- The Washington Times - Tuesday, April 18, 2006

The Washington Capitals are expected to reduce their financial losses by nearly 75 percent this season because of a lower payroll and a new financial structure for the NHL that will provide the team with millions of dollars in revenue-sharing payments.

Caps owner Ted Leonsis said he expects to lose about $5 million this year, a sharp change from past seasons when high payrolls contributed to tens of millions of dollars in losses. He also said the team should be profitable by next season as long as fan interest increases.

As in recent years, on-ice success was hard to come by this season. But Leonsis said young players like Alex Ovechkin, the first pick overall in the 2004 NHL draft, have given the franchise a solid, yet inexpensive, foundation for success.

“We’re a young, growing team, and there are better days ahead,” Leonsis said.

Convincing fans of that has been the hard part.

The Caps averaged a little more than 13,800 fans a game this season — they averaged 14,720 in 2003-04 — placing them 28th in the league. But for most games, the Verizon Center appeared to be less than half-full.

NHL official attendance figures represent “tickets distributed” rather than tickets sold, but Leonsis said the difference between the two figures is minimal because the team generally gives out just 1,000 tickets a game to sponsors and other groups.

Overall, the team’s revenue dropped 8 percent this year, largely because of a 16 percent decline in money from ticket sales. But a payroll of a little more than $30 million — down from more than $50 million two seasons ago — and a yet-to-be determined revenue-sharing check from the NHL, has brought the team closer to profitability than at any time since Leonsis bought the franchise in 2000.

Leonsis attributes the drop in revenue to his decision to cut ticket prices. The Caps’ average ticket price was $38.15 this season, placing them 21st in the NHL, according to Chicago-based Team Marketing Report. The team lowered prices about 12.4 percent before the season, while the average reduction was 7.5 percent in response to the lockout that canceled the 2004-05 season.

“Our prices are as low or lower than they were five years ago,” Leonsis said. “We have to build a good team and get pricing back in line with the rest of the league.”

The team’s group sales rose 30 percent, and walk-up sales increased 32 percent this season, which Leonsis said can translate into future season ticket sales.

The Caps had fewer than 9,000 season ticket holders this season, about 60 percent of the total during the team’s peak in the late 1990s. The team was plagued by a lack of renewals after the lockout — about two-thirds of ticket holders returned. Most teams seek a renewal rate of more than 80 percent. But Leonsis said half of existing season ticket holders already have re-upped.

Leonsis made an effort this season to change the team’s marketing and media strategy. The Caps spent considerably less on traditional advertising, relying more on the Internet and other new media. For the first time, the team communicated with the network of Caps-related Web blogs, with the belief that the “blogosphere” would be more sympathetic than newspapers and television. Leonsis also started his own blog on the Caps’ official Web site.

It’s still unclear, though, whether the campaigns will lure the more casual fans or those disillusioned by the lockout.

“They need to go to Channel 4 or Channel 7 or Channel 9 and buy some commercial time,” said Connie Schneider, president of the Washington Capitals Fan Club. “They do a lot with [Ovechkin] on Comcast, but you’re already watching the Caps, you already know what Alex can do. They need to go out and get that new fan and pull that casual fan off the street.”

Undoubtedly, Ovechkin will be the Caps’ key cog until at least the end of the decade. He is being paid just less than $1 million in base salary a season but likely will make almost $3 million with performance bonuses.

Leonsis said he has no plans to market Ovechkin exclusively.

“We want to build a great team,” he said. “We don’t want to overdo it with Ovechkin.”

Leonsis does not seem eager to spend a lot of money on free agent talent. The expensive yet unsuccessful teams of Jaromir Jagr and Peter Bondra early in Leonsis’ tenure soured him on the idea of giving out big contracts. And since the NHL installed a salary cap beginning with this season, he said he won’t have to break the bank to win.

“All I’m interested in is building a good generational team,” Leonsis said. “I’m not going to make any moves for press release benefit. The first thing I’d ask is: Did the free agent signings of other teams yield results? Many other teams were very active, and the investments didn’t pay off.”

The Caps have several first-round draft picks who are nearly ready to join Washington’s roster, including former Russian star Alexander Semin, who signed a two-year contract with the team last week. And Leonsis made a popular move when he re-signed goalie Olie Kolzig to a two-year, $10.9 million contract extension.

But fans say more help is needed.

“They need a few more pieces,” Schneider said. “I’m not saying blow the salary cap, but if they can add even $5 million or $10 million to the payroll, I think they can be competitive.”

Analysts say the Caps must improve the team without ignoring the long-term plan of developing the young core.

“You have to take your time, do it one floor at a time,” said Eddie Olczyk, a former coach for the Pittsburgh Penguins who is now a hockey analyst for OLN and NBC. “The reality is that you can’t go from the first floor to the 10th floor. Do they have holes? Yes, but you can have holes and go to the playoffs.”

SLOWER BLEEDING

Despite a poor record and low attendance, the Capitals are on track for their best financial season in years thanks to a lower payroll and changes to the league’s revenue structure. A comparison of this season and 2001-02, when they signed Jaromir Jagr:

2001-02

Record: 36-33-11, no playoff appearance

Attendance: 17,341, 13th in NHL

Payroll: $47.4 million

Financial loss: About $20 million

2005-06

Record: 27-41-12, no playoff appearance

Attendance: 13,830, 28th in NHL

Payroll: $31 million*

Financial loss: About $5 million

* Includes about $2 million owed to Jaromir Jagr

Source: NHL, Capitals owner Ted Leonsis

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