This website followed the 2004 - 2005 negotiations between the NHL and the NHLPA that ultimately failed leading to the announcement that the 2004-2005 season would be canceled.
Anyone who is a hockey fan remembers the NHL lock out. It was not only the first time the Stanley Cup was not awarded since 1919, but also the first time a major professional sports league in North America canceled a complete season because of a labor dispute. I was in Toronto attending a conference about the use of healthcare data analytics and how it can revolutionize the entire healthcare industry when the announcement was made. What a bummer for us hockey fans. I headed up a team for a progressive software development firm that specialized in healthcare data for the medical health marketplace. At the time I was also transitioning to become a specialized Salesforce consultant for my company. Ten years later Salesforce has also recognized the medical health marketplace and now has a specific Salesforce Medical Cloud platform. Before the 2004 - 2005 negotiations my company's principals had observed 3 current trends for improving medical outcomes with the use of healthcare data analytics. The conference was a means for my company to network, perhaps find new clients, as well as contribute to the ongoing discussions regarding the coding involved to create the means to gather data and analyze it. The conference was informative and I made some significant contacts. But when we were not engaged in the conference, we were all talking about the announcement surrounding the NHL season disaster. Recently when I learned that the nhlcbanews.com domain was available, I decided to buy it with the idea of creating an edited historical record from its archived pages. You can view this site strictly for its historical content or use the information presented in a useful manner.
NHLCBANews.com presents a series of articles designed to clarify and correct the misinformation coming from the NHLPA's leadership with regard to the collective bargaining process.
The NHL met with the NHLPA twice this past week. Wednesday, the NHL made a compromise offer in an effort to save the season. Thursday, the sides met again, but failed to make any headway.
In a final effort to commence the hockey season, the NHL made a compromise proposal Feb. 9, 2005.
"We believe this proposal should form the basis for a fair agreement among the Players and the Clubs," said NHL Commissioner Gary Bettman.
Under the terms of this proposal, the NHL is prepared to accept the NHLPA's December 9, 2004 Payroll Tax proposal, with certain exceptions, provided that the terms of the CBA will automatically and immediately convert to those contemplated in the League's February 2, 2005 proposal, in the event certain economic and competitive conditions referred to below occur during the term of the proposed CBA.
Any one of four economic and competitive conditions would "trigger" conversion to the terms outlined in the NHL's February 2, 2005 proposal:
Upon conversion, the terms of the NHL's February 2, 2005 proposal would become effective, and would be the governing terms of the CBA -- replacing the terms of the NHLPA's December 9, 2004 proposal -- and any "excess" payments made by the Clubs to the Players would be recouped.
NHL Commissioner Gary Bettman announced today that, because a new CBA has not been realized, it no longer is practical to conduct an abbreviated 2004-05 season.
As we approach the expiration of the collective bargaining agreement between the NHL and the NHLPA, you may have questions about how the collective bargaining process works. The following is a guide to some basic elements of collective bargaining.
Collective bargaining negotiations are required once employees select a union to be their bargaining representative. Decades ago, the NHL players selected the NHLPA to be their bargaining representative. The NHLPA is a labor union, just like the United Auto Workers or the Steelworkers Union. Under the law, an employer is required to negotiate with a union that represents its employees to determine what the "terms and conditions of employment" will be, and then to sign a contract that includes those agreed-upon items. "Terms and conditions of employment" include wages and benefits and other economic items, as well as many non-economic issues (such as drug testing and the hours of work). During the life of the contract an employer is not allowed to make changes to these terms without the union's agreement.
Under the contract between the NHL and the NHLPA, either party can request, in writing, formal negotiations on the terms of a new collective bargaining agreement to begin 120 days before the contract expires (i.e., May 18, 2004). The parties may choose to begin negotiating before that, but they don't have to do so. At the start of negotiations, either side may give the other party a set of proposals. It is expected that there will be give-and-take, and that each side will compromise to try to reach an agreement. However, neither party is required to agree to any particular proposal.
The NHL is the "multi-employer bargaining agent" for the Clubs, which means that it has the authority on behalf of the Clubs (who are the players' employers) to negotiate with the NHLPA. Once the NHL and the NHLPA reach a complete agreement and the agreement has been duly ratified by their respective constituencies, all Clubs and players will be bound by that agreement. That agreement may be evidenced through a "Term Sheet" or "Memorandum of Agreement" or a fully drafted collective bargaining agreement.
No. An employer is prohibited from negotiating or otherwise dealing directly with employees represented by a union about matters that are subjects for collective bargaining. All negotiations must occur between the NHL and the NHLPA. Clubs, however, are free to engage in informational communications directly with players about the League's positions with the Union.
A labor contract, unlike other contracts with which you may be familiar, does not automatically disappear at its expiration date. Under federal labor law, the "status quo" must be maintained - the provisions of the agreement remain in effect - unless and until certain events occur, as described below. That means that the employer cannot change what its employees are paid, or how much they work, etc., just because the contract has expired. One important exception, however, is that a contract provision which prohibits strikes and lockouts during the term of the contract does not survive the expiration of the contract. After a collective bargaining agreement expires, employees are allowed to strike and an employer is allowed to impose a lockout.
There are times when, even after extensive negotiations, an employer and a union are unable to reach an agreement because there are significant issues separating them. This is called an "impasse." It is complicated to define, but has sometimes been called the point at which no more productive negotiations are possible, even though both parties are still approaching negotiations with a good-faith intent to reach an agreement. An impasse is usually not a permanent situation (and can be reached or broken any number of times). Pressure from a strike or a lockout, or just the passage of time, can break an impasse and make further progress in negotiations possible.
At the point an impasse is reached, there is an exception to the rule stated above that an employer cannot change employment terms without the union's agreement. If an impasse has been reached, and the contract has expired, an employer is allowed to "unilaterally implement," that is, impose on the employees without the Union's agreement, its proposals which were bargained to in good faith.
A strike is when employees collectively decide not to work, to put pressure on their employer to grant their economic demands or other bargaining proposals. A strike is a union's primary economic weapon. A threat of a strike may be used to try to pressure an employer to agree to certain proposals by the union. Like most collective bargaining agreements, the contract between the NHL and the NHLPA prohibits strikes and lockouts during its term. Therefore, the players are not allowed to strike until after the contract expires.
A lockout is the mirror-image of a strike. It is when an employer decides not to allow its employees to work (or to get paid). A lockout may be imposed to put pressure on the union to accept the employer's bargaining proposals or because in the absence of a new contract the employer does not want to allow the union to pick the time it wishes to start a strike or because the employer determines it would be less costly not to operate then to operate. As with a strike, a lockout cannot be imposed until after the contract expires.
No. Strikes and lockouts are part of the bargaining process. They are economic weapons that have been recognized and accepted under federal labor law for over 50 years. Strikes and lockouts are designed to encourage the other party to change its position at the bargaining table.
With certain very limited exceptions, players are not entitled to be paid under their SPCs during a strike or lockout.
The warning is contained in an independent study of NHL finances, conducted by Mr. Levitt and released publicly today. The report was submitted to the NHL's Board of Governors, February 7.
Levitt's report, following an intensive 10-month study, was compiled with the assistance of former SEC Chief Accountant, Lynn Turner as well as Eisner LLP an accounting firm nonconflicted by any other professional hockey clients.
Arthur Levitt Press Conference
Feb. 12, 2004
ARTHUR LEVITT: Some of you I have seen before in other contexts. Some of you are brand new. I am Arthur Levitt. I don't know how much you know about my background. I did run the SEC for eight years. I was chairman of the New York City Economic Development Corporation. I started a small brokerage firm that became a very large one. It was called Cogan, Berlin, Weil & Levitt. I started a number of businesses. I have run and started weekly newspapers, magazines; my own, Roll Call a congressional newspaper. I chaired the West Side Commission, which resulted in the agreement to build a development that's going on on the West Side Highway.
I give that as a background in terms of why I was personally challenged by this present undertaking. I am not a consultant as such. I am senior advisor to The Carlyle Group and a writer, television commentator, radio commentator and director of Bloomberg, so my Bloomberg colleague who is sitting here has to reveal that conflict of interest.
I was enormously challenged when Gary Bettman came to me nearly a year ago and said, this is a problem we have. We have got 30 clubs. They report each year on our numbers and we think those numbers are reliable. The League is in serious financial difficulty. Those numbers have been challenged by the Union that represents the players as being phony numbers. We'd like you to take a look at it.
I thought to myself, you know, I go to hockey games occasionally. I am really a football and boxing fan more than anything else, but the notion of doing this project was so intriguing to me that I thought seriously about it. I said there are some conditions that I really would have.
Number 1, I am not an accountant. I certainly cannot evaluate 30 clubs on my own. I have got to hire a team of forensic accountants to do this job. You know that I have had some tensions with the Big 5 firms, now the Big 4; undoubtedly they represent many of the hockey teams. So I want to go outside that group to find a firm. And, I said, secondly, I want to build a team and I want to bring on board the former chief accountant of the SEC, Lynn Turner.
Also, if I undertake this, because it is so unusual according to the life I lead, I want to know that whatever I find, if I find a club or I find a group of clubs that are coming up with numbers that just don't make sense to us, I am not just going to tell you that; I am going to tell the world that. This report is going to be issued no matter what it says. He said, Fine. That's the way we'll go.
I went to another former chief accountant of the SEC and I said, "I am looking for the best auditor that you know of in this country." He said, "Well, there's a guy named Bruce Rosen at the firm called Eisner, LLP. They are not a Big 4 firm." And that's how I got to Eisner, LLP. So that was the team that set to work on this project. I completed the project within the last few days. Turned the report over to the chairman and the following were among our findings.
First that the League's Uniform Report of Operations, which collects financial information from the clubs and their affiliates, does present a comprehensive and accurate statement in all material respect of the revenues and expenses of the League, of the teams operating within that franchise.
Second, I am satisfied that, conservatively speaking, the League had a combined operating loss of $273 million for the 2002-2003 season. I say "conservative" because as a business person if I had looked at any of these teams, and I looked at their numbers, I would say, okay. That's well and fine. How about interest and depreciation? That's not included and that would have increased the magnitude of that loss to some $374 million.
Third, of the 30 teams in the League; 19 of them had (average) operating losses in the year under intensive study of $18 million, and 11 of them operated with an operating profit averaging $6.4 million.
Fourth, that the relationship that I saw between League-wide player costs and League-wide revenues, about 75%. As an investment banker, former investment banker, as an investor, I'd have to say that that is totally inconsistent with any reasonable sound business practices. And I would also say on the basis of discussions with both the NBA and the NFL, it is substantially higher than those organizations.
The assignment that I undertook resulting in these findings was a very demanding one requiring over 2,000 hours. It entailed a comprehensive review of the financial books and records of each team. It called for all of the teams to be audited except four teams which could not be audited, partially because two of them were bankrupt and two of them, the auditors could not issue ongoing statements about the viability of the teams.
Let me stress once more that I was given absolute total carte blanche to go wherever I wanted, to ask whatever questions I wished to ask and I asked lots and lots of dumb questions. My wife tells me I do anyway, so it is kind of natural in my personality, but I didn't know what in the name of good heaven a zamboni machine was, nor did I know what a vomitory was and maybe some of you don't either, but I visited clubs. I spoke to owners. I spoke to financial officers and both Lynn Turner and the Eisner personnel went throughout the country.
In Phase I, they had to learn what the URO was; what did it say; what was in it; what were the points of contention. And they visited teams in that connection. Remember, Phase I is 2001-2002 on the basis of that preliminary study they went back to the League and said, "Look, we need additional information. We want the UROs to say some different things, to ask some different questions. We need additional verifications. We need audits here, we need re-audits there. We, ourselves, have to go in and get certain things." And that was done and then, when 2002-2003 came around, it became even more intensive.
Based on the results of Phases I and II, the League, at our request, modified the 2002-2003 URO instructions and requested additional supporting schedules from the teams.
In the third and final phase of the project, we requested that each team obtain an audit of its financial statements and a supplementary audit report of the URO summary statement of operations and schedule of related party transactions.
What that meant in the simplest form is the argument about the reliability of the finances of these clubs very often involved, well, why didn't you account for certain revenues that were attended to the arenas, and that was something that we looked at very carefully and audited those numbers and I think that I can say with total conviction that we accounted for every penny of revenue that came out of those affiliated functions.
Now, those of you that have worked with accountants and accounting firms as much as I have would know that audits are not necessarily formulaic. There are subjective judgments, and how you deal with those judgments is terribly, terribly important.
We were very careful that the right questions were asked and re-asked and re-asked. The area which this came into play was well, okay, you have got a stadium, they have got permanent signage up there, the stadium -- the arena has hockey, it has basketball, it has rock concerts. Why are you simply taking this method of accounting for it?
Well, the clubs did account for it in most instances, but we considered various ways of accounting for it. We considered the dollars involved. We considered the number of performances. We considered the attendance figures and decided that in our judgment -- and you can argue this -- that I am satisfied it's valid, that the most reliable benchmarking mechanism was based on attendance. And that's what we used. And because of the different economic circumstance that each team faces, a very individual nature of the relationships between teams and related parties, every owner has his own methodology for doing business and because of that, we used this benchmarking study using the ratio of paid attendance to test, on an overall basis, the reasonableness of the allocations of the revenues and expenses between hockey and non-hockey activities.
And this test was applied to relevant shared revenues and expenses for the 22 teams that do have affiliate relationships.
Now, we also obtained and read the NBA's CBA with respect to its calculation of basketball-related revenue income. We applied their standards to the applicable National Hockey League revenue streams in order to estimate what NHL revenues would be under their standards.
We found that the revenues reported in the URO were not materially different from the results of our calculations applying BRI to the National Hockey League revenue.
Another area of discussion was the question of how you account -- accurately for communications revenues in those cases where an owner owns both the television network as well as the hockey club. What we did there was again to develop a benchmarking mechanism based upon the particular market that we were talking about; what reasonable charges, what reasonable revenues would be, and compared them to what the clubs were reporting to us.
We made some adjustments in our calculations as a result of the benchmarking. They amounted to approximately $30 million and the results of that adjustment was to diminish the amount of the loss, which would otherwise have been over $300 million. So that I think our efforts could fairly be characterized as being conservative.
To sum up, based on everything we did, the combined URO represents, I am persuaded, a comprehensive and accurate statement of the revenues and expenses with those 30 clubs.
The League, as a whole, incurred a $273 million operating loss, for the fiscal year ending in June of 2003 before including interest and depreciation.
Nineteen of the clubs had operating losses of $18 million on average. Eleven operating profits, $6.4 million. The average losses reported on the combined League-wide URO for all 30 teams was more than $9 million.
I personally am persuaded that the URO reasonably measures and fairly includes related party revenues and expenses very similar to the amounts included by the NBA in accordance with their agreement, which I think should be comparable.
The current relationship between League-wide player cost and revenues of 75% is absolutely inconsistent with any sound business.
Obviously, as I looked at this, I had to ask myself whether looking at these businesses whether I, as an investor, would find this attractive. And I have to say I would neither underwrite as a banker any of these ventures nor would I invest a dollar of my own personal money in a business which, to me, appears to be heading south.
Look, nothing is without interpretation and question. I am sure that those who have adversarial interest will question motives and so forth, but I feel so strongly about this I would be prepared to meet with anyone; to meet with the unions or the players to explain the process.
I think the debate between Union and management is a very serious and a profound and perhaps an emotional one that I am not qualified to address. I am qualified to look at numbers and determine their reliability and on that basis I have signed this report and on that basis I am prepared to defend the findings of this report and I owe a vast debt of gratitude to Lynn Turner and our colleagues from the Eisner firm that really did the bulk of the work and are here to answer other questions. So I hadn't meant to be long-winded but ask me what you will.
ARTHUR LEVITT: I received a fee of $250,000 that I asked to be paid in advance to remove the perception that my findings might be impacted by the fee that I was paid. On the basis -- how did I come by that fee? I wanted to do this. I probably would have done it for nothing. It was such an interesting and intellectually stimulating project. I tried to base it on fees that I had experienced in other aspects of my life. The Eisner firm was paid an hourly fee and I think that those numbers would be a number of hundreds of thousands of dollars; probably in excess of $500,000.
Q. Any data from them (inaudible)(operator interrupted)?
ARTHUR LEVITT: I am going to try to stay out of this debate and keep this on the basis of: are the numbers presented to me accurate? It would serve no useful purpose for me to throw myself in the middle of a labor/management dispute. So, I decided not to approach them. I am delighted now -- I would welcome the opportunity of meeting them and answering any questions they may have.
Q. Two questions: You get on the 75% as a figure that's too high for revenues as player salaries. Is there an acceptable percentage that you could estimate of revenues that would be good for the players and restore the League to profitability? The other question I have, two of the teams of the NHL were unable to be audited because of the growing concern issue of -- that is about as negative as an auditor's opinion could possibly get. Are you at liberty to name those two teams?
ARTHUR LEVITT: Even before I came to this process I have been approached a number of times whether I would be interested in investing in a sports endeavor; not hockey. I knew that the kinds of people around these clubs were highly competitive people and I committed to them that if they were going to give me everything I asked for I would not reveal it to their competitors, so that I am not at liberty to mention a particular club did this, that, or the other.
As to the first part, would you repeat the first part.
Q. Besides that, labor costs are approximately --
ARTHUR LEVITT: Okay. As to that issue, I have seen very few companies -- I have seen some, but very, very few companies, that have labor costs that exceed or come close to 75%.
I know that the NBA and the NFL labor costs are a good deal lower than that. I don't know enough about other aspects of the economics of the leagues to be able to say to you, if it was 68%, it would be great; if it was 72% -- I just don't know and I wouldn't opine on that.
Q. Major League Baseball, I believe it was about two-thirds was the basic benchmark for a team and no one filed bankruptcy, everybody seems to be still be (inaudible) --
ARTHUR LEVITT: Well, we have seen bankruptcy here. We have seen 19 clubs losing money and you can say, "Well, you know, they lose money, but they constantly sell the team eventually for more money." Well, Buffalo was sold, and as I understand it, they didn't get more money than was put in it. They got a lot less. As each year goes by, and as I see this picture, these losses are going to get higher; not lower. And the greater fool's theory works up to a point and that point comes as we have seen with stocks selling at 200 times nothing. They come to be worth just that in due course.
Q. The union's angst on this issue has been the entire year that they are not convinced that the UROs that they were given accurately portray the revenues to luxury box suites. And they say there are a number of clubs that simply reported no suite monies because they are factoring in long-term debt service. How did you make sure that the figures that you have on the UROs accurately portray that?
ARTHUR LEVITT: We were obviously aware of that criticism and even had we not been aware, it is too obvious a source of the total financial picture to deny, so we audited those arenas where that was the case and we sought every bit of revenue that came from that, we accounted for it on the benchmark. We saw the numbers. I am satisfied that all of that, every penny of that has been included in the total League numbers. There is not a single arena that we did not, -- which had the shared revenue -- that we did not examine in detail and account for in detail.
Q. Is it fair to say then that your report supersedes anything that the PA might have been given by the League since last summer?
ARTHUR LEVITT: I am not sufficiently familiar with what was given to the PA before. All I can do is stand by what we provided this week.
Q. Mr. Levitt, if I were quicker with my pencil and pad I might be able to decipher this myself so forgive me. But based on your percentages here can you tell me what the gross revenues of the League actually equal?
ARTHUR LEVITT: I want to verify that ... two billion.
Q. Can you tell me what comes under the universe of player costs? I assume that's more than just what they are paying in salary.
LYNN TURNER: Included in the Major League player costs that are in the URO, player payroll obviously includes the salary and bonuses, benefits and other payments including pension benefits, CBA monies, those are the type of costs that are all included in the player costs.
Q. Can you give us a hard figure on payroll?
LYNN TURNER: No, I don't have the exact payroll number, of just the payroll right here. If you put all the player costs out it would, as Arthur mentioned, come back up to about three-quarters of that $2 billion number, the 75%.
Q. Mr. Levitt, with any report of this kind of magnitude there's going to be a margin of error, plus or minus a certain percentage. You are going to have people who are going to say that if you can hand these same numbers, and these same auditor reports to another set of accountants, they are going to come up with completely different findings. Have you considered what the margin of error in this situation would be?
ARTHUR LEVITT: I think if you gave me the audit of almost any company, any public company in America, I could probably question one item or another in some way. And I wouldn't say that any set of numbers is absolutely totally flawless. But I would say the margin of error in this -- margin of interpretation, if anything, is very, very narrow and if I had to put my own worthless judgment on what that would be, it would be under 1%.
The nature of this study was so comprehensive, so broad-reaching, so detailed and followed so closely on audits done over a period of years and additional audits required, that I know of no way of challenging these numbers -- and remember we are not talking about, if I say a margin of less than 1%, I am talking about 30 different clubs and if you took this in its totality, it would be down to a fraction of 1%. Certainly nothing material can be questioned in this; in my judgment. Nothing material.
Now, have I heard extraneous challenges? Sure, I have heard challenges about why aren't owners, other businesses accounted in the revenues with a club and I can answer that too. But, no, I think this is close to being unchallengeable as anything I have ever been associated with.
Q. Mr. Levitt, does this surprise you at all that the numbers that seem to have turned out are exactly the numbers the League has been saying all along going into this; would you have expected this to be the case?
ARTHUR LEVITT: I guess I might have been surprised at the fact that we found a lower loss than the League had reported; that the League was quite conservative in their findings; that even with the somewhat lower loss, the results were as close to catastrophic as I have seen of a business of this size go. These are not giant enterprises nor are they terribly complicated. Businesses of this size cannot sustain losses of this magnitude and be viable.
Q. My question was just about the four teams; correct me if I have forgot something here, but four teams that couldn't be audited because two are bankrupt, I assume that's Ottawa and Buffalo, and how did you get around that?
ARTHUR LEVITT: There are two of them that were bankrupt -- two of them couldn't get opinions because they were in such perilous financial shape.
Q. I wanted to ask you did you -- was there a substantial material difference between the teams that did control revenues, from their own arenas, were able to capture money from things like concerts and the circus, and all sorts of other events that are held there and teams that did not have that sort of arrangement in their building and what was that difference?
ARTHUR LEVITT: Are you asking me whether there was a material difference between, the clubs that had revenues from arenas that were owned by the owners as opposed to those that did not; is that the question?
Q. Yeah, I -- yes, that's the question. I guess the question is: Is that the difference between, you know, passing and failing in some cases or does it --
ARTHUR LEVITT: No.
Q. Given the --
ARTHUR LEVITT: There appeared to be no significant difference in the economic results of those with related revenues and those without.
Q. I wanted to know if during your long study did you find any mechanism, anywhere, that forces owners to absorb or to pay out 75% of this money to players?
ARTHUR LEVITT: No, anymore than I found mechanisms for investment bankers to pay their analysts obscenely high salaries. I mean, you are in a highly competitive market here, everybody wants to win just as you do in business, and the nature of this business has been such that these salaries had been paid.
Q. This business is not a complex business really so would you characterize this as a case of maybe a really poorly run business where teams are just spending many more dollars than they need to spend?
ARTHUR LEVITT: Again, nothing happens in a vacuum. A lot of what the teams do have a relationship to their Collective Bargaining Agreements that they are bound to. And different sports enterprises, different leagues have different kinds of Collective Bargaining arrangements which control the amount of salaries that they pay and amount of expenses that they endure.
So I think to dismiss this on the basis, well, it's a free market, if they are nuts enough to pay that much they ought to suffer the consequences. That may well be true. I am reporting to you what the consequences are going to be regardless of how they get there. They are on a treadmill to obscurity. That's the way this League is going. So something has got to change.
Now, you are asking me if they raise the ticket prices; if they close franchises, I am not prepared to analyze that. I can just look at what I see. I can tell you again from an investment point of view, it's a dumb investment, and they have got a serious problem.
For the sake of sports, I'd like to see the problem solved and if this study helps remove the constant bickering about the reliability of the numbers in the dialogue, then we have succeeded in a modest way of moving toward a solution, which I think is critically needed.
Q. The $273 million figure being bandied about, is that based on generally accepted accounted principles? I just need to know what exactly that represents?
LYNN TURNER:The URO is based upon trying to get all the collective revenues and all the collective expenses of the hockey operations regardless of where they are in the team or in the affiliated arena. So it is not a gap-based number.
For example, it doesn't include the debt costs that an owner will have to pay for in cash in terms of interest; doesn't include the cost of buildings and facilities, the depreciation, so this $273 million number in all likelihood, if it was on a pure-gap basis like a public company would have to report to its investors, would be significantly higher.
Q. Based on your broad background in accounting here, would you look at a business that generated $2 billion and tell me what you think in your mind is a reasonable expectation for cost versus revenues, what the percentage that you think should be applied, the big issue with the Union whether it has to be 70/30, 60/40, 50/50?
ARTHUR LEVITT: I'd have to look at it in a much broader perspective. I'd have to look at it and say, does this business which is losing this kind of money have any realizable opportunity under the present arrangement in terms of the arenas; in terms of the salaries; in terms of their flow of revenue, does it have any reasonable opportunity of restoration to profitability of most of the clubs that make up this league. My answer to that would be most assuredly no. Because of that, I think it would be a very unwise investment.
I would not presume to go to the next step without also considering other aspects of operating a franchise, but obviously, I believe, that based on what I have seen with other leagues that this 75% absolutely limits the possibility of realizing a profit, at any time in the future, and that these losses will be escalating losses.
Q. It appears as though one fifth of the teams account for two-thirds of the losses. Six of the teams, about $188 million.
ARTHUR LEVITT: Is that correct?
VOICE: $188 million in losses of the $273?
Q. If those six teams were eliminated from the League, would your opinion about the of the NHL as a League without those six teams be the same, would it still be on a "treadmill to obscurity?"
ARTHUR LEVITT: Probably, yes. I don't know enough about whether if you moved a losing team to another location, or eliminated it, what would that do to the national perception that is so important to building a following for a sport that is as popular as hockey. I'd have to consider if you took away the audience represented by those teams, what would that mean to the other teams. I'd rather think that that would not be -- I know that that would not be the way I would approach it as a business person. I'd look at that -- I'd look at a lot of things, but that would not be high on my list.
Q. The Eisner Group, can we state unequivocally that the accounting firm had no relationship with the NHL or any of the 30 teams or its member businesses?
ARTHUR LEVITT: That's correct.
Q. Was there a point at any time when more or one or a great deal more of the clubs were profitable and were losses from the past rolled over into the figures you dealt with both in 2000-2001, 2002-2003?
ARTHUR LEVITT: No.
Q. Was there any substantial difference that you noticed in the profitability of the Canadian teams versus the profitability of the American teams?
ARTHUR LEVITT: I think the Canadian teams obviously had the dilemma of currency issues, but the same problems that afflicted some of the teams afflicted all of the teams regardless of geography.
Q. About the figure that you gave up, I want to verify something, you said, correct me if I am wrong, that 11 teams had an average profit of 6.4 million. 19 teams had an average loss of 18 million and that put the total of the 30 teams, there was an average of 9 million; is that correct?
ARTHUR LEVITT: Yes, 9.1 million.
Q. If we go back to the 11 teams that got some profits, can you pinpoint in those teams what brought them the profit, is that that because they manage better the debt of the team? Is that because they have a lower salary payroll average; is that because they managed better the building? Can you pinpoint something to explain that they have revenues and that they have profits instead of having losses?
ARTHUR LEVITT: I don't know that we have studied them in those terms. I can't recall whether they happen to be in winning seasons or had some other factors. I really am not able to answer that question comfortably. I don't know the answer to it. If you want to call me in a half an hour I think I would have a better answer to that.
Before we finish I want to make another point because nobody has asked me this question about related revenues, which I think is so important and that being an owner who has another business that's profiting somehow or other from the results of the fact that he owns or she owns a hockey team.
I really think that's a non-accounting issue, it's not -- Gap would not consider it. We wouldn't consider it if -- the SEC ... as a valid source of revenue, and I think you would deal with that in the same way as if you said that the owner of the club should receive a higher price for his house because he owns that club or his daughter may be a more marriageable entity because her father owns a hockey team, that just is a specious argument that we certainly did not factor into the numbers.
Q. If it's related to the hockey organization then it's definitely true, but if the business is related to the hockey organization, for example, not just a TV network but a concessionaire then those factors would be important?
ARTHUR LEVITT: Well, if it's part of the concession -- hot dogs by the owner of the hot dog concession are sold in that arena, we calculated that as part of the revenues and that's appropriate. But if those hot dogs are sold outside of the arena, merely because the manufacturer owns the arena, is absolutely no reason to count any of that outside revenue as part of the earnings of the club.
Q. (Inaudible) -- ownership and executive management didn't put travel entertainment, lifestyle expenses, when they control the team, which is acceptable on the books of the team, which frequently happens -- (inaudible) --
ARTHUR LEVITT: We looked very closely at that. We saw some cases where employees were related to the owners and we looked at the relevance of that. We looked to see whether that compared to what a non-affiliated general manager or assistant general manager might be paid. And we found that there were real no aberrations.
Could I have said that some should have been less and could have been less? Sure. Should a given son-in-law have been paid $300,000 instead of $450,000? Maybe. But it simply was not relevant in the totality of this picture. We found very little instance of corporate aircraft being used for personal purposes and not being charged; relatives that didn't show. Believe me, I have seen in politics, in Washington, in business, the use of country clubs and aircraft and lunches that far, far exceed any of the excesses I saw in the studies of these numbers.
MODERATOR: Thank you very much, Mr. Levitt.
ARTHUR LEVITT: Thank all of you.