Kings’ Books Oozing Red Ink

Warning that professional hockey faces a fiscal “catastrophe,” a local money manager who examined financial records for the Kings says his review not only confirms that the franchise is losing millions but suggests the NHL must shut down as many as six teams to survive.

In a report issued Wednesday, Philip Propper, a King season-ticket holder and senior vice president for the Trust Company of the West, blamed league expansion for producing a “broken” economic model that has created a rising tide of player salaries.

The report says the Kings will lose $12.5 million this year, despite aggressive cost-containment, growth in advertising revenues and an indirect subsidy from splitting luxury box and premiere seating revenues with the Lakers, a Staples co-tenant.

Propper’s findings represent a reversal of his original views of the Kings’ financial picture. He asked to examine the data in December, after Tim Leiweke, president of Anschutz Entertainment Group and the Kings, told The Times the Kings had not made a profit under Philip Anschutz’s ownership and had lost more than $100 million. Leiweke also branded as erroneous a Forbes magazine estimate that the Kings had made $7 million last season.

In a statement posted Dec. 19 on the letsgokings.com Web site, Propper said generally accepted accounting principles “are created to show the biggest loss possible to foil the tax man. I’m sure if someone like me got into the books of AEG as a whole, we would find a much bigger picture....

“Numbers can be manipulated in any way one wants to in order to influence different constituencies. If Leiweke wants to fool this particular season-ticket holder by crying poverty, let me look at his books.”

Leiweke took him up on that offer, and Propper pored over the club’s financial records for 10 hours last month. The chartered financial analyst said he found the Kings derive 95% of their $67 million in annual revenues from three sources. The largest, at an estimated $42 million, is ticket revenue, followed by a high seven-figure payment from Fox Sports Net and $7 million from in-arena advertising on the video screens and dasherboards.

On the expense side, Propper said the Kings pay $25.5 million in rent, the cost of game production and travel. By far the largest expense is player salaries, which he estimated at $48 million this year and have been growing at a rate of nearly 19% a year since AEG assumed control of the club.

The report, posted Wednesday night on www.letsgokings.com, went on to make broader assessments of the NHL’s overall financial picture.

Unless NHL officials fix the root cause by eliminating between four and six of its 30 franchises, “Band-Aid” solutions such as revenue sharing between clubs or forcing a salary cap on the players will lead to a long strike next year, when the collective bargaining agreement expires, Propper wrote.

“The NHL has a high probability of not surviving such a catastrophe,” he wrote, predicting that TV contracts would shrivel and shaky fan bases disappear in the newer cities.

NHL officials late Wednesday dismissed Propper’s warnings, noting that he couldn’t make judgments about league finances based on one team’s records.

“A fan’s look at the economics of one team provides a totally insufficient basis upon which to draw league-wide conclusions,” said Bernadette Mansur, vice president of communications for the NHL.

An official with AEG, which owns the Kings and Staples Center, said he was pleased that Propper confirmed the company’s claims that the franchise was hemorrhaging red ink. He sought to distance himself from Propper’s more far-reaching opinions about NHL finances.

“There’s a lot of opinions in [the report] and some of them are pretty far out there,” said Dan Beckerman, AEG’s chief financial officer. “I appreciate his passion and his work, but those are his opinions.”

Propper told The Times earlier this month that he fully expected to find waste and questionable bookkeeping when he reviewed team records. But he said it didn’t take him long to realize that Leiweke was right -- and that the numbers held the clues for a disturbing economic picture for the NHL, which has had two franchises seek bankruptcy protection this season.

“I took one look at these numbers and within an hour the entire scope of the project changed in my mind,” he said, explaining why he took on the entire league. “It was the magnitude of the losses and the shocking revelation that [the Kings] only average 15,000 paid [attendance] last year. I just thought the franchise was in better shape than it was.”

Rather than blame greedy players for the increase, Propper concluded the NHL’s overall financial model was broken. The NHL is “far more dependent” on attendance than other sports, in part because of a “weak” television deal that pays each franchise only $5.7 million a year.

That isn’t likely to improve, Propper continued, because the league is posting anemic ratings, in part because a watered-down “talent pool” has produced a “slower, less skilled product.”

The solution: Contract or collapse four to six of the weakest franchises, making the remaining teams stronger and positioning the league to attract more fans and viewers.

“While contraction will be painful, the costs of avoiding this solution or a similar one will be a bloody work stoppage that could potentially kill the NHL,” he wrote.

Times staff writer Helene Elliott contributed to this report.