The bottom third: what the CFL’s releases tell us about the league’s least-profitable teams

One of the key disputed points in the ongoing CFL labour strife is just how profitable the league and its teams are. The players obviously believe they can ask for a substantial pay hike given the massive increase in TV revenues this year, but while the league has agreed they deserve a smaller boost, it maintains getting any closer to the players' proposal would be disastrous for a majority of its teams. Who's right? Let's look at the numbers. In its own statements, the CFL breaks its nine teams down into three distinct groups of three in terms of profitability. Here's a look at the lowest one. See also our pieces on the middle and top groups.

While some of the CFL's teams are obviously doing well, there are others that are struggling. How much they're struggling is up for debate, though, and that may have a lot to do with how this labour dispute is resolved. Just how badly off are the CFL's least-profitable teams? Sadly, full financial statements are only available for the league's three community-owned teams, but they tell us plenty of interesting things, including how small a percentage of revenues goes to player salaries. The argument has been advanced that those teams (which all made over $1,000,000 in profit last year) aren't representative of the rest of the league, though, and there's some merit to that; obviously, these are not the three teams that the CFL says lost money last year. While we can't get a full picture of the financial situation of the league's other teams, though, we can use the numbers that are available and the CFL's public statements to get at least an idea of how things work for the bottom group.

The crucial element in determining the bottom teams' revenues comes from a statement the league e-mailed out Friday. It says the CFL's most recent cap proposal (reported to have a $5 million ceiling) represents an $850,000 increase per team from 2013 in overall compensation, capped and uncapped, and that the CFLPA's most recent proposal (a fixed cap with a $5.8 million ceiling) would represent a $2.4 million increase per team in overall compensation. Most importantly, that statement says three of the CFL's nine teams would lose money in 2014 under the league's proposal (even with a reported $2.7 million per team in extra revenue from the new TV contract), and six would lose money under the union's proposal. That's the division of three low (unprofitable under even the league's offer), three middle (profitable under league offer, losing money under union offer) and three high (profitable under either system) teams discussed early on. If those figures are accurate (keep in mind that they're from the league's perspective), that allows us to come up with some boundaries for where privately-owned teams' revenues in each group must be.

(A quick aside on that TV money: a league source told Herb Zurkowsky it would only be $1.9-2 million per team, which would modify these costs a bit, as some of the money would go back to the league office. However, that distribution is determined by the league. If the league office is taking $700,000-$800,000 per team off the top in TV revenue, that's a total of $6.3 to $7.2 million annually. It's hard to see the league office needing that much extra, and if they do, they should have a good explanation for why they need so much money that would otherwise go to the teams; that hasn't been released so far. Keep in mind these numbers are about an increase, not a total TV deal; the league was already getting some from the existing TV deal. Until we hear what the league office needs an extra $6 million-plus for annually, it doesn't seem unreasonable to use a $2.7 million increase per team as a figure that the league could distribute to its teams if it wanted to. Deciding not to do that is on the league. For those who would rather use $1.9 million as the per-team increase, though, just take away $800,000 from each revenue figure below.)

The three teams that would reportedly lose money even under the league's proposal are widely believed to be the Toronto Argonauts, Hamilton Tiger-Cats and Montreal Alouettes. Interestingly, at least one of those teams was breaking even during 2012, according to CFL commissioner Mark Cohon's statement at the 100th Grey Cup. The Ontario teams have been generally seen as the problem, but the Argos did have Grey Cup revenues that year (it's not clear if Cohon factored those in), so it may have been Hamilton and Montreal losing money in 2012. Regardless, at least one of those three teams is expected to do substantially worse in 2014 than they were a year and a half ago, according to the CFL.

If teams are making $2.7 million extra this year each in TV revenue, but a league proposal that increases player compensation by $850,000 would still cause three teams to be unprofitable, that means a team that was breaking even in 2012 would be expected to do more than $1.85 million worse on its 2014 balance sheet (through either lost revenues or increased costs). Meanwhile, those other teams either also are doing worse in 2014 than they were in 2012, or they were losing so much then (over $1.85 million) that even improvements or holding steady since then still won't make them profitable despite that extra revenue. Thus, if the CFL's public statements are consistent, at least one (and possibly more) of those three teams has taken a major downturn over the last couple of years.

Where is that downturn coming? It would seem unlikely to be from a projected decrease in gate or merchandise revenues, as there's no apparent reason for any of those three clubs to expect a poor season on those fronts. (If there's been a massive season-ticket base decline or substantially declining 2013 revenues, that could lead to lower projections on 2014 revenues, but that hasn't been reported anywhere.) In fact, Hamilton should do much better from an income perspective in 2014 than they did in 2013 thanks to their new stadium and its accompanying revenue increases from suites, naming rights and the like. It could be that one of these teams has lost numerous sponsors, but that also hasn't really been reported. It seems more likely that this is thanks to a projected increase in costs.

What could that projected cost increase involve? Stadium issues are one possibility. The Argonauts signed a new lease last year; perhaps that jacked up the rate they were paying. They're also training at York University this year instead of the University of Toronto-Mississauga; maybe that came with extra costs. If it's the Tiger-Cats with the extra costs, they could be spending more to get Tim Hortons Field off the ground (but most of the costs there are being assumed by other parties, so it seems unlikely it's Hamilton that's taken the real downturn). Montreal doesn't have a perfect stadium setup, but it's difficult to see a drastic recent increase in their stadium costs. One possible answer here is that the Argonauts were considered profitable in 2012 thanks to hosting the Grey Cup; without that money, and with potential new stadium/training facility costs, the decrease of at least $1.85 million makes some sense. They have long-running attendance problems, and while some of those may change with a proposed move to BMO Field, even that's up in the air now. The Argos' situation doesn't look particularly great under any proposed CBA.

It isn't easy to see where the massive costs for each of the other teams come from, though, especially with the new revenue streams in Hamilton's case. Other costs not related to players or stadiums for teams like Winnipeg and Edmonton include the rest of football operations (GMs, coaches, staffers, camp costs, equipment costs), marketing, administration, ticketing and so on, but it's difficult to envision why any of these teams would have massive rises in those areas from 2012 to 2014. Maybe they do, and maybe those are unavoidable, but the league's reluctance to publicize what these teams make and spend means those can't be easily anticipated from the outside.

If these three teams are projected to lose money even under the league's proposal (which the players seem unlikely to agree to), do they have any hope for the future? Yes. First, it would seem possible that they might be able to reduce their costs. The Eskimos cut their operating expenses by $1.6 million to $17.2 million in 2013; perhaps these teams can find similar savings. Beyond that, there's always the chance of increased gate or sponsorship revenues if the team does well (on and off the field). Going even further, though, there's a case for increased league-wide revenue sharing (which the CFL had before the CFL USA era). If these teams can't make money even under a proposal that's incredibly generous to the league, perhaps the more profitable teams need to help them out a bit. Even without more revenue-sharing, though, all of these teams could find success down the road. They just seem unlikely to this year, regardless of what CBA is eventually settled on.

Also check out our pieces on the finances of the middle and top groups of CFL teams.

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