots immediately around the Saddledome
  • They get advertising revenue from ads sold within the Saddledome
  • If they qualify for it (by falling outside the top 10 in hockey-related revenues as stipulated by the Collective Bargaining Agreement), they get a share of the NHL’s revenue sharing funds

Ticket prices are generally trending upwards league-wide, and while we don’t have hard data regarding the Flames’ ticket prices, they haven’t been going up by leaps and bounds: they’re about league-average comparatively. Generally speaking, ticket and concession prices (for games and other events) are a product of the swankiness of the buildings they’re in – the newer and fancier the building, the easier it is to lure in big-name acts with big ticket prices. Compared to other markets with newer buildings, the Flames’ prices for food, concessions and beer are about middle of the road.

The Financial Posts explained a big component of the NHL’s financial structure, the TV deals, in this rather simple way:

A big reason for the difference is broadcasting rights. In 2013, the NHL signed a record 12-year, $5.2-billion agreement with Rogers Communications Inc. for its Canadian teams, the largest deal in league history. It also signed a significant, but less prosperous 10-year deal with NBC for US$2 billion in 2011 to cover its American teams. The revenue from both deals is pooled and shared among all franchises.

If all 31 teams split all of the money annually (and the league office didn’t hold onto anything), the Flames would get around $20 million per season from the TV deals.

The NHL’s revenue sharing scheme is detailed in Section 49 of the CBA, but their explanation is a bit complex and frustratingly circular. The Hockey News’ Ken Campbell has a reasonably straightforward breakdown:

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.

The revenue sharing scheme may be important to the long-term health of the franchise for reasons we’ll get into shortly.

What are their expenses?

The Flames have a few different continual expenses:

  • They cover player salaries (paid in American dollars)
  • They cover team salaries and building salaries for games and other events
  • They cover any ongoing operating costs for the Saddledome
  • They cover any necessary maintenance and repair costs for the Saddledome
  • Per their agreement with the city, they’re responsible for a lease payment for the Saddledome in the form of a contribution to each of WinSport, Hockey Canada and Parks Foundation Calgary

Non-player salaries are probably a wash and cancel out concessions and advertising revenue – in effect, the concession workers and ad sales people pay for themselves.

Even though there have been repeated lockouts in the name of cost certainty, player salaries continue to escalate. Looking at NHL Numbers’ archive, here’s how that’s impacted the Flames and the rest of the league over the past decade:

Season Cap
Ceiling
Flames
Cap Hit
2007-08 $50.3m $43.39m
2008-09 $56.7m $58.86m
2009-10 $56.8m $56.55m
2010-11 $59.4m $63.39m
2011-12 $64.3m $64.24m
2012-13 $70.2m $64.55m
2013-14 $63.4m $55.74m
2014-15 $69.0m $59.17m
2015-16 $71.4m $72.54m
2016-17 $73.0m $75.58m
2017-18 $75.0m $73.05m

(For the seasons where the Flames’ cap hit is above the ceiling, the team utilized the long-term injured reserve, or LTIR, to stay below the cap.)

That’s a cap ceiling increase of $24.7 million over 10 years (49.1%, or 4.9% per year) and a Flames spending increase of $29.7 million over the same period (68.4%, or 6.8% per year). The cap increase generally coincides with a league-wide revenue increase of around the same amount – though it’s not evenly distributed, obviously (looking at you, Arizona and Carolina) – but the NHLPA has the ability to trigger up to a 5% salary cap rise every season (though doing it if revenues aren’t there to support it triggers an increase in escrow on player salaries). The fact that the player contracts are negotiated and paid out in American dollars is a big challenge for the Flames, given the volatility of the currency markets and that almost all of their revenue comes in Canadian funds.

The big scary piece here is repair costs. Looking at other facilities, there’s a general causal relationship between a facility’s age and maintenance costs; as a building ages, it costs more to keep it looking spiffy as repairs gradually become more extensive and, thus, more expensive. The City of Glendale conducted a comparative study back in 2012 assessing the operating costs for facilities similar to the then-Jobing.com Arena and concluded that the building (built in 2003) would have annual operating costs of between $15 and $18 million. Given that the Saddledome is older, it’s reasonable to assume that its costs are (a) higher that those amounts and (b) rising. And that’s discounting the fact that the entire building was underwater to the 11th row five years ago and was hurriedly repaired to get everything ready for hockey season – even if everything was repaired perfectly, floods have a habit of making everything worse.

The Saddledome Foundation leases the building from the City of Calgary for $1 per year, on the condition that the operators of the facility – nominally the Flames themselves – donate a sum each year to each of WinSport, Hockey Canada and Parks Foundation Calgary. There’s a formula indexed to inflation and the building’s revenues in the lease agreement that determines the contribution, but it’s currently around $600,000 to each organization (or roughly $1.8 million of the building’s revenues). Presuming that the bottom doesn’t fall out of the building’s finances, these lease-related expenses will stay around this level (or slightly increase).

Ongoing operational challenges

There are two fundamental issues for the Flames right now, and they’re somewhat interconnected: player salaries and maintenance expenses for the Saddledome are both going up. Combined, they’re both likely escalating more rapidly than the team’s ability to generate revenue – and that’s completely discounting any additional challenges posed by the ongoing oil-related roller-coaster ride that the Canadian dollar is experiencing. It’s worth reiterating this: the age of the Saddledome, and its wear and tear and upkeep, are fundamental challenges to the economic viability of the Flames.

That said, the league’s revenue-sharing plan has likely been a huge help to the Flames in this regard. As the Flames slide down the league-wide revenue rankings, they get more and more help from the revenue-sharing pot. While the revenue pot is tied to hockey-related revenues – the intention is basically to have it as a “top-up” measure so the league’s lesser lights aren’t rendered non-competitive and can still spend to to the cap mid-point – as the league-wide revenues go up, having a share of the pot will increasingly help the teams on the NHL’s lower end. While it’s not a silver bullet by any means, if the NHL’s revenues increase at roughly the same rate that the Saddledome’s upkeep costs go up (and nothing else changes for the Flames revenues relative to the rest of the league) then the revenue-sharing funds should be an effective measure to keep the Flames afloat for awhile.

To make a long story short: the Flames can “hang on” in the Saddledome in perpetuity as long as they’re fine with using revenue-sharing funds to make ends meet. If you’re a billionaire used to having an air-tight business model that produces profit for your shareholders, utilizing an external pot of funds to make your hockey club economically viable probably isn’t what you had in mind when you bought your hockey club. And if you say it out loud, the phrase “the team’s finances work long-term as long as they keep getting revenue-sharing” really doesn’t sound like the makings of a great plan.

And so, a new arena…

In this context, team ownership’s desire for a new barn makes a ton of sense. The Flames have been responsible for the upkeep for the Saddledome since 1994, when they took over the lease from the city and both parties sunk some money into the last major renovations to the facility (which added the suites above the lower bowl back in 1995). The logic at the time was that as the most prominent tenant, the Flames were the best-suited to operate and maintain the facility – or at least better-suited than the city bureaucrats that were doing it at the time. As the building has aged, it’s become more expensive to maintain and as newer buildings opened in adjacent markets it’s become tougher to get big-ticket acts to fill in dates between hockey games. (That’s arguably something that all parties involved should have anticipated when they negotiated the new deal back in ’94, but it’s everybody’s problem now.)

Would a new building fix the Flames’ ongoing finances and create long-term stability for the franchise? If it would increase revenue-per-head as the city claims it would – the phrase “multiply” was used – then it definitely would. Even a modest increase in revenue-per-head would get them away from their dependence on revenue-sharing for their viability. But the devil, as they say, is in the details, and it would be important for all parties involved to structure whatever type of lease agreement they put in place so we’re not dealing with this mess again in 20 years. In other words: if we’re going to all the trouble of building a new city-owned barn, it’s important to get in writing that the Flames need to have a plan for maintaining it for the long haul.

  • nikkomsgb

    It will be interesting to see how arenas like the Air Canada Center, Bridgestone Arena, Rogers Arena, and the like age. The buildings were all built with varying degrees of amenities and flashiness, but critically have an adaptable structure that can continuously be refreshed and renewed.

    That isn’t to say that those markets won’t build new arenas when the 30-35 year cycle hits… but at least they don’t have the limitation of a saddle shaped roof throwing a monkey wrench in plans.

  • Derzie

    What I conclude from your analysis is that the owners are the party that cares the most about a new building. With the fans it’s a case of expectations vs reality. Their expectations are a new luxurious experience in watching their favorite team or concert. The reality is a pretty environment with smaller seats, longer washroom lineups at a significantly higher cost. Arenas are built for money. To jam more people and events in, thus getting more revenue. Bettman represents the owners and the money 100% of the time. From a fan perspective he is as bad a representative as you can get. He’s built a league where the hardest to get trophy in sports has become a joke: slap together a team, do a ticket drive, win a cup, all in one year. I’m glad the city is relooking at the bid but between Bettman, Ken King & Edwards, I have little hope that the fanbase will get a fair deal.

    • buts

      Pretty building with smaller seats and longer washroom lineups….have you been to a new building? I haven’t been to Rogers place in edm but in Arizona and florida there is a ton of concessions and washrooms with no lineups (in a full building) where you would sell more food and drink increasing revenues which is one reason for a new rink.

  • Parallex

    “In other words: if we’re going to all the trouble of building a new city-owned barn, it’s important to get in writing that the Flames need to have a plan for maintaining it for the long haul”

    They do have a plan in 20-30 years they’ll cozy up to the public through again and go “waaaaaaaaaaaaah, gimme gimme gimme!”.

    No. End this now, make them pay a fair amount of rent (for context a fair amount of rent is the amount of rent a private non-governmental contractor would charge them) or have them build it themselves if they want to own and not rent.

    • Honkydonk

      They don’t care about just building a new stadium. They were offered a free stadium on the reserve off Sarcee already.

      What they care about is legacy and having been held ransom by the Stampede board they are done with that.

      Nenshi wants the new stadium in East Village to for success reasons of that region. The flames want West Village so that they can profit and guarantee the development around the stadium. That is the big sticking point here.

      If the city allow the flames a stake in the land development around where the stadium is built you will have a deal.

  • Off the wall

    Thanks Pike for the details of the Saddledome saga.
    It definitely puts things into perspective, when you consider all the facets of operational costs and increasing payrolls, not to mention the impasse between council and the ownership.

    There is a solution. Most of us appreciate that a new arena is inevitable. Generating revenue is not the only goal, entertainment also has value, and I think Las Vegas Knights has taught us that. What a venue!

    $500M, for their franchise and look at what a Cinderella story they have created. Winning sells!

    If you take a look at the successful models in sports, it’s the combination of raw entertainment mixed with a competitive franchise.

    I often wonder if the Flames were more competitive if we’d have such difficulty with a new arena? I know, it’s altruistic of me to say this, but isn’t that the goal of sports franchises, to be competitive and entertaining?

    I think Treliving has done a decent job of keeping salaries (US currency) manageable, and as a GM it factors into overall projected expenses.

    While maintaining an older building with limited entertainment value hampers revenue, it appears the best solutions involve building a new arena. That projected $500M for a new arena isn’t going to be less expensive the longer we wait…

        • Bob Hartley

          People have been paying to watch the flames for 30 years. Calgary Flames have been nothing short of the most average team in all of sports. Even in the last decade where you make fun of the oilers… do you realize the flames don’t even have more playoff wins then the oilers in that time? Not good. No wonder the team up north have a beautiful new arena with massive development surrounding it. As of 2 weeks ago they now have the tallest sky scraper in all of western Canada! Makes the bow building look small. The ice district is already taking form. Its gonna be amazing when its all done. WW I am also a bit jealous of what the oilers are building up there. Now its Calgary’s turn to get there s&*t in order. Some vision is needed. The saddledump has got to go.

          • The GREAT WW

            “What the Oilers are building up there”….?!

            They have a total of 3 NHL caliber forwards, all C, and only one of them can drive his own line.

            I don’t even know if they have 3 NHL caliber D…..

            Then there is there goalie situation.

            What exactly are they building up there?

            WW

          • Redleader

            Flames average points per season is like 95-100 points ,Oilers are like 75-80 points !!!! Let’s average out 100 % Of the hockey played not some weak stat . Don’t compare your toilet bowl team to our at least competitive team .

  • slapshot444

    Three points, anyone consider what the potential of moving ( as per KK) does to the teams winning percentage, it sure seems to have affected the Coyotes. Im not sure KK thought of that prior to starting the pissing match.
    Second, Honkydonk seem to have it spot on. Murray Edwards is all about a strong balance sheet, the organization wants to make on all fronts including property development around the new site.
    Third, I have never heard about the Scaree reserve location at the new mega shopping centre. Interesting idea as long as there can be C train service.

    • WillyWonka

      I have felt all year the KK and bettman cast a cloud over the season and did in fact effect the on ice product by effecting the morale of the team. All the negative circus dragged the team down.

  • BendingCorners

    Win a few Cups and maybe people won’t mind paying more – no matter who pays for a new building or how, seat prices will go up. Charging more for a good product is one thing, but for the mediocre team the Flames have iced most of the past thirty years? Not so much. Start with a better product then pass the hat.

  • Rockmorton65

    Sweet Moses. It’s not rocket science.

    Take into account all the costs of building a new arena. Not just the construction, but things like taxes, and environmental issues, etc. ALL costs.

    Spilt it right down the middle. 50/50. The city’s portion can come in different forms. It could be a reduction/abatement in taxes. It doesn’t have to be risking cash.

    Then, when the building is up and running, split the revenues in a similar way. 50/50 until the city’s portion is paid back (plus a reasonable profit). Then the city’s share drops to 25% of all profits (not revenues). City makes money on every event, Flames take the significant lions share for running the facility. Equal investment in the beginning, Owners aren’t on the hook for maintenance costs. Everybody makes money.

  • buts

    I hope that when they sit down and hammer out a deal we get a new fieldhouse/stadium to go along with the arena…..the city needs and deserves it, think big I say 🙂

      • Honkydonk

        That is why I am all in on the west village style arena no matter where it is built as long as it’s arpund downtown.

        Yes the reserve offered to build a stadium for free and gift it to the Flames if they move there.

        Btw KK was re diagnosed with Cancer and that is why he’s taken a back drop. So wish the man well and be a real Calgarian.

        Again all flames owners except Edwards voted for sale/relocation and as it needed to be unanimous it didn’t move forward although that is why Bettman flew in originally to approve it if they want to proceed.

        This last part I am not sure on but wouldn’t surprise me if that is why Seattle is delayed as an expansion as the flames relocation might be a factor in it.

        Get this stadium agreed on! We need the development and can do with the work for folks.

        I’m not so sure the flames will even talk or simply listen for that matter. The flames meant it when they said they are done negotiating and especially with this mayor at the table.

        I don’t know if it’s testosterone or estrogen but it sure is something!

          • Honkydonk

            No it’s not greed it’s reality plain and simple. Like in ones own life you evolve or you die.

            Our dear old city ain’t doing so hot now these days are we? Never diversified our economies or grew manufacturing sector.

            Had a failed development plan heavily relied upon real estate and oil and now look at us. So many of our fellow folks out of work or under worked.

            First step in anything is to realize what one is. Calgary needs to realize what it is. It is not a city that can afford the flames to leave. It is not a city doing well.

            Also realize we live in a capitalistic society not an social one.

            Great big libraries and fancy social art and bridges like make up on a pig to hide the realities of both failed perspectives and failed policies.

            As they say it’s the economy stupid.

        • piscera.infada

          A team cannot unilaterally relocate. It needs approval from the board of governors (the other NHL owners). Now, King and co. may have enough political sway to effect a de facto unilateral relocation–I don’t know exactly how the process plays out. However, considering that there is league-wide revenue sharing, and the Flames are a top-quarter earner for the league, I have a very difficult time seeing the board actually being so hasty to approve a relocation to a market that’s unproven. Moreover, there would be no effect on Seattle expansion. That is a done deal. And the Owners want those expansion fees–relocation does not come with that kind of dollar figure attached.

  • redwhiteblack

    Solution is easy. Sell the team. Save all the collective Dome and Team expenses for the next 4 years. Build a new arena. Buy a new expansion team. Open in the new building and win the cup!

      • Kevin R

        Well they bought the pipeline West, I would bet Trans canada pipeline lawyers are meeting tomorrow morning to discuss this president & expecting the same for the pipeline East. This is kinda like the City buying the Flames, build the new stadium then sell the team.

        Make no mistake, Nenshi will build his building in the East village as per his “vision”, probably without the Flames & we’ll be without a team for awhile. & we will get to pay the whole tab.

      • freethe flames

        Or go to the roots of capitalism as explained by the father of capitalism Adam Smith. Not to trickle down theory as put forward by Hayek or Freidman; what is practiced by so called modern capitalism is little like it was supposed to be. Big business tries to externalize it’s cost on the public dime and then call it capitalism. What is being practiced is a form of welfare for business not laizze faire economics.

          • Parallex

            You’re full of baloney is what you are.

            If you’re really for capitalism then you’re for the Flames building their own arena on their own dime and not on the back of taxpayers. I don’t believe the Flames were offered a free arena on reserve, have seen nothing publicly about Ken King having a cancer diagnosis, or any of the other malarkey you’ve gone on about.

  • RKD

    The reality is the dome is bleeding money and the Flames are relying heavily on the NHL financially and it is only going to get worse until they get a new arena or until is no longer economically feasible for the NHL to help the Flames and relocation is the option. They are just waiting to move the Flames to Seattle in a brand new arena. Bettman wants taxpayer dollars and postures to make the city look bad but doesn’t have the balls to go to Edwards. The dome is oddly shape with a hyperbolic roof no other arena has it and the sound is poor for concert with promoters skipping big acts coming to Calgary.