Ted Leonsis, owner of the Washington Capitals NHL hockey team, mentioned in a blog that he would be lucky if the team only lost 5 million dollars this year. He followed it up with this blog. It's really insightful.
http://www.tedstake.com/?p=3221
In Answer to Your Questions
Most sports teams (outside of the NFL) do not make money or generate cash flow. A few prized possessions a la the New York Yankees do make money and many teams owned by cable companies are managed to lose money but perhaps benefit on the media rights side of the business.
But for the most part, the model in sports ownership was always to lose money but get appreciation of the asset over the long term and then refinance the asset with loans from banking institutions. The owner makes money after the sale of the team after a long period of ownership. The refinancing pays back the cash put in to cover losses on an annual basis by the owners.
That basic equation is now under attack. There is little liquidity in the market. Banks only want to loan money to teams that are generating cash flow or are under leveraged and they are concerned that teams will struggle at the gate or with sponsorship sales and revenues.
Also, most teams have fixed expenses as player contracts are guaranteed while revenues are variable. To me, that is a huge issue in sports management.
The long term fix is for leagues to manage player payroll in a more flexible way. The NHL is getting closer to an ideal scenario where the player payroll is set by overall league revenues. If revenues go up, the players do better. If revenues go down, they share in the pain.
Also, owning a team in a big growth market a la DC is a good thing. We play in a wealthy community and we play in a great building. We are considered a trophy property and we are way under leveraged which is such a comforting thing in this day and age. We are also one of the few teams in sports showing great revenue and attendance growth.
To answer the basic question though on how do the Caps get to generate a profit?
We would need to spend less on player payroll. We are at the cap now and truly should be a mid point team which, as you know, is how the cap was set up. That is a huge swing in expenses.
We would need to sell more tickets at a higher price per ticket. We are actually mid to low point in the league right now in average ticket price.
We need to sell 2,000 more season tickets to guarantee that cash flow. Season tickets are our life blood.
We would need to sell more sponsorship which is tough in today’s economy.
The NHL would have to generate additional national TV dollars for us. And this is tough given that TV is driven by sponsorship sales and long term cable rates and subscription deals.
We would need to go deep into the playoffs. We don’t forecast playoff dollars into our model and playoff dollars only really flow to teams as you go deep into the third and fourth rounds as part of the CBA.
So owning a sports team is tougher right now than it has ever been. The economy is hitting every nook and cranny of every business. We are a bit more fortunate in DC as we are under leveraged. We are growing fast. We are situated in a Top 6 wealthy market; we have built a world class franchise; and we have the best fans in the world! Go Caps!
http://www.tedstake.com/?p=3221
In Answer to Your Questions
Most sports teams (outside of the NFL) do not make money or generate cash flow. A few prized possessions a la the New York Yankees do make money and many teams owned by cable companies are managed to lose money but perhaps benefit on the media rights side of the business.
But for the most part, the model in sports ownership was always to lose money but get appreciation of the asset over the long term and then refinance the asset with loans from banking institutions. The owner makes money after the sale of the team after a long period of ownership. The refinancing pays back the cash put in to cover losses on an annual basis by the owners.
That basic equation is now under attack. There is little liquidity in the market. Banks only want to loan money to teams that are generating cash flow or are under leveraged and they are concerned that teams will struggle at the gate or with sponsorship sales and revenues.
Also, most teams have fixed expenses as player contracts are guaranteed while revenues are variable. To me, that is a huge issue in sports management.
The long term fix is for leagues to manage player payroll in a more flexible way. The NHL is getting closer to an ideal scenario where the player payroll is set by overall league revenues. If revenues go up, the players do better. If revenues go down, they share in the pain.
Also, owning a team in a big growth market a la DC is a good thing. We play in a wealthy community and we play in a great building. We are considered a trophy property and we are way under leveraged which is such a comforting thing in this day and age. We are also one of the few teams in sports showing great revenue and attendance growth.
To answer the basic question though on how do the Caps get to generate a profit?
We would need to spend less on player payroll. We are at the cap now and truly should be a mid point team which, as you know, is how the cap was set up. That is a huge swing in expenses.
We would need to sell more tickets at a higher price per ticket. We are actually mid to low point in the league right now in average ticket price.
We need to sell 2,000 more season tickets to guarantee that cash flow. Season tickets are our life blood.
We would need to sell more sponsorship which is tough in today’s economy.
The NHL would have to generate additional national TV dollars for us. And this is tough given that TV is driven by sponsorship sales and long term cable rates and subscription deals.
We would need to go deep into the playoffs. We don’t forecast playoff dollars into our model and playoff dollars only really flow to teams as you go deep into the third and fourth rounds as part of the CBA.
So owning a sports team is tougher right now than it has ever been. The economy is hitting every nook and cranny of every business. We are a bit more fortunate in DC as we are under leveraged. We are growing fast. We are situated in a Top 6 wealthy market; we have built a world class franchise; and we have the best fans in the world! Go Caps!