Pro Football In Ottawa Profit Or Loss

Essay, Research Paper

Table of Contents

1. Introduction…………………………………………………………………p…2

2. Hypothesis….………………………………………………………………p…3

3. Literature Review..…………………………………………………………p…4

4. Methodology………………………………………………………………..p…7

4.1 Survey………………………………………………………………p…7

4.2 Example of the Survey……………………………………………p…8

4.3 Statistics……………………………………………………………p…9

4.4 Comparative Approach……………………………………………p…9

5. Analysis……………………………………………………………………..p…9

5.1 Survey Results………..…..………………………………………p…9

5.2 Stats Can Results…………………………………………………p…10

5.3 CFL Stats Results…………………………………………………p…10

5.4 Break Even Analysis………………………………………………p…11

6. Recommendation/Conclusion…………………………………………….p…12

7. Bibliography…………………………………………………………………p…15

8. Self-Evaluation………………………………………………………………p…13

1. Introduction

Between 1876 and 1996, Ottawa was home to the professional football team know as the ‘Rough Riders’. After spending most of their last years on financial life support, the Rough Riders died a quick death in November 1996 when the Canadian Football League (CFL) revoked their franchise. The team began accumulating debt in 1985 under then-owner Allan Waters of Toronto, sparking an endless series of financial battles between city hall and the different owners in which came and went. With former mayor Jim Durrell at the helm, the Riders were given two weeks in August 1996 to raise $1.25 million in sponsorship and season ticket sales. The team attracted its biggest crowd in more than a decade for a home game on Aug. 30 and was given the go-ahead to finish the year. Because of withstanding debt and the CFL unwilling to pay the team’s bills, the franchise was forced to fold in November of 1996.

In early March of 2000, the CFL’s president and chief operating officer Jeff Giles announced that professional football would return to Ottawa for the 2001 season. Candidates for the new ownership position are being evaluated by Giles himself and it is expected that a decision will be made by June this year. However, the real question remains that of profitability. Can a professional football team survive in Ottawa? More importantly, can it generate profit?

This research paper will attempt to answer these questions and perhaps discover new ones. One of the first steps involves presenting a comprehensive summary of the existing research and articles. This will including the most recently published related to the rebirth of professional football in Ottawa. In addition, the research plan as well as a brief explanation of the types of methods used to research the topic, will be discussed followed by an analysis and detailed discussion of the results. Nevertheless, the first part of this paper considers a possible hypothesis, which has been determined, before the research was begun.

2. Hypothesis

First and foremost, why would anybody want to embark on such a risky venture? The organization financially collapsed in 1996 after a series of deficit and losses began in the mid-eighties. Has anything changed in the past five years? What makes people think that this type of investment will all of a sudden be profitable again? At first look, it is safe to assume that owning a professional football team such as the Ottawa ‘Rough Riders’, would not be a profitable investment. Since franchise fees are paid out to the CFL, it could be agreed upon that the CFL president is simply looking out for the leagues benefit and prosperity in the event of new teams. In other words, Giles is probably acting as a sales person and does not really care about the risk factor accompanied with the ownership of a team. Therefore, his promises and forecasts on the future of football in Ottawa should not be taken too seriously. On the flip side, a football team in Ottawa could have a positive economic impact on the region, regardless of the owner’s fate.

Another predicted outcome of this research is the relation between the high amount of demand for attending pro football games by actual amateur football participants. Unfortunately, it is also assumed that many of these participants do not attend games. The idea behind this hypothesis is simple. The concept is that increasing the availability and possibility of having more amateur football participants attend Ottawa Rough Rider games, will broaden the fan base and consequently increase profit.

3. Literature Review

The best articles concerning the possibility of a professional football team here in Ottawa have been found in newspapers. The Ottawa Citizen and the Sun have provided up to date information on the matter. The search for an owner has lasted for about a month now. One way of forecasting the profitability of having owning a team can be seen by the amount of business people looking to invest in such a market. For example, Giles has already dealt with a few applications such as the one discussed in the Citizen: “At this point it was an exploratory visit,” Giles said last night. “Mr. Orlick has been looking at a number of business opportunities to own a sports franchise and he’s one of a number of interested parties.” The article also mentions that along with a few Canadian investors, numerous Americans are interested in the offer. “I would hope in the next 10 days or so I can have another group here looking at the franchise,” added Giles, who said he also has another American group and a Canadian investor considering an Ottawa football team. There is no surprise why so many Americans are interested in investing in a football team in Canada. For example, “Startup costs, including a franchise fee and three years of operating expenses, should be between $7 million and $10 million, Giles said.” Realistically speaking, that figure is far smaller than what it costs to start up just about any sport franchise in the United States, especially football.

On the other hand, it could be in the best interest of the league to consider a Canadian owner. A Canadian owner would probably be appreciated better and hold a stronger image with the community. In the past, Canadian football fans have not really admired American owners or group owners because of their lack of managing skills. Take for instance the article that summarizes the Rough Rider’s troubled past: “1987 — Team owner Allan Waters sells the team to a local group of 27 investors, the first of five new owners in less than a decade. The franchise had a net loss of $2.46 million for the year, leaving a $511,450 deficit. – 1989-90 — Both the city and region try to help by giving money to the ailing team as losses increase and investors move on. – 1991 — The CFL takes over the team when the six remaining investors quit.- 1991 — Detroit real estate developer Bernie Glieberman and his son, Lonie, buy the team for a dollar.- 1994 — The team is in financial trouble again and the CFL begins to search for a new owner.” The article (as well as the media in general) makes several humorous comments about the poor leadership display executed by previous owners. For example, the Canadian Jeff Hunt (the present owner of the Ottawa 67’s hockey club) would be an ideal candidate for the job. “Hunt has expressed interest in being the front man for a new ownership team after balking at paying the CFL’s $2-million expansion fee himself.” Unfortunately, another article later revealed that Hunt was financially unable to meet the three-year necessary commitment in which Giles expects: “A guy could lose $7 million to $8 million … turning things around in Ottawa. I don’t have that kind of money.” Another possibility is that Hunt assumes a co-ownership role and acts mostly as a spokesperson. “In the perfect Ottawa scenario, a guy like Jeff Hunt, the dynamic young owner of the Ontario Hockey League’s Ottawa 67’s, would have a minority ownership position and be the front man for the franchise.” This scenario is probably the most favorable one in which offers greater chance of aiding profitability. In addition, Hunt seems to be in favor of the idea: “[Giles] has talked to me about playing a similar role to Larry Smith (former CFL commissioner) in helping Alouettes owner Bob Wetenhall in Montreal. That’s something that might interest me.”

Other relevant articles have compared Ottawa to other cities in Canada. “[Ottawa is] the fourth largest market in Canada and will help the league expand its television footprint.” Ottawa’s size is no doubt a key feature when comparing it to other established teams in the nation. Presently there are eight CFL teams in Canada. Their financial situations have been well documented. “Of the league’s teams only two, Winnipeg and Saskatchewan, are somewhat shaky. Some CFL teams are extremely healthy. The Calgary Stampeders, for instance, broke through the 17,000 season-ticket sales mark on Friday for the coming season.” In addition the rebirth of the Montreal Alouettes is nothing short of remarkable, with seven sellout crowds last season at the McGill University stadium.

However, one important question still stands: What has changed since the departure of the Ottawa Rough Riders in 1996. Several articles mention the progress in which the CFL has made and explains how those changes would benefit a profitable situation. “We’ve turned the league around,” said Giles, who predicted CFL profitability within two years. “The Canadian Football League is a very different organization than it was at the end of 1996 when we left Ottawa.” If the CFL’s overall popularity increases, naturally speaking, the demand for the sport will increase in Ottawa as well. “Attendance is up 15 per cent, averaging almost 24,000 a game. TV viewership is up considerably. All this has quadrupled corporate support, said Giles.” If indeed the league is attracting more demand, then yes, it could be believed that things have changed. In order to verify this notion we must first consider the necessary methodology which will shape this research’s conclusion.

4. Methodology

4.1 Surveys

The questionnaire was comprised of nine questions, mostly yes or no type answers. The intent was to create a questionnaire that would not appear long and annoying to individuals. In addition, individuals were informed the nature of the survey and why it was being conducted. In other words, this let people know that the research was not actually related to the outcome of whether or not the franchise will actually return to Ottawa. The purpose of this was to attempt to eliminate the idea that individuals have to project “a nice person image”.

The total sample size included sixty individuals. Thirty people were chosen randomly on an Ottawa internet chat line. The only requirement was that they be Ottawa residents. The remaining thirty individual were chosen by myself and they are actual amateur football player. Once again, individuals were reminded that their answers would have no direct effect on the future of pro football in Ottawa.

4.2 The actual survey questionnaire read as follows:

1. What age group do you fall into: a) under 18 b)18-30 c)31-50 d)50 and over

2. Sex: Male __ or Female __

3. Do you watch the CFL on television ? Yes __ No __

4. Do you no anyone who has attended a professional football game?Yes __ No__

5. Have you ever attended an Ottawa Rough Rider football game? Yes __ No __

6. Would you consider attending games if the team returned? Yes__ No__Maybe__

7. If you chose Yes for question 6., would you…

a) Purchase season tickets b) go at least five times a year

c) go at least once a year but less than five.

8. If you chose No for question 6., what would be your reason?

a) I don’t like (or don’t understand) football or I don’t like the CFL

b) can’t afford it

c) Transportation is a problem

9.Would you attend a game if someone invited you and took you along?

Yes__ No__

4.3 Statistics

Statistics used will come from Stats Canada, as well as from the CFL itself. This will provide a more generalized conclusion once combined with the survey results. In addition, statistics may help project future trends related to the demand for such a market.

4.4 Comparative Approach

By comparing the existing CFL teams attendance, an average will be calculated in order to assume a typical forecast. The eight teams will include: The British Columbia Lions, The Calgary Stampeders, The Edmonton Eskimos, The Saskatchewan Roughriders, The Winnipeg Blue Bombers, The Hamilton Tiger-Cats, The Toronto Argonotes, and The Montreal Alouettes.

5. Analysis

5.2 Statistics Canada Results

According to statistics Canada, 1.6% of the total population over 15 years of age in 1998 played football. This figure is based on the 387 thousand football players in Canada over the age of 15. Football is also recognized as the tenth (tied with downhill skiing) most popular sport amongst males aged 15 and over in 1998. The total population for the Ottawa-Hull metropolitan as of July 1, 1999 was 1,065 millions. This allows the na?ve assumption that there are at least 10 thousand amateur football players in Ottawa. Of course, this assumption is not accurate based on the fact that we can not say for sure that 1.6% of the Ottawa-Hull metropolitan area plays football.

5.3 CFL Statistics

Team: 1999 Total Attendance

The British Columbia Lions 223,617

The Calgary Stampeders 297,532

The Edmonton Eskimos 237,986

The Saskatchewan Roughriders 172,534

The Winnipeg Blue Bombers 199,485

The Hamilton Tiger-Cats 231,887

The Toronto Argonotes 217,090

The Montreal Alouettes. 205,211

Based on these attendance numbers, the average annual attendance for a CFL team is 223,168.

5.4 Break Even Analysis

In order to calculate the break even point for the possible new Rough Riders, we must first examine the total costs and expenses of owning the team. This will be done using the 3 year period suggested by Giles. Expenses are: Entry fee + Player, Coaches, Trainers and other personnel + Equipment Fees + Leasing of Lansdowne Park + Travel fees. Lansdowne is presently owned by the Regional Chair Bob Chiarelli and there has been recent talk that an agreement could be made possible concerning leasing Lansdowne Park. The agreement would consist of the Region obtaining full rights to the parking lots and profits they may attract while the franchise would only have an annual fee of approximately 650 thousand dollars for repairs and maintenance of the stadium.

If so the expenses would be summed up as follows:

Entry fee—————————————————- $2.5 millions

Salary cap*————————————————– $7.5 millions

Maintenance and repairs——————————–$ 1.95 millions

Equipment————————————————– $0.62 million

Travel——————————————————– $2.76 millions

Total over 3 years: $14 millions

Salary cap refers to the maximum each team is allowed to spend ($2.5 millions a year) on personnel including coaches, players, and trainers.

The capital generated from ticket sales including corporate sponsorships would account for the franchise’s total revenue. For arguments sake, lets assume that the team does not raise any corporate sponsorship and that the attendance equals 669,504 over three years (based on the earlier assumed yearly attendance of 223,168). The Break even point equation would read as follows:

T.C. [$14 millions] = average ticket price x 669,504

The average ticket price would have to equal $20.91

According to the an article posted SLAM! Sports: “in1999 – The League enters the final season of the millenium on the heels of increased attendance and larger telelvision audiences. Figures from the 1998 season show a increase in attendance of 6.1% as well as a 26.6% increase in TSN television viewers aged 2+. The 1998 Grey Cup game drew 3.06 million viewers, up 20.5% over 1997.” With such figures, one can only imagine the revenues expected from corporate sponsorships. Based on the $20.91 average ticket price, the teams profit would be directly related to the total corporate sponsorship dollars.

6. Recomemdation & Conclusion

Tracing back to the original hypothesis that was stated at the beginning of the research, it appeared clear that the future of professional football here in Ottawa was not favorable to eager investors. With some surprise, the research revealed that there is a possibility for profit just as long as corporate sponsorship is achieved. In addition, we should consider that the salary cap amount chosen for the break even analysis was that of the maximum allowed by the league. In other words, the team would be very competitive and be able to afford some of the best players, staff and overall talent available which give a team success, recognition and more sponsorship. Lansdowne Park is a gold mine no doubt, with a maximum capacity of 30,000, management could easily fit their desired amount of attendance with room for increase in demand.

It is precisely this increase in demand which brings about the next point. The one recommendation generated by this research is at par with the second hypothesis and it is seen with in the survey results. The truth behind the hypothesis is that more than half of the total amateur football players is interested in attending games. More importantly, the reason why they don’t go to the games is so different from that of non-football players. Non-athletes don’t go to games mostly because they simply don’t want to go. On the other hand the majority of athletes who don’t go, blame it on not being able to afford it. Many of these amateur football players are students and can’t afford a night out at the ball game. Perhaps the $21 ticket would appeal to those who figured they could not afford it. Unfortunately, the survey was conducted before the analysis began. Then again, the result is misleading and could have been caused by the nature of the survey question. People want to give ‘the nice person image’. Despite efforts to eliminate this effect, people still answered what they thought we wanted to hear. The fact of the matter is, that they are probably just not interested. Nonetheless, effort should be attempted to mediate the situation. One recommendation, which could be offered, is that of a discount for amateur players. This allows for a broader demand, a demand that would not be present without the discount and yet does not affect the demand of the already established market.

7. Self-Evaluation

This research lacked in terms of testability. The sample size is really to small in order to eliminate the margin of error. The attendance figures are average figures of the league’s total and are not definite measures. However, actual total expensed appear to be legitimate approximations as long as the deal between the region and the team follow through. Despite the fact that no corporate contributions can be approximated just yet, the CFL itself definitely appears to be on the up and coming. Therefore the attention the game will provide should attract the necessary sponsorships.

In terms of the way the research was conducted, if a second chance was to present itself, the first survey would not have been conducted via the internet. It was initially thought that responses would have been easily obtained since most internet chat users are eager to chat about pretty much anything. The truth is, nobody likes surveys. Even though the questionnaire was only nine questions long, the fact that it had to be typed out for 30 different people over chat lines was very time consuming.

1. ENDICOTT, SCOTT. The Ottawa Citizen, Wednesday, 8 March 2000. Realism revives hope for Riders

2. CASEY, TOM The Ottawa Citizen, Thursday, March 9, 2000. Answer on Riders’ possible return to come by May

3. LEROUX , JACKI Ottawa Sun, Wednesday, April 5, 2000. Developer eyes Rough Riders CFL prez shows Bytown to possible buyer

4. MURRAY, CAROLINE Ottawa Sun , Tuesday, March 7, 2000. Into the end zone CFL looks for game-saving play in Ottawa

5. STEVENSON, CHRIS SLAM! Sports, Monday, March 6, 2000. Giles wants CFL in Ottawa

6. Statistics Canada 1998

7. The CFL’s Statistics 1999

8.THORNE, STEPHEN Canadian Press Monday, March 6, 2000. CFL looks south for new Ottawa franchise owner