Is Ottawa A Small Market?

The last 48 hours have brought some pretty interesting developments following on the news of Ottawa's 50M$ "budget" for 2013/14. 

First was @SensChirp who dove deep into the topic on Tuesday in a post I can't recommend reading enough, money quote…literally and figuratively:

"In fact, there were unconfirmed rumours and speculation that late last season the team's financial situation became so bad that the league actually had to step in to cover some of the team's expenses. Now I don't know how often something like that happens around the league but it certainly doesn't sound like a team that is in a comfortable situation financially."

Stunning. I don't think you put that out there unless you're fairly confident in the source(s). For what it's worth yesterday I had someone I trust tell me they'd been hearing the same thing since February.

Yost (@TravisHeHateMe) took a different tact, in a post examining the recent state of another Melnyk venture – Trimel Pharmaceuticals:

"That's a massive refinancing, with Melnyk's stake reducing from approximately 58.9% to 38% before exercise of the over-allotment option. [UPDATE: Melnyk sold 12 million common shares again on April 30, 2013 dropping that number to just 29.5%] Naturally, it makes me curious as to Trimel Pharmaceuticals performance in the marketplace."

A sad graph follows the word "marketplace". Again, a read well worth your time to check out.

Finally this take by Varada (@wtyky) more or less sums up my thoughts:

"But it has to be asked: if this team can't spend more than $50MM on salary every year, why is that? I've written over and over again that it's not at all clear to me how revenue on this team works. I get that we're not New York or Toronto, and don't have an insane television deal-but then, that describes most of the teams in the league, and we keep hearing about record revenues. Ottawa remains a top ten team in ticket sales, with an average ticket price, average merchandise sales and assumes average TV deal. If a team operating in those conditions simply has to be the third lowest spending team in the league just to break even, then I think we deserve to know how that works. We suffered through two lockouts to establish cost certainty for owners. How that we have to have it, we're hearing even more about sacrifices. If that's the way it is I'll understand, but let's get a little bit of of transparency around here. Give the fans some credit. They can understand things."

I've never been able to square fans or even members of the organization alluding to Ottawa as a "small market". Sure, in a literal sense Ottawa is one of the smaller cities in the NHL, but as an actual hockey market (the part that matters) they're easily top 15 and probably closer to top 10.

Normally one would reach for the Forbes numbers here, but I think it's pretty well accepted by now they're dodgy as hell.

But we do have ticket revenue per game figures that have been leaked to the Toronto Star on two occasions.

 – In 2007-08 Ottawa had the sixth highest (tied with Edmonton) ticket revenue per game in the league.

– In 2010-11 (as down a year on the ice has Ottawa has had in decades) they were still above average bringing in 1.1M$ per game.

The big markets are the big markets, Toronto, Montreal, Vancouver, New York are a different level. But Ottawa is a comfortable mid-market team by this measure and holds nothing in common with your true small markets like Dallas, Florida and Nashville.

TV ratings don't = proportional revenue, but they do give a sense of the size of your fanbase. A few weeks ago I gathered last season's ratings for every team in the league. The Sens local broadcasts had the 7th highest average viewership in the league (and that's just English language on Sportsnet, if you included their French language deals with TVA and RDS they'd be even higher).

Does that look like a small market to you?

Now I've never heard Cyril Leeder talk hard numbers as to how well or poorly the Senators are doing. But in January 2012, Senators Sports and Entertainment VP and CFO Erin Crowe, was profiled in the Queen's School of Business Magazine, saying:

"It's a $120-million business. … We're not making widgets or software, we're putting on hockey games and concerts, but you still need that infrastructure behind an operation to support the generation of $120-million in revenue each year."

Player costs are the biggest expense an NHL team has. If 50M$ is all the Senators can budget for, that means they're either making some kind of profit or they have 70M$ in other expenses. I think you can guess which I think is more likely.