Speculation: Roster Building Thread: Part XLVII

[Tawnos]

There's three markets that are a virtual lock for a net loss of ~$25 million. It's a pretty deep subject that I would love to dive deeper sometime, but those three markets are hurting the PA's pockets from the aggregate HRR perspective. HRR is top-line, so it's not like saying those three teams are a deduction from that, but rather their under-performance comes at a very high opportunity cost to both the league and the players, because if those teams are not relevant or are earning playoff revenue, they are not breaking even.

Then you have around 30% of HRR that is subject to in-year volatility due to the Canadian dollar. The Canadian teams for the most part can absorb or off-set losses by adjusting price and volume levers when it comes to their tickets.... but there are 3 Canadian teams that are in the middle of consumer confidence related crises. What the CDN does cause in-year swings where a team like OTT, WPG, EDM, VAN need to earn 15-30% more in HRR to be on par with US teams.

But when you have a consumer confidence issue, you lose box seats, and corporate deals, or have to sell them for cheaper... which is what some of those Canadian teams are experiencing... that is hard to compensate.

Lastly, there are teams in major hubs that are not competing... that equates to lower engagement, which leads to cheaper ticket prices, which hurts HRR.

So LA, Anaheim, CHI, our very own NYR.... the league is healthier when those markets can charge their **** you rates for tickets.

The three losing markets I outlined above... you can get great seats, beers, and have a great time for $15 bucks. But the league needs other markets to be able to off-set that... which is easy when the team is contending... but... when those markets are not it hurts the game a bit more.

Personally, I don't buy that those teams lose quite that much money. Not saying they're making money, but if you account for literally everything... I don't believe it.

 

[Tawnos]

It's an interesting idea, I'm going to have to digest that one.

Yeah... I don't remember where it originated... maybe with a poster on BoH, maybe from an article. But it strikes me as the most effective way to improve the issue. You can't get rid of escrow because you have to have a mechanism to ensure cost certainty, but it doesn't need to be the 8-11% that @Mikos87 mentioned. And it could be less volatile, which is another issue the players have mentioned.

 

[Vitto79]

What are you referring to?

The jimmy v trade request which likely isn’t true anyway

 

[Mikos87]

Personally, I don't buy that those teams lose quite that much money. Not saying they're making money, but if you account for literally everything... I don't believe it.

I beg to differ on that. Those three teams all have something in common that is a byproduct of the same externality. They are all bad real estate deals with a travel time to and from the arena that is ~2 hours from the highest population density area in their respective cities.

 

[Levitate]

Jimmy Vesey for the 8th overall do it Gorts

 

[Yankeekid07]

Jimmy Vesey for the 8th overall do it Gorts

If Edmonton REALLY wants Brendon Smith that badly, they can have him too.

 

[Alluckks]

Tony deleted his tweet; I'm guessing it was just a personal take that he just doesn't want Vesey gone because he's his friend
Better to just stay out of social media with takes on these things

 

[LaffyTaffy]

Sounds like Vesey and Neal info coming up on Siriusxm NHL radio Power Play show

let us know

 

[Off Sides]

There's three markets that are a virtual lock for a net loss of ~$25 million. It's a pretty deep subject that I would love to dive deeper sometime, but those three markets are hurting the PA's pockets from the aggregate HRR perspective. HRR is top-line, so it's not like saying those three teams are a deduction from that, but rather their under-performance comes at a very high opportunity cost to both the league and the players, because if those teams are not relevant or are earning playoff revenue, they are not breaking even.

Then you have around 30% of HRR that is subject to in-year volatility due to the Canadian dollar. The Canadian teams for the most part can absorb or off-set losses by adjusting price and volume levers when it comes to their tickets.... but there are 3 Canadian teams that are in the middle of consumer confidence related crises. What the CDN does cause in-year swings where a team like OTT, WPG, EDM, VAN need to earn 15-30% more in HRR to be on par with US teams.

But when you have a consumer confidence issue, you lose box seats, and corporate deals, or have to sell them for cheaper... which is what some of those Canadian teams are experiencing... that is hard to compensate.

Lastly, there are teams in major hubs that are not competing... that equates to lower engagement, which leads to cheaper ticket prices, which hurts HRR.

So LA, Anaheim, CHI, our very own NYR.... the league is healthier when those markets can charge their **** you rates for tickets.

The three losing markets I outlined above... you can get great seats, beers, and have a great time for $15 bucks. But the league needs other markets to be able to off-set that... which is easy when the team is contending... but... when those markets are not it hurts the game a bit more.

What I guess I'm misunderstanding, if they set the cap by using last years revenue, where those issues somehow not accounted for in a lower revenue number from the previous year?

I mean outside of exchange rate, wouldn't those select same teams losing money every year already be factored into less revenue which then would just set the cap lower?

 

[Brooklyn Rangers Fan]

Tony deleted his tweet; I'm guessing it was just a personal take that he just doesn't want Vesey gone because he's his friend
Better to just stay out of social media with takes on these things

Must not comment on DeAngelo and social media.

Must... not... comment... on... DeAngelo... and... social... media...

MUST... NOT... COMMENT... ON... DEANGELO... AND... SOCIAL... MEDIA...

 

[RGY]

let us know

I dont know now. They opened the show and hinted at it as one of the topics given who he was grouped with.

If im still in the truck ill relay the info

 

[Tawnos]

What I guess I'm misunderstanding, if they set the cap by using last years revenue, where those issues somehow not accounted for in a lower revenue number from the previous year?

I mean outside of exchange rate, wouldn't those select same teams losing money every year already be factored into less revenue which then would just set the cap lower?

It is, but he's comparing to a hypothetical situation where those teams were in a more lucrative situation.

 

[Alluckks]

Must not comment on DeAngelo and social media.

Must... not... comment... on... DeAngelo... and... social... media...

MUST... NOT... COMMENT... ON... DEANGELO... AND... SOCIAL... MEDIA...

I love Tony D

 

[Mikos87]

What I guess I'm misunderstanding, if they set the cap by using last years revenue, where those issues somehow not accounted for in a lower revenue number from the previous year?

I mean outside of exchange rate, wouldn't those select same teams losing money every year already be factored into less revenue which then would just set the cap lower?

Like in any business projections are never perfect. They project the next season's cap based on the current season ticket sales and expected revenue for the remainder of the year. There are a number of things that can affect that expected revenue so it's not a fixed sum that they are dealing with. The swings aren't huge, they are usually under 5%.... but that 5%.... that comes from the players' pockets in the form of escrow.

That's the rub that can cause the next lockout. The owners are getting an assurance of cost certainty against the climate, while the players are the ones paying for it.

In terms of the losing teams... you can bet that it's taken into account, but can it be a controllable factor? No. Here's an example of how:

One of those teams has an owner who doesn't mind spending more... and he's going to keep doing it, despite knowing that he's going to lose money. HRR and team profit are two separate things, but the bet the owner is making is that by him spending, and investing more on his team... that the team will draw more fans and tickets.... and the team making the playoffs will yield him $3-4.5M per round, and the added draw helps his own profit margins... and leads to a better contribution margin on HRR.

The problem is... if that team doesn't make the playoffs, and is irrelevant early, then the HRR pool doesn't go up from that organization.

 

[Off Sides]

It is, but he's comparing to a hypothetical situation where those teams were in a more lucrative situation.

Sure,

My guess, exchange rates are one thing, so would certain big market teams being good, making more revenue than their counterparts ever could, that effect the cap for sure.

Yet the teams who are annual revenue losers, if there are such, that should be factored in already.

Similar in escrow, why is escrow so high if the cap is set on past revenue, unless the players share is being dinged for some reasons where it's not effecting/reflected in the cap?

I thought it was the escalator driving a larger percentage than it is if it is really set at 1.25%, the only things I can think of which would drive that up 10-12% would be things like outgoing salary that is not being accounted for in the cap calculations.

I would think, possibly LTIR, compliance buyouts, would be the two major ones as they do not effect the cap ceiling, yet there is real money going to both? If that real money is counted against the players share, yet not reflected in the cap, then that in theory would make for a discrepancy?

 

[Off Sides]

I guess, I'm not sure how they compute it, but if the players bonus and/or front loaded contract money is being counted at full value for that year against their share, and yet their cap hits are lower than the real outgoing salaries, that would also be part of it?

I don't know the more reasons I think are possible, the less I think the PA is going to like any solutions to it.

 

[Tawnos]

Sure,

My guess, exchange rates are one thing, so would certain big market teams being good, making more revenue than their counterparts ever could, that effect the cap for sure.

Yet the teams who are annual revenue losers, if there are such, that should be factored in already.

Similar in escrow, why is escrow so high if the cap is set on past revenue, unless the players share is being dinged for some reasons where it's not effecting/reflected in the cap?

I thought is was the escalator driving a larger percentage than it is if it is really set at 1.25%, the only things I can think of which would drive that up 10-12% would be things like outgoing salary that is not being accounted for in the cap calculations.

I would think, possibly LTIR, compliance buyouts, would be the two major ones as they do not effect the cap ceiling, yet there is real money going to both? If that real money is counted against the players share, yet not reflected in the cap, then that in theory would make for a discrepancy?

But this is what I'm saying about how many teams spend above the midpoint. Last year's cap was $79.5m and floor of $58.8m, which implies a midpoint of just over $69m. Just rough numbers, and there's going to be some variance in actual dollars spent from this, but only 3 teams had a final cap hit under $69m, and even the lowest of those was stil $5m over the floor ( Past Salary Cap Payrolls - CapFriendly - NHL Salary Caps). The average final cap hit was more than $6m over the midpoint, meaning teams spent nearly $200m more in salary than the midpoint would be suggesting. Nearing a 9% overspend on the part of the teams just from that alone, provided the revenue is in line with what the midpoint was anticipating. Again, these numbers are incredibly rough, because cap hit and salary aren't the same thing. Some contracts have higher cap hit than real salary, some contracts lower... plus other factors, but you get the idea.

When teams overspend on player salaries, it's the players who end up having to make the 50/50 split right. Of course, if the league grows by more than expected, sometimes it's the players that get the money back... it's happened, but not in a while (and I don't think since the 2012-13 lockout). There's no way around it... but can it be mitigated? That's the question.

 

[Mikos87]

I guess, I'm not sure how they compute it, but if the players bonus and/or front loaded contract money is being counted at full value for that year against their share, and yet their cap hits are lower than the real outgoing salaries, that would also be part of it?

I don't know the more reasons I think are possible, the less I think the PA is going to like any solutions to it.

Not quite. Revenue is top-line, so let's exclude profit. Those front-loaded deals do mess things up, but that's a different discussion.

The CAP is set against Hockey Related Revenue. A 50-50 split between the owners and the players is set between that.... and the 50 from the players side is the "Cap Hit".

The league was around around ~$4.8BN in revenue in 17-18. Take that divide it in half to get the "players' share", split across 31 teams, and you get a $77M cap. There are other factors involved but that's the core math.

Actuals on salaries, bonuses, they are a gamified way of benefiting players against the "cap number", but that affects a team's operating costs/profits etc.

 

[SnowblindNYR]

Is Cozens worth trading Kreider for?

 

[Tawnos]

Not quite. Revenue is top-line, so let's exclude profit. Those front-loaded deals do mess things up, but that's a different discussion.

The CAP is set against Hockey Related Revenue. A 50-50 split between the owners and the players is set between that.... and the 50 from the players side is the "Cap Hit".

The league was around around ~$4.8BN in revenue in 17-18. Take that divide it in half to get the "players' share", split across 31 teams, and you get a $77M cap. There are other factors involved but that's the core math.

Actuals on salaries, bonuses, they are a gamified way of benefiting players against the "cap number", but that affects a team's operating costs/profits etc.

This isn't the math at all, because you skipped a step. Ignoring the escalator, a $4.8b revenue would give you a $89m cap. $4.8b (HRR) / 2 (50/50 split) / 31 (teams) = midpoint. Then the cap is 15% over the midpoint.

 

[Avery16]

 

[Avery16]

 

[Mikos87]

When teams overspend on player salaries, it's the players who end up having to make the 50/50 split right. Of course, if the league grows by more than expected, sometimes it's the players that get the money back... it's happened, but not in a while (and I don't think since the 2012-13 lockout). There's no way around it... but can it be mitigated? That's the question.

I think so, and I would love to work on this professionally. Absolutely would love to do that. This is what I do for a living with my clients.

I think hockey is behind compared to other leagues who have engagement funnels that drive millions in ancillary revenue. Hockey is the ultimate cult sport where fandom is rabid... and the NHL hasn't fully monetized on that.

 

[broadwayblue]

Guess we have to keep him. Lol

 

[Siddi]

Anyone see this?

Not sure, can you make it bigger?