Analyzing The Dallas Stars Financial Situation

Tom Hicks was overseas last week when the news broke that the Dallas Stars would potentially be up for sale this summer, and he met with the media in his office today to give his side of the story. There have been multiple reports on this meeting tonight, including a very lengthy story on ESPN.com, so I'm going to do my best to round up the most important news that came out today.

Before I get to the tidbits from Hicks and team president Jeff Cogen, I'd like to share a few personal thoughts on Tom Hicks as the owner of the Dallas Stars. This is an owner who allowed his general managers the freedom to make the moves they needed to make in order to build the team. Big trades, free spending in free agency; anything in order to maintain the Stars as competitive as possible. Yet a number of free agent blunders hurt the team financially, and the final straw seemed to come with the failure that was the Sean Avery contract.

Hicks Sports Group is a company that, led by Tom Hicks, tried to do too much at once. And while they have tried to maintain that the Rangers and Stars are separate entities, it's become very clear lately that HSG's financial issues are far reaching and are affecting all aspects of their operations. And during this time, Hicks has come across as stubborn and unwilling to admit when the issues were at their worst; this is most evidenced by reports that Hicks was dragging his feet in the sale of the Texas Rangers.

Stars fans have not had much to complain about during Tom Hicks' time as the team's owner, but now they are starting to feel the anger that many Rangers fans have had over the past several years.

And when you start to analyze what Hicks said today in his office, that frustration will grow even more.

First off, let's get some of the facts out of the way. These are the bullet points emphasized by Hicks to the media, and ESPN.com runs them down.

  • Hicks lent $85 million of his money to Hicks Sports Group, which owns the Stars and Texas Rangers, over a two-year period that ended March 31, 2009, when HSG defaulted on $525 million in loans.
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  • A sale of the Stars could be completed within six months, and the team has an agreement with American Airlines Center that prevents it from being moved.
  • The Stars will reduce ticket prices next season for lower-bowl seats between the blue lines.
  • The team can be successful under its current budget, and fans shouldn't expect a new owner to increase the payroll.
  • The big news out of all of this is that Hicks himself loaned money to HSG. Now, I am not going to pretend to be a financial mastermind here (I am just a blogger), but it seems that if you are pouring $85 MILLION of your own money into company then there would come a point that your realize the current model was not working. Perhaps at that point the failure was inevitable and Hicks' money was a last-ditch effort to slow the bleeding.

    The other interesting news out today's meeting was Hicks' statements regarding the team's budget and payroll. Since there are no actual quotes from Hicks on this, we'll take a look at what both Heika and ESPN had to say:

    ESPN:

    Hicks said what the hockey team is spending now -- about $50 million in terms of the salary cap hit (about $45 million in cash) -- is likely to be the average in the NHL in a few years. Hicks said the team is losing money at that budget because revenues, including ticket sales and suites, have dropped.

    He said teams "south of Pennsylvania" have figured out that if they spend to the $56.8 million salary cap, they will lose money. Five Sunbelt teams (Los Angeles, Anaheim, San Jose, Florida and Carolina) are spending at least $54.5 million in salary cap money this season.

    Hicks said a new owner will discover the same thing and, therefore, isn't likely to increase spending.

    Heika:

    He said the model for spending in the NHL is broken and that the economy simply will not carry a $56 million payroll for teams in the south (the NHL salary cap is $56.8 million) and that he fully expects Sunbelt teams to follow suit. This season, Carolina, Anaheim, Florida and San Jose all have cap hits above $55 million. The Stars' cap hit is $49.9 million (including bonuses, some of which will not get paid).

    Ok then. Let's try to make sense of all that.

    Basically, Hicks is saying that the Dallas Stars cannot afford to spend up to the $56 million cap and instead of using two potentially disappointing seasons in a row as a reason he instead uses the "southern teams cannot be successful" excuse. That's a fairly serious statement, coming from the owner of a franchise that has been the model for the success of ice hockey in the south.

    Currently, there are 26 teams in the NHL spending more than the Dallas Stars. There are just 14 teams in the NHL with more points than the Stars. So, on first glance, it would appear that spending freely does not automatically equal on-ice success. Obviously the key for any sports franchise is to not only win and be successful, but to make a profit while doing so. If that franchise can maintain an even margin then at least they won't find themselves in dire straits and forced to slash payroll in order to make ends meet. It's the never ending battle in sports; be successful and make money, or spend money to be successful.

    Tom Hicks learned the hard way with the Texas Rangers that just because you spend as much as you possibly can, that doesn't mean you'll automatically have success with the actual product. Just as in any business venture, you must find the personnel to make the right decisions with the money you actually have to spend. Hicks did not have that general manager with the Rangers until Jon Daniels came along, and he had a general manager in Doug Armstrong that did nearly everything wrong with the Dallas Stars.

    We can argue the merits of financially successful hockey in the South another day, but here is what I see: the Dallas Stars franchise was always near the top of the NHL in generated revenue, yet now the team in bottom five in overall spending. It's the chicken or the egg theory all over again; does the success breed revenue or does the big spending breed success?

    Hicks stated that the Stars, as they are currently assembled and with their current payroll, are losing money and he's eating those monetary losses permanently. Not Hicks Sports Group. So you can immediately see where the strict financial restrictions are coming from. He also says that just because the Stars get sold to a new owner, that fans should expect to start spending again:

    "If he goes to the cap, it will all come out of his pocket," Hicks said. "We are losing money where we are now. It's not something to infer to the fans that once we get a flush owner we're going back to the cap. The only reason a guy would do that is because he wanted to win so bad he was uneconomical. I've done that. I know how that works."

    So which is it? Are the Stars in facing serious financial issues solely because hockey no longer makes money in Dallas like it once did? Or has revenue slowly fallen over the years because the on-ice product has steadily diminished to the point where the team is threatening to not make the playoffs in two straight seasons for the first time since coming to Dallas? Can we blame poor free agency signings and overspending on aging veterans as a reason that the revenue has dropped while the payroll was so high for so long?

    Perhaps a number of absolutely horrible decisions made by the front office can be blamed for this situation, rather than laying the blame on hockey not being as successful "south of Pennsylvania."

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    The reality: Don't expect the team to be able to do 'whatever it takes' to make the Stars more competitive and burst into the playoffs. If the Stars are bleeding money right now, $7 million under the salary cap, then don't expect any trades or signings to be made that adds any sort of extra salary to the roster. That means no big defensemen, without parting with key pieces. That also could spell trades that involve players with inflated contracts.

    Hicks said the Stars were No. 1 in the NHL in total revenue in 2002, with Colorado No. 2. He said the Stars are now No. 19 with Colorado right behind them. Cogen added that after the club went to the Western Conference Finals in 2008, the team sold 2,000 more season tickets. But when the Stars missed the playoffs in 2009, they were only able to retain 25 percent of those sales.

    "We believe the team plays better in a full building," Cogen said. "Our No. 1 job is to be playing games in May and June, and that's what we're focused on."

    What the above statements say to me is that the Dallas Stars are close to being in official 'rebuilding mode'. Not exactly rebuilding when it comes to the on-ice personnel, but a restructuring of the entire franchise in an effort to recoup the losses and find a way to get back to being competitive without spending up to the salary cap. The Stars are having to cut ticket prices just to get bodies into American Airlines Center, which in itself forces the team to cut their payroll.

    It's a valley in the ups and downs of sports franchise, and the key is to be able to rebuild the team and come out on the other side as soon as possible. Some teams are never able to find a way to climb the slope back to being a top competitor, and money has a lot to do with it.

    Mark Stepneski, as he always does, breaks down the situation very simply:

    A decade later, they haven’t done much in the playoffs other than one run in 2008 and they are no longer a hot ticket in town. They are back to No. 4 among the four pro teams in the market. Throw in the economy, and it gets a little tougher. Start looking ahead, and the next TV deal may not be so lucrative. Spending has to reflect the reality of the revenues coming in, and that’s where they are.

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    So how do the Stars rebuild without spending money?

    Nieuwendyk wants a team with the likes of Jamie Benn, Stephane Robidas, Loui Eriksson and James Neal steadily improving and becoming the foundation of future success. He'll then add pieces where he can, much like [Jon] Daniels has tried to do with the Rangers.

    "You have to draft well, develop on your own and move forward that way," Nieuwendyk said. "I think we can be competitive that way."

    The Texas Rangers are an interesting comparison. They've drastically cut payroll the past few years, are hesitant and unable to sign any top free agents, yet they are their most competitive in over a decade. The Rangers also have a strong nucleus of players that should make the Rangers competitive for years to come.

    This is the model the Stars will have to follow, and it's going to mean a bit slower climb back to the top than most fans would hope for. It's going to mean trading away some of your top, expensive players for a bevy of young talent, prospects and draft picks. It's going to mean rebuilding the team from the bottom up, using smart and crafty acquisitions to build around a strong nucleus of talent that the Stars already have. Yet the big name, expensive additions that most fans are convinced this team needs to automatically take the next step most likely will not happen.

    Dallas Stars fans should be incredibly excited about the future of this team and the franchise. The young, raw talent on this team is at a level not seen in a long, long time. Fans must accept the fact that for the immediate future, this team will not be able to spend the money many feel is necessary to be competitive once more. Instead, expect a number of calculated moves that are made to not only better this team in the immediate future, but next season as well.

    While the Stars certainly are nowhere near the point of looking ahead and scrapping the current season, all signs are pointing to a total lockdown until a sale is made. And Tom Hicks can lay claim that a ownership change will do nothing for the team's finances as much as he wants, but the truth that any change at this point will be welcome.

    Until said change is made, however, the Dallas Stars are handcuffed by an owner who refuses to accept any blame for the current situation. He has no personal monetary stake in this franchise (he was sure to point out that Tom Hicks is doing just fine financially), nor have his decisions as an owner done any ill towards the Dallas Stars, Texas Rangers or Liverpool.

    ``We were hopeful to be quietly doing this,'' [Hicks] said. ``I don't know what direction it's going to go. I don't know if I'm going to be involved (as part of the future ownership group), I don't know if my children will be involved. We're going see what happens and our advisors will start looking at all of the options. Hockey has a smaller universe of interested investors certainly than baseball has, so our advisors will be trying to find the most interest they can find.''

    Quiet indeed. Let's not let anyone in on the fact that grossly mismanaged sports franchises but a big business into default of over $500 million in loans.

    Tom Hicks will sell the Dallas Stars and move on, and fans will be left with a franchise that will spend several years recovering. The Stars aren't going to turn back into top Stanley Cup contenders overnight, nor with the fans start spending the money on tickets and merchandise like they did five years ago as soon as new owner takes over. It's going to be a long process, but the good news is that the future is bright. We do have something to look forward to, the season and beyond.

     

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    Epilogue

    Jeff Cogen confirmed what I've been saying the past week: the Dallas Stars are not going anywhere.

    ``The Dallas Stars aren't going anywhere, '' team president Jeff Cogen said. ``We are in the fourth largest market in the country, we are the pride of the NHL Sunbelt, and still are in spite the present state. We have a non-location agreement with American Airlines Center, and we're not going anywhere. I just want to get that on the record.''

    "Fourth largest market". Well, that hurts to hear. Fourth largest market, 19th in revenue and 27th in spending.

    Must be the south's fault.

    Anyways, the key is the agreement with the AAC.

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