Devils in Trouble

August 8, 2013

The New Jersey Devils of the National Hockey League (NHL) are reported to be in severe enough financial trouble that the league is considering taking over the team.  Current owner Jeff Vanderbeek, a former Lehman Brothers executive, was not able to meet payments on his newly restructured loan which was suppose to help ease payments.  Forbes reported earlier this year that the Devils have are more than $230 million in debt, which is around the amount that the Atlanta Thrashers were in debt before they were purchased and moved to Canada.  Curiously, Forbes is also reporting that the NHL does not want the Devils to declare bankruptcy as the Phoenix Coyotes did.  Rather, they are going to try and take control of the team and then help find a new ownership group to takeover the Devils.

The takeover seems to have some logic to it, as we have seen teams like the Los Angeles Dodgers get taken over by Major League Baseball to get rid of incompetent ownership and management.  The Dodgers were bought out at a major profit, and the team somewhat rejuvenated.  While I do not think there will be any “mega” offers for the Devils, the franchise has won Stanley Cups in recent memory, and was once one of the dominant clubs in the NHL.  With the league taking over the team, they may be losing out on the $25 million they are currently owed from Vanderbeek, as well as the $55 million in salaries that are due to players this season.

While it does not surprise me that another team has had such financial troubles in the NHL, to see one in one of the larger markets in the league may be a sign of several things.  It could be poor management from a financial perspective, an owner trying to bite off more than he can chew, or it could be that the metro area cannot support that many professional hockey teams.  In any case, this will probably be another point in the argument by the owners to get an even larger split of the revenue the next time they negotiate a collective bargaining agreement.


Is the $60 million fine too step for Penn State?

August 29, 2012

Amongst the many penalties passed along to Penn State for their lack of institutional control of a series of unfortunate and disturbing incidents at their university, the NCAA hit the athletic department with a $60 million fine.  This comes not just because of the sexual abuse of minors by former assistant coach Jerry Sandusky, but in the subsequent lack of action and failure to report these issues by many in athletics and the university.  Today 29 prior faculty senate chair signed a document noting that the penalty was unfair to the the athletic department and the university, and that it was putting Penn St. in a bad financial situation.  While it is true that this penalty, plus all the potential civil suits which are on their way are potentially going to hit the university for a lot of money.  In the document the faculty group notes:

“The shock of the crimes that occurred here clearly underlines the need for greater vigilance and stronger policies. However, the sweeping and unsupported generalizations by the Freeh Group … and the NCAA do not provide a satisfactory basis for productive change,”

I can understand their unhappiness that Penn State’s reputation and finances are taking a hit on the academic side of things for issues that they view as being in the realm of athletics.  The problem is that the lack of institutional control meant that not only was athletics not doing anything about these incidents, but that those in the administration who should have been overseeing some of these issues also failed in their jobs.  If you look at the organizational structure of almost any athletic department, you will find that coaches are below the athletic director, and that the athletic director is usually below the chancellor/president and/or the Board of Trustees.  In this case, while the faculty can be unhappy and blast the NCAA for potentially harming academics, it is not the case that the administrative side of the university was entire without fault.

This seems to be another great argument in the favor of removing athletics from a university.  If athletics can have such power that they can cause such damage to a school because of the action of a few individuals in power, are universities taking a financial risk by giving so much power to sport organizations?  I am a big fan of college athletics, but it would seem that there is need to reconsider the powers given to athletic departments, and whether these departments should be able to influence others in the university community so easily.  The faculty group that signed this letter should give thought to more of  the reasons as to why Penn St. got into such dire straits in the first place.

Man Utd to IPO… in the U.S.

July 4, 2012

Manchester United, one of the worlds biggest brands and highest valued sport franchises has decided that they will pursue an Initial Public Offering to raise $100 million  in the U.S.  This isn’t probably that strange of a thought, as the team is owned by Americans, the Glazer family to be specific, who also own the Tampa Bay Buccaneers.  However, I can see that many individuals will be quite unhappy in England, as there has already been a lot of backlash against Premier League teams being bought up by foreign investors.  Now with stock being sold on the U.S. stock exchange, I believe that there will be another wave of criticism.

Another question arises in, whether it would be worth the money to buy stock in Manchester United.  Certainly the franchise has a high value, but many football clubs in Europe have been running large debts, and it doesn’t seem like a sure thing that this stock will make quick money for anyone.  As a long-term investment it may make sense.  That said, I already know several people who live in the U.S. who are rather excited, as they love the prospect of being able to own a piece of their favorite club.

The Glazer’s were also hoping to sell of a good chunk of stocks on the Singapore markets as well, however the volatile nature of the Asian markets has caused the $1 billion Singapore IPO to be put on hold for another day.  CNN notes that this comes after Formula One also put a halt to their IPO in Asian markets because of too much uncertainty.

And the schools which made a profit this year in college athletics are…

December 2, 2011

Here: Table courtesy of USA Today:

Total revenue
Penn State
Oklahoma State
Kansas State
Texas A&M
Michigan State
West Virginia
Virginia Tech
Ohio State
$123,174, 176

That’s right 22 of 218 reporting schools did not lose money on athletics last year.  From the chart it is pretty clear that some schools were pretty big winners, with Oregon and Alabama really raking in the money for the 2009-2010 season.  What is very nice about the USA Today site, is that one can even go look at the breakdowns school-by-school for both revenues and expenses.  Curiously, many of the schools who are still making big profits are also taking extra money from their universities in the form of student fees.  Really, the students are helping to finance extra revenue for some of these programs.  This blog notes that some schools such as Ohio State and Florida do give back some of their revenues to help finance academics, libraries and other projects.

The question does exist about the other 196 schools on the list who did not make a profit and how they spent their money.  I know some schools like Missouri and Illinois are right on the borderline of the break even point.  Illinois notably made it to a bowl game for the first time in several years, and ended up going.  The cost of the trip surely exceeded a million dollars, and this amount would seem to make up the difference.  Additionally, the choice to give an extension to their football coach Ron Zook may have proved to be costly as they fired him last week.

In all, this shows that while money talks in college athletics, there isn’t necessarily a lot of athletic departments making money, and it would seem some poor decisions are keeping some schools from being profitable.  Of course many, such as the Knight Commission, would note that spending in college athletics is out of sync across the board, and really there is a real need for change and reform when you look at these numbers.

NBA Lockout Breakdown

November 3, 2011

Welcome to day 126 of the NBA lockout.

I feel a bit guilty about not having discussed the NBA lockout in greater depth, as I spent many posts discussing the NFL lockout.  The NFL lockout was settled in time for the season to begin on time, and while there seemed to be some bad blood between the players and the owners, the scope of the NFL lockout pales in comparison to the NBA lockout.

We are now several months into the lockout (the lockout is just over four months old) and the talks between players and owners hit a deadlock over splitting the revenue.  The owners want a 50-50 split of revenues, the players were willing to go as low as 52.5%, but have yet to say they will go any lower.  Not only has the talks between players and owners been heated, but some of the players have expressed anger at the union as well.  The big split seems to be between union head Billy Hunter and player rep Derek Fisher who seemed to have come to a disagreement over the revenue split.  It is reported that Kobe Bryant and Derek Fisher were pushing to accept the 50-50 split, and that Billy Hunter actually confronted Derek Fisher about this.  It came to the point where Derek Fisher had to bring in the lawyers and publicly make a statement that there is no split in the union.  Officially there is no issues in the union.

NBA veteran Jerry Stackhouse came out and disagreed with this on ESPN Wednesday, he stated:

“Not to say anything against Derek Fisher, it’s not that I don’t think he’s a great guy,” Stackhouse said, “But I don’t want him negotiating my contract. I want an agent who knows the lingo negotiating my contract. Derek Fisher, he doesn’t negotiate his own contract. He has an agent. So why would I want him negotiating something even bigger than his contract? This [Collective Bargaining Agreement] is something more important to everybody…

“David Stern, he’s made this league what it is,” Stackhouse said. “He’s one of the greatest commissioners in sports. He’s got that title, he’s got the NBA at the place where it is because he’s a shrewd businessman and knows how to work his way, play the media, play things up to get what he wants. We don’t do that. Players are emotional. Players get emotional. So no, I don’t necessarily, particularly want Derek Fisher or any of the executive committee negotiating a contract for me.”

So clearly there is a rift in the NBA lockout, which would seem to give some more power to the owners.  The NBA is also trying out a new tactic in the labor agreements: Twitter.  The NBA has a twitter handle now dedicated to posting the ownerships point of view in the labor lockout.  One player (Nazr Mohammed) pointed out that the players can’t talk to coaches or workout at facilities, but the NBA can send them harassing messages about the lockout through twitter (though it is Mohammed’s choice to receive these messages as well).

The lockout has carried on so long to this point, that the league was forced to cancel games all the way through the end of November.  Each day that ticks by is another day lost, as realistically, to get players through camp and have the season ready to go would take about a month (30 days).  So while November is already cancelled, you can pretty much start ticking off the days in December.  The Christmas day NBA games are usually pretty popular, so I wonder if the the two sides might try to push for some resolution.  We know the season will already be shorter, and there is no way they can extend it with the 2012 London Olympics looming in the summer, I begin to wonder if there will even be an NBA season at this point.  While I have pointed out that the owners have stood strong, and there is fractions in the union, it is important to note that many NBA players are currently making money playing basketball overseas.  Utah Jazz point guard Deron Williams began the exodus of NBA players by signing to play in Turkey, and slowly players have moved to teams all over Europe and China.  So while the NBA has suffered bad PR form this lockout, many overseas teams have had the bonus of having the services and star power of some NBA players on their team so far this season.  The NBA has always looked to try and build a bigger global brand, and it is curious to see whether this lockout causing players to go overseas may help/hurt the league trying to become even more popular overseas.

Yesterday, Chauncey Billups had some strong words trying to show the solidarity of the players.  Billups said he was willing to forgo his $14.3 million contract for this season and sit out the entire year to make sure that there is a fair Collective Bargaining Agreement (CBA) in place for the future.  Billups noted that fair means that it would be economically fair to the players.

NBA players are the highest paid players on average than any other professional sport league in the world.  Their salaries have been the big target point of this round of CBA negotiations, as the owners feel they are taking a big hit having to pay such high salaries.  At the same time, the high salaries and lower number of players in the league seem to have created a case where many of the players can actually afford to sit out a season, where NFL players were not able to.  The availability of leagues overseas providing another avenue for players to earn money for NBA players has been another factor which has probably caused the lockout to be so drawn out.  To be honest, the NBA players are in a much better situation for the NBA players, and seem to be willing to take a loss for the time being in order to get a fair contract.  Both sides are losing money, and right now it almost seems to be a game of chicken to see how will flinch first.

Also, I would like to point out this post about the lockout over at The Sports Economist, another great read and take on the lockout from University of Chicago economist Kevin Murphy.

Trouble in Los Angeles

April 22, 2011

Bud Selig, Commissioner of Major League Baseball (MLB) is not a well liked man among baseball fans, even fans of the Brewers, the team he once owned.  Now, Selig may have made even more enemies in the city of Los Angeles after he announced that the MLB would be taking over operations of the Los Angeles Dodgers.  In a story which seems more like one for the daytime Soap Opera’s filmed not too far away, the Dodgers found themselves in a financial stranglehold as Jamie and Frank McCourt (the owners of the team) have been embattled in a bitter divorce, with rumors of affairs with bodyguards and poor financial decisions.  Reports note that not only have the two caused the team to be in a bad financial position, with Jamie being quite poor at doing the duties as CEO of the Dodgers.

Things got so bad, that the team is reported by the Los Angeles Times to have gone to Fox television to get a $30 million loan in order for them to be able to make payroll for the next month.  After hearing this, Bud Selig decided that he needed to step in, and that MLB would take over the team for the time being.  Frank McCourt isn’t taken this sitting down, and has retained legal council and is said to be planning a lawsuit against Major League Baseball.  In the LA Times article it is noted that this is not the first time that the Dodgers had to go out and take a loan from Fox to cover their monthly expenses.  Selig himself has previously rejected a loan the Dodgers tried to take out for $200 million from Fox, using their television rights money as collateral for the loan.  Clearly Selig is unhappy with the financial situation of the team, it’ll be interesting to see what happens while the Dodgers are under MLB control.

Being under control of the league is not a death sentence by any means, as the Texas Rangers were under MLB control for part of 2009 and 2010 as they went through bankruptcy proceedings.  The Rangers still managed to do quite well during this time period in terms of on-field performance.

After taking over the Dodgers, many were already turning their eyes to the New York Mets who have been in trouble because of financial trouble related to the Bernie Madoff Ponzi scheme.  The Mets are currently being sued $1 billion (about how much they are worth) for money they gained from others in the Madoff Ponzi scheme.  Despite the fact that the Mets had to take a $25 million loan out, Bud Selig has said that for the time being the Mets are safe and in a better position than the Dodgers.

Makes me wonder how much trouble the Dodgers really are in financially.

Are NFL Players the target of predatory lending?

April 14, 2011

With the National Football League (NFL) owners current locking out the players, many players have little or no source of income or any type of benefits.  More than a year ago, I discussed how the NFL Player’s Association (NFLPA) was warning players on how to prepare for the lockout.  This including things such as: not purchasing houses, not buying boats or expensive cars, and trying to save money and leave within one’s means.

Pro Football Talk reported last month that many players were seeking high interest loans to help them through the lockout period.  Now ProFootball Talk and Yahoo Sports are both reporting that a number of players from at least 16 teams have had to set up these high risk loans.  It is noted that these loans have interest rates in the range of 18 to 24 percent, with a 36 percent rate in the case of default for some of the loans.

NFLPA representative and Arizona Cardinal kicker Jay Feely noted:

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd.”

However, as noted in the Pro Football Talk article, many players do not have the credit history or collateral needed to back the large loans that many of them are needing to get through the lockout period.

Yesterday, I noted that the NFL owners had made a new offer to the players.  Considering the fact that players are already going out to get risky loans, I’d think that the owners may be in a good negotiating position now.  They have made concessions which will give more money to players who are more likely to be NFLPA representatives, and with the number of players potentially needing a paycheck growing everyday, it may be that some players will start putting pressure for the rest of the players to negotiate a new collective bargaining agreement sooner rather than later.

On a final note, I imagine these lenders who are making these loans must be smiling in joy at the lockout, and probably hope it extends longer so that they can hook more players with these high interest rates.

H/T to Shawn for sending me these articles.

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd