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!
Tags: Hockey, NHL, Ted Leonsis, Ted's Take, Washington Capitals
owning a sports franchise is like owning a house. they typically dont generate income, incur expenses, and you don’t get your money out until the end. there are intangible benifits for each. for sports, i gotta believe the motivation is first and foremost ego. you get to sit in an owners box and entertain friends and clients. maybe be hailed as a hero if you team wins a championship and generates interest in your area. the other motivation is to leverage other business, like cable tv, etc. no one would buy a sports franchise for purely business reasons.
Is this why only 1 out of 10 caps games are on TV in Maryland? Everything’s on CSN *ONLY* in DC. Most of us fans are out in the burbs!
What gives???
->B
That being said.. one of my dreams is to buy seasons tickets to one of those skybox/rooms one day.
How much do those go for, out of curiosity?
Oh yea just one more idea.
How about slapping some STP and Wonder Bread on Ovechkin’s visor? Tell him to take one for the team
The kid can play with his eyes closed anyways. Not like he needs to see.
->B
Fascinating and candid explanation - thanks for this and what you are doing.
Ted - since the LTIR enables you to get under the salary Cap for replacement players, you are probably still on the hook for paying the injured players - which is a real cost to the team over tha salary cap. My question is - does the team buy insurance to cover the salaries if a player is injured and not playing? or does that cost come 100% from the teams bottom line?
Thanks for the very interesting and candid description of how finances work for the Caps, and for your openness on these issues! Go Caps!
@Brian L. Where do you live in Maryland? I get all of the games on CSN or Versus without any issues here in Montgomery County.
@Tim A. I suspect the answer to IR is the same as what most folks get at their job in terms of disability insurance and Workman’s compensation. Just because the players are athletes doesn’t mean what they do isn’t a job. I suspect the Caps are covered for things like that. The premiums are higher, most likely, since, for example, I don’t have to battle with Zdeno Chara for space in my cubicle at the office…
I live in White Oak/Silver Spring. The sports channels are in the upper 30’s lower 40’s in the comcast channels. Even the captals web site says that only CSN DC (HD) is the only channel that plays the games most of the time.
I subscribe to gamecenter as well because I travel a lot for work. It’s pretty dissapointing because they only play the games that are broadcast on TV… and maybe 1 out of 7 or 8 caps games are broadcast so most of the time I’m away on business, I can’t even get the game there. It was a waste of money if you ask me.