Why junior hockey's financial statement should be taken with a mountain's worth of salt

The numbers released by the CHL would have you believe minimum wage for players would cripple some teams. But we need a lot more information.

In an effort to get out in front of the story and win the case in the court of public opinion, the Canadian Hockey League last night released some of the financial information it had previously been trying to keep from the prying eyes of everyone outside its inner circle. It’s a curious move to say the least. And when you look at the numbers, you get the sense that the CHL is cherry picking on the same level as an out-of-shape beer leaguer who constantly hangs out at the opponent’s blueline.

The CHL has crafted its message, complete with an expert opinion saying teams would have to consider ceasing operations if they had to pay players minimum wage, giving people just enough information to portray themselves as downtrodden philanthropists interested only in providing entertainment and helping young men realize their NHL dreams, without really telling us where the money trail actually leads. Well played.

For example, if we are to take the numbers of the CHL’s unaudited financial statements provided to an Alberta court for an upcoming lawsuit at face value, then we’re to believe that the Ontario and Western Leagues combined to generate revenues of $136.7 million in 2015, but cannot afford to pay roughly 850 of its employees minimum wage. The WHL claimed revenues of just over $80 million in 2015. The cost to pay the players minimum wage in that league would be about $300,000 per year per team for a total cost of about $6.6 million, which would amount to about 8.25 percent of total revenues.

What business in any part of the real world would be able to claim revenues of more than $136 million, then try to convince people that it couldn’t afford to pay 850 of its employees minimum wage? Welcome to the world of junior hockey where it seems no matter how much money a team makes, its expenses seem to rise at the same rate. How the heck are these people ever expected to make a go of it?

Let’s take the WHL as an example. According to the report done by the accounting firm KPMG, the league’s overall revenues in 2015 were higher in the five years between 2012 and 2016 than they were any other year, but somehow the league managed to lose more money that year than any other year. The numbers say overall league revenues were $80.2 million, with a pre-tax overall loss of just over $2 million. As far as expenses are concerned, $7.5 million went to advertising and promotion, $6.6 million to administration and a whopping $67.5 million to the ubiquitous “other operating expenses.” In fact, in 2015, other operating expenses increased almost $5 million from the previous year, then were cut by more than $6 million in 2016. Even though the WHL managed to trim $6 million in fat from other operating expenses in 2016, it posted a pre-tax profit of only $691,000.

So in order to get the entire picture, we’re really going to need to know what those “other operating expenses” are. And until we know them, we don’t know even close to the entire picture of whether the losses are real or a case of creative accounting. For example, has anyone stopped to ask how exactly the Erie Otters managed to lose $150,000 and be forced into bankruptcy while going to the OHL final and having one of the greatest players in junior hockey history in their lineup? Or how the people who purchased the team didn’t seem to mind forking over $10 million for a supposedly bankrupt, money losing team? It sure makes you wonder about the line in the CHL’s news release that said, “Goals around asset appreciation are lower/limited in the CHL versus other major sporting leagues.” It sure makes you wonder if that’s the case when the Sudbury Wolves can be purchased for $250,000 in the 1980s and sell for $11 million 30 years later, all the while appreciating by 4,400 percent. (And that’s for a team that generally underachieved, missing the playoffs nine of those seasons and one that plays in an antiquated building that needs to be replaced.) Franchise values and the fact that these teams are sold for many millions of dollars has to be part of the equation here.

The CHL earlier this year scoffed at a report the defense had done by a sports economist who had no access to its numbers because the league refused to provide them. That economist used economic modelling instead of creative accounting. Then the league releases a report from their sports economics expert that is based on financial records only it was allowed to see. Which one is more accurate? Well, it’s hoped we’ll find that out after the sides meet next week to determine whether the full financial picture can be made public, not just snippets of it.

Until then, a lot of this is white noise that should be taken with a mountain’s worth of salt.