One of the big challenges of running a hockey club is that every body is an expert and every decision is turned upside down, says Doug Thomson, vice-president finance of the Oilers.
Although the Edmonton Oilers Hockey Club is a private business it still faces daily review of its decisions by the news media and the public. Constant public scrutiny is something most businesses don’t have to deal with.
In speaking to the Edmonton Gateway Rotary Club, Thomson described some of the issues the Oilers face and some of the approaches to dealing with these issues.
The size and financial capacity of the Edmonton market puts constant pressure on the Club owners and management. In a league with 28 teams, the Oilers are 23rd in total player costs and 28th in all other costs.
The size of the market affects advertising revenue.In larger markets teams can demand and get top advertising revenues.With only 800,000 people in the market area, the Oilers must rely on attendance to keep it going.
Although the Oilers have great support from small and medium size businesses, Edmonton does not have the number of head offices of cities like Calgary, Toronto or New York.Still, the Oilers have one of the best season ticket bases in the league.In the past five years Oiler season seat sales have risen from 5,000 to 13,000.
However, even with a sellout of 17,000 seats per game, seat revenues are not as much in as in some communities. Because the size of the market, the Club can only charge so much before sales will start to decrease.In terms of affordability, Edmonton is number 1 in the league, with costs for tickets, food, and souvenirs lower than in any other city.
Currency exchange is a significant disadvantage to Canadian teams, especially in smaller markets.The Oilers get 80% of their revenues in Canadian dollars while only 40% of their expenditures are in Canadian dollars.
Twenty-five percent of its revenue is out of the Club’s control.This makes budgeting difficult.Next year with two new clubs coming on the Oilers will receive $9 million in expansion fees.Since no further plans exist for expansion, this revenue will end this next season.The Canadian currency assistance plan of the NHL provides another $3 million.Some good news is that television revenues are going up because of the U.S. market.
The Club hopes to get into the playoffs each year, because this provides additional revenues.Not making the playoffs can have significant effect on the budget.
Although the players contract does not mandate pay raises, salaries of hockey players have increased an average of 21% per year in the 1990s.This is pushed up because of owners who are trying to buy winning teams.This doesn’t always work.The New York Rangers, who pay $61 million annually in salaries compared to the Oilers $23 million, didn’t make a playoff spot.Fortunately, the increase is about five percent this year.
The pressure is constant to sell out because of the seasonal nature of the product and because of “zero” shelf life.The club can’t sell a seat or an ad the day after the game.The club earns its revenue from about 50 home games a year.
Professional hockey is capital intensive.Arenas cost about $250 million to build.The Northlands Skyreach Centre is one of the owner arena in the league.Twenty-four of the 28 NHL teams have built new arenas in the past few years.To pay for the facilities, owners are buying the best hockey players available. Northlands ability to rent the arena at other times affects the amount of rent the Oilers pay.
The Oilers Hockey Club is addressing these issues in a number of ways.Continued fan and community support is important.The Oilers receive a $2.4 million subsidy from the city to help pay the rent for the arena.
The club also maintains the best people possible in management and coaching and lives within its means.It has increased its advertising revenue by adding new LED signage in the arena and taking broadcasting of games “in house.”It is looking at ways to get revenue from the Internet and is exploring the use of lotteries and the use of its logo and name in sponsorships.
Although the 38 owners and 12 directors, sometimes have differing opinions, their common goal is the same – to keep the Oilers in Edmonton, claims Thomson.
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