2014 NHL Franchise Forbes Valuations Arrive

We are in the latter stages of November, so that can only mean one thing: Forbes has released its annual NHL franchise valuations.

Before jumping right into things, it’s worth mentioning that the league itself never gives any credence to the accuracy of Forbes’ numbers and others like Tyler Dellow have drawn their numbers into question before.

Now for the past two years, the Senators have hovered in the middle of the pack of Forbes‘ list and this year is no different. The Senators have gone full circle from 16th in 2012 to 15th in 2013 back to 16th in 2014 with an estimated franchise value of $400 million.

The $400 million estimate is essentially double its worth from 2011 and represents a five percent growth from last year’s $380 million figure. Go back a little further to when Eugene Melnyk purchased the team for $92 million ($127 million if you include the purchase of the arena) and the end result is a franchise has experienced a 14-percent annualized change.

Not a bad investment. Not a bad investment, at all.

Rising franchise values seem to be a norm however, with 29 of the league’s 30 teams seeing growth in value. Only the Florida Panthers did not see growth, but as Mike Ozanian explained, this discrepancy was based on a mistake he made last year when reporting that the sales value of the Panthers was $240 million when it was actually $160 million. Using the latter sale price to contrast this year’s franchise values would have actually rendered a situation in which all 30 teams experienced growth.

What’s particularly interesting about Forbes‘ recent detailing of the figures is that they project the Senators to have generated record amounts of revenue ($117 million) and operating income ($22.5 million).

The Senators have reportedly lost more than $110 million since Eugene Melnyk bought the team in 2003. In the wake of those same reports, ownership has gone on the aggressive preaching the importance of spending smartly and extolling the virtues of the cost per point strategy. All the while promising the organization’s fans that the team will spend to improve the competitiveness of its roster when the circumstances are right sometime down the road (but not now, definitely not now). The result has fostered an environment in which many fans have grown weary and cynical of the message.

It would be one thing if the team was far removed from being competitive, but the mandate is to be as competitive as possible while operating on the league’s smallest payroll. It’s like willfully making a small margin of error even smaller.

These tired fans also point to separate but interrelated moneymaking entities like Senators Sports & Entertainment, the Canadian Tire Centre or Capital Tickets, noting that within an umbrella like organization like this, it’s easy to manipulate the book to serve the organization’s own cause – like bringing a casino to the land adjacent to the Canadian Tire Centre to help boost additional revenue streams.

Without ever being able to look at the books, it’s tough to really grasp where exactly the Senators are making or losing money.

Another problem that fans have is their tendency to oversimplify the process – equating spending money with creating a better roster. The Senators simply can’t snap its fingers and inject talent onto the roster just because more money becomes available. Management still has to pool its resources to find, identify and acquire said player through trade or free agency. It’s a process that takes time and due diligence.

If the team is operating at a profit, as Forbes suggests, that’s great – assuming of course that the numbers hold true and the Senators organization will be healthier down the road for it. Obviously some  may look at this trend in positive operating income and use it as a means to substantiate their demands that ownership reinvest that kind of capital back into the team’s payroll to make it more competitive, but from a long-term view, it’s the health of the organization that matters most.

If you look at Ottawa’s debt/value of 36-percent, only seven other teams have higher rates. If the Senators are funneling profits to help offset their debt — a debt that I presume is compounded by high interest rates — that would make sense. Just last year Forbes affirmed that the Senators obtained $150 million of financing prior to the 2013-14 NHL season. Of that amount, about $130 million was for the purposes of refinancing a previous loan, so maybe it stands to reason that the Senators are working hard to curb their debt by funneling some of their profits into it.

Maybe that’s not as glamourous as adding an expensive player or players right now, but maybe it will finally allow the Senators to live up to their promise and deliver down the road… maybe.