Levitt Report - NHL.com

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Arthur Levitt jr.February 5, 2004Commissioner Bettman and theBoard of GovernorsNational Hockey League1251 Avenue of the AmericasNew York, New York 10020-1189Dear Commissioner Bettman and the Board of Governors:The Commissioner of the National Hockey League (“NHL” or the “League”) hasrequested that I perform, under the retention of the NHL’s legal counsel, Skadden, Arps,Slate, Meagher & Flom LLP and Proskauer Rose LLP, an independent review of theNHL’s combined Unified Report of Operations (“URO”) for the 2002-2003 season. Thepurpose of the retention was to advise the Commissioner and the NHL Board ofGovernors whether, in all material respects, the combined URO results for the 2002-2003season reflect a comprehensive and accurate statement of the financial results of theLeague for that season.Assignment:My assignment was to make findings and reach conclusions as to:A. Whether the instructions governing the report of financial information requested bythe League’s URO adequately and appropriately account for and captures the relevantrevenues and expenses associated with operating a professional hockey franchise inthe NHL.B. Whether, based on the use of such verification and other procedures as I deemedappropriate, the member clubs of the NHL have accurately reported the financialinformation requested by the League’s UROs.C. Whether the treatment of affiliated or related company income in the URO is: (a)reasonable for the purposes of measuring the relevant revenues and expensesassociated with operating a professional hockey franchise in the NHL; (b) similar tothe treatment of affiliated or related company income in the calculation of BasketballRelated Income (“BRI”), as that term is defined in the NBA/NBPA collectivebargaining agreement; and (c) similar to the treatment of affiliated or related companyincome in the calculation of Defined Gross Revenue (“DGR”), as that term is definedin the NFL/NFLPA collective bargaining agreement.D. Whether the current relationship between League-wide player costs and League-widerevenues is consistent with reasonable and sound business practices in this industry.43 Owenoke ParkWestport, CT 06880
Conclusions:In accordance with my assignment and based upon the independent review of the booksand records of the League, its member clubs and their affiliates as more fully described inthe report below, it is my opinion that:A. The instructions governing the report of financial information by the teamsthrough the URO, adequately and appropriately account for and capture allrevenues and expenses associated with operating a professional hockey franchisein the NHL.B. Based upon the verification and other procedures as set forth below, it is myopinion that the teams of the NHL have, in all material respects, accuratelyreported the financial information requested by the League’s UROs. Thecombined URO presents a comprehensive and accurate statement, in all materialrespects, of the combined financial results of the entire League, its teams andaffiliated and related-parties with respect to all hockey and hockey-relatedbusinesses of the League and its member teams. For the 2002-2003 season, theNHL has reported combined operating revenues of $1.996 billion and a combinedoperating loss of $273 million before accounting for interest and depreciationexpenses.C. The treatment of affiliated or related-party income in the combined UROreasonably measures the relevant revenues and expenses associated withoperating a professional hockey franchise in the NHL in all material respects andis similar to the agreed-upon measures used in the NBA collective bargainingagreement in calculating the related-party revenues that it shares with the players.D. The current relationship between League-wide player costs and League-widerevenues is inconsistent with reasonable and sound business practices. Playercosts of $1.494 billion or 75% of revenues substantially exceed such relationshipsin both the NBA and the NFL as those relationships are set forth in theircollective bargaining agreements.Background:The League is comprised of 30 teams as listed in Appendix A (Clubs or Teams). TheBoard of Governors has authorized the League office to obtain financial and other relatedinformation from the Clubs in order to annually compile a League-wide combined UROfor each NHL season. The URO is designed to collect financial and certain statisticalinformation from the Clubs in accordance with a standardized set of instructions, theobjective of which is to: 1) reflect the financial performance of the League on acomprehensive and aggregate basis, 2) provide Clubs with information on Leagueaverages and statistics, 3) allow individual teams to rank their particular performancerelative to League-wide performance, and 4) provide the League with information toenable it to assess the financial performance of individual Clubs. These objectives areachieved by requiring the teams to submit financial information to the NHL using2
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Page 26 and 27: Appendix ATEAMMighty Ducks of Anahe
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National Hockey LeagueUnified Repor
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UNIFIED REPORT OF OPERATIONSREPORTI
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Appendix C (cont’d)Arena Novelty
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Appendix EURO REPORTINGOTHER COSTS!
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Appendix GForm of Agreed Upon Proce
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Appendix HForm Of Agreed Upon Proce
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Appendix INHL Summary Statement of
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Lynn E. TurnerAppendix KMr. Turner
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