Wednesday, March 21, 2007

Sather As President

We all know more than we ever wanted to about Glen Sather already, but his stint as GM under 38 owners was an interesting time, and worth a closer look I think. Hole and Saville were the front men for the EIG (Edmonton Investors Group) at the time, and were the only people who had much regular contact with Glen. The relationship between Sather and the EIG was clearly an acrimonious one, there were several leaks to the media during that time, mostly through Terry Jones. And the picture being painted ... it didn't feature a happy family.

I remember him laughingly remarking about owner interference, offering up a comment mocking how some of these guys think that running an NHL team is like running a gas station. It struck me at the time that it was probably a lot more like running a gas station than Glen realized. And that since Cal Nichols built his personal wealth through a chain of service stations ... well, if I was Nichols I would've been pissed.

Nichols would regain control of the EIG, succeeding Jim Hole as chairman, and Sather's days as President and GM of the Oilers were numbered. The EIG had already doubled advertising inside the building, sold the naming rights to Rexall, and found ways to sell blocks of tickets. Now Cal would hire Pat LaForge away from the Meat Council (I kid :D ) and the EIG would take an aggressive approach to growing the business. They added considerable sales staff, brought in an Alberta tax revenue stream, increased advertising, pay-per-view television, third jerseys were introduced, a mini-pak program was pursued successfully to sell tickets to less popular games, they modified their schedule to place more weekend games (resulting in a lot of home back-to-back games, which is a bad thing for on-ice results, but you've got to take the rough with the smooth), they brought in a Oilers lottery, showed games in movie theatres during the playoff drive one year, then the Heritage Classic, and that's just off the top of my head.

While it is nigh impossible for an intelligent person to rationalize the often contradictory claims of revenues and profits of the EIG, it is equally impossible to deny that these are very good businessmen.

By far the boldest move was to add 11 luxury suites, as well as an upgraded scoreclock, upgraded seats and I think mezzanine level electronic advertising, though that may have come the next year. On March 19, 2001, Brownlee wrote that the costs for this were about 10 million CAD, and the next day CBC said that the Oilers Investors group would pay for all of this.

Cal Nichols would also issue a "cash call" in March of 2001.

Busy month. ;)

As well as adding luxury suite revenue, this would reduce the seating capacity at Rexall, which I'm sure was an important element in increasing the demand for tickets, and ultimately in increasing not only paid attendance, but actual attendance, which is extremely important as well.

Back to Glen:

There has been much implied about Sather's reckless spending causing the EIG grief. But for the life of me I can't find any evidence of that. Aside from his own 2.5 million CAD salary, he ran a tight ship. He ran one of the smallest front offices in the league, the scouts didn't travel much, relatively speaking. And they weren't equipped with any expensive technology. The team flew on scheduled airline flights often. There really aren't a lot of obvious places that you can control costs beyond that. His problem, in my opinion, was the lack of revenue grwoth under his term. And in this regard, Sather was a failure as President, and LaForge has been very successful.

Now NHL player payroll is the biggest single cost in this business. And gate revenues are the single biggest source of cash. If it were my business I think I would be working to a set variance of Gate revenues plus in- arena revenues (less advertising) set against player costs. I'd probably hedge currency at least moderately as well, depending on the advice of the CFO, and I'd maintain as much revenue from advertisers in USD as possible. But I digress ... and since I don't have that information anyways, I just slapped up straight gate revenues against straight NHL payroll in the chart below. The Levitt Report shows that the average multiplier to include preseason and playoff gates is 1.125, I've used 1.1 here because I would think that the Oilers would be budgeting on two playoff gates during this time, and in any case that's pretty much what they got.


Spot the pattern?

If you can keep these equal it's going to be very, very tough to lose money in this business, at least if we use the Levitt report as a template. As long as this is under control only so much can go wrong here.

So I would contend that as a GM, or extended further, as a manager of hockey operations ... Glen Sather did a good job.

I included Lowe's first year in here for a reason, he really was left in a tough spot. Clearly Hamrlik's salary had to go, and so did Guerin's (which Sather had back-loaded). I would think that Lowe and the EIG would have preferred Guerin to be dealt in the summer, but with the restructuring the Oilers had missed some teim and had very poor ticket sales and terrible attendance for the early part of the season. Practically, it would have been a poor decision to move Guerin before they did.

And Weight? He was a goner, either that or the rest of the team would have to be gutted. Weight knew that too, said as much, and Lowe has never let a player look at the books since. Rightly so.

In any case the additional revenues from expansion were drying up at this time, and they needed to be replaced. The business was under control, but surely there was a very real concern that the payroll levels they were committed to maintaining within their framework would not be enough to keep the team competitive, and that this would ultimately affect revenues. Without the cost certainty of revenue/payroll linkage, it was a risky time to own an NHL franchise to be sure. But they a bold decision to invest further in an effort to strengthen revenue, and they have run an effective business and have done very well for themselves pre-lockout, if we use the data from the Levitt report as a guide. And post-lockout, well financially they are in a terrific position right now.

Sources for attendance, payroll, and average ticket price: teammarketing.com, andresstarspage.com, USAToday.com, kenn.com and The Edmonton Oilers by Mike Gaschnitz.

8 Comments:

Blogger kinger said...

<3 the EIG?

3/22/2007 12:18 am  
Blogger Vic Ferrari said...

I have never faulted the EIG for turning a profit, only for misrepresenting this. And the end game here, a publicly funded arena, is surely worth many, many millions to the EIG. If I were in their shoes I would be doing the same thing, though personally I would be a bit more careful about it and would avoid contradictions, and I would certainly reign in LaForge and his player bashing.

Hell, I'm not even opposed to public funding of arenas per se. I just find it a touch offensive the way they are handling it. And a bit disappointed that nobody in the media has the courage to call them out, and that so much of fandom has a strange faith in them. These are businessmen, not white knights.

Personally I think that Cal Nichols had the interests of the community at heart when he founded the EIG. But when you consider that Nichols said the deal may have fallen through if not for the federal tax incentives provided to NHL team investors, and that the EIG refused to agree to a non-relocation agreement with the City of Edmonton when they negotiated the sweetheart deal for Rexall Place ... well it's simply not possible to believe that everyone in the EIG has the same agenda. Just isn't.

And that's fine, they are team owners like any others. And I'm sure that every time they play the 'white knight' card they check the audience to see how many people are rolling their eyes.

3/24/2007 10:14 am  
Blogger Lowetide said...

Great article btw Vic. It always makes me suspect that businessman frame the issue in all areas in a similar fashion. You know what I mean?

It kind of makes me wonder if framing the issue in this was is business as usual.

I think Jan Reimer thought that was so.

3/24/2007 1:41 pm  
Blogger RiversQ said...

Yeah this was a heck of a post Vic. Very interesting stuff and Google is clearly a wonderful tool for a resourceful person. (Don't tell Matheson though - I want him to work for those softballs in Ask Matty)

Anyway, what's your take on the nepotism factor here? That hasn't really changed one iota under the new management. I get the impression that it's just a matter of perspective. I'd say Sather was literally just running an old boys' club while the EIG probably sees it as a great marketing tool and likely also values hiring from within in general. Any idea why this practice continues to permeate the org.?

One other thing - just off the top of my head I think LaForge came from CN. I wonder if he would have handled the Wabamun PR mess better or worse. Something about the player trashing leads me to believe he would have gone with "let them eat cake (soaked in wood preservative)" as well.

3/24/2007 2:55 pm  
Blogger Vic Ferrari said...

Lowetide: Of course. And I don't find that objectionable. Smart fans being played along so easily though ... that's unpleasant to watch.

3/24/2007 6:40 pm  
Blogger Vic Ferrari said...

Riversq:

On the sibject of Google and nepotism ... a press release from 2002:

? Nick Wilson, Vice-President of Business and Chief
Operating Officer at Alpine Canada Alpin, has accepted a new executive post with the Edmonton Oilers of the National Hockey League.

A long-time ski racing leader in Canada who has served in executive, coaching and racing capacities, for more than 25 years in Canada and Great Britain, Wilson takes on his new role as Manager, Licensing and
Merchandising in Edmonton July 22, 2002.

"Nick has been a driving force for ski racing in Canada and he will
certainly be missed," said ACA President Ken Read. "I very reluctantly
accepted his resignation. This is a tremendous career opportunity for Nick which will complement the 18 years he has devoted to Alpine Canada Alpin. We wish him the best."

Wilson coached Canada's men's and women's World Cup teams from 1984 to 1991, and was part of the Olympic gold medal success of Kerrin Lee-Gartner and Karen Percy-Lowe's 1989 World Championship silver medal.


He was also a former employee of Pat LaForge, who was CEO of Alpine Canada for three years in the 90s.

That stuff doesn't bother me though. Hiring Kelly Buchberger as a technical support coach for the playoffs last year was a headscratcher though.

I mean Bowman would go outside the organization and hire guys like Bob Johnson and Roger Neilson for that gig in the playoffs.

Hell, I read something on Kevin Constantine hiring extra technical coaches who were available, and then having them analyze just one bit of the game (say 5v5 without the puck). I mean Jesus that's maybe 15 minutes of video. Give that tape to Dave King and let him have 20 or 30 hours analyzing it and he's going to spot some things. And that was over a decade ago.

And Kev hires Buchy. It's not quite the same, is it. :D

3/24/2007 6:51 pm  
Blogger mike w said...

Nice post, Vic.

I'm, of course, hard against tax money paying for a new arena, but it seems to be utterly inevitable (notice how all of that trademark Albertan free market pride gets thrown out the window when it comes to a hockey team?).

EIG ownership is a well oiled-machine, but they sure lack in subtlety -- how long did they wait after the lockout before bringing up a new arena? 12 weeks?

Most distasteful is that when they aren't out-and-out hinting about moving the team, they hide the rubric of "staying competitive," as if they aren't making healthy scratch.

The lockout, more than ever, seems like it accomplished nothing. I wouldn't be surprised to see more trouble when the current CBA expires.

3/24/2007 7:02 pm  
Blogger Slipper said...

Fun Fact: I beleive the Oilers' hired Roger Neilson on during the 1984 playoffs to plow through video. He didn't travel with the team and he stayed in the Colliseum Inn during his short tenure. Not in the same league as hiring on Bucky though, is it?

3/25/2007 1:22 pm  

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