Examining Colorado Avalanche's Financial Future

The Colorado Avalanche 2010-2011 season is already more than a quarter finished, and the team has shown a resiliency through injury and difficult scheduling to become a surprise contender in the Western Conference for the second year in a row.

However, there is another type of standings where Colorado isn't performing as admirably, the financial arena.

Forbes Magazine recently released their NHL Team Valuations Rankings, and the Avalanche place dead in the middle of the league at #15. Forbes' rankings also give us, the fans, an inside view of the year-to-year state of Colorado's financial situation. (Spoiler? It's not promising.)

The numbers released were from the last completed season, so these numbers are specifically regarding the 2009-2010 Avalanche.

Note: Though the Forbes article specifically mentions the Avalanche missed the playoffs during this fiscal period, the team actually made then Western Conference playoffs as an #8 seed, eventually falling  to the San Jose Sharks in the first round of the playoffs in six games.

Let's get straight to the numbers:

Forbes Magazine rates the current value of the Colorado Avalanche at $198 million, a $7 million drop in value from the previous season and the third straight year that the team's value had dropped. The franchise, purchased by Stan Kroenke in 2000 for $202 million, is now officially worth less than their purchased value. There has been a steady decline in value since 2005, with the exception of a spike in 2008, corresponding with the surprising playoff run into the Western Conference Semifinals.*

*Playoff runs are a boon to a franchise in the short term, with ticket receipts from extra games likely exceeding $2 million in revenue per home game for the first round. Due to the error by Forbes' initial report, it's possible that the Avalanche's value after 2010 remained stable last season because of their postseason appearance against San Jose.

UPDATE: A representative from Forbes' Magazine has since contacted me with clarification. Their figures do include revenue from the playoff home games, though the article failed to mention that Colorado made the playoffs in 2010.

Revenue has remained remarkably stable during that period, though the actual team's value has been in decline, with overall revenue ranging between $79-$84 million over the previous six years.

Stanley Kroenke, the owner of the Avalanche and Nuggets of the NBA, is just barely meeting the debt payments on his Pepsi Center with cash flow from the building. A report by credit rating agency Fitch in September affirmed its ratings on the Denver Arena Trust debt of about $58 million used to finance the construction of the Pepsi Center at BBB- (the bonds were rated A in 2002).

Though the long term prospects for Colorado are promising -- plenty of young talent puts the team in a winning position, and Denver loves to back a winner -- the short term cash flow is a serious issue for Kroenke Sports. Both the Denver Nuggets and Colorado Avalanche (the two main tenets of Pepsi Center) have been struggling to sell tickets this season in a faltering economy, and payroll for both teams has been limited as a result. With the uncertainty surrounding Nuggets' superstar Carmelo Anthony is something that affects Denver NBA fans, it also has a direct influence on the Colorado Avalanche's ability to field a competitive team long-term. Colorado sports fans reaped the benefits of a single owner controlling multiple teams, and are now experiencing the complications created by this type of controlling enterprise. If one team suffers, they all suffer.

The numbers released in this report also go a long way towards explaining the transactions (or lack thereof) since the end of the 2009-2010 season. Avalanche fans grew frustrated as many teams with less cap space than Colorado used this as leverage to pry pieces away from teams struggling to stay below the cap. Quality players, like Dustin Byfuglien, acquired by Atlanta from the champion (but cash-strapped) Chicago Blackhawks were on the market, but Colorado failed to pull the trigger. Byfuglien has proven to be a difference maker this season for white-hot Thrashers team, but would have looked even better in an Avalanche sweater.

Instead of testing the market, the team made contract offers to Chris Stewart and Peter Mueller, barely crossing the salary floor before the start of the season. Even the recent additions of Matt Hunwick, Ryan O' Byrne and Tomas Fleischmann via trade, adding around $4 million (prorated) worth of salary was offset by the subtraction of defenseman Scott Hannan's $3.6 million (prorated) salary. All of the recent transactions had a net-neutral effect on the Avalanche's current salary situation, keeping them just at the salary floor. Different pieces, but the same salary footprint.

So what does this all mean?

Long term? The Avalanche will remain afloat as long as they remain competitive. The economy will rebound and Denver will happily spend money to support a winning team.  TV ratings are actually up; Colorado ranks tenth in the NHL -- well ahead of where they should be for a market of Denver's size. There is plenty of regional interest in the team, but that isn't translating into increased attendance or revenue.

In the short term, however, expect to see the marketing department create more "Game Packs" to fill the seats. For those fans clamoring for a big move at the trade deadline, that one player that can push the Avalanche into serious contention, it appears unlikely to happen in the near future. GM Greg Sherman has stated many times the franchise is committed to building from within. And with the Pepsi Center barely making enough to pay the bills, that should be no surprise. A price decrease, though incredibly unlikely, should be put into place for next season. (It should have been put in place five years ago, when the team's value began to dip.)

In a town where the Broncos and Nuggets have uncertain futures, there is a place for the Colorado Avalanche. It's up to the front office to work towards regaining their market share.