Tuesday, April 17, 2007

Mixed Bag For Bean Counters Near And Far

League-wide, there's good news and there's bad news on the money side of things (at least with regards to turnstiles and TV's). Read about the numbers over at the FanHouse.

Closer to home, it was a mixed bag as well. Attendance was up ever-so-slightly (11 more fans per game, up to 13,916 or 76% of the VC's capacity, according to Sports Business Journal) and paid attendance and revenue were also up.

On the other hand, with more money spent on marketing and personnel (both on-ice and off), the Caps actually lost more money over the course of the 2006-07 season than they did during the previous campaign.

But here's the real bottom line for Caps fans - as Ted Leonsis has said time and again, "the losses are manageable and they are planned."

CapsNation has been told that "Change is Coming" this summer, and has taken that to mean new talent, new uniforms, new marketing strategies - in short, a re-birth of the franchise. One thing that is unlikely to change, however, is that the team will once again lose money. But if most of those losses stay on the ledger and off the ice, no one - from the Owner's box on down - will mind a bit.


Rage said...

I'll read this tomorrow at work and comment appropriately, but we've got a lot of show.

1) Playoff hockey needs a new slogan. I like: "Playoff hockey. Better than sex."
2) Nats defensive players wore VT hats last night. No particular rhyme or reason to the hats (all different styles). Nice move.
3) I love how playoff hockey re-emphasizes how important the "role players" are. Except there are no role players in hockey, only awesomeness.
4) Avery fighting Kovalchuk = lols and smiles all around.

Sorry for hijacking your post, JP.

Rage said...

Alright, JP, read the post.

I don't find the same comfort you do from Ted's words. Ted's a business man, and no business man is okay with running it at a loss for several years. He certainly won't increase the size of the loss unless he feels it's going to turn around.

He did say something to the effect of, "We bought the franchise at $X, and we hope to sell it (a long long time from now) at some price much larger than $X. Thus we will be okay with losses as long as the team progresses."

That logic is pretty faulty, but maybe he knows something I don't. Or maybe he's not telling us something.

I hope for the best, but I expect less.


1) Cap fans we're sure recall that part of Ted's losses are from paying jagr 4 mil/year so the Rangers can beat up the Thrashers.
2) Jagr has ANOTHER 2 years AFTER this one to collect the Rangers and Ted's dough.
3) As far as significant changes coming this summer, we'll believe it when we see it. New uni's definitly, significant talent upgrade (other than from within) unlikely.

JP said...

Well here's what he knows that you may not - the value of sports franchises has very little to do with tickets sold or even payroll. It's all about owning the building and regional TV contracts.

Right now the Caps are renters in the VC. It won't be that way for too long (unless Abe lives forever, which is possible). Once Lincoln Holdings can buy the building, the value of the Caps goes way up - much moreso than if they sell a few more season tickets or a handful more AO sweaters.

Point being, as a businessman, Ted knows that you've got to spend money to make money and these relatively small (easy for me to say) short-term losses are fine in the grand scheme of things because they're waiting on arena ownership.

Ted didn't buy the team to turn a profit, he bought it to win a Championship, and they'll move towards that goal with payroll dollars in mind, but not as the primary focus because it's somewhat irrelevant to the real bottom line on franchise value.

Maybe I'm drinking the Kool-Aid, but I honestly believe that Ted, GMGM et. al. believe they're building a contender the right way (after learning how not to do it), and when it's time to spend money - even if it increases the financial losses the team takes - they're going to do it. If you need a business justification to make it easier to see why, look to arena ownership.

Aldo said...

Actually, the Caps don't have to pay any of Jagr's salary in 2008/09 because that's an option year, Trollrumors.

Anonymous said...

faux, thanks for that inside information about the caps offseason free agent plans,now that i know they arent going to sign anyone good this off season i dont even have to read the paper! hold on one more question, im sure you must know, what size pant does ted wear i want to get him some slacks for his birthday. thanks youre a lifesaver!

Anonymous said...

Jp - a good point about the business. Fact is, as fans, we have no idea what the total numbers are. We don't know how the league allows accounting for tickets sold vs. giveaways. We don't know what the TV contracts are, or what the league revenue sharing is. I'd also be willing to bet that Ted looks at the Caps financial losses as part of a bigger financial picture with other products in the Lincoln Holdings universe.

Rage said...

JP, good point about ownership of the VC. That definitely makes the Caps a more compelling purchase.

Has there ever been info released concerning the proceeds of ticket sales to Caps games? I read a guy on HF talk about it, but I don't know how good his info was. My main question is, if Ted had owned the VC this year, would he have made a profit off of the difference in revenue from CAPS TICKETS alone?

JP said...

I'm not sure I totally follow your question, but I'm pretty sure the answer is no.

The team would be much, much more valuable on paper, but operating expenses and such would still have them in the red, unless they got a better deal on concessions (which they get nothing on right now), they'd still lose money.

Owning a team is like having a trust - you may fees/costs along the way and the real value is all on paper until it's time to cash out. You pay the fees/costs, b/c at the end of the day the pay out is worth it, be that a high sale price or winning the Cup.

JP said...

We don't know how the league allows accounting for tickets sold vs. giveaways.

I wanted to comment on this point as well. For what it's worth, the Caps gave away far fewer tickets this year than they had in the past. They're comfortable challenging the "get them there once and they'll be hooked" notion (crack dealers have yet to abandon this idea, from what I've been told) because giving away so many tickets devalues the product (and because they make nothing on concessions once the person's in the building anyway, so that incentive is gone).

Basically, if you give away too many tickets, it gets to the point where fans say, "Why am I going to buy a ticket when I can just get a freebie some time." Look at the Blackhawks - they couldn't even give tickets away. Literally.

That's a long way of saying that the Caps' paid attendance and tickets distributed aren't as different as some may think.

wilbur said...

Honestly,I don't think anyone can make an accurate statement about the Caps financial situation unless they are an accountant and have 100% access to the financial info. for Lincoln Holdings and WSE. The two entities are intertwined and the accounting is too subjective.

JP, you correctly note that asset value (the amount derived from selling the team and all of its accompanying interests) is different from value derived based on operating profit/loss. The Caps on paper look like a horrible investment, bleeding money annually in a sport that frankly doesn't have the best business model; however, the totality of Lincoln holdings, which owns part of WSE and is first in line to purchase all of WSE (i.e., the Wizards and VC) changes the equation in a way that neither you nor I can estimate because we don't have access to all of the books, and certainly in my case, the accounting acumen to figure it out even if I had all of the information. So I really take Ted's statements about the financial health of the team with a grain of salt because he has changed the basis on how he values the team on several occasions when it has suited his argument, e.g., he has repeatedly referred to the operating profit/loss numbers when defending the Caps lack of FA spending.