Levitt Report - NHL.com

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standard instructions and to include financial information on affiliated and related partiesusing common definitions so as to present a combined URO for the NHL as a whole.The 30 Teams represent 30 different businesses with different histories and uniquebusiness arrangements. For example, the teams have different owners and ownershipstructures, different financing arrangements, different contract terms with themunicipalities and facilities in which they play, and different sponsorship and mediaarrangements. It should be noted that all teams play in venues used also for non-hockeyevents, including college basketball (e.g., Carolina Hurricanes and North Carolina StateWolfpack), professional basketball (e.g., Los Angeles Kings and the Los Angeles Lakersand Los Angeles Clippers), rodeos (e.g., Calgary Flames and the Calgary Stampede), andconcerts. The relative significance of hockey to non-hockey events varies widely fromarena to arena. In some instances, such as in Columbus, the facility is owned by anindependent unrelated third party. In other instances, a municipality may own thefacility, while in still other instances the team owner may own either a controlling interestor a minority interest in the facility. Because of the economic and businesscircumstances unique to each of the teams, the UROs and URO instructions are designedto include all hockey-related revenues and expenses of each team, regardless of how thatteam is legally structured, operates or the ownership of the facility it plays in. The goalsof the URO are to provide instructions to the teams so they report their business activitieson a comprehensive basis using standard instructions and enable the compilation andpresentation of a full and accurate statement of the League’s combined financial resultsbased upon a comprehensive picture of the entire business of hockey, including allrevenues and expenses related to operating an NHL franchise.NHL’s Financial Reporting: The Unified Report of Operations:Pursuant to League rules, each team is required to prepare a URO and submit it to theNHL League office. At the end of each season the League office issues updatedinstructions to the teams on how the URO is to be prepared, along with a reportingpackage in electronic format to be completed by each team. The 2002-03 UROReporting Package and Instructions are included as Appendix B.A team’s URO is required to include all hockey related revenues and expenses, regardlessof whether they are recorded by an affiliated entity or by a related-party. This is toinclude all hockey related revenues such as gate receipts, broadcasting, media and arenarevenues, and all expenses such as player costs, team operating and development costs,arena and building costs, marketing and general and administrative costs. The URO hasdetailed supporting schedules for reporting revenues, player costs, team operating costs,team development costs, arena and building costs, general and administrative costs,advertising, marketing and public relations costs, balance sheet, cash flow fromoperations, debt, related-party/affiliated entity transactions, allocations, building statisticsand compensation cost for players. Each team’s URO includes a share (1/30th adjustedfor currency) of the revenues and expenses generated through the League office, such asnational broadcasting, national licensing and League administration costs. Attached, asAppendices C, D and E are lists of the specific revenues and expenses required to bereported in the URO by each team.3
The revenues and expenses reported in a team URO may be different from the revenuesand expenses reported in the team’s audited financial statements. The audited financialstatements generally only include the revenues and expenses of the legal entities beingreported upon. For instance, a team’s audited financial statements would not includerevenues derived from game day concessions or dasherboards if those revenues werereported by a related-party. Therefore, the audited financial statements are notcomprehensive enough to include hockey-related revenues and expenses reported byseparate affiliated entities or related parties or may include non-hockey revenues orexpenses. The teams are also required, as part of the URO reporting process, to provide areconciliation of the revenues and expenses reported in the “Club” columns of the UROwith those reported in the audited financial statements. The League office periodicallymakes supplemental information requests of the teams for data to support the URO andtest the team’s compliance with URO instructions.Project Summary:Background and Purpose:Commissioner Bettman initially contacted and met with me in February of 2003. Duringthat meeting, we discussed the four questions enumerated earlier in the report that hewanted me to address. He was emphatic in his instructions that the review proceduresshould be designed in a manner I deemed appropriate, and that I would have access toany and all the data I needed to perform the assignment. Moreover, CommissionerBettman made it clear that my review of the League’s finances and my report thereonshould be independent, even if my findings were dramatically different from thosereported in the combined URO. In order to undertake this comprehensive, complex andtime-consuming assignment and to ensure we maintained the independence of our workand integrity of the results, I directed the NHL to retain the independent accounting firmof Eisner LLP (“Eisner”) to provide the resources necessary to perform the procedures.In addition, I directed the NHL to retain Lynn E. Turner, currently a Professor andDirector of the Center for Quality Financial Reporting at Colorado State University and aformer Chief Accountant of the Securities and Exchange Commission, to oversee theirwork. In order to answer the assigned questions, Turner, Eisner and I jointly designed aset of procedures so that, based upon our independent review, we could conclude ourassignment. Eisner, Turner and I are independent of the NHL and its teams and haveperformed no other services for them. The NHL had paid all of the fees due for myservices at the time of my retention, and no fees were contingent in any manner upon thefindings of this report.We commenced our work in April 2003 and completed it in February 2004. During that10-month period, over two thousand man-hours were incurred by Eisner, Mr. Turner andmyself. In addition, thousands of man-hours were spent by the League and teampersonnel collecting data, meeting with us, and answering our inquiries. Further,thousands of man-hours were spent by the teams’ independent auditors in theperformance of their audits and the special procedures requested as a part of the project.4
Page 1 and 2: independent review of thecombined f
Page 3: Conclusions:In accordance with my a
Page 7: Phase III - Review of 2002-2003:For
Page 10 and 11: 8. We tested the mathematical accur
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Page 18 and 19: formula which takes into account: c
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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
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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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