Explaining Southern California's economy

NHL lockout? It wouldn't help the LA Kings' already iffy finances

2012 NHL Stanley Cup Final ? Game Six

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The Kings celebrate on ice on their way to a Stanley Cup. But they should get too excited. The team is losing money and the fourth NHL lockout since 1992 looms.

There's a very good chance that, unless NHL players and owners can come to some kind of miraculous eleventh hour resolution, the league will be dealing with its fourth lockout since 1992. As CBSSPorts.com points out, with each stoppage has come a bigger hit to the pro hockey schedule, culminating in the loss of the entire 2004-05 season. 

In Los Angeles, this means that the Stanley Cup-winning L.A. Kings may not enjoy the full fruits of their first season after a stirring victory. Some obvious question arise. If a lockout comes, how much will it cost the players? What will be the local ecoomic impact?

Those are relatively simple to answer. Some players, depending on where they are in their contracts (which pay out more in some years than in others), will feel some pain, although as Bleacher Report notes, a few players could head to the Kontinental Hockey League and garner reduced wages there.

The local economic impact, as we learned last year when the NBA lockout pushed the start of the season from November 1 to Christmas, is not insignificant. But as we also learned, L.A. has a nicely diversified economy and isn't ultimately dependent on the Lakers and the Clippers to get by. If an NFL team comes to town, this diversity will be even more greatly enhanced.

A more worrisome question is: "What will this do to the fortunes of the Kings?" 

As NHL teams go, the Kings aren't in great shape. There were rumors, reported last May by the N.Y. Post, that AEG, which owns the Kings, wanted to unload the team. AEG's Phil Anschutz, along with partner/rival Ed Roski, bought the team close to two decades ago for $113 million. Now, all around him, Southern California pro sports teams are selling for big money. The Dodgers for more than $2 b-b-billion. The Padres for $800 million. Okay, those are baseball teams. But a Stanley Cup-winning hockey team has to be worth a few hundred million, right?

There's certainly every chance that AEG and Anschutz may need to spend some money to attract an NFL franchise to L.A. in order to secure the future of a new downtown football stadium adjacent to Staples Center. And selling his half of the Kings would allow Anschutz to concentrate on having a proper rivalry with Roski, who had his own competing plan for an L.A. NFL stadium to be built in City of Industry, east of L.A.

But besides all that, the Kings' financials don't look all that great, at least on paper. Forbes rankes them as the tenth most valuable NHL team, at $232 million. For comparison, the number one team, the Toronto Maple Leafs, is worth $521 million. The number nine team, the Pittsburgh Penguins is worth $264 million. But both the Maple Leafs and the Penguins have a far lower debt-to-value ratio than the Kings. The Leafs are at 25 percent, the Penguins at 38 percent. The Kings? They're at 66 percent. That means two-thirds of the Kings total value is effectively mortgaged to creditors.

Meanwhile, the Leafs had an operating income of $82 million in 2011. The Penguins lost money — $200,000 — but the Kings lost ten times more: $2 million. In fact, the Kings lost far more in money in 2011 than any other NHL team in the Forbes top ten. Overall, as top ten NHL teams go, the Kings' financials look the worst.

Speaking of Forbes, one of their sports-business guys, Chris Smith, argues that the Kings shaky finances would only be compounded in their negative impact by a lost season, which could see even a championship team get lost amid all the other teams that play in and around L.A. 

Losing money is nothing new for the Kings. Back in 2003, the L.A. Times reported on an unusual audit that a season ticket holder was able to undertake. In that article, the Times said that the Kings were on track to have lost well over $100 million dollars since the Anschutz purchase in 1995. And the piece countered the suspicion that the Kings' history of losses was a type of tax shelter. It seems that the team has usually lost money just because...it's lost money.

The Kings gave Los Angeles much to cheer about by bringing a Stanley Cup to the city for the first time. Unfortunately, that good Karma on ice may now be wasted, as a lockout looms. In which case fans can go back back to worrying less about the Kings' trophy case and more about its bottom line.

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