a·cu·men [ak-yuh-muhn] noun: keen insight; shrewdness

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Sunday, 30 November 2014

11/29/14 Money and the Edmonton Oilers

When the Oilers say that they're selling hope, they mean it literally.

People often say that Daryl Katz doesn't care if the Oilers win or lose as long as fans keep filling Rexall Place and lining his pockets. There's some truth to that, of course. Katz bought the team six years ago for $200 million and as of this month it is valued by Forbes at $475 million. So he's done okay there.

Like most billionaires, Katz is a long-term thinker. He has been talking about a new arena since before he owned the team. Back then, the downtown arena seemed to be just a throw-in part of his bid for the Oilers, but it's really the bottom line.

For full disclosure here, I'm in favor of the downtown arena but I'm not going to get into the debate again of whether it's good or bad. It's a huge move for Katz, though.

Rogers Place, as the new arena will be called, will increase capacity for hockey games from 16,839 to 18,641, which is more than Madison Square Garden in New York. The 18,200 fans at Rangers games spend an average of $18-$26 on food and drinks each game. Roughly half of that money covers the cost of running concession, which means that about $13 per person, per game is profit. That's somewhere in the area of $9.5 million per season, not including playoffs.

If we assume that the numbers are comparable in Edmonton, it's easy to see why Katz would want to take control of the concessions away from Northlands, and why a $100 million investment in the arena is a mere drop in a bucket. As it currently stands, the Oilers get only 25% of the gross food and beverage sales from hockey games, and none of the profit from concerts and other events at Rexall Place. That will all change when the new arena is completed.

And a new arena would not be possible without an anchor tenant like the Oilers. How would the negotiations with the City have gone if the Oilers weren't selling out every home game? In the big, big picture there was never a question of whether or not the Oilers would keep their young stars in the NHL, because the building had to stay full. They were literally selling hope.


There were voices like Tyler Dellow and Derek Zona who argued that Taylor Hall should be sent back to junior because it didn't make sense to waste a year of his contract on a 30th-place season. Dellow argued that it's not as simple as collecting good players from the draft - teams need to keep contractual and financial implications in mind, or else they "will find that a window they never even knew was open has already closed." Those words loom large now that Taylor Hall is in his fifth year out of the playoffs, with only another five to go before he's a UFA.

But Hall, Paajarvi and the rest had to be in Edmonton so that fans would continue to brave the cold to see them, even though the team as a whole - and its entertainment value - was atrocious.

Keeping those players certainly did the trick, because even though the team has yet to improve significantly, season tickets are in high demand. The increased seating capacity of Roger Place will naturally mean more season tickets being sold, which means more money for the team. And the season seat registry - the waiting list for season tickets - is essentially a business in itself. You must pay $210 to get added to the waiting list, along with $50 per year to stay on it. The waiting list is a couple thousand names long at any given time, which means that the list is a cash cow in the hundreds of thousands of dollars that the team takes in exchange for virtually nothing.


Of course, there's more money in a winning team than a losing one. The New York Rangers take in about $2 million per playoff game from ticket sales alone (see article linked above). So from a business standpoint it would be preferable if the Oilers were a winning team.

But Katz's timeline for patience in this regard is probably linked to the new arena as well. I have no doubt that he wants the Oilers to win, but we've yet to see his wrath because they aren't. That may change when playoff ticket and concession revenue at the new arena go to the Oilers. NHL revenue sharing means that the Oilers (or any playoff team) lose 35% of their gate revenue to the league during the playoffs, so it's not about ticket sales.

Considering that the city literally almost ran out of beer the last time the Oilers were in the playoffs, there's potential for huge earnings at Rogers Place. To a businessman, making the playoffs now is preferable, but it's acceptable if they don't. In 2016, it'll be extremely important, but will that be soon enough for fans?

We wait for the financial bottom line to affect the on-ice product.

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