Bleeding Ink

In what has become (unfortunately) a semi-regular occurrance, the Dispatch announced (first through a post on Puck Rakers, then a larger story in the main paper, and finally an editorial by Bob Hunter) that the team has taken heavy losses for another year. The team lost a reported $25 million dollars this season. In the past, they had previously stated that the costs of operating and maintaining Nationwide Arena (plus the arena lease), was causing a drain of ~$12 million dollars, annually, so the first thing to note is that while this is bad, about half of that hit was already expected, and the team had no doubt planned for it.

That still leaves a loss of something like $13 million dollars. It's a big number, and it's not a pretty number, but if you take a minute and step's actually not that bad.

Keep in mind that the Phoenix Coyotes reportedly lost $35 million last year, even with making the playoffs, and have essentially required the City of Glendale to shell out $25 million last year (and just passed a resolution last night to fund the team again for another year) while their ownership search continues. That's $10 million worse than the Jackets losses this year, and without the Coyotes paying to own and operate their arena as the Jackets do.

Keep in mind that the Jackets spent more on payroll this year than they have in the past - $ 4.5 of million of that remaining $13 million in losses came directly from that, - and according to Team President Mike Priest, they are prepared to do so again - and in fact, given his remark to the Dispatch that the only plans at the ownership / management level are to improve the on ice product, it's likely they're going to take a higher loss on salary.

Keep in mind that because of the reduced attendance, the Jackets lost $4 million or so in reduced revenue sharing, and the final third of those losses can be pretty cleanly accounted for in the reported loss of ~2,000 ticket sales per game that lead to the reduced attendance.

Keep in mind that it's actually pretty normal for most pro sports teams to run a deficit - a great example is the San Francisco Giants, who only turned a profit last year because they won the World Series.

And perhaps most surprisingly, keep in mind that most of the team's ownership can use this as a tax writeoff.

Let's start with a look at the Man in the Big Chair, John P. McConnell.

As the Chairman and CEO of Worthington Industries, he's had a pretty busy year. In the first quarter of the 2011 Fiscal Year, they acquired another company (Hy-Mark Cylinders), took higher debt on board than projected because of tax code changes, and had higher labor and manufacturing expenses than projected....and still turned a profit of $23 million in net earnings for his shareholders, then followed it up with a 14.5 million dollar second quarter, and the company just posted their third quarter earnings in late March - another $26.3 million profit. (In fact, in the first 6 months of the 2011 fiscal year, they've turned $1.2 BILLION dollars in sales.)

Though much of those earnings go back into Worthington Industries and other investments, the McConnell family is in no danger of going broke in the near future, and while I'm sure he doesn't like running it at a loss, it's probably "tolerable."

Then there's the Dispatch Printing Company, owned by the Wolfe family. Though the DPC is a privately traded company, so we can't see their earnings, keep in mind that they not only own the paper, but most of the local "community" papers around Ohio through the ThisWeek newspaper brand, 10TV, ONN, and the WBNS and WFAN radio stations. With wide revenue streams and a stranglehold over not only the print media, but much of the airwaves, they're in a very stable and likely profitable situation, particularly with their exclusive media deals with Ohio State Athletics.

Last but not least is the Pizzuti family, and their self-named development and real estate business. Though they are a privately held company as well, since the start of 2011 they've secured contracts to build the new Exploration Park at Kennedy Space Center, a new 1.6 million square foot facility for Whirlpool, and an 11 story office tower in Florida. Doesn't sound like they're having a bad year, either.

These are not the former owners of the Tampa Bay Lightning, Len Barrie and Oren Koules, who were caught in a major snarl when their real estate speculations (which had been used to provide capital for the purchase of the team) fell short and were trapped in bankruptcy. These are not Jerry Moyes, former owner of the Phoenix Coyotes, whose primary business (Swift Transportation Co.) was taking consistent losses well before he pushed the Coyotes into bankruptcy in an attempt to sell the team to Jim Balsille. The ownership group of the Blue Jackets consists of secure, mature, well managed businesses with deep ties into the local community. They are, for lack of a better word, stable.

Would they prefer to make a profit? Of course. They are, after all, businessmen, and would not doubt like to point to this, too, as another success. But they also recognize that winning will fix many ills, and likely realize the team is coming into a window of opportunity.

  • The Jackets have proven that winning will drive the gate, as seen in the 2008-2009 season, and the high level of season ticket renewals for 2009-10 as a result. (And, of course, the crash in lost ticket sales after the '09-'10 crater.) If the team can make up half of the lost per game attendance (driving the average up above the 14,000 "bar"), they will instantly re-qualify for full revenue sharing, improving the bottom line in funds from the NHL and improving their overall financial situation thanks to the added ticket revenues.
  • If the team makes the decision to add payroll, either by trade or free agency, thanks to the salary cap, those losses will be naturally limited. At worst, should the team make the decision to spend to the cap, they would "only" add another $6 million dollars per year.
  • With Ohio State athletics heading for a period instability on and off the field, the NFL lockout still unresolved, and the NBA also seeing labor disputes, there is the potential for a great deal of advertising revenue, television exposure, and yes, potential casual interest by being "the only game in town" during the NHL season, which the team can exploit.
  • In the last four years, despite the losses, the team has posted their four best finishes, points wise, in Franchise history, and show every sign of being able to improve once again next season, particularly if the right players can be acquired.

It's also worth noting that despite these losses, and an estimated $80 million in losses over the life of the Franchise, they've yet to ask the City of Columbus to underwrite one red cent, even though they could easily point to the losses from the arena, or point up how much they bring into the city's economic picture, preferring to take care of their own business themselves.

In situations like this, it's easy to feel helpless, depressed, even angry. It seems inevitable that things will get worse, because the bad news reinforces itself. Perceptions easily become reality, particularly when the national media begins to lump Columbus in with Phoenix, Atlanta, the Islanders, and other clubs who could be for sale, relocation, or worse. For the past five years, the NHL has been full of fanbases who have been asked to have faith and keep buying tickets, even as they wonder if they'll actually see the team play another season.

But on the other hand, Phoenix IS still being funded. Local groups have been speaking up lately discussing purchasing the Thrashers, to prevent them from leaving. And the Islanders, who have been the subject of relocation rumors ever since their attempts to build a new, modernized arena in place of the current Nassau Coliseum got caught in local red tape?

They're having a press conference today to announce plans for their new arena.

Keep the faith, Jackets' fans. They aren't going anywhere, and this is a long way from being over, but I firmly believe that faith will manage, and that we'll see the boys in Union Blue reward our faith in return.

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