Wednesday, February 8, 2017

WHL in court: It's about financial figures, statements, management fees, bonuses, sale prices . . .

“Two new reports filed in a Calgary court this week raise questions about the bookkeeping of Canadian Hockey League clubs and the CHL’s claim that many of its teams can’t afford to pay their players at least minimum wage,” Rick Westhead, a senior correspondent with TSN, reported on Wednesday.
Westhead has been on top of this story from the beginning and his latest piece is right here. If you are interested in this story, you are able to follow Westhead on Twitter (@rwesthead) and his stories are at tsn.ca.
More than 370 present and former OHL and WHL players have filed lawsuits in Ontario and Alberta as they seek to gain certification for a class-action lawsuit that would force the teams to pay players minimum wage and other benefits.
In a Calgary court room on Tuesday, Justice Robert Hall ordered the unsealing of financial statements and tax returns that had been handed over at his order. Also unsealed was what is known in the business as the pro-junior agreement, the contract between the NHL and the CHL, the umbrella organization under which the OHL and WHL, and the QMJHL, continue to operate. With the lawsuit having been filed in Toronto and Calgary, the QMJHL hasn’t been targeted.
The NHL-CHL agreement under which the parties now operate is of seven years in duration and is to run through the 2019-20 season. Westhead details terms of the deal under which the NHL provided a $7.6-million grant for 2013-14, a figure that will grow to $12.6 million for 2019-20. The deal also calls for the NHL to pay various other fees, including $775,000 towards officiating. All of that is included in Westhead’s story.
On Wednesday, Westhead also reported:
“One report, filed in an Alberta Court of Queen’s Bench on Monday and unsealed late Tuesday, provides an alternate perspective into the industry of major junior hockey. Written by Toronto forensic accountant Ronald Smith, the report provides details about recent team sales. Smith makes the case that clubs that lose money each year still sell for millions of dollars.

“The Prince George Cougars, for example, lost money three years in a row between 2012 and 2014 but still sold for $6.4 million in 2015. Similarly, after losing $212,902 in 2014, the Hamilton Bulldogs sold for $10.3 million in 2015.
“The Regina Pats sold for $6.8 million and the Sarnia Sting sold for $7.7 million, both in 2015. The Erie Otters in 2016 sold for $8.4 million (U.S.).
According to Smith, “Teams were sold for substantial amounts, notwithstanding that the teams earned small profits or incurred small to large losses for the most part.”
Smith also pointed out in his report that some WHL teams had revenue from fund-raising events that wasn’t included in financial statements.
Westhead reported:
“The Saskatoon Blades, for instance, through a non-profit entity that holds raffles and other fundraising events, had $790,558 in an account in 2016 that was allegedly not reflected in the team’s financial statements.
“Smith wrote that the WHL’s Edmonton Oil Kings generated $860,938 in 2013, $1,357,503 in 2014, and $1,155,772 in 2016 from concerts and other events, but said the team reported no such revenue in 2012 or 2015.”
We also learned on Tuesday that teams pay out management fees and bonuses.

As well, Smith pointed out that, according to Westhead, “information from tax returns aren’t enough to offer a clear view of a team’s profitability.”
Westhead writes that the Portland Winterhawks’ 2015 U.S. corporate tax return shows US$5.4 million in income with a loss of $191,995.
That return includes a deduction for $1.7 million, but there aren’t any details included.
A report written by Kevin Mongeon, an assistant professor of sport management at Brock U, was filed in court on Wednesday. He studied OHL and WHL financial documents for the past few weeks and reported that the KPMG analysis commissioner by the CHL “does not substantiate the claims of widespread financial distress” among teams.
“The defendants . . . have argued that player pay will alter or force clubs to cease operations,” Mongeon wrote. “There is no economic evidence to support this claim.”
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