Sunday, February 6, 2011

"at least break even," dan dipofi and darcy regier

sooooo....the "golisano-era" is over, or will be officially over very soon...actually, for me, it will not be over until tim connolly is moved...

i had this big, long blog set up to go over various things point-for-point, etc...but it ain't worth's done, and if people want to harp on what happened over the last 3+ seasons, they can...that represents less than 10% of the sabres existence...i'm actually more disappointed about the scotty bowman-era than i am with this...such high expectations...

other than the dude near the end who pressed big tom about "driere," the $70m above selling price offer (and "non-reference" to jim balsillie) and revisiting "blue-ice," nothing really stood out...except for maybe the part where big tom said his only directive to the management team was to break even...

larry quinn, dan dipofi and darcy regier did do a masterful job in that area considering the sabres, post-lockout, had operating income in the black only one season--2005/06, $5m...after, according to forbes,  it went like this: 
  • 2006/07--($5m)
  • 2007/08--($9m)
  • 2008/09--($5m)
  • 2009/10--($8m)
that's $27m in losses over the last four full was it made up?...redistribution compensation or "revenue-sharing"...and the sabres, thanx to dan dipofi (and darcy regier, who we'll get to in a little bit) crunching his numbers, the sabres mastered the intricacies of full-share redistribution compensation...

the buckster had an article in today's buffalo news about dan dipofi...the third partner who no one really knew nothing about looks to be staying on with the pegula team and may be getting a contract extension...

i've always known that revenue sharing was a big part of the sabres attaining "viable franchise" was a big part of the gary bettman plan for a "new-nhl"...curious, though, as to why golisano never mentioned it in the presser as he did with the cost-certainty of the salary cap...maybe he wanted to keep the fact the the sabres were on the nhl's version of public assistance, hidden...wouldn't look right for a maverick independent to be considered a welfare recipient...

a collective bargaining agreement will drive any layman crazy trying to figure it out...while researching the nhl cba for information on revenue sharing the legal-speak was mind-boggling, and after about two paragraphs it was back to google to find the info i was looking for...but a funny thing happened on the way to finding out just how much the sabres got in revenue sharing (and anyone who has a link or information is more than welcome to share it) i came across an abstract written by an underclassman at vanderbilt university which delves into the potential impact of player-signings in relation to overall revenue estimates...

you're more than welcome to explore the nhl/nhlpa contract yourself...but here's a breakdown of the aforementione relationship (paragraph titles added by myself)...

From Sharing the Wealth in the "New NHL": The Implications of Revenue Sharing For Competitive Balance, Payroll Spending, and Profits.
Taylor F. Brinkman Peabody College of Vanderbilt University, 2006

the pdf abstract can be accessed here:

~~~the ideal vs. the reality~~~

"Despite the NHL's best efforts to avoid baseball's fate and to construct a revenue sharing system that incentivizes performance and encourages teams to spend revenue transfers on payroll, the marginal tax rates created by hockey's revenue sharing system give teams receiving a transfer a strong incentive to refrain from spending additional money on playing talent.

~~the share amount~~~

Consider the following example:  The Carolina Hurricanes project a gross $45 million in regular season revenues. Per the salary cap, which reserves 54 percent of all revenues for the players, the 'Canes must spend a minimum of $24.3 million on player salaries. Assuming a payroll midpoint of $28 million for the league, Carolina can expect to receive a transfer in the amount of $3.7 million, the difference between its available team compensation and the midpoint (CBA, Article 49.4).

~~~the additional cost of quality talent~~~

Now, assume that the Hurricanes have the opportunity to hire free agent winger Erik Cole, a player whose contribution they estimate will create an additional $2 million in revenues. If the Hurricanes hire Cole, their revenues will rise to $47million, which will simultaneously increase their available team compensation--54 percent of revenues- to $25.4m. Since the Hurricanes now have a higher ability-to-pay in the eyes of the league, their revenue transfer will decrease to $2.6m ($28m-$25.4m=$2.6m).

In essence, for every dollar of additional revenue that Cole creates, 54 cents is deducted from the Hurricanes' revenue transfer. Thus, the net revenue effect of hiring Cole, i.e. his marginal revenue product, is no longer $2m. Rather, due to the $1.1m loss in transfer money that accompanies his signing; his net value is reduced to only $900k, not including the cost of paying his salary.

~~~why top-talent is not a fiscally responsible for small market teams~~~

When the monetary value of Cole's contribution decreases, the team's willingness to pay him decreases as well; therefore, instead of offering Cole a salary up to his expected incremental contribution of $2m, the Hurricanes' front office will only hire him if he agrees to play for less than $900k. If they pay him any more, hiring his services will actually cost them money, meaning that they will be financially better off by holding on to their cash and not hiring him. Mathematically speaking, if the decrease in revenue sharing transfer plus the additional payroll cost exceed the increase in total revenue that comes as a result of hiring talent, then not spending would be the profit-maximizing strategy.

~~~the rationality of the golisano management team~~~

For that reason, if owners behave rationally, in many cases they should pocket their transfers instead of acquiring more or better playing talent, as the league would hope (Zimbalist 2003, 103).

~~~more "small-market" compensation~~~

Adding to this disincentive to spend transfer money on talent is the potential for these teams to receive a share of any leftover escrow funds. If adequate funds are present in the escrow account at the end of the season, teams with payrolls below the midpoint will receive a second transfer amount of the difference between the payroll midpoint and their available team compensation (CBA, Article 49.7). Continuing with the preceding example, the the Hurricanes decide not to hire Cole, they are eligible for two revenue transfers of $3.7m, the first coming from the shared revenue pool, and the second coming from the excess escrow funds." 

using the criteria in the abstract above, is it any wonder why regier went after the likes of steve bernier, steve moore, raffi torres, steve montador, craig rivet, etc..while they enjoyed the luxury of having various millions in cap-space available?...second-tier players like these would not have a significant impact upon estimates for top-line revenue therefore keeping the team within the guidelines for revenue-sharing...

it's not a be-all/end-all scenario, but for the admitted cost-conscious/break-evan directive handed down by big tom golisano for a team for a team estimated to have negative operating income, you can bet that it was first and foremost in the minds of number-cruncher dipofi and talent analyst/contract-negotiator regier...

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