Friday, September 15, 2006


Festivus Pt. 3 - Final

Let me start off here on a bit of a tangent about the Alberta economy. As you probably know, it's pretty strong -- you can't go a week without seeing a story or report about it:
Alberta’s surging economy over the last four years has been unprecedented in this country’s economic history. Fuelled by investment from soaring energy exports, this China-like growth has lifted average incomes in Alberta to nearly twice the national average. [...]
...Alberta boasts the strongest labour market in North America and the highest wages in Canada.

The singular of data is anecdote, right? I live in Lethbridge, about a 2-hour drive south of Calgary. While the economy here is probably more diversified, we are unquestionably poorer (everything's relative) than Calgary.

Nonetheless, the indicators here too are everywhere. Seemingly every third retail establishment has a sign on the door saying something like, "We may close early at times, without warning, due to staff shortages. Thanks for your understanding."

It's even a good time to be a high school dropout (again, everything's relative) thanks to wage competition for unskilled labour. Gas King, the local Big Dog in the retail gasoline market, changed on Wednesday from a city-wide split of 90% Full Serve/10% Self to maybe 20%/80%, no doubt because they cannot afford to pay a full team of pump jockeys and still charge the same price as self-serve stations.

It hit home personally for me this week too. We have a 3rd Junior Flames Fan on the way at the end of November, and since we have one vehicle that is probably too small for our expanded family and a second that resembles Archie's jalopy, Mrs. Matt and I decided it was time to enter The Minivan Era.

We figured this might be a challenge to finance, though. We wanted to lease it through my company, but the company is less than two years old and has no credit history to speak of. To co-sign, my own personal credit history is fine, but my official income is unimpressive. (Business lesson if you need it: if you collect a similar sum as a proprietor as you did as a wage slave, there is "income splitting" with your spouse/co-owner/business manager, and the business covers some expenses pre-tax that you used to have to pay after-tax. Result: your family can maintain the same standard of living, but your reported income is less than half of what it used to be; in my case, comparable to the aforementioned pump jockeys.)

So anyway, we found what we wanted and went to the car dealer with some dread, basically to find out what kind of hoops we would have to jump through (or if it was even possible) to finance a vehicle lease with (A) no corporate credit and (B) a co-signer with no apparent disposable income. And the verdict was... approved on the spot at 2%.

I don't know if this was because I have a good credit history, or because my company has the word Engineering in the title, or simply because I have a business in (or hell, work in) the province of Alberta. But clearly, there is enough money flying around this end of the country that they assessed me as a good risk one way or another.

All of this is by way of making an important point:
The Calgary Flames are a large-market hockey team.

Period. No qualifiers. There's a ton of money here. People are jumping over each other to get Flames tickets. Resales at places like StubHub -- and the LRT platform -- are marked up 100, 200, 300%. Merchandising is huge; in the words of the Flames prez, talking to season ticket holders,
"We like the new jersey, we think you do too because almost every one of you bought one," said King.

Indeed. The Flames are much more Toronto Maple Leafs than they are Winnipeg Jets. But why am I even bringing this whole thing up? Because first of all, I find it annoying when the media lumps Calgary in with places like Florida and Buffalo; I find it infuriating when a Flames employee implies the same:
Seat holders also raised questions about the NHL salary cap being as high as $44 million in 2006-07. Specifically, there are concerns that a higher cap would drive ticket prices and whether the Flames, considered a small market team, would be able to survive with a rising cap.

What garbage. To Ken King's credit, he speaks somewhat proudly of being in the Top 10 payrolls, but at the same time he's quite happy to let others run with the idea that this is a Scrappy Small Market Makes Good type of thing.

The other reason I bring this up is because the Flames have begun the process of building a new arena (or massively renovating the 'Dome). Hey, good for them. They are paying for a seven-figure study of their options. Doubly good for them.

Soon enough, though, because Calgary Loves The Flames, Calgary taxpayers will be asked to kick in for this project. Despite the facts that
  1. Hundreds of thousands of Southern Albertans voluntarily give money to the Flames, in exchange for tickets, gear, PPV, etc.
  2. The Flames want the new building to increase revenue -- that is, even more people are eager to part with even more of their money towards the Flames
...the organization, along with portions of the media and the city council, will explain to us that it is somehow fair to force the minority segment of Calgarians who don't care about pro hockey to contribute to the Flames' new building via their taxes.

And I say, No. My bona fides as a Flames fan are solid, so I'm comfortable calling the bluff in advance: if the Flames owners want to move the team somewhere else where the public teat is juicier, go ahead. Calgary would immediately become the #1 candidate (by a mile) for expansion or relocation, and I'll be first in line to support -- voluntarily -- that effort.

Miscellaneous other grievances:

That's it. I'm done airing my grievances, and Hockey Festivus is over. Full training camp for the Flames started this morning, and I am psyched. Prepare for relentless optimism.



Yes, I have no doubt that the people of Edmonton, fans and non-fans alike, will be successfully extorted-from in the upcoming years. (Despite the principled objections of the local media, shurely...)

I think market size means media market size...A lot of large market american sports teams (and toronto) make the majority of their money with TV contracts, and how lucrative those are depends on the number of sets of eyes. That's why the Baltimore (where I am) Orioles are laughing all the way to the bank with lousy attendance -- because of the newly created mid atlantic sports network. Edmonton and Calgary will never be large media markets, but given the amount of cash floating around in their fan base, they will make money based on consistently maxed out attendance and decent merchandising. Although Edmonton has historically been near the bottom in that latter category...

I doubt Edmonton is "near the bottom" in merchandising anymore. But if you want to stand at my front door and try throwing an egg without hitting a $220 Oilers jersey, go for it.

Yes! I've been saying for years that the Flames are big market, and, more significantly, extremely profitable.

But you can already see Ken King carefully moving his chess pieces into position to shake down 2 or three levels of government to buy this hugely successful private enterprise a new and even more profitable play pen. And at some point the team will play the 'if we can't get a new arena, we'll have to move' gambit.

I'm with Matt, if the team seriously has a better place to go, then go. The fact is, this team does not have a better place to go because there are already teams in New York and Toronto. Houston,Seattle and Kansas City, which always come up in this conversation, are not serious alternatives (or the Penguins would be playing there now).

Mudcrutch correctly notes there is revenue sharing on merchandise, but I expect that's just the licensing fees (which are fairly nominal on an item by item basis). The Flames own the Fanattic and every red jersey that goes out of there is about $100 profit for the home side. I am sure the Oilers also had pretty good numbers on Pronger and related merchandise this spring.

I don't know that for a fact, it just seems that all the NHL would get to distribute would be the license fees it collects from manufacturers and that the retailers themselves keep the margins they generate. So, the Fan Attic (I don't know, but I'm guessing the Oilers have their own team owned and operated retail outlet that is similar) keeps whatever profit it makes on whatever merchandise it sells (the license fee being included in their wholesale cost). I have no idea what the margin is on a $200 jersey, I pulled $100 straight out of my butt. It probably is not that high, but it is some significant figure.

I think Peter had it about right the first time, provided you substitute the word "mark-up" for "profit".

It goes something like this, IIRC: Russell Athletic, or whoever, pays the NHL $20 per jersey they distribute in return for the right to do so (it might be $10, or $35, but that's the ballpark). That money gets split equally between all NHL teams, regardless of which jerseys are most popular.

It costs Russell (say) $50 in raw materials, labour, factory costs, shipping etc.; then they distribute them for roughly $100 per jersey.

Then Sport Mart in Lethbridge marks that up to $159; the FanAttic marks it up to $219, etc.. The profits from the FanAttic (owned by the Flames) count as hockey-related revenue under the CBA, but they still belong to the Flames.

This is roughly the same in all the major leagues. (So note, by the way, that if you are buying merchandise in part to "support the team", that's about 100x more effective if you do it at the team's own store, since then they get the retail markup (~$100) instead of just their share of the licensing (maybe a buck).)

What Matt said. That's what I meant to say.

The Flames (and Oilers, too I am sure) have tons of profit centers. Merchandising from their own retail outlets is but one of many.

I shudder to think what a pint will cost at the new Flames restaurant/bar in the old Palace theater.

Well, we got some clues from the NHLPA revenue sharing proposal during the lockout which suggested that the Flames and Oilers were not small market clubs in terms of revenue.

Judging by what I saw in the housing market and the economy in general when I went home to Edmonton in August, I would say they're in better shape than ever.

Oiler intarweb fans have been arguing the merits of a publicly financed new building for at least a couple of years now. I'd say the more enlightened ones are a little concerned as to how that will shake out. The EIG has likely been making some pretty serious coin the past two seasons and it looks to be going up for them in the near future. Of course they still cry poor because all this success hurts their chances of successfully blackmailing the community. I think and hope the bluff will be called.

I hope someone calls the bluff on the Edmonton building when the time comes. But it's hard to figure out who's going to wield the hatchet. Not the sports-page gangs, to be sure, and although the editorial boards of the papers relish their independence from the publisher, some of them work for a company (the Journal) that owns a share in the team (1.66%). That's a tough position to be in.

As for broadcast revenues, the key is either having your own network (a la the Yankees or Braves in MLB), or having a lucrative local broadcast contract (teams can keep all of this revenue). But I think revenue from the national broadcast contracts is split between the clubs.

How much this matters now that we have the cap, I'm not sure. Edmonton and Calgary have more than enough revenue to spend to the cap, and so barring significant revenue growth from non-shared sources they should continue to be able to compete financially even as the cap rises. (Assuming you believe that spending to the cap is necessary to win.)

If you seriously think that it costs more than $15 to make a jersey, then you have been seriously mislead...

Your standard $30 ballcap costs about 60 cents to make (my sister used to work in the industry)...

Its mostly profits and licensing fees...


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