Monday, September 17, 2012

Did President Obama force John P McConnell's hand?

I love the role of Government and National Leadership.  I hate, hate, hate politics and roller hockey guys.  That being said, two of my favorite politicians are Ronald Reagan and Bill Clinton.  Regardless of their individual politics, those two guys could work a room, crack a smile, sincerely get conversation started, and at least make you think that Washington was about solving the problems of constituency.  But sadly, Washington today is not unlike NHL ownership: moderates on either side of the aisle are gone from roles of leadership, good discussion can't be found, the other guy says the other guy's plans won't work, and fans (voters) are left either enraged or apathetic.  Wow, that got deep.

One could only image what the Gipper said
to make Slick Willey blush. "An NHL team in Little Rock?!?"
Much like the voice over in Bladerunner, I debated on whether to do this this piece.  The NHL lockout and the Presidental campaign are tired, encumbering pieces of news.  For this piece to be thought provoking you have to buy into two things: 1) the notion that John P McConnell is using his wealth gained from being a share holder of Worthington Industries to help fund the Blue Jackets as they continue to lose money.  Without reviewing a tax return no one can confirm this, but I wouldn’t speculate this point if it was just something I heard “some guy say.”  2) Clear your mind of politics young Jedi and focus on some tax code facts.  Don't worry, there are plenty of links to follow and I don't bash the President.

NHL revenue is at an all-time high as is the net worth of all NHL franchises (or are they?).  The Columbus Blue Jackets are an NHL franchise in shambles both on the ice and financially.  The majority owner of the Blue Jackets, John P McConnell, has been using his own money to help minimize the teams loses and supplement operating capital.  Financially, it makes sense to put money back into the franchise, even if your team doesn’t turn a profit, provided the amount of money supplied to cover the losses doesn’t out strip the growth of Net Worth. Oh no, I’ve gone cross-eyed.  Bear with me here...

Father and Son.  Son, with the "Ray Bourque" inspired hair-do.
John P McConnell is putting money from his own pocket back into the money losing Jackets, much like any start up business owner with a bad lease would do.  A portion of this income that is put back into the Blue Jackets is generated by the dividend payments from his Worthington Industries Stock (along with other investment income).  Let’s do some simple math.  John P McConnell owns 1,238,014 shares of Worthington Industries.  Let’s assume he can do what he wants with each of those shares (I skipped some fancy compensation/stock option stuff here) and just collects dividend payments from them.  In 2011, the dividend payment was 42 cents per share, or $519,965 on 1,238,014 shares.  With the current tax code in place, that leaves JPMac with $441,970 to put back into the Blue Jackets after dividend taxes.  It’s not a huge number, but that portion could cover payroll for grunts in the ticket sales department and the equipment staff – commoners like us.

The current augmentations to the US Federal tax code expire on December 31, and it's very likely that folks making more than $200,000 a year, or couples making more than $250,000 per year will see significant tax increases on investment income.  Screw the rich?  Well, that's up to you to decide.  But whether you’re a fourth line grunt on a 30th place hockey team or Warren Buffet, a significant tax hike is coming.  One law is already scheduled to take effect January 1st and will not be repealed is the PPACA – a 3.8% surcharge on all investment income to those making $200/$250k or more.  Two more significant tax increases are coming for dividends payments in the form of the expiration of the EGTRRA and JGTRRA.  The expiration of these two nearly doubles or triples the dividends tax for every American citizen but essentially it moves the tax on dividends from 15% to 39.6% for Mr. John P. McConnell’s (and Derek Dorsett's) tax bracket.

The evil rich - yes, he is in the same tax
bracket as Warren Buffet. #BecauseHesRich
When Majority owner John P McConnell does his taxes in April of 2013, the percent of tax on dividends goes from 15% to 43.4% (39.6 + 3.8 = 43.4) - Which turns that $519,965 into $291,180 (instead of $441,970) after taxes.  Wow, that's a big decrease whether you care about the rich or not.  My family pays $300 a month + travel expenses for my son to pay travel hockey.  If my taxes more than doubled, you know the first thing to get cut?  HOCKEY.  My son can play house hockey – or likely make the Dublin Scioto Varsity team as a 6th grader.  Anyways, the amount of available income John P McConnell has to spend on the Columbus Blue Jackets from his own pocket will go way down.  That same hobby horse is rumored to have lost 8 figures last year.  Even with the arena deal in place, he could still be millions underwater with the Blue Jackets if this season was played as planned.  His team is still slated to loose money under the current revenue system and he's about to pay double on investment income that he reinvests into the team.  How is John P McConnell in ANY WAY MOTIVATED to keep the Blue Jackets running under these conditions?   

John McConnell is in no way a victim here.  By voting for a lockout he literally gave Franklin county and Nationwide Area the proverbial middle finger.  To me, this is inexcusable.  Still, John P McConnell will have much less of that discretionary income as of January 1st, 2013 - considerably much less money to put into da Blue Jackets.  I’d be tired of putting money back into a losing franchise too, especially if the federal government reduced the available after tax funds I could put back into a loser hockey team.  HOWEVER, there is a point when you need to be considerate of the folks you directly employ (the Blue Jackets franchise) and folks you indirectly employ (the hot bartenders in the arena district) - the lasting image of a labor lockout: the poor huddled masses longing to gain income from 41 home games.  The image of the lockout I have in my head is one of Gary Bettman walking around in his office well after midnight in nothing but a goalie cup and sock garters saying to himself, "Who Run Barter Town?"  The NHL lockout metaphor runs deep in that film clip, no?


Not one, not two, not three, not four, but five - I want five NHL lockouts
It’s painful to see a juxtaposed John P McConnell - and possibly a Mad Max themed Gary Bettman.  A man beleaguered by his hockey team’s performance and it's subsequent profitability.  He is further frustrated by the 35% less personal cash resources he'll have to put back into the team in order to minimize losses – Red or Blue, every fan of the CBJ should understand that impact on the team.  What is a rich guy to do?  What is a fan to do?  If you are like me, when you go to polls in November and don’t know which idiot to vote for – vote for the presidential candidate that wants to get an individual majority owner more cash to put back into his floundering NHL franchise. But seriously, I honestly don't care which way you vote so long as you get out there and do it.  Sons and daughters of this great nation haven't died so you can whine about an NHL lockout on twitter, they've died so you can get out there and vote for sheriff, congressmen, and Presidents.  Still, I can't fight the feeling that a noticably increased tax on dividend payments didn't influence money losing owners to vote for a lockout.  Too bad we can't vote on NHL commissioners, right?  See, Oligarchy.

3 comments:

  1. The biggest shame(sham?) in all of this is that the fans really don't mean SH** to the owners. The six or eight franchises that are well off now will still be well off when this all is resolved. The rest will just be the rest. And if a franchise doesn't have a resilient fan base, then it must not have been a good market in the first place. Thank God for Vinny Prospal. I just hope he still has a spot on whatever team plays when the games resume.

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  2. Great post. Speaks to how tenuous these shiny baubles (like sports teams) really are.

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