Rising Heat: Abbotsford hockey club's second season shortfall over $1.3 million
Dan KINVIG and Kevin MILLS
The Abbotsford Heat’s budget shortfall for the 2010/11 season will cost local taxpayers over $1.3 million dollars.
According to figures released by the City of Abbotsford on Friday afternoon, the local American Hockey League club generated $4,394,489 in revenue last season, creating a budget shortfall of $1,305,511.
The Heat are two years into a 10-year supply fee agreement to play out of the Abbotsford Entertainment and Sports Centre, which guarantees the team a break-even budget of $5.7 million annually. The city covered a shortfall of $450,637 in 2009/10, making the total Heat deficit in its first two years approximately $1.75 million.
The Heat’s 2010/11 financial report is expected to be presented to city council at Monday’s council meeting.
Lane Sweeting, a member of the local investors group which manages the Heat, said the team fell short of expectation in terms of ticket sales, corporate sales, and concession revenue.
“The shortfall is basically in all three areas in different levels,” he said. “Certainly, our biggest challenge is ticket sales.”
According to AHL attendance stats, the Heat averaged 3,807 fans per game last season, 26th out of 30 AHL teams. That’s a 2.4 per cent decrease on what they drew in their inaugural campaign of 2009/10.
According to Sweeting, the team’s season ticket base dipped from 1,100 in the first year to 650 last season, but saw an increase in single-game tickets and flex packs.
“What happens in year two is, people realized that 40 games back-to-back are a lot of games,” he said. “The glitz is off, and they settle back into buying a 10-game pack or a 20-game pack rather than a season ticket pack.
“It’s something we knew was going to happen. Everyone told us it was going to happen. I don’t think anyone thought it would be of this magnitude.”
Part of the challenge, Sweeting said, is that the hockey club has direct control of only about 50 per cent of its revenue streams – a product of the contract the City of Abbotsford signed with arena operator Global Spectrum prior to the Heat’s arrival.
The Global Spectrum package includes partnerships with New Era Tickets, Ovation Food Services, and Front Row Marketing, which handles commercial sales and premium seats for the arena and the Heat. All four companies are under the umbrella of Philadelphia-based entertainment corporation Comcast Spectacor.
Sweeting would like to see the city revisit the Global Spectrum arrangement on two fronts.
He’s asking the city to consider switching ticket agencies, from New Era to Ticketmaster. He believes the latter company’s dominant market share would facilitate “impulse buys,” and boost the Heat’s bottom line.
“There’s nothing wrong with New Era as far as the software or the box office,” he said. “They just don’t have market share.
“The Canucks, the Lions, the Giants, the Whitecaps, they all use Ticketmaster. They have hundreds of thousands of names in their database.
“Whether that’s a $100,000 problem, a $200,000 problem, or a $300,000 problem, we really don’t know ... All we’re saying is, go do a study. Get those numbers for us.”
It’s “cumbersome,” Sweeting added, that the hockey team’s premium seat sales are handled separately by Front Row Marketing.
Beyond that, he’d like to see a restructuring of the commission Front Row takes from Heat-related sales, although he would not detail what that is.
“What we are encouraging the city to do is renegotiate that contract so that the fees that are charged are more realistic in today’s market,” he said.
City manager Frank Pizzuto said the numbers generated by Front Row last season were “reasonably good” and “actually grew” despite a drop in ticket sales. As for the commission structure, the city and Global Spectrum have already been looking at the issue.
“It’s likely the commission structure will change,” said Pizzuto, adding the city will not “stay still” on the agreement.
As for the Ticketmaster/New Era debate, there are no plans to change at this point.
“We have a master agreement with Global Spectrum for 10 years ... we have to work with all the partners,” he said.
He refused to comment on the actual financial numbers until they were made public on Friday afternoon.
Sweeting also declined to delve into specific dollar figures, but did say the Heat’s $5.7-million operating budget includes an affiliation fee to the Calgary Flames to help cover salaries for players and equipment staff. The NHL parent club covers the cost of coaches and trainers directly.
The budget also pays for the Heat’s sales and marketing staff, as well as visiting teams’ travel costs – a product of Abbotsford’s far-flung location relative to the rest of the AHL.
“The league has a policy that if there’s a new team outside of the East Coast, there’s a travel subsidy,” he said. “Winnipeg (the former Manitoba Moose franchise) had a travel subsidy, Oklahoma City has a travel subsidy.
“It just happens that we’re 500 miles away. The policy is the same, our number is higher.”
The supply fee contract with the city, and the subsequent budget shortfalls, have exposed the Heat’s investors group – which includes local businessmen Sweeting, Barry Marsden, Ron McNeil and Fred Strumpski – to criticism. Sweeting said the investors were “surprised” initially, given that bringing a pro hockey team to Abbotsford wasn’t their idea in the first place. The city, in the process of developing the AESC, approached them about helping to land an anchor tenant, he said.
“This is just a group of community-minded investors who said, ‘We’re interested in supporting the community,’” Sweeting said. “This is no different for me than coaching minor hockey for all the years I did in Abbotsford. It’s just one more step in trying to make Abbotsford what Abbotsford is.
“Is this a good investment, from an investment point of view? Absolutely not. Is it a good investment for the community? Absolutely.
“It’s been frustrating for us to take the criticism for the shortfalls when we didn’t ask to be at the party. But by the same token, putting my taxpayer hat on, I understand the concern.”
Sweeting said that while the Heat investors “haven’t taken a nickel” out of the team’s coffers to this point, they have spent “substantial” out-of-pocket sums in upfront costs in the initial pursuit of an AHL franchise, and in operating costs over and above the $5.7 million budget guaranteed by the city during the 2009/10 season.
“We don’t have a problem with it – we’re all businesspeople,” he said. “At the end of the day, we anticipate to recover those upfront costs, just like we anticipate the city to make money on this. Our 10-year business plan is, by year five, we’re breaking even. Then in year six, we should be making money.”
Sweeting’s optimism is rooted in his confidence in the high calibre of AHL hockey, and the high-quality facility the Heat play out of. He believes new team president Ryan Walter is already connecting effectively with the community. He’s excited that the Flames have signed a series of top-tier AHL veterans, giving the Heat the look of a playoff contender. And he thinks the business department is figuring out the market, changing its focus from season ticket sales to group sales and flex packs.
“Everyone told us year two is your low water mark,” he said. “From there, you build, which is kind of where we’re going now.”
The Heat aren’t turning a profit yet, but Sweeting believes the franchise is already a success. It was “a big win,” he said, to convince the AHL to approve a team in Pacific time zone for the first time. He also points to an economic impact study, released in July, which estimated the AESC generated $24.3 million in economic activity in 2010 and created the equivalent of 305 full-time jobs. The hockey team, Sweeting said, accounts for “well over half” of that.
At the end of the 10 years, he’s hopeful the supply fee won’t be necessary.
“I have confidence that everyone’s going to say, ‘Man, it’s really neat that we have an American Hockey League team here,’” he said. “So, I’ve got thick skin.
“One day, we’re going to have a parade in this city, celebrating a Calder Cup. Or I’ll be dead trying to make it happen.”
While the City of Abbotsford has yet to release the final financial numbers for the Abbotsford Heat’s second season, it has been confirmed the deficit is just over the $1.3 million mark, more than three times higher than the first-season shortfall and $100,000 more than projected by the city in May 2011.
When the city’s audited financial statements were released five months ago, a $1.209-million deficit was predicted for the local AHL club. Projections are required because the city and the Heat have different year-end periods. The city’s finances are calculated Jan. 1 to Dec. 31, while the Heat figures (based on a full season of hockey) run July 1 to June 30.
According to numbers released by the city in November 2010, the Abbotsford Heat had a deficit of $450,637 in its inaugural season.
The club’s regular season revenues totaled $5,054,783 and a playoff run added an additional $194,580 for a total season revenue of $5,249,363. Under a supply agreement with the city, the Heat are guaranteed break-even revenue of $5.7 million in revenue.
Originally, in March 2010, the city had projected the first-year loss to be $275,000.
Detailed team budgeting has not been made available to the public. However, as part of last season’s final figures, an expense sheet for the 2009/10 season was released.
Heat expenses 2009/10
Player compensation $1,483,000
Hockey operations $1,552,000
Commercial operations $1,735,000
League operating costs $ 116,000
Finance and administration $ 814,000