Understanding the unsealed documents from the CHL’s class action minimum-wage lawsuit

When we talk about the ongoing class action lawsuit former players filed against the Canadian Hockey League (CHL) over demands for an hourly minimum wage, we’re talking about more than 100 documents, comprising thousands upon thousands of pages.

As someone who is currently minoring in law, with a focus on employment and labour law, and who has written about the case dating back to when it was first filed, I still didn’t know where to start when I received all of the recently unsealed documents.

They range from Smith Forensic Inc.’s evaluation of tax returns, balance sheets, financial statements and revenue statements for each of the Western Hockey League’s and Ontario Hockey League’s teams, to those very documents, and ultimately the CHL’s league-wide financial outlook — which includes its stunning agreement with the NHL. All of these league and team financials date back to 2012.

It’s a lot.

After sifting through the majority of the documents for the better part of a month, here’s what I found.

The CHL-NHL Agreement

This is the most revealing of the CHL-wide documents. In November of 2013, the CHL entered into a lucrative deal with the NHL that runs until June 30, 2020. The seven-season agreement pays the CHL as much as nearly $80-million over the entirety of the deal, labelled as a ‘grant’. This includes substantial benefits for individual teams that graduate players to the NHL.

A CHL team is paid up to $60,000 for each player that is signed to an NHL contract and $75,000 for each goalie who agrees to an entry-level contract. CHL teams receive an additional $17,000 per player and $20,000 per goalie if they consent to any junior player 18 years or older being made available to his NHL club. If a CHL graduate plays in the NHL at 18 and 19, his team can profit off of him as much as $145,000 for a player and $175,000 for a goalie.

If Player is retained for the entire NHL season as an 18 year old and for all or part of the second consecutive NHL season as a 19 year old, $145,000 for a player and $175,000 for a goaltender.

If a player is recalled under emergency conditions, CHL teams receive $1,000 per game played.

As part of the agreement, the NHL also reimburses the CHL more than $255,000 a year to train players on substance abuse, gambling, and assault, as well as more than $315,000 per season for training on concussions, symptoms, and other head injuries.

The agreement is broken down, year-over-year, to compensate the CHL the following:

The CHL’s 2015-16 Tax Returns

In tax returns filed in 2016, the CHL listed its amounts received (gross sales and revenue from organizational activities) at more than $24.4-million, broken down as such:

This revenue was offset by the league’s claimed expenses of roughly $22-million, for a claimed net income of $1,677,963.

Individual OHL/WHL Team Finances

The financial records for each of OHL and WHL team also proved to be revealing.

As already reported by TSN’s Rick Westhead, the individual decision-making of some teams has been suspect in the last few years. Tax returns for the Niagara IceDogs, for example, show that the team leases four BMWs, with payments exceeding $17K a year alone on its 2015 BMW 650i xDrive.

According to their most recent financial statements, the Kitchener Rangers and Edmonton Oil Kings are the highest revenue generators in their respective leagues, at $6.5-million and $6.6-million respectively. The Kingston Frontenacs ($1.3-million) and Kootenay Ice ($1.2-million) reported the lowest revenues.

Very few of the OHL’s and the WHL’s teams have been audited in recent memory, and their financial claims are thus extremely difficult to verify. Most OHL and WHL teams opt against commissioning audits of their finances. In 2016, only three OHL teams were audited (the Otters due to bankruptcy concerns, the 67’s due to an agreement with the City of Ottawa, and the Rangers).

In Ronald Smith’s forensic analysis of WHL and OHL documents, he found that claimed expenses for almost every team were impossible to verify against because so little was done to explain the costs associated with the teams.

After reviewing the financial records which have been made available to us, we were unable to carry out the usual procedures that we would employ, as described above, because we do not have access to the teams and because there is not enough information. Some of the teams prepared their own financial statements internally, without proper notes and/or expense account details, while other teams provided notice to reader financial statements that lack notes and/or expense account details, and some teams did not provide any financial statements, only summary income statements with virtually no notes provided.

We have been able to identify a number of issues which, in our opinion, demonstrate that basically just taking the teams’ reported revenues and expenses over a five-year period at face value does not provide a reasonable basis to determine what the impact would be on the teams if they had to pay the players minimum wage.

In the WHL, specifically, Smith found that KPMG overstated the losses of the Everett Silvertips, while “There were significant expenses relating to management fees and remuneration for employees/directors, that are at times very significant and may not represent full economic value to the team.”

In the OHL, Smith found similar issues, including KPMG errors with regards to the Ottawa 67’s, and omissions by the Barrie Colts:

The Barrie Colts appear to have charged its parent company approximately $3,577,000 in fees during the team’s 2012 to 2015 fiscal years for “providing hockey product”. We do not know the details of the services that were provided and how the operations of the parent corporation interrelate with those of the team, on either a business or financial basis.

Nonetheless, below are the full financials for the most recent reported year for all WHL and OHL teams (excepting the Portland Winterhawks, whose financal statements were not submitted in the unsealed documents). Note: All United States-based teams are listed in USD.