Levitt Report - NHL.com

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However, with respect to broadcasting agreements between NBA teams andRelated-party broadcasters, the NBA collective bargaining agreement providesonly general guidance to allocate these revenues based on fair market valuebetween basketball and non-basketball income.We understand that each year during the audit process, the NBA and NBPAnegotiate over what amount of certain revenues received by Related Partiesshould be included in BRI. In most instances, representatives of the NBA and theNBPA have negotiated resolutions to these various disputes. The NBA collectivebargaining agreement itself contains examples of the parties’ negotiation andresolution of these types of issues. For example, the parties agreed that, becausethe value of the local broadcast agreement between the New York Knicks andMSG Network could not be readily ascertained, the Knicks would include in BRIan amount equal to the value of the Los Angeles Lakers’ local broadcastagreement. Similarly, because the value of the Knicks’ transactions with RelatedParties involving arena signage could not be readily ascertained, the partiesagreed that the Knicks would include a designated amount in BRI for signage andthat this amount would be increased or decreased each year based on League-widechanges in signage revenue. Thus, in some instances, the manner in which theNBA accounts for affiliated or related-party income does not reflect an attempt toallocate income between basketball and non-basketball activities based on any setstandard, but rather is the result of an agreement reached through negotiationsbetween the NBA and the NBPA. In this and other respects, the NHL UROinstructions and our benchmark studies require inclusion of affiliated or relatedpartyrevenue amounts based on mathematical calculations rather than inaccordance with a negotiated agreement as is the case of the NBA and the NBPA.With respect to the NFL, it is difficult to make a meaningful comparison betweenthe URO treatment of related-party income and the treatment of related-partyincome in the calculation of DGR under the NFL's collective bargainingagreement. The NFL infrequently confronts affiliated or related-party accountingissues because few NFL team owners own the stadium in which their team plays.Of those few team owners who also own the stadium in which their team plays,most received significant government funding for construction of the stadium,funded construction through premium seat revenues, or borrowed funds from theNFL, all of which by agreement with the NFL Players’ Association are excludedfrom DGR under the collective bargaining agreement to the extent they are usedfor stadium construction. Accordingly, issues associated with related-partytransactions and how to allocate these revenues between football and non-footballactivities infrequently arise and therefore we did not compare the URO reportingof Related-Party income to DGR.Nevertheless, we took the data compiled during the benchmarking process andapplied our interpretation of the NBA’s BRI standards as set forth in theCollective Bargaining Agreement for treatment of suite, fixed signage and namingrights revenue, whether received by affiliated or related parties or the teams, tothe NHL data in order to estimate what these NHL revenues would be by applyingthe BRI standards. We found the NHL’s treatment of these revenues in the19
combined URO to be similar and the amounts reported in the combined URO notmaterially different from the results of our calculation.22. Mr. Turner and I reviewed throughout the engagement the work and findings ofEisner. I received a report from Eisner setting forth the procedures theyperformed as outlined above and their findings. We also performed a review oftheir workpapers upon the completion of their engagement.Conclusions:Based upon the work performed over the last 10-months as outlined above, the extensivereview of the URO process, the teams’ audited financial statements, the supplementaryaudit reports on the selected URO schedules received from the independent auditors ofthe teams, the agreed-upon procedures reports on selected information from theindependent auditors of a sample of the teams combined with the field visits andinterviews we engaged in, and the extensive benchmarking analysis performed onaffiliated arena and broadcasting relationships, I conclude the following with respect to:A. Whether the instructions governing the report of financial information requested bythe League’s URO adequately and appropriately account for and captures therelevant revenues and expenses associated with operating a professional hockeyfranchise in the NHL.The instructions governing the reporting of the financial information by the teamsthrough the URO, adequately and effectively direct the team to report all revenuesand expenses associated with operating a professional hockey franchise in theNHL.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.Based on our verification and the other procedures we performed and the auditopinions, supplementary reports and agreed-upon procedures of the teams’independent auditors, all as enumerated previously, it is my opinion that the teamsof the NHL have, in all material respects, accurately reported the financialinformation requested by the League’s UROs. The combined URO presents acomprehensive and accurate statement, in all material respects, of the combinedfinancial results of the entire League, its teams, and affiliated and related-partieswith respect to all hockey and hockey-related businesses of the League and itsmember teams.The combined League-wide URO as reported below includes all revenues 4 relatedto hockey, such as Gate Receipts, Suites and Club Seats, Concessions andBroadcasting, regardless of whether recorded on the team’s books or an affiliate’s4 Such revenues are fully detailed in the URO reporting package (Appendix B) and outlined inAppendix C20
Page 1 and 2: independent review of thecombined f
Page 3 and 4: Conclusions:In accordance with my a
Page 5 and 6: The revenues and expenses reported
Page 7: Phase III - Review of 2002-2003:For
Page 10 and 11: 8. We tested the mathematical accur
Page 12 and 13: .Buffalo, the agreed-upon procedure
Page 14: from the licensing of suites and cl
Page 18 and 19: formula which takes into account: c
Page 22 and 23: ooks. Similarly, the combined URO r
Page 24 and 25: team operations are insufficient. F
Page 26 and 27: Appendix ATEAMMighty Ducks of Anahe
Page 29 and 30: UNIFIED REPORT OF OPERATIONSREPORTI
Page 35 and 36: National Hockey LeagueUnified Repor
Page 71 and 72:
UNIFIED REPORT OF OPERATIONSREPORTI
Page 73 and 74:
UNIFIED REPORT OF OPERATIONSREPORTI
Page 75 and 76:
Appendix C (cont’d)Arena Novelty
Page 77 and 78:
Appendix EURO REPORTINGOTHER COSTS!
Page 79 and 80:
Appendix GForm of Agreed Upon Proce
Page 81 and 82:
Appendix HForm Of Agreed Upon Proce
Page 83 and 84:
Appendix INHL Summary Statement of
Page 85:
Lynn E. TurnerAppendix KMr. Turner
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