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2012 NHL Lockout: Creative Business Structure, Profitability, The NHL And The Florida Panthers

Audit information from Broward County shows the Florida Panthers, despite reporting losses to Forbes for the last several seasons, may be driving overall company profitability.


One of the main arguments the NHL has put forth during the ongoing lockout is that in order for all 30 franchises to be financially healthy, expenses have to be capped at an even lower level than they are right now.

After all, several franchises appear to be struggling on the business side of the equation. While these names have changed over the decades, ranging from teams like Detroit Red Wings in the 1980s, the Edmonton Oilers in the late 1990s, the Pittsburgh Penguins and Boston Bruins in the early 2000s and the Florida Panthers and your Dallas Stars recently, the point the NHL wants to make is the same. They want 30 healthy franchises, and they can't do that without much more cost control because the lower revenue-generating teams, whoever those might be, need financial protection.

But how do we know which teams are actually struggling?

Most of the NHL teams are completely private business entities, which means no one has access to their financial books other than the auditors approved in the last round of CBA Armageddon. Forbes puts together annual estimations of net profit and loss on its website, but those are far from official. And as is illustrated by the Florida Panthers, those numbers do not account for the profits of the umbrella business that often own the NHL teams.

Jonathan Willis, who blogs over at The Cult of Hockey blog hosted by the Edmonton Journal, did some great legwork on the business structure and possible profitability of the corporation that owns the Florida Panthers, one of the teams that has been used as a constant example of a franchise that is in dire financial straits and desperately needs a new CBA to survive.

Willis pulled together several documents from Broward County, which owns BankAtlantic Center, Forbes and the South Florida Sun-Sentinal to show how while the Panthers might be losing money each year (based on the Forbes estimations), they are almost certainly driving the overall profitability of their parent company.

Here are his key points.

Interestingly, the picture that Forbes paints is at odds with that presented by Broward County. Broward County was primarily responsible for the construction of the Panthers’ arena, and as a result gets to look at the books of the organization. According to the county auditor, the organization made $117.4 million in profit between 1998 and 2012

How does a team losing $7.5 million per season rack up profits in excess of $100 million? There are a few reasons, and to find them we need to dig a little.

Now, I want to make one thing clear - the organization that made $117.4 million in profit between 1998 and 2012 is neither the Florida Panthers nor their parent company, Sunrise Sports & Entertainment. The organization that made those profits is the aptly named Arena Operating Company, which is contracted by the city to run the BankAtlantic Center.

Because AOC contracts with a public entity, they have to open their books to government auditors. The most recent audit apparently happened by Broward County in 2010 and is found here.

AOC is a sister company to the Panthers, and both are owned by SSE, which is illustrated on a pretty little graphic on page 3. Cliff Viner, the Panthers owner, is the chairman and CEO of SSE. The executives of AOC are unclear.

[Editor's note: The article originally mistakenly referred to Michael Yormark, the Panthers president, as team owner. Yormark is the president and COO of SSE as well as Panthers president.]

When Willis is referring to a team making $117.4 million in profit over 15 years, he's referring to AOC, which receives revenue from hockey and non-hockey events including suite sales, sponsorship agreements, parking, concessions and so-forth. On the expenses side of the ledger, the company is responsible for the operating expenses of the arena itself during events.

How much of that revenue is driven by the Panthers? That's a good question. Any number of concerts, shows and other events use the modern multi-purpose arenas when their main tenants are idle or on the road.

But the audit also gives us a clue as to how important the Panthers are to AOC's profitability. I'll let Willis explain with a small alteration to his original wording:

I expected to see that the Panthers were making good money on their arena deal; I was surprised to find that what was far and away [AOC's] worst fiscal year coincided with the NHL lockout. If the Panthers were losing money but the arena business was profitable, we would not expect to see a major drop in [AOC] revenue in 2005; instead we saw a significant dip. (Note: judging by the email commentary I’ve received, this point is being missed by many readers. If the Panthers were acting as a drag on revenue, the 2005 lockout year should have been quite profitable for SSE; instead it was easily their worst fiscal year of the decade – JW.)

According to the audit, AOC made a profit of $6.5 million in 2003-04. That number dropped to $1 million in 2004-05 as the lockout wiped out the entire season then jumped back to $11.7 million when hockey returned in 2005-06. Some of those dips and spikes could be related to concerts or other large, one-year events, but the drastic drop in the only year that the NHL didn't play in that date range is fairly convincing.

So what does that mean for SSE's (and Viner's) profitability? That's hard to say. There are no exact numbers out there on the actual finances of the Panthers, be that HRR (which wouldn't necessarily reflect the money on the Panthers side of the business ledger) or open books. There are also no numbers for revenue or losses from the parent company of SSE itself.

But lets use the best numbers we have - the Forbes estimation of Panthers losses combined with the audited reports of AOC's profitability.

The numbers start to line up in 2008, where AOC had an $8.25 million profit and Forbes estimated the Panthers had a $9.4 million loss. That would mean an overall loss for SSE of $1.25 million that year which again, assumes there's no complicating numbers from the SSE part of the ledger and that the Forbes numbers are accurate.

In 2007, Forbes estimated the Panthers lost $7.1 million while AOC reported a profit of $9.5 million. That would mean, with the assumptions above, a $2.4 million profit for SSE. In 2006, Forbes estimated a $1.9 million loss while AOC had huge profits of $11.7 million. That's $9.8 million in pure profit for SSE in a year the Panthers themselves reported a loss.

So what does this all mean in the big picture? Essentially, that you can't trust the numbers the NHL (or the PA, for that matter) feeds you about team finances. The business that own and operate NHL teams are huge financial conglomerates with complicated accounting and organizational structure that are designed to maximize profits, tax breaks and long-term investment growth. And that's before we get to the point that the huge money to be made in professional sports is not in the year-to-year operating profit but in the exponential growth of the sale price a decade or two down the road.

The business structure of the Panthers is not unique. When the Stars were owned by Tom Hicks, for example, they were actually owned but Southwest Sports Group. The Boston Bruins are owned by Delaware North Companies. The St. Louis Blues are owned by SLB Acquisition Holdings LLC

This article is not to say that there are no teams losing money - that's impossible to prove and almost certainly false. But whenever you start talking about the finances of these hockey teams, remember that it's not as easy as Craig Leipold (chairman of Minnesota Sports & Entertainment which owns the Minnesota Wild) telling you how much money he lost or the San Jose Sharks, owned by San Jose Sports & Entertainment Enterprises, saying despite record crowds, they're still in the red.

I'm usually not a conspiracy theorist, but talking about team and league finances is the perfect time to live by that old X-Files axiom:

Trust no one.