For us hockey is a love and we are willing to do anything to quince that passion. However, we also have to remember that hockey is a business as well and that owners will not do things that will over extend themselves. Building a standalone arena will over extend Mr. Wang and cause him to lose an additional 200 million dollars on top of the 200 million he lost already. This article can explain the economic of financing an arena better than I can. http://www.lettherebelighthouse.com/2009/10/back-to-basics-why-is-there-lighthouse.html
There is a simple calculation in the finance world called Net Present Value (NPV) that can help us understand this. Money does not have universal value; thanks to inflation, a dollar today is worth more than a dollar 10 years from now. NPV looks at the initial money spent and the money expected to come in to judge whether something is a good investment.I have to agree with Nick's closing that Wang and no other possible owner would take that deal even to save a team they love
Forbes Business of Hockey 2008 was my guide for this calculation, which I did using this online calculator. According to Forbes, the average profitability for an NHL team in 2007-2008 was $4.7 million. According to their team page, the Vancouver Canucks had an operating income of $12.8 million in 2006-2007 playing in a privately-financed arena. I decided to use this number, guessing that a new arena and a better lease would help make the Islanders one of the more profitable teams in the NHL.
4% is the average rate of inflation, so I decided to use that as the discount rate.
Finally, as mentioned earlier, $320 million is the cost of the renovation.
With that little background, here we go:
Discount Rate: 4%
Life of Project: 30 years
Initial Investment: -$320 (in millions, of course)
Income, Years 1-10: $12.80 (using the Vancouver figure)
NPV: -$216.18
In other words, asking Charles Wang to privately finance his hockey arena would result in a net loss of over $200 million. I realize nobody is going to feel sorry for a man as rich as Mr. Wang, but none of us would take that deal.
It is widely known that the mere operation of an arena is not a big money maker, although not necessarily always a big loser. Your conclusion and premise of your post might be correct; however, I must say that I am surprised that you, as an educator, have been as careless in your demonstration of NPV, as you have been. OPERATING INCOME (for which you arbitrarily plugged in the 08' Canucks incorrectly into your equation) is MUCH different than CASH FLOW! The former is earnings before interest, taxes, and depreciation. Cash flow is literally the movement of money in and out of a business. We do not know the cash flow for the NYI nor any other NHL franchise, so it is not possible to calculate the NPV for a new arena, accurately.
ReplyDeleteSorry to be so heavy and immodest with my criticism, but it is highly frustrating to read these posts from a guy, whom is supposed to be "on my side", so to speak (the Islander fan), and see what amounts to desemination of misinformation and shallow arguments.
If I could give a suggestion with how to make your blog more useful and inspiring, I would say instead of constructing imaginary scenarios, why don't you try to reach out to Mangano and others in the county that have influence and report the process, here? Why not seek out and find legitmate emails and contact information to Gary Bettman, Charles Wang, and send them correspondence advocating for an AUTHENTIC public-private partnership of the financing of a new NVMC? Or raising the possibility of making the NYI LLC publicly traded?(shake em' up a little bit - hell, there's a precident for it, Green Bay Packers). Report every detail here, you'll get a lot of hits here, if nothing else.
I'm sure once that process unfolds, you will find that it will take twists and turns you would never anticipate. And, who knows, it might even have a positive impact on the mess that is Wang's Isles.
John I'm on your side and I want to see a resolution to the issue that is beneficial to all parties involved. The calculation in this post are from another site, which I presented the link to if you want to see the original article. I did not do the calculations myself. I'm sorry if you don't find the material this blogs provides to your satisfaction. I have emailed Mangano and people associated with the Barclays Center and posted what I could. This is more of hobby for me, since as you mention above my profession is as a teacher. The real question is why aren't the professional journalist doing their jobs to provide answers to your questions. Again sorry if I'm not meeting your needs, but I'm doing the most/best I can at the time.
ReplyDelete" The real question is why aren't the professional journalist doing their jobs to provide answers to your questions"
DeleteThat IS a good question.
Have you ever read Manufacturing Consent by Noam Chomsky, or watched its' video version (Necessary Illusions) on Google video? I believe you will find the answers therein.
Please allow me to paste this video into your blog comment here:
http://video.google.com/videoplay?docid=-5631882395226827730#
The aforementioned is long, but worth every minute. If you watch it in 20 min increments, you'll be able to watch the whole thing in a couple of weeks. It's worth it, as much as anything you'll ever watch.
http://video.google.com/videoplay?docid=-5631882395226827730#
Although, it's not related to our discussion, I get a kick every time I watch out of watching Piaget listening intently to Noam explain linguistics and language in relation to human development. It's crazy! Anyway, I hope you're receptive to this.
Think of this blog more as a place where all the news that comes out on this issue can be found with a little personal opinion splashed in. I wish I had the time, resources, and connections do do more investigating, but sadly I don't.
ReplyDelete