What is Systematic Risk?
From the very beginning of Genesis QMS, many people have asked us why reducing systematic risk is so important.
Systematic (or market) risk refers to risks inherent in the entire market or industry, affecting all companies operating within it. These risks can result from macroeconomic factors, geopolitical events, or energy market fluctuations. Some examples of systematic risks affecting the oil and gas business include the COVID-19 pandemic, political views concerning pipelines, product over-supply, and the war between Russia and Ukraine.
Systematic risks can lead to widespread losses and negative consequences. Many are beyond the control of companies except to protect against incidents if they occur.
Types of Systematic Risk
Commodity Price Fluctuations: Price changes can impact demand for a commodity and related services. Those of us who have worked in the oil and gas industry are very familiar with the impact of this particular systematic risk.
Economic Downturns: During economic recessions or downturns, demand for an offering may drop off. This can lead to reduced investments and equipment utilization.
Geopolitical Tensions: Political instability, conflicts, or sanctions can disrupt the supply chain and affect equipment availability.
Regulatory Changes: Evolving environmental and safety regulations may require costly upgrades or equipment modifications, affecting operational costs.
Technological Advancements: Rapid advancements in technology may render existing equipment obsolete, leading to the need for expensive replacements or upgrades.
Natural Disasters: Events such as forest fires, hurricanes, earthquakes, or tsunamis can damage infrastructure.
Supply Chain Disruptions: Disruptions in the supply chain due to labour strikes, transportation issues, or raw material shortages can affect the production and maintenance of equipment.
Energy Transition: For traditional energy producers, the increasing focus on renewable energy sources and efforts to reduce fossil fuel consumption may lead to decreased demand for oil and gas.
Financial Market Volatility: Fluctuations in financial markets can affect investment decisions and financing options. This can influence the acquisition and maintenance of equipment.
Public Perception and Reputation: Accidents or safety incidents involving equipment can lead to reputational damage and public scrutiny, potentially affecting investment and increasing regulatory scrutiny.
Systematic Risks Associated with Pressure Equipment
Pressure equipment is a big part of many industries, including pulp and paper, natural resources, chemical manufacturing, and oil and gas.
Systematic risks can result in pressure equipment failures, corrosion, structural vulnerabilities, inadequate maintenance, and regulatory non-compliance. Addressing these risks before an incident happens and knowing how to quickly and efficiently respond when something outside your control occurs is essential for optimizing your operations.
Why Is Reducing Systematic Risk Important?
Every business owner and senior executive understands the importance of protecting their business and its investments. Reducing systematic risk is vital to ensuring:
- The health and safety of your people and the communities in which they work.
- Protecting the environment.
- Defending your (and your clients’) bottom line.
An effective asset management program that includes a digital solution is a cost-effective protection method against systematic risk. Your asset and integrity management programs should establish tactics that naturally reduce your risk. One of the most important is regular maintenance and inspection to help with safety and equipment reliability. Ensuring the integrity of critical infrastructure such as pipelines, storage tanks, and pressure tanks is crucial to minimize accidents, operational shutdowns, and financial losses.
7 Steps to Reduce Systematic Risk Associated with Pressure Equipment
- Robust Inspection and Maintenance: Asset integrity software coupled with regular and thorough inspections and maintenance of pressure equipment can enhance safety and reliability, reducing the risk of accidents and unexpected failures. Investing in a good asset integrity program will enable you to collect and analyze data through these inspections, allowing a company to gain insights into the degradation mechanisms, failure patterns, and risk patterns associated with your assets. This information enables data-driven decision-making in asset management, such as optimizing maintenance strategies, prioritizing repairs or replacements, effective asset allocation, and helping with future budget decisions. Systematic risks can be better identified and managed by making informed decisions based on inspection data.
- Compliance with Standards and Regulations: Adhering to industry standards and regulatory requirements ensures that your pressure equipment is up to par with safety and environmental standards, minimizing the risk of penalties and shutdowns.
- Risk Assessments: Conducting comprehensive risk assessments allows you to identify potential vulnerabilities in the pressure equipment and implement mitigation measures.
- Technological Upgrades: Investing in modern and advanced technologies can improve the efficiency and safety of pressure equipment, enhancing overall performance and reducing the likelihood of failure.
- Contingency Planning: Developing contingency plans and emergency response protocols helps mitigate the impact of any unforeseen incidents and ensures prompt and effective action in emergencies.
- Training and Skill Development: Regular training and skill development programs for personnel operating pressure equipment can enhance safety awareness and prevent human error-related risks.
- Supply Chain Management: Building strong relationships with reliable suppliers and maintaining an efficient supply chain can ensure the timely availability of necessary parts and components for pressure equipment maintenance.
Reduced Risk = Increased Profits
Reducing systematic risk is critical to any company whose success is tied to profits. Steps taken to mitigate these risks and protect your assets will not only help you become more efficient and improve safety but will also contribute to and secure your bottom line.
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How Does Asset Management Increase ROI and Profits?
Companies rely on their assets and equipment to operate efficiently and effectively, so the importance of sound Asset Management (AM) practices and programs cannot be overstated. A digital AM solution helps companies ensure the safety, reliability, and longevity of their equipment, people, the environment, and the communities in which they operate.
From a corporate bottom line perspective, AM will increase productivity and provide the best return possible on your investment in your assets. Here are nine ways how.
1. Better Inventory Control
An AM program is designed to inform you when assets are ready to be retired or replaced. Decisions are based on data, not “best guess.” This eliminates using capital before necessary and protects against greater damage or safety risks if you wait too long to take corrective action.
2. Improved Resource Management
Like inventory control, knowing the state of your assets in real time will guide you to the best decisions concerning their upkeep and maintenance.
3. Decreased Inefficiencies, Equipment Repairs, Failures, and Downtime
A well-designed AM program will identify potential issues with equipment or assets before they cause a breakdown or failure. By catching problems early, companies can take preventive measures to decrease the inefficiencies of equipment failures, reducing downtime and increasing productivity.
4. Prolonged Equipment Lifespan
AM programs include a requirement for regular monitoring and maintenance. This heightened attention extends the life of equipment and assets, improving your overall return on investment.
5. Improved Production
Because your AM program ensures your assets are in optimal working condition and compliant with all regulations, there are fewer barriers to your ability to perform and produce.
6. Safer People, Workplaces, and Communities
Effective AM programs help identify and mitigate safety risks associated with equipment and assets. Regular inspections and maintenance ensure that equipment and assets function as intended, reducing the risk of incidents, injuries, and fatalities. This means your people, worksites, and communities are all safer.
7. Optimized, Predictable Performance
AM programs can help streamline operations and improve overall efficiency, leading to cost savings and increased profitability. Regular maintenance optimizes equipment performance and helps companies meet sustainability goals by reducing waste, improving energy efficiency, and minimizing environmental impact.
8. Improved Business Policies and Practices
A digital AM solution provides real-time data and analytics. Immediate access to complete data means you can make better decisions about your equipment and asset management. This, in turn, leads to improved strategic planning and business practices.
9. Regulatory Compliance
Compliance with regulations is critical to maintaining everyone’s safety. But from a purely monetary consideration, it also protects against costly fines, potential legal liabilities, and the reputational risk that can result from non-compliance. AM programs help ensure regulatory compliance.
Manage, Maintain, Monitor, and IMPROVE
Apart from ROI and profitability benefits, AM programs promote a culture of continuous improvement for any asset-intensive company in any industry. They ensure equipment and practices are regularly assessed so that improvements can be made at the right time.
By focusing on safety, reliability, and sustainability, AM programs help companies reduce costs. In addition, using data to make decisions concerning asset maintenance and management reduces downtime and improves productivity.
But Wait! There’s More!
Companies prioritizing asset management demonstrate their commitment to safety, quality, and reliability. In return, these companies enjoy a reputation for being responsible and caring for their employees and customers.
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***As an avid fly fisher, I appreciate and enjoy the outdoors. This spring’s record-setting temperatures in many parts of Canada have triggered terrible forest fires. Seeing what is currently going on in the provinces of BC, Alberta, Quebec, and Nova Scotia led to this “Stream of Thought” concerning how Asset Management can help protect you against forest fires, respond effectively during, and recover faster after. ***
First of all, my thoughts and prayers go out to the thousands of displaced people and communities who have been affected. It’s hot and dry and we continue to experience record-high temperatures in many parts of Western Canada.
A few years back, my town of 12,000 people was evacuated. I know what this is like. Seeing on the news what is happening in many Canadian provinces and living with the smoke in my own town, I started to wonder how Asset Management (AM) practices and digital solutions can help protect against these and other natural disasters.
As with everything, the answer lies in current and historical data, and AM provides us with that data.
What is Asset Management?
AM is a program or process that cost-effectively helps a company manage, maintain, and monitor its critical assets… people as well as things. AM provides instant access to data regarding the status of each and every asset and the information needed to problem-solve if an issue arises.
I consider the forests one of the planet’s most essential and valuable assets. Forests offer valuable resources, such as timber, medicinal plants, and food. Thousands of everyday products are built out of wood, from baseball bats to lumber to build our houses. The forest provides many jobs. In my youth, I worked on towboats hauling fuel and equipment to logging camps, heli logging outfits, and communities up and down the BC coast. I have a huge respect for our forests.
My passion for chasing Skeena River steelhead would not be possible without our forests. They play an irreplaceable role in maintaining ecological balance and sustaining biodiversity. Forests provide habitat for countless species, serving as homes for animals, birds, and insects. They act as natural reservoirs, preserving water resources and preventing soil erosion. Trees, through the process of photosynthesis, absorb carbon dioxide and release oxygen, combating climate change and ensuring the air we breathe remains clean.
Protecting and restoring forests is not just an environmental responsibility but an imperative for our planet’s and future generations’ survival. So yes, a forest is an asset that we definitely need to manage correctly, and my other passion, AM, can play a vitally important role in doing that.
Asset Management: Before a Forest Fire
Forest fire prevention requires a comprehensive approach that incorporates community preparation and digital solutions. Communities must develop emergency plans, raise awareness, and establish effective communication systems. Creating defensible space and conducting regular drills are crucial for individual and community safety.
Meanwhile, digital solutions such as fire mapping, early warning systems, communication platforms, and data analytics enhance preparedness, response, and management.
Firefighting agencies should also incorporate AM practices into their preventative programs, including resource inventory, maintenance, training, and collaboration. AM helps identify high-risk areas, assess vulnerability, and determine the best responses to protect assets, whether it is the forest itself or your community structures, livestock, and people’s very lives.
By implementing these strategies and leveraging technological advancements, communities and firefighting agencies can better protect against forest fires and safeguard lives and the ecosystems the planet desperately needs.
Asset Management: During a Forest Fire
The best planning in the world cannot protect against the unexpected. However, knowing current weather patterns, forest fuel, possible fire corridors, and exactly where your equipment and people are located will help you make the best decisions to protect against an advancing fire.
All worksites have emergency response tools, but also implementing good AM practices can significantly contribute to your preparedness and response efforts. This includes resource inventory and tracking to maintain an accurate record of emergency equipment, personnel, and availability, enabling a faster and more targeted response. Regular maintenance and inspection schedules ensure that equipment is in optimal working condition, minimizing the risk of failure when needed.
One of the most important benefits of your AM system is that it can quickly determine who is at risk so that evacuation plans can be implemented. But it can also help you get back to business faster after a fire by helping you understand the potential impact on assets. This knowledge will allow you to put a plan in place to ensure you can return to business as usual as quickly as possible.
Asset Management: After a Forest Fire
After a fire, immediate and long-term actions are essential for effective recovery. Your AM system will provide invaluable data to help with your recovery and to learn from the disaster so you can better prepare for a future event.
It will help you ensure the safety of individuals and property, assess potential risks that remain and determine any additional assistance you may require.
It can also play a role in post-fire restoration efforts, including erosion control, reforestation, habitat restoration, and assessing the impact on wildlife.
While your AM system is invaluable, it is important that you also collaborate with experts to develop strategies for preventing future fires, such as fuel reduction and firebreak maintenance.
Ultimately, a comprehensive approach combining AM solutions, ecological restoration, community involvement, and preventive measures is key to the successful recovery and future protection of our forests, as well as your assets.
As I write this, the fires in BC, Alberta, Nova Scotia, and Quebec continue to rage, and air quality is very poor… and it is only June with a long hot summer in the forecast. I hope this article provides some ideas about how best to protect your family, your community, your businesses, and your livelihood from forest fires.
For more information about how to protect against these and future fires, please visit the BC, Alberta, Quebec, or Nova Scotia websites.
Stay safe, friends.
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What is a CRN?
CRN stands for Canadian Registration Number. The Canadian Registration Number Directory provides a wealth of information regarding CRNs, including a list of regulatory agencies across Canada.
Canadian provinces or territories assign a CRN to pressure vessels, piping, and fittings greater than 15 psig. The number signifies that the design of the pressure asset has been reviewed by the province or territory’s safety regulatory body, has been deemed to comply with code, and meets all safety requirements.
A CRN for a boiler or pressure vessel is defined by CSA B51 Clause 4.3 as:
- Consisting of a letter, four digits, and a decimal point followed by up to ten digits and three letters.
- The first letter and four digits are part of a sequential numbering system used by the issuing province or territory.
- The first digit or letter to the right of the decimal point indicates the province that issued the number.
Provincial and Territorial Identifications
The following identifications are used in accordance with the code:
1 – British Columbia 7 – New Brunswick N – Nunavut
2 – Alberta 8 – Nova Scotia
3 – Saskatchewan 9 – Prince Edward Island
4 – Manitoba 0 (Zero) – Newfoundland
5- Ontario T – Northwest Territories
6 – Quebec Y – Yukon Territory
The letter C may follow the designation of first registration if a design is registered in all jurisdictions. No jurisdiction issues the letter C; the manufacturer stamps it once all registrations are received.
The letters CL may follow the designation of first registration if a design is registered in all jurisdictions that require it and not in the jurisdictions that do not. No jurisdiction issues the letter CL. Like with the C, it is stamped by the manufacturer once it has received registrations for all required jurisdictions. The “L” means limited.
To be eligible for use in Alberta, the CRN must have the digit 2, or the letter C, somewhere after the decimal point.
A Canadian Registration Number is issued if the design is satisfactory.
Examples of valid CRNs are B1079.23, M2138.5C, and V1234.5CL.
For the company that owns and operates pressure vessels in Canada, it is important that the CRN be stamped and visible on the vessel’s nameplate.
Why is a CRN Important?
If your equipment does not have a CRN, you cannot operate it. It’s that simple. In case of a compliance audit in the field, it is important to have proof that the vessel is approved to work at that location. For example, suppose the pressure vessel operates in Alberta, and the auditor cannot find a .2 CRN designation. In that case, the company can be hit with significant fines, immediate loss of work, and disciplinary actions taken by the Alberta Boiler Safety Authority (ABSA).
***Simply put, a company that owns a pressure vessel without the proper registered CRN could suffer substantial financial losses.***
How Do You Obtain a CRN?
Here’s an example, using a pressure vessel you are purchasing to work in Alberta.
STEP ONE: A company submits an order to the manufacturer for the pressure vessel to be built. The manufacturer is an Alberta company. They tell the manufacturer the provinces where it needs to be registered (in this case, Alberta only).
STEP TWO: The equipment manufacturer will submit the vessel design to ABSA (because it is being used in Alberta) for approval. ABSA will inspect the vessel throughout the build stages and then will accept and register the design and stamp “.2” on the nameplate.
STEP THREE: ABSA then issues a CRN Letter of Acceptance saying the design was approved and registered to work in Alberta. The CRN number is then placed in the Manufacturers Data Report (MDR). The MDR is completed and signed by the manufacturer as well as ABSA. The Letters of Acceptance are supporting documents that go alongside the MDR.
STEP FOUR: ABSA’s letter and the MDR are then put into the vessel’s Quality Control Manual that will be handed over to the new owner along with the vessel. At this point, the certified vessel is ready to go to work in the province as designated by the CRN number.
Tips for Obtaining and Retaining a CRN
Suppose a pressure vessel will operate in multiple provinces. In that case, the owner must submit the design to the regulatory body for each applicable location for approval and registration. This process can take many months, so the owner should advise the manufacturer at the start of the building process that the vessel may work in more than one province.
Let’s say it was determined at the beginning of the building process that the pressure vessel would possibly be used in Alberta, BC, Saskatchewan, and Quebec. The manufacturer would apply for a CRN registration in those four jurisdictions, and the CRN would have the numbers 1236 after the decimal point. If it applied to work in Alberta at the beginning and then later in those other provinces, the numbers would be 2136. The order doesn’t matter as long as the number for the province is present. Letters of Acceptance from all these provinces would be sent by each province’s safety authority (i.e., ABSA, TSASK, etc.) to the vessel owner, and MDRs can then be amended to reflect the changes.
Speed Up the Process by Understanding Each Province’s Documentation Requirements
Each province’s safety authority will have specific documentation requirements for applying for a CRN. You can speed up the process by giving them exactly what they need when you submit your application. You can find a list on each safety authority’s website. For example, in BC the Safety Standards Act requires that the owner supply Technical Safety BC with design drawings and an MDR from the vessel’s Quality Control Manual. You can learn more about BC’s requirements here.
Alternatives to a CRN
Sometimes there is an alternative to having a CRN for a boiler or pressure vessel. For example, the Technical Safety Authority of Saskatchewan (TSASK) allows owners of pressure equipment to register a data report instead of obtaining a CRN for operating in that province.
If the boiler or pressure vessel is registered using the alternative to a CRN, the nameplate must meet the requirements of the applicable ASME Code and/or CSA B51. A CRN will not be issued by TSASK when the alternative to the CRN registration process is followed. Therefore, a ‘3’ will not be added to the suffix of the CRN issued by another province, nor will the CRN that is stamped on the nameplate contain the ‘3’ for Saskatchewan.
TSASK tracks these vessels by issuing a unique Saskatchewan ‘SK’ number which is recorded at TSASK and is added to the unit by the local TSASK Inspector. Owners who register the data report should contact the local TSASK Inspector to arrange to stamp the registration number.
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***As a rabid fly fisher, I tend to think about things in terms of tying a fly or standing in a stream or other fishing terms. But I’m also a rabid hockey fan, and with the trade deadline having recently passed and the new season about to get underway, my new “Stream of Thought” blends the topics of hockey and asset quality control. In it, I explore how Asset Management helps determine an NHL team’s performance and worth. ***
The National Hockey League (NHL)’s March 3rd, 2023, trade deadline has passed. I must confess, much to my wife’s dismay, I spent countless hours reading, listening, and watching NHL trade news. What she may not have known, though, was that while I was glued to the news from a hockey perspective, there was also a work angle.
Interestingly, two words were mentioned frequently by team management, coaches, and hockey media analysts throughout the trade talks. And as an old-school asset manager and quality control guy, they jumped right out at me: Asset Management.
Asset Management is critical to establish a winning team. It starts with the ownership group. They must hire a solid general manager and then give them the autonomy to manage and build the team without interference. This is often easier said than done. The general manager must hire a coach who is aligned with management’s vision of what kind of team they want to pull together. The coach, in turn, will hire assistant coaches and support staff to achieve the end goal of winning. Everyone will have input into what kind of players they need to build a good team. But it is up to management to make sure this happens.
But before any of those decisions can happen, you must do your pre-work. Gathering good information and then planning based on that data will result in the best decisions. All of these are parts of good Asset Management practices. This is true of asset-intense industries like oil and gas or pulp and paper, in a stream fly fishing, or building a great hockey team. With a proper strategy, your assets will last longer, perform better, and provide the best ROI possible (like bringing home the Stanley Cup.)
The Pre-Work: Gathering Data About Your Assets (aka Scouting)
Everything begins with knowing your asset’s abilities and potential. In hockey, this starts with scouting. Great scouting intel is an essential building block to success. So naturally, having that intel and also having a first-round draft pick gives you the best chance to acquire an elite player.
However, when building a team for the future, it is the lower draft picks (especially 2nd, 3rd and even 4th round) that can pay big dividends down the road. This is where scouting plays an even more critical part. These players may not make the club in the first couple of years, but they will populate your farm teams and develop there.
Having a system full of promising prospects that you can draw from is so important when building a team for the future, a team that will be highly competitive over many years. In my opinion, team-nurtured talent (successful draft picks developed in a team’s system) is by far the best way to build a successful and profitable team. It may be painful and slow at the beginning, but as these players develop, you will have a highly competitive team for many years. Also, the better young prospects you have on the organization’s farm teams, the more trade potentials are possible for that final Stanley Cup push, especially before the trade deadline.
Re-tooling versus Re-building Your Team: Assets In, Assets Out
The month and week leading up to the NHL trade deadline are always exciting, emotional, and a source of anxiety for the players, management, ownership, and fans like me (just ask my wife). It is a high-pressure condensed period of trade frenzy where many teams often pay over-market value for players. How they manage assets is determined mainly by whether they are a Stanley Cup contender long-term or short-term.
Re-tooling for a Short-Term Win
Teams that are short-term Stanley Cup contenders often treat the trade as a shopping spree. These buyers are re-tooling their current team and looking to load up with established stars before going into the playoffs. As the deadline approaches, it can turn into a frenzy of buying to fill holes and adding depth to their line-ups for the upcoming playoffs and the final push for Lord Stanley’s Cup. It can be a short-term solution, but it also might be the key to ending the season as champions. So, they are busy bringing assets in.
Re-building for the Longer Term
Then there are the “sellers.” These teams have decided that now is the time to re-build for the future. They trade away their established NHL players for future draft picks and/or young prospects. Typically, re-building occurs when the team is made up of older players with large salaries. They have gone through many years of mediocrity and continually miss the playoffs. Management and owners dismantle the team with a view to re-building around their younger star players by trading for draft picks and prospects. This is a long-term solution that can lead to the team becoming competitive for many, many years. They are in an “asset out” phase.
If you are re-building, the draft is where you will realize your biggest benefits and get a better bang for your buck over the long term. Drafts come with inexpensive entry-level contracts and huge upside potential.
Re-tooling versus Re-building: A Tale of Two Cities
Since the 2013-2014 season, Tampa Bay Lightning has been in the playoffs seven times and will be once again in the 2022-2023 season. Tampa Bay has won the Stanley Cup twice in three appearances during this time.
In comparison, the Vancouver Canucks team has only made two playoff appearances and are not expected to make the playoffs in the 2022-2023 season. In addition, they have never won the Stanley Cup. The big question is why. There are many reasons, including most likely poor Asset Management.
Tampa Bay has made great Asset Management decisions. They went the route of re-building. They had a long-term plan. In a recent podcast from “Rob Talks Hockey” Rob discovered that during the Lightning’s back-to-back Stanley Cups in 2019-2020 and 2020-2021, they had 15 team-developed players. Out of a 20-player game roster, up to 75% of their players were drafted and/or developed by the team!
The Canucks, on the other hand, refused to re-build and chose to re-tool instead. As a result, this season they only have seven team-developed players, and two are not even playing full-time with the parent team. Furthermore, since the 2012 season, they have made 12 first-round draft picks and 79 draft selections overall. That shows that very few current roster players have been developed in their system.
Invest in Your Players
Poor drafting limits your trade abilities because you have very little in terms of strong young prospects. Instead, you are forced to trade more established and productive players. Unfortunately, these players are usually the ones that you want to build a team around. In addition, poor drafting leads teams to acquire players through free agency, which is very expensive and problematic because of salary cap space limitations.
Poor scouting and even poorer Asset Management decisions over many years lead to poor performance. However, good scouting decisions and drafting good players beyond the first round can make a difference. These strategies develop depth and give your organization a deep well of solid young prospects to develop.
The Business of Hockey: Measuring a Team’s Worth
Many factors determine a team’s worth, the biggest being the size of the market in which they operate. A large-market team may have a value several times that of a small-market team. According to Forbes Magazine, the New York Rangers are the NHL’s most valuable team, worth $2.2 Billion. The Toronto Maple Leafs rank second at $2 billion. In contrast, the Arizona Coyotes are worth approximately $450 million. This is because the Rangers play in a large-market area while the Coyotes play in a small-market area. The difference is enormous, even with the mitigating factors of the salary cap and league revenue-sharing. The Rangers’ annual revenue is approximately $250 million, while the Coyotes’ is around $127 million. Playing in a large market area makes a big difference, even if your team has not recently won the Stanley Cup. The Toronto Maple Leafs play in Canada’s largest market, and even though they haven’t won the Stanley Cup since 1967, they still pulled in $90 million just in media revenue last year.
We live in a salary cap era, meaning rich teams cannot buy all the best players through free agency. Therefore, they are limited in the amount they can spend on their players for a season. It is a way that most professional North American sports leagues try to level the playing field between small-market and large-market teams. For example, an NHL team’s “cap space” is $82.5 million for the 2022-23 season.
A professional sports team is an enormously expensive business to operate. Buying an NHL team can cost well over $800 million, depending on the team’s success. Even if the team owns its arena, there are still large expenses such as utilities, property taxes, interest, maintenance, and possibly rental fees. Other big expenditures are team travel and accommodation costs, marketing, advertising, insurance… the list goes on and on.
Revenue comes from ticket and merchandise sales, and when the team owns the arena, they can also benefit from concession and parking revenue. If the team is in a large-market area, TV rights with large advertising revenue can significantly increase overall revenue. Making the playoffs can bring business bonus revenue, for some teams as much as $5 million per game. There are four best-of-seven rounds to the Stanley Cup. One team could play (but not probable) 28 games in the playoffs. So, financially speaking, not making the playoffs is simply NOT A GOOD THING! It can make a difference in whether a team is profitable, especially if located in a small-market area.
The Impact of Asset Management
Just like in any business with assets, poor Asset Management decisions made by the team’s managers and owners can lead to years of poor performance. Failing to make the playoffs could mean millions of dollars of lost revenue. In addition, bad trade and especially free agency decisions could lead to crippling long-term player contracts. In a salary cap era, a long-term, high-price contract for a player not performing up to his potential can severely limit the team’s ability to trade the player and get something back in return. On the other hand, if a team is under the cap, they have more freedom to make deals, making it easier to add players without losing too much, such as coveted first-round draft picks.
An Asset Management strategy can determine whether a team as a business is successful.
Dynasties are not built overnight, and it is harder than ever in this cap-salary world. Can you win a Stanley Cup through free agency and trades? Yes, you can, especially if you already have a team close to making the Stanley Cup finals. If a team has only a few holes to fill, good trades before or at the trade deadline in March could get you there. If this is the case, then it is absolutely the right move to give up a few high draft picks for a chance to win the cup.
In the 2022/23 season, the Toronto Maple Leafs, New York Rangers, and the Boston Bruins made significant player additions just before the trade deadline on March 3rd. Will it pay off? Well, I guess we will find out in a couple of weeks. Adding players at this time is a choice that management will make when they feel they have a chance to go all the way. But it usually comes with a cost. It can be expensive, and in many cases, you must find creative ways of staying within the cap-salary. Decisions have to be based on good player intel and scouting information. The wrong Asset Management decision could result in long-term pain by taking the chance for short-term gain.
Asset Management strategies include gathering information, good planning, proper player development, and solid analytics. Armed with all of this, good decisions can then be made on how a player will fit into the team’s overall vision for the future. It is essential when considering the team’s makeup and performance. Everyone wants a team that is always highly competitive and always in the playoffs.
Whether short-term or longer-term, an Asset Management strategy plays a huge role in a hockey team’s success. Asset Management can help them make the playoffs, potentially bring home the Stanley Cup, and be profitable.
To re-build or re-tool? Well, that really depends on the team’s current roster. But no matter which direction the team chooses, I believe it’s pretty obvious that good scouting, gathering the right information on prospects, proper player development, and planning leads to good decision-making and is all part of a good Asset Management program…and all are the keys to success.
What do you think? Am I off the mark? Many of us are very passionate about hockey, and I would love to hear your comments!
Have some fun and share your thoughts on other everyday situations where Asset Management principles apply in hockey. In the spirit of continuous improvement, I’d love to hear from you, my fellow hockey fans, fly fishers, and asset managers!
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