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You may write me down in history

With your bitter, twisted lies,

You may trod me in the very dirt

But still, like dust, I'll rise.

- Maya Angelou

Melbourne Ice Academy Economics

Introduction

Ice centres have choice. They can simply hire their ice. Or they can operate their own sports and recreation programs, such as ISA's Aussie Skate. Or, some combination of both. It depends upon their financial objectives and circumstances. Whichever way they go, the utilization of prime time is crucial to their financial performance (3 – 10 pm, Mon – Fri; and 7 am – 10 pm, Sat – Sun). Normally, this ice time should be in high demand, and it should be utilized 90 – 100 percent during the winter months. In the US, most twin-sheet ice rinks have ice bookings well past midnight, at least 5 nights per week. Most privately-held and operated ice rinks in the market there charge about $200 – 270 per hour for ice. Ice rates can be one-quarter that, particulalrly in Canada, but they are usually public-sector rinks that expect to operate at big financial losses because they are funded by taxpayers. If they are commercial rinks, they have paid for their plant and building and are free of monthly debt service. Most commercial rinks in America offer a wide variety of their own programs and they do not rely only on ice rental as their main source of revenue. They actively market their facility to new and potential customers in and outside their immediate service area. Most twin-sheet centres attract 15,000 to 20,000 public skaters in a year, depending on the size of their service catchment. The single, most-effective method to increase public skating admissions is to promote group outings and field trips, fundraisers and parties.

In terms of sports, most adult hockey leagues in the US start after 9.00 pm, and they are not necessarily more profitable if operated by the ice rink. Sometimes it makes more sense to allow others to operate the leagues and rent the ice. However, when the number of adult teams playing at the ice centre is quite small, ice centres get involved to help market the programs. It is usually financially prudent to do so, because low participation is an uneconomic use of the centre's resources, when a comparatively small investment in marketing can produce a large financial return, through increased active, volunteer and attendance participation. When player numbers in sports like hockey are diminishing, as they have been in Victoria in recent years, the involvement of the ice centre in marketing them is not just prudent; it is fundamental to its survival. Yet, the Oakleigh centre operators have done very little. The probable reasons for that have been touched on elsewhere in these pages. They revolve around the default monopoly Oakleigh presently enjoys, and the no-cost, cash cow manner in which it is presently directed, surpassing even the local sporting associations' reliance on development programs for promotion, with little or no marketing. Both have combined to become a key contributor to the lack of growth in ice sports and recreation in Victoria, and their subsequent decline.

Oakleigh is the only rink remaining in metropolitan Melbourne. Talk to enough of its users and you will come away utterly convinced that the cost of ice is higher in Victoria than in Europe and North America, because the latter have more rinks and popularity. In fact, the actual cost of creating and operating an indoor ice sheet in Australia is little different to anywhere else, adjusted for efficiency, energy cost and currency exchange. It is ice usage that differs, and not because ice sports are less popular in Victoria than overseas. An ice sheet has a finite usage capacity. Once it is fully utilised, it really doesn't matter how many millions might want to use it. Pricing economies of scale are determined by individual rink capacity, not the number of rinks on a continent, nor their popularity. Pricing mechanisms there have much the same limits, the same ceilings, as they do everywhere. In fact, popularity or high demand like that is likely to mean higher, not lower prices, if the supply of rinks doesn't keep apace. Rentals can be as high as $600 per hour when supply doesn't meet demand. Multiple rinks do help to contain those kind of inflationary price effects, by keeping them relative to actual costs. But you don't need hundreds. Two do much the same thing and, even with just one, there is always potential for another to enter the market and undercut it. Except in a cartel, and providing it is better organised and/or more cost-efficient. That is so, even in Melbourne, where a succession of ten 'permanent' ice rinks over the past 37 years have heroically risen, for all except one to fall. A casuality rate of 90 percent, one on average every 4 years, like in some long and bloody battle. They all shot themselves in the foot. But rise they did.

The popularity of ice sports overseas just provides the potential to sustain more rinks, more participants, but poorly conceived and run ice centres do as poorly there as anywhere. Cities similiar to Melbourne sustain multiple rinks all around the globe. London had 11 rinks a century ago, when it was a populace about one-quarter bigger than Melbourne today. The point is this: that myth is sadly one of many similar myths that have grown-up around ice centres in Victoria. Myths that brush the bulldust under the carpet instead of into the bin, and allow the comparatively low levels of performance and organisation there, to subsist in the comfort zone to which they have become accustomed. As if there was something that North Americans and Europeans know about ice, that the rest of the world doesn't, and can't find out about for themselves. It is cargo cult thinking, alive and well in ice sports in Victoria, from where they spread Nationally over a century ago. Except that Victoria forgot to tell the other States that what it started was not really possible, and they should wind back their rink and athlete production. They should import a decent model. Preferably from Canada.

Oakleigh — the world according to Oakleigh — has become a kind of sacred cow to the most dedicated and tolerant remainder of a dwindling group of ice enthusiasts and organisers who simply want to skate. Without it there is nothing. Yet it needs its patrons as much as they need it; more so, as is now becoming evident. It's under-sized rink means it can survive for about one-third less than most, its users have paid for the tin shed it occupies several times over, and it spends virtually nothing on its amenity. Like some nightmare landlord from the dark ages, it operates as inefficiently as it cares to, passing on most of the resultant higher costs to its prime rental tenants; does nothing to secure them; does nothing to attract new ones to help share the costs. Like neighbouring Chadstone Shopping Centre, it is located to milk one of the most lucrative market areas in Australia. But unlike Chadstone, it can just prop there doing that, while doing nothing, apart from shamelessly upping its prices. To the point where it has become the smallest and least lavish of the most expensive arenas in the country. Arrangements between the centre and sports organisers have become symbiotic, and the cavalier culture that has grown up around them is pervasive. Among them are those who prefer things that way because it appears manageable given their particular interests, and they fear losing control.

Who could blame prospective developers for thinking the worst, when they cast their eyes upon Oakleigh, and the string of failures like it? And so it endures unchallenged a little longer. Yet, it is extremely vulnerable commercially, and its prime catchment is ripe for the picking by anyone with even just a modicum of business nous. For these and related reasons, Oakleigh is a poor business model for future ice centres in Victoria, and Bendigo is even poorer. These rinks have virtually no in-house programming and marketing, and their revenues are much lower than ice centres that do both. Revenue is needed to sustain both decent rinks and decent ice sports. There is no shortage of good operating and revenue-generating models for ice centres elsewhere in Australia. It is not rocket science. A simple private-sector business model focused on growth, profitability and prosperity is quite adequate. In essence, that means high-performance utilisation of ice and related resources at future ice centres in Victoria, plus marketing, marketing and more marketing.

If he could read what follows, he could fairly say: I am Henry Newman Reid. Newman Reid of Melbourne, I am. And this is my story.

1-sheet ice centre

operating costs

Typical annual core running costs for a conventional single-sheet ice centre and its low-energy equivalent will be about $540,000 and $420,000 respectively (table below). Each are assumed to have a floor area of 7,000 m2; public areas of 1,500 m2 with seating for 1,000; to operate 18 hours a day, 7 days a week; and to have a Capital Improved Value (CIV) of $15 million, which may be less depending on final establishment costs. A conventional centre in Victoria can cost as little as $90 per open hour to operate core services (excluding debt service) and the low-e equivalent should be about 20 percent less, or around $70 per open hour. The strategic intent is to establish ice centres that invest in their own purpose-built property, and not a tin shed in an industrial estate at one-fifth of the expense or less, with or without equity. Investors then have a stake in the property equity, not just its operating losses, surpluses or profits. Over time, accumulating equity enables the centre to leverage loans for its replacement costs and ongoing development. For example, from a single- to a twin-sheet facility, with other revenue-generating facilities (plunge or lap pool, gym, accommodation) and programs. Perhaps even a new ice centre project.

Human resources are typically the largest expense of an ice centre (40 – 50 percent) and, as in any business, they need to be cost-effective and regularly reviewed, otherwise they will quickly reduce financial performance. The staff functions, hours and rates adopted for the prototype are considered optimal start-up allowances, although each centre will approach human resources differently. Obviously, ice centres can get by with less paid staff than provided for here. Many do for a while, by using volunteer workers. On the other hand, that can also mean they are less able to achieve high-performance operations and maximum participation levels, both of which are needed to generate sufficient revenues to cover costs, particularly the higher debt service involved with equity investment. An ice centre that operates only one sheet during the spring and summer, is expected to have lower revenues than year-round twin sheets, however the utilities and payroll should also be significantly lower. Similarly, high-performance ice rinks operating a large number of their own programs, in addition to renting ice, have some related increased payroll expenses, but also higher revenues. Therefore, it is usual for staff to increase from the start-up levels, to something higher in winter, and perhaps decrease again over summer. Staff will also increase as the centre programs and markets its own offerings, such as introductory skating instruction. Even though staffing levels wiill fluctuate throughout the year, a well-conceived annual payroll expense should average no more than about 25% of revenues. The core staff start-up levels are about half that. Revenues will be targeted in advance to cover total operating costs, including debt service, by year end. The number and timing of additional staff required will directly relate to the revenue target, and they will typically be front desk attendants and program instructors, servicing increased participation. Obviously, high revenues are required for high debt service.

Accordingly, the core organisation is structured to enable maximisation of participation (revenue) at the ice centre; for example, by keeping some building maintenance responsibilities away from the General Manager, allowing the position more time to focus on revenue-generating activities. Maintenance/resurfacing staff will still cover operating hours, without overlap, except for 6 hours off-peak, Monday to Friday. There is sufficient flexibility to cover that when necessary. The GM position needs a flexible occupant who can be on site during peak hours for customer use: evenings and weekends. It also requires a stand-in who can be responsible for the centre when the occupant is away. The Sales Coordinator position has similar aims. It performs secretarial functions, but it is focused on revenue-generating activities. Dedicated positions for front desk attendants and part-time public skating staff would follow as the centre develops patronage sufficient to cover their cost. Similarly, Head Program Instructor and Instructor functions would be performed by contract and volunteer workers, probably through the various stakeholder Associations, until demand is sufficient to enable the centre to employ its own instruction staff. Skating party rentals require a rink guard for the first 100 persons attending, plus one per each additional 1-99 persons attending. Staffing allowances for discretionary facilities located at the centre, such as cafe and Pro-shop, are not included in core operating costs. The capital for such facilities is provided for in the capital cost estimates for each prototype, but their operations are best considered as separate cost and revenue centres. Similarly, direct expenses for marketing and promotion are not included in core operating costs. Their human resource cost components are included (GM and Sales Coordinator positions; position descriptions, table links).

Public liability insurance costs can be $100,000 or more. A much lower allowance has been adopted because sports like ice hockey have their own insurance cover as a component of Association membership. Nonetheless, liability insurance premiums have been rising significantly in recent years. They should be monitored and regularly adjusted to reflect competitive premiums for each locality, accounting for factors that effect risk assessment, such as variations in seasonal sport and recreational service offerings and public ice schedules. Building and plant maintenance costs will be minimal for the first 2 or 3 years of operation compared to later years, and any unspent residual value is assumed to be invested annually to offset future increases and eventual plant replacement costs. Note that the low-e option offers other significant cost benefits that are not reflected in operating costs, such as improved condensation control, elimination of melts, reduced ice floor maintenance, and extended building fabric and engineering services plant life.

The single-sheet prototype is estimated to cost between $10 million and $15 million, depending on variables such as land value, discretionary facilities, and in-residence training accommodation. Provision for expansion to twin-sheets is included, with or without accommodation. Debt service is calculated separately for both upper and lower limits of capital value, assuming it will all be borrowed and repaid over a 30 year period (360 months) at a fixed interest rate, typical of a commercial development loan. Ice centre costs should be within that range, depending on capital outlay. For example, under these arrangements, a low-e centre will cost between $117,000 and $158,000 per month to operate, about one-quarter of which will be invested monthly in the form of property equity (10m/360 = $28,000 and 15m/360 = $42,000, respectively). Net monthly operating costs (less equity investment) are therefore between $89,000 and $116,000. Any government or other capital contributions would naturally be deducted from the loan amount. Differences in interest terms would similarly be adjusted. The low-e prototype will be eligible for grants to offset a significant proportion of the additional costs of its energy saving systems through Sustainability Victoria. For that reason, the capital costs of both conventional and low-e centres are held equal in the debt service calculations. In practice, there may be small differences.

To summarise, these indicative core operating expenses are for the least optimistic scenario; an unassisted, commercially-developed, single-sheet ice centre, to which can be added the expense budgets for marketing and promotion and site-specific discretionary facilities. Combined, they also represent the minimum revenue the ice centre must generate to be economically viable in Victoria. Anything over that is profit. Apart from the above qualifications, all core cost centre variables are factored and can be adjusted to model the various cost parameters during investment analysis (XLS download link, bottom of table). The bottom line: a $10 million, efficient, low-e, commercial ice centre in Victoria needs to generate average monthly revenue of at least $90,000 to $120,000 to be viable, depending on whether or not it retains equity in its own property. Without debt service, such as in an equivalent public-sector ice arena, minimum required revenues would be about one-third ($36,000 /mth av), if the centre operated on a similar private-sector business model.

1-sheet ice centre

revenue

Over the past decade, some ice centres have re-discovered that they can be more profitable if they offer skating programs as well as hiring ice. In fact, that was the approach Reid adopted to establish ice sports in Australia over a century ago — Melbourne's Academy of Ice Skating. For example, learn-to-skate programs overseas are generally offered by the ice rink. With 75 children on the ice paying on average $15 for a one-hour lesson, gross revenues are $1,125 per hour. Subtracting instructor costs and marketing expenses, the net income per hour would be an estimated $650. This is obviously more profitable than renting the ice to a figure skating club at say, $200 per hour, for them to operate the program themselves. A balance between rentals and in-house programs must be achieved if ice sports and ice rinks in Victoria are to embark together on a new course of sustainable growth.

Other in-house programs that are profitable for ice centres are: youth house leagues, youth and adult learn-to-play clinics, specialty clinics and summer camps. To be effective, such programs need to be developed as part of an overall strategy for the facility, and a Program Supervisor position is necessary to take charge of them. The best approach is to allow rental groups (IHV, ISV) to focus on the more competitive levels of figure skating and hockey, and ice centres to focus their program offerings on the introductory levels, such as learn-to-skate, women’s instructional hockey, adult learn-to-play. In order to sustain an ice centre over the long-term, new participants must be constantly introduced to skating, as others cease to participate. Introductory programs are generally more profitable because more participants use the ice at a given time. As skill levels increase, there are usually fewer participants on each ice slot.

Presently in Victoria, hockey and figure skating organizations rely solely on their membership base and their family members to continue to support the sport. Ice sports there are organised as if they were operating from public-sector rinks which do not need to rely on programs for commercial survival. That is very similar to the model used by many North American publicly-owned and operated ice centres, yet Victoria has none. For better or worse, it has always had privately-owned and operated rinks. Many public rinks in North America operate at significant losses, without any expectation that they will be profitable, or even cover costs. In fact, few are profitable, despite the popularity of ice sports there, and so more than a few have been reorganised by private management consultants over the years, to operate more like commercial businesses. The main reason is that a well-run private business must commit resources to finding new customers. A commercial ice centre simply cannot rely on not-for-profit, volunteer-driven organizations for all of its marketing and efforts to bring in new customers. Volunteer organisations are neither resourced nor focused on delivering the customer levels needed for sustainable long-term growth and financial security, despite their desires and best intentions.

On the other hand, a commercial ice centre that controls introductory programs will take responsibility for marketing them. It will use its resources to gain new customers, motivated by financial incentives; in this case, a higher net income per hour, compared to renting ice to user groups. Entry-level costs will not significantly increase; in all probability, they are likely to decrease. In a competitive market-place, ice centres will become highly-efficient at entry-level programming, and they will do it at less real cost to themselves, compared to the costs incurred by volunteer organisations. They will also achieve economies of scale through a dramatically increased volume of marketing-driven, entry-level program participation.

However, it is pointless for ice centres to offer programs that are similar to those already offered by contracted user groups. Neither party will benefit, and so ice centres will need to come to some arrangement with the skating and hockey associations who already offer them. Associations would retain all but the entry-level programs and, most importantly, they would directly benefit from a greater number of high-performance ice centres. The balance required between ice rentals and in-house programs to make a rink financially viable differs in the various market areas, and it can even differ within various areas of a State. However, in general, a good balance is achieved when 30 – 50 percent of ice centre revenue is derived from in-house programs.

A key intent of the Melbourne Ice Academy strategy is to return to the foundation model of ice sports in Australia, enabling future commercial ice centres in the State to run their own learn-to-skate and introductory hockey programs. Its primary rationale is to establish a network of ice centres with sustainable long-term commercial viability, and so encourage the development of the highly-specialised facilities and ancillary goods and services that are essential for the growth of ice sports in Victoria. State Associations could own one or more ice centres if they were willing and able, and operate it on a commercial business model through a Board of Trustees, similar to the Queensland skating association. That is not necessary but otherwise, future centres will continue to be privately-owned commercial businesses, established with or without government assistance, and they will need an operating environment that includes program offerings. That will enable them to gear-up to tap greater financial incentives, and their success will once again be proportionate to their effectiveness in creating and sustaining customer growth... active participation growth.

The chart below generally illustrates the weekly capacity of a single sheet of ice, configured to enable half the time to be allocated to ice rentals, and half to entry-level programs and public skating conducted by the ice centre. There is capacity for a hockey league of about 28 teams, each with an ice allocation of 0.625 hrs for competition (1.25 hrs per match) and 1.25 hrs training per round, including due allowance for ice resurfacing. Speed skating contract slots are not shown, but there is some spare capacity remaining if required. Eventually, a proportion of those contract rentals will probably operate mainly from the central City ice centre. The network capacity for hockey across five metropolitan centres is therefore about 140 teams, and the projected  future potential is 134 teams plus Bendigo. Thus, calendars similar to this have sufficient capacity to accommodate the projected ice-hire potential, in addition to the in-house programs required to produce 30 – 50 percent of each centre's total revenue. These future projections for hockey potential are based on the drawing power of a single-sheet centre (Warners Bay locality model), and the chart confirms that it can be tapped through similar single-sheet centres. Naturally, there are twice the number of time-slots in a twin-sheet centre for both hockey and skating specialties, along with increased slot flexibility for the bigger and broader in-house programs needed to fill them, and lower operating costs per slot.

.

Weekly calander – ice slot capacity single-sheet prototype [1] Calender peak (hatched) = Mon – Fri, 3 – 10 pm; Sat – Sun, 7 am – 10 pm [2] No. of teams in time slots per: comp = av. 0.625 hrs; train = 1.25 hrs; total 1.875 hrs
					Mon	Tue	Wed	Thu	Fri	Sat	Sun
Peak 1			hrs	68	8	8	8	8	8	14	14
Off-peak			hrs	60	10	10	10	10	10	5	5
Totals			hrs	128	18	18	18	18	18	19	19
Adult hockey (teams: 19 2)			hrs	35	5	5	5	5	2	5	8
Jnr hockey (teams: 9 2)			hrs	17	1	1	1	1	1	6	6
Total hockey (teams: 28 2)			hrs	58	6	6	6	6	3	11	14
Contract programs — hky			hrs	6	1	1	1	1	2	0	0
Contract programs — fig			hrs	10	2	2	2	2	2	0	0
Centre rentals (hrs)			52%	67	9	9	9	9	6	11	14
Centre programs (hrs)			26%	33	5	5	5	5	8	4	1
Public skating (hrs)			22%	28	4	4	4	4	4	4	4

Potential weekly revenues are estimated for a typical winter season at a Level 2 ice centre operating under the above calender (table below or new window ). Competitive, low-end market ice rates are used, but they can be more or less, depending on factors such as service catchment, demand, pricing policy and price competition at each centre. Off-peak ice is rented at $120 per open hour in the business plan; a 40% mark-up on the low-e core operating cost ($70/hr). Prime ice is rented at $200 per open hour, a mark-up of 185 percent, except for Junior hockey ($145/hr). These are comparable to common low-end market rates in the US, but they also happen to make good sense in Victoria for these reasons: the ice centre needs to recover core operating costs and the interest component on debt service ($90/hr). So, if it was only renting its ice, it would need to make an average of $160/hr (90 + 70) to cover core costs. The split between prime and off-peak slots is roughly 50-50, and the average of the prime and off-peak rental rates equals $160/hr (120 + 200/2). Therefore, these rental rates are as low as they probably can be; but that is well above actual costs in order to cover interest on debt.

The business model is less dependant on rentals than other income sources, as will soon become apparent. For example, increasing prime ice rentals by 25 percent to reflect a market maximum, increases net revenues by only 6.5 percent. Similarly, reducing public skating costs from say $15.00 to $12.50, reduces net revenue by only 2.8 percent. This approach gears rental contract prices to only cover costs and interest on debt; discounts junior hockey slots by 27 percent; then goes a step further to keep pressure off all rentals. Rental rates can be lowered as the centre frees-up its debt service. They can also be raised, even to start, but that would only be done as a last resort for two reasons: first, regular, repeat customers that use both peak and off-peak ice, year in and year out, should receive price concessions related as close as possible to actual ice costs; excluding at least the principal component of property debt service. Second, charging prime users more for rentals is unnecessary if other service offerings at the centre can be sufficiently profitable. Keeping rental costs low will safeguard growth for all and build the critical mass and drawing power needed for sustainable economies of scale, high-throughput and resultant economic viability. This is similar in concept to the manner in which specialty shops subsidise the floor area rentals of anchor stores in shopping centres. By analogy, the anchors are ice sports and the specialty shops are in-house programs.

The four key revenue areas for this service level are in-house programs, hockey, public skating and figure skating. In-house programs generate 48 percent of gross revenue when the participation cost is set to average $15 per session, and the target participation rates in the programs (p-rate in chart) are set variously to between 50 and 90 percent. Obviously, both cost and participation rates are variable, and this ratio of in-house programs to revenue is near the upper end of the target range (30 to 50 percent). Of those, the instruction programs generate 36 percent of gross revenue, and the balance are recreational. The ice centre now has a greater financial incentive to develop in-house program participation, than it does to increase rentals or public skating admission prices. Slot capacity for entry-level instruction programs is set at 64 skaters (8 tutoring groups of 8 students on a IIHF-size rink) and 150 skaters for recreational programs, such as Friday and Saturday late-night discos and school outings. Thus, there is greater capacity to be utilised than appears on the bottom-line, and realising it will largely depend on the quality of programs and the effectiveness of their marketing. The related costs of instruction staff and skate guards are deducted from total In-house Program revenues.

Ice hockey contracts, including programs, generate about one-quarter of gross revenue and the contribution will be more when non-weekly (non-core) revenues are accounted, such as AIHL and National tournaments and their spectator admissions. Like all contract programs, ice-costs per participant vary according to the number who actually register and pay to participate. In strong adult leagues, with teams averaging 3 lines of 5 players plus goaltender, the ice rates shown result in an average cost of $7.00 per player each round. This includes shared training and match, but excludes finals. For 2 lines, it will average about $11.00. The cost in weak leagues, with an average of 1 line of players, will be about $22.00. Similarly, in Junior leagues, ice-costs per participant are about $6.00, $9.50 and $19.00 per round, from strong to weak leagues, respectively. On top of this, participants pay $10.00 or so per round for association membership, including insurance. So, the cost of adult participation in ice hockey in Victoria could be as low as $17.00 per player, or a little over half what it is in 2008, and without the same reliance on a shorter schedule to achieve them. Lower participation rates and new in-house entry level programs will boost player numbers, but they will also enable longer, more cost-effective game and training schedules; anything that remains affordable up to 30. For example, ice costs in a 30-round schedule for an adult player in league structured with full-strength teams, would be just $210 ($7 x 30) with a price structure similar to this. Participants would receive twice the ice time for matches and training, for less than present cost. That would work wonders for interstate and international competitiveness, particularly for the elite development leagues.

By way of comparison, adult hockey ice fees in Victoria in 2007 were $440.00 for the 18-round schedule, excluding the cost of finals, or an average of $24.00 per round. That was over three times the cost it could be in a well-managed league with competitive market rentals. It had been rising for some years and it is, without doubt, a key factor in the decline in hockey participation levels in Victoria. Just as surely, it is a growth barrier. Control over that is clearly in the hands of the sport's controlling body and the ice centre. The economics involved warrants detailed discussion in the context of the rental prices adopted in the business plan. It is provided at the end of this section (slot rental economics).

Returning to the table below, public skating is set to contribute about 13 percent of gross revenue, or about 16,500 admissions per annum, mostly on weekends. Figure skating contracts are set to about 5 percent of gross revenues. This is based on the current number of slots which are few and underutilised. In-house programs will enable more-efficient utilisation as with hockey, and demand for more slots. Dedicated front desk attendants are warranted to manage the throughput from in-house programs and public skating, which is set for 200 to 350 daily admissions. Skate guards will be required for public skating and non-instructional in-house programs at a ratio of about 1 guard to 100 skaters. The cost of attendants and guards are also deducted from revenues in the table. Weekly core staff costs were calculated at about $3,800 (core operating costs table) and this non-core component is an additional $7,100. The weekly payroll total for this phase is therefore about $10,900, or 28 percent of gross revenues, which is close enough to the target of 25 percent.

These levels of activity need to be systematically developed and so a marketing and promotions budget will be required, the costs of which are deducted from total revenues. The annual budget in the business plan is over $230,000, equal to an allowance of $2.50 per admission from public skating and in-house programs. Experts say that people tend to make the issue of marketing a lot more complicated than it has to be. Experienced companies will tell you that 10 percent of gross revenue is about right. Budget less, and you're not getting your name out to new customers; budget too much more, and you may not get a profitable return. So, a simple guideline for budgeting marketing and promotion dollars is: 12 percent of gross revenue allotted for marketing at start-up, or when the centre has not recently marketed at all; 10 percent allotted when the centre is marketing consistently; and down to 8 percent, when the centre becomes very successful and doesn't need any more business, most of which should be spent on marketing to current customers. Centre management need to extract maximum value from that. There are plenty of so-called marketing experts out there pushing canned, unfocused, or poorly executed ideas. Clever companies test all new marketing ideas and methods on a small scale, with less than 1 percent of gross revenues, and scale them up only when they find a formula that works. It's not the numbers that differentiate a great marketing plan. It's the honesty and strength of the core message. Explain the message well, to the right people, and make it easy for them to find. A 15 percent improvement in the honesty and strength of the message is a better investment by far, than a 50 percent increase in the budget for a lackluster program. More spending does not guarantee better results.

Working to a business plan like this, five General Managers and five Sales Coordinators will market and promote the five ice centres using combined marketing expense budgets exceeding $1.1 million each year. Spare a thought for what that might mean for the future of ice sports in Victoria. With the above qualifications, all core revenue centre variables are factored and can be adjusted to model the various revenue parameters during investment analysis (XLS download link, bottom of table).

The bottom line: the ice centre can generate monthly revenues well in excess of $120,000, with vital in-house programs. In the 20-week off-season, rental revenues from winter sports will be replaced by activities ranging from summer leagues and development camps, to inline skating and hockey. The centre will derive additional non-core income from its 1,070-seat spectator capacity; its corporate boxes seating 150; its capacity to host world-class tournaments; sponsorships; and its ancillary revenue-generators, such as café, function rooms, pro-shop and vending machines. The single-sheet prototype can achieve the minimum cash flow required for establishment and operation, including debt service on property equity for the lower limit of $10 million borrowings. The optional upper range of required cash flow, based on borrowings of $15 million, is comprised mainly of a contingency sum for overruns, and a provisional sum for the estimated capital cost of other discretionary revenue-generators. Typically, they include in-house accommodation for training camps and associated athlete training facilities (pool, gym, lecture and meeting facilities). These facilities can be provided initially, or provison for later installation can be made at inception. Similarly, site acquisition for a single-sheet centre should allow for future expansion to twin-sheets. Non-core facilities have their own cost and revenue centres which are considered separate to core revenues (below).

Site selection and capital cost control are obviously critical as with any development project. But otherwise, the investment risks that need to be managed are almost exclusively the achievement or otherwise of the active participation targets, and the brokering of co-operative arrangements with the two main controlling authorities. There are good, dedicated people in the associations and the business plan is sufficiently well-resourced to do the rest. It is marketing-driven. A General Manager and Sales Coordinator will be primarily focused on that task, with a marketing expense budget equivalent to about 12 percent of gross revenues. Additional marketing resources will flow from volunteers, fundraising and sponsorships, but the financial performance of the centre is not dependent on them. Greater market potential than the capacity of a single-sheet centre exists in the service catchments of each strategic location, particularly if it is tapped deeply through more innovative programs than these; programs that create opportunities for young people with limited resources to participate. Three-quarters of in-house program resources are focused on introducing customers to ice sports. They will self-finance a part-time Head Program Instructor and three effective full-time instructors. Each week, they will tutor a stream of hundreds of skaters in groups of eight, a proportion of who will subsequently become sports participants. The centres will provide ice sports with a reasonably constant supply of potential new athletes who would not otherwise be attracted, because of the comparatively limited marketing and promotion resources of voluntary sporting associations. These supply lines will do more than replace those lost to the sports through natural attrition.

Ice sports will grow, and as they do, the cost of participation will further reduce through new economies of scale. New and expanding markets will attract and sustain allied support services and the highly-specialised suppliers of ice sports equipment, clothing and consumables. Improved availability and competitive market pricing of these goods and services will directly benefit both consumers and associations, further reducing many of the indirect costs of participation. New commercial opportunities will steadily emerge for facility hire, advertising and naming rights, special events, corporate sponsorships and both public- and private-sector partnerships. Multi-media exposure of the sports and their athletes will develop, and with it greater local, interstate and international interest in active participation and support, financial or otherwise. Ice sports will become attractive, affordable and accessible to progessively wider markets, resulting in more growth until a kind of equilibrium is reached. Then a critical mass and a broader constituency of participation exists for both the ice centre and ice sports, and a largely self-regulating economic sustainability dawns. Targets like these are little different to those that have already been achieved at numerous centres interstate, even at a distance from capital cities. Prospective investors would do well to visit some of the best of them. They are quite achievable in Melbourne at present, but only if the task is properly resourced in a manner similar to this. In fact, unntapped potential in these catchments is sufficient to fuel a second phase of growth and expansion to twin-sheets. Then, the number of ice slots will double. Scheduling options and flexibility will dramatically increase. New economies of scale in staffing and plant utilisation will drive costs lower and returns higher. And, perhaps most importantly, the expense budgets for marketing and promotion will also double.

Five twin-sheet ice academies will inject over $2.3 million into marketing and promotion of ice sports in Victoria. Each and every year.

1-sheet Ice Centre

Ancillary revenues

Ancillary (non-core) revenues will vary considerably depending on the opportunities available to the ice centre and its financial objectives. Most Level 2 centres will operate the list of ancillary services summarised below, but there are obviously many other income opportunities not developed here, including National and International tournaments, and annual events such as Skating Carnivals and Ice Shows that the centre could organise itself. Melbourne has lost a long tradition of these spanning 50 years. Reid's Glaciarium Ltd operated many similar ice events annually, as well as dry floor events like exhibitions, shows, cinema and even circuses. Modern-day equivalents will be able to take advantage of the seating capacity of the arena and the opportunities available to a well-located, multi-purpose facility in the local community. A single in-house event offers a potential source of income that, for example, could be as high as $25,000 from a 1-sheet area filled to capacity, even at just $5.00 per admission. Similarly, the prototypes contain meeting rooms and related facilities that can be hired, and the twin-sheet facility may develop to include pool, gym and hostel-style accommodation which can also produce income streams separate to their primary purpose. The table below summarises conservative estimates of income potential from the ancillary services likely to be offered from Level 2 centres. Rationales are briefly explained beneath. The additional income is estimated to be minimum clear profit equal to about 7 percent of total core revenues. It could easily be two or three times that as patronage builds and the centre becomes more effective at developing and consolidating its total service offerings.

Food Service

The twin-sheet prototype provides a large commercial kitchen and food storage areas capable of cafe-style catering for 120 to 150 persons, plus 2 party-function rooms seating 50 persons apiece. It also includes a drinks bar and provision for spillover seating onto the concourse and outdoor terraces. The spaces are designed with operable walls that open to comfortably seat a total of 250 persons for dining, and so the venue is well-suited to hosting local sporting club events such as presentation dinners and fundraisers. The single-sheet prototype will accommodate about half that. The food service and vending can either be managed by the ice centre or contracted to an outside vendor. There are some situations where it is more beneficial to lease out food service operations instead of attempting to manage it to make a profit after the cost of goods and labor. However, a typical twin sheet ice rink, even one with lower traffic levels than normal, should be able to produce revenues from food and vending of over $120,000 per year. With an average profit margin of even 15%, (which is very conservative), the net income from food services would be $18,000 annually. Leasing out the food service makes sense with a minimum lease of about $1,500 per month, otherwise it should be done in-house. The ice centre also has more control over aesthetic and product improvements when the food service is organised internally.

Pro Shop

In Victoria, there are presently only very limited retail outlets for ice hockey and skating goods and services because there is relatively low demand. Establishing Pro-shops within ice centres makes sense when demand is sufficient, because they have the advantage of being able to conveniently make available those goods and services already consumed by its users from elsewhere. For example, the Hunter Ice Skating Stadium (the model service area) operates a Pro-shop. However, there is little point unless the shop offers a good inventory and a reasonably wide choice of major makers. It is likely that the limited range presently stocked by the few outlets in Victoria results in a very high proportion of escape expenditure. Players are often forced to purchase interstate or overseas to get the equipment they want. On present prices in Victoria, hockey players typically spend $1,000 to $4,000 on their equipment, and then replace it as required or desired (table below). Replacement of most items for juniors occurs every 2 or 3 years. There are also consumables that are required constantly, such as hockey tape. So, on average, players can spend about $900 to $1,800 per annum on equipment and consumables. Revenues from hockey clothing and equipment alone should be over $200,000 a year and as high as $400,000, when the ice centre is hosting leagues of over 300 players. With an average profit margin of 15 percent (very conservative), the net income should be $20,000 to $60,000 depending on the share of player expenditure the ice centre attracts. There is substantial additional income potential from clothing and equipment sales to public skaters and skating specialities, for both ice and inline.

Initially, Pro-shop products and services are best combined with skate rental and front desk / admissions until there is sufficient demand to warrant a dedicated shop assistant. Like the food service, floor space in the ice centre can be rented to an outside vendor, or the centre can manage it themselves when demand is sufficient to make it profitable. The floor area reserved for the shop in the prototype is 133 square metres with potential for expansion. Annual suburban retail rentals will vary between $150 and $450 per square metre, depending on the location of the ice centre. Therefore, the minimum rental for the Pro-shop floor space should be about $20,000 per annum or a monthly rent of about $1,670. Ice centres located in or nearby shopping precincts could secure rentals as much as two or three times this amount. There is also potential for 2 or 3 times this income if the Pro-shop is organised in-house.

Skate Sharpening

The typical market rate for skate sharpening is $10.00 and sharpening frequencies can range from every 10 hours for a daily skater, to every two months for a once-a-week skater. In general, skates need sharpening about every 10-25 hours of skating as long as care is taken to avoid damage from stepping on hard or abrasive materials. Hockey players sharpen skates at least 3 or 4 times a season. Income from this source should be in excess of $9,000 per annum or $750 per month.

Skate Rental

A typical twin-sheet ice centre has 300-500 pairs of rental skates available. Having insufficient rental skates on hand leads to turning away customers at learn to skate, group outings, public sessions and other large events. Typical market rate for skate hire is $3.00 per session. Public skating prices include skate hire. In-house programs will generate demand for hundreds of hires each week. A conservative estimate of demand is 100 pairs per week on average over a year, which will produce income of about $15,000 per annum or $1,250 per month.

Video/Arcade

Commissions from video and arcade games are another possible source of ancillary income provided for in the prototype.

Sponsorship/Advertising

The general manager is typically responsible for selling advertising which usually includes corporate naming rights, website advertising, mailouts and newsletters, bulding interior advertising space, sponsorships, and match calling, both in-house and radio broadcasting.

Dry Floor Uses

The marketing of a dry floor area is very challenging and differs greatly from the marketing of an ice rink and its programs. Ice centres can offer sports programs such as inline hockey, indoor soccer and box lacrosse, providing the facility has a suitable floor covering, particularly for sports like indoor soccer and inline hockey. Local Council recreation departments also have programs that can be run from dry floor areas in ice centres. Larger events can be very profitable for twin rinks, however the pricing should be examined carefully and compared with charges at other venues. In the event industry, a single rink space might typically rent for $2,000 per day or 10% of gate, whichever is greater; or $100 per hour for just the floor rental.

[... to be continued.]

1-sheet Ice Centre

Slot Rental Economics

Further rationales for the pricing of slot rentals adopted in the plan are discussed below, primarily for ice hockey. The same principles apply to skating specialities. In 2008, player participation costs were contained to 2007 levels, primarily through a shortened schedule of 15 rounds. In real terms, adult players paid the same as they did in 2007 (about $33.00 per round), excepting that no additional costs were incurred by those who make the finals. A further price hike would certainly have placed more downward pressure on participation, although players were really no better off in terms of monetary value, because each received 3 rounds less for the same fees as the year prior. The general principle at work in much of what follows is that the cost of participating increases as the total number of participants decreases, unless leagues are re-scaled each season to achieve optimal economy, and prices are re-structured to ensure a constant flow of new development recruits for the purpose of supplementing adult leagues. Victoria has had declining participation for many years for a range of reasons, but partly because the association and clubs are naturally reluctant to downsize to the full extent needed to control costs as close as possible to optimal. And partly because the cost of junior participation is too high. The former effectively raises the bar for existing players each season, and makes it more difficult to attract prospective new players. The latter acts as a barrier to junior development recruitment, with resultant structural diseconomies of scale. Player numbers fall below the minimum threshold needed for economic pricing (they have halved in Victoria over the past 6 or 7 years). Development leagues become increasingly difficult to replenish and operate, and both the quantity and quality of the flow of new players to adult leagues further reduces. Natural losses in adult participation are not fully replenished, forcing further downsizing. The cycle repeats each season, plunging both junior and adult leagues deeper and deeper into a self-defeating downward spiral, where each new decline in one, triggers further decline in the other. The effects of diseconomy and inefficiency in one, spill over into the other. Each acts to defeat its own purpose and therefore that of the other.

Positioning leagues to promote real improved value is very important when this is occurring. Decisions by both the ice centre and controlling authority determine the player participation costs. Improving the quality of player experience is just as important, but it alone cannot be relied upon to restore and sustain healthy leagues. The City of Toronto recently proposed double-digit hikes for renting rinks in order to raise revenue it needed, which many believe was to help pay for free programs. The Scarborough Hockey Association alone handles 3,000 players there in competitive and house leagues ten times the size of Victorian leagues. They've been charging $387 (Can$345) a 19-round season for younger children, and $433 (Can$385) for juniors aged 12 and up. This is 23 – 39 percent lower per round than in Victoria, partly assisted by economies of scale and City-owned rinks. Now they're looking at $505 (Can$450) and $562 (Can$500), which is still 9 percent less per round than for most juniors in Victoria, and about the same for juniors under 12 years. Yet, the association President said in the Scarborough Mirror in January 2008: "It would take maybe two years and they would be decimated." It's a grim prospect for Toronto, but it is already a grim reality in Melbourne, and it has been for some years. Only the cause of the price hike is different. Let there be no doubt: pricing greatly effects participation and vice versa. Victorian players now compete in a schedule reduced by 20 percent compared to other States. Victorian adults pay 21 percent more per round than NSW adults, even though metropolitan rinks in NSW are bigger, better and more expensive than Oakleigh or anywhere else in Australia. Victorian juniors pay 23 percent more than NSW juniors. In addition, Victorian players receive less value for money compared to interstate, because fees are based on shared training and sub-standard rink facilities.

Ice fees for most non-recreational players in Victoria in 2008 were about $20 a round (table below), suggesting ice charges are somewhere in the higher band of market rates world-wide. Oakleigh presently rents its ice at $210 per hour and public rentals are $220 – $230 per hour. Most junior teams share 2 hours of ice split 50-50 to match and training, and three teams of Under 12 juniors share one training slot. Real ice costs for most players should be no more than about $13 per round with optimal teams and match participation (420 / 32); even with these high ice centre rentals. Yet, for most players, ice fees are about $21, or 60 percent more. There is a very large difference between the cost of the optimal amount of ice the association needs to hire, and what it charges-out to players (chart, top left). Exactly how these extra dollars are spent is not obvious, but they do not subsidise actual ice hire for non-checking leagues (Pee Wee, Prem C), because their fees are higher than their optimal ice rentals (table below). Part of it must pay for the Bendigo subsidies and part may be used for ice-related costs such as officials, although all players also pay registration fees. These should at least include all other 'off-ice' costs such as capitations, insurances and trophies. We do know that since the real ice hire component is based on optimal utilisation of ice with efficient leagues and teams, the other third represents, at least in part, economic inefficiencies in those areas. And it amounts to a lot of money. It points to highly-inflated player ice fees in Victoria and it is due, at least in part, to uneconomic ice fee subsidies, and leagues and teams that are still scaled less than optimal. The Bendigo hardships serve to further exasperate the situation. They all conspire to place downward pressure on participation, and so contribute to the decline in player numbers.

IHV By-laws require fees to be fixed by November 1st each year, which sensibly allows 4 or 5 months for promotion of the costs of participation in advance of player registration. In 2008, fees were notified just prior to the start of the season. They were not mentioned in the review document circulated by the association, so prospective players had no earlier opportunity to consider them. When families of junior players looked at them, they saw adult prices of $500 and junior prices of $475. They looked roughly the same, except that the entry-level of each appeared to be heavily discounted by about 20 percent; Premier C and Pee Wee were $375. Yet, this is far from a true picture of relative costs. Match time for all teams is usually the same but, in the past at least, it has varied between juniors and adults, as has the amount of training ice time. Underneath, ice fees are structured to heavily discount the cost of ice for some and increase it for others, and very differently to the way it appears. For example, Premier C actually pay more for ice than all others (twice more), and all Bendigo players are subsidised. The association is not-for-profit, so its decisions are based on providing best value to its members. But that can be done more or less efficiently and this, and other uneconomic cross-subsidies like it, warrant discussion.

The relative cost of junior participation can increase for children aged 12 to 17 years when two or more junior teams share training slots but adults don't, and prices are not adjusted accordingly (chart left). Two teams must obviously always share match slots. In the 2008 IHV pricing structure, junior teams share training slots, and they have sometimes done so in the past when adult teams have not. In 2008, it appears adult teams do share. (Premier A and Reserve grades appear to share because the fixture shows one training slot for adult clubs. However, at least one Club website showed separate training slots.) Non-checking adult fees do not include training, even though all three adult leagues are subject to the same competition requirements and format. Presumably, most don't want to train, although some Clubs have separately organised their own training sessions. On this basis, each junior team rents 1.03 hours of ice per round (half shares of 1 hr for match and 16 x 1 hr training slots). Three Pee Wee teams share one training slot and rent 0.83 hours per round. Each adult team rents 1.07 hours (half share of 1 hr for match and half of 17 x 1 hr training slots). Non-checking adult teams rent their half-share of one hour for matches only, and none for training. Junior Elite and Bantam teams pay ice fees about the same as Premier A and Reserve adults, which is about one-third more than real ice costs. This is summarised for each league in the table below.

Ideally, Junior development leagues would be set-up such that their ice hire averaged about $150 per hour. Rates vary, but this principle is business-as-usual in strong development leagues overseas, and not just when the sport is in decline. Further, cross-subsidising occurs when association fee structures discount prices for some players or reduce the required number of training slots by training 2 or 3 teams at a time without reducing fees. Under- or overcosted increments are reallocated in the fee structure in ways that usually subsidise the fees of one group of non-recreational players, resulting in higher ice fees for others. This is generally not the case in a pricing structure where training ice is shared equally, but the Bendigo player discounts of 20 to 25 percent are in fact subsidies, because prices for Melbourne adults and juniors are about the same, and Bendigo player ice prices are substantially lower. Inefficient cross-subsidising effectively exploits the commitment, trust and aspirations of athletes and their families and the relatively high prices that most Juniors pay are unnecessary. Over the next four years, the surviving proportion of the Elite and Bantam juniors will all be age-eligible for adult competition yet, in the interim, the various cost pressures on their continued participation and replacement is alarming. Uneconomic cross subsidies are a flawed and somewhat disingenuous approach that work directly against the health of junior leagues, because they raise the bar for junior participation. The effect is multiplied when their leagues are in more serious strife than the adult leagues it is hoped they will supplement, as is presently the case in Victoria.

In some cases, charging different customers different prices for the same service is actually efficient. For example, it makes sense for the association to overprice recreational ice fees and then use the difference to subsidise the costs of participation where it will benefit the sport most. It makes similar sense for an ice centre to overprice entry-level hockey if it offers such programs efficiently and actively promotes and markets them in ways that voluntary associations can't. So, economy where prices may rise for one group while falling for another is understandable in principle. Declining participation levels should drive the association to allocate a larger share of ice costs to those participants less likely to be deterred by price increases. But economic efficiency requires that prices vary according to customers’ sensitivity to price changes. This means ALL junior leagues should be underpriced compared to adult leagues. They are presently worse off to start, they incur more costs in the sport than adults, and they take longer to develop to adult competition grade. The higher costs in adult competition arise primarily from inefficiencies in ice utilisation caused by structural imbalances in team sizes and competiveness, and lower than expected match attendance. These high costs persist and worsen during periods of declining participation, unless leagues, clubs or teams downsize, at least until player numbers return to optimal. The association has addressed that fairly well, as discussed below. It will be sufficient to restore some lost economy if it is administered as it should be; to extract true economic efficiency, with minimal compromise. However, cross-subsidies for adults are unnecessary and they are also potentially very costly to junior participation.

Another most important economy in hockey turns on the fact that fewer, larger, 3-line teams (15 players plus goaltender/s) mean reduced ice fees and possibly less ice rental. In 2007, adult team rosters actually averaged 2 lines, because only two-thirds played half the season or more, and the ratio was even lower excluding Juniors playing up. The difference was 2 or 3 teams worth of ice rentals, which significantly effects player costs. There could be either lower costs or higher value in Victoria, even with the same ice rental rates, but it might require scheduling trade-offs that can effect player perception of quality. So, organisers must weigh the comparative costs and benefits of scaling teams and renting ice according to the total number of players who register each year, or according to the average attendance expected from the total. To illustrate, participation and relative economy for all 6 leagues at the start of the 2008 season is charted below. On average, senior league participation was close to optimal; only short 1 or 2 players in each league. Player ice fees would be 6 to 8 percent higher than optimal over the course of the season if the same player match attendance is sustained on average. Junior league participation was 30 to 45 percent below optimal. On average, the three junior leagues were short 4 or 5 players, so player ice fees would be 15 to 22 percent higher than need be, if player match attendance over the season averages about the same. Factors influencing Junior league structure and economy are different to adult leagues and they are discussed further below. Organisers have varying degrees of control over League quality and economy, and it is worth managing because a difference of up to 25 percent in ice fees can make a big difference to participation levels in the sport. However, it is tricky, because the authority needs to be sufficiently well-organised to estimate player match participation in each league; with reasonable accuracy, and before player ice fees are fixed. Otherwise, fee inflation will be more than need be, and higher fees exert more downward pressure on participation. Focusing on it in advance of fee-setting, and managing it well thereafter, can help to arrest the decline in participation that the sport is presently experiencing in Victoria.

The authority has full control over the number of leagues; the number and minimum size of teams in each league; and price-structuring of player fees, including subsidies such as those discussed above. It has less control over ice rental costs, player registrations and player match attendance, but it can still exert very significant influence. It can attempt to negotiate more competitive rentals with the ice centre; it can plan to keep costs low and help maximise player registrations by promoting cost benefits well in advance; and it can promote player match attendance throughout the season. Ice fees are collected in advance and not refunded when players don't attend a match. So, although the controlling authority is not out-of-pocket as a result, promoting match attendance during the season matters, because it affects game quality, and it factors in fee-setting for subsequent seasons. Overlooking it leads to teams that are less than optimal, more ice rentals than may be required, and resultant higher participation costs and loss of game quality. There are many low-cost ways of promoting match attendance, but among the most effective are regular communications on competition highlights; progress reporting on league development and attendance; prompt reporting and maintenance of match statistics and standings; and player incentives that encourage participation. Among the disincentives are certain kinds of fundraising that rely on milking players or their families for income, rather than other sources. In effect, they add to the cost of participation and can even alienate those who can't afford them. Promoting attendance in each league in positive ways is similar to marketing to existing customers, and it is best done at least weekly through the website of the State controlling authority and at the ice centre. Match attendance is also significantly effected by match scheduling. For example, the influx of inline players to ice in recent years has impacted average attendance levels because schedules sometimes conflict, and some attend National and International inline tournaments. Similarly, some adult players who also play AIHL have low association match attendance. Regular season matches often conflict with National junior development camps. Scheduling must account for these kinds of conflicts as best it can, but league structure and teams sizes should take the rest into account, by factoring expected match attendance in advance.

	Relative economy + quality of participation, 2008 IHV start-up
		Premier (adult)					Junior
		A	Res	C	∑ or av		Elite	Bantam	Pee Wee
Match	Blackhawks	13	13	14	40		12	12	11	Bears
attendance	Braves	15	14	15	44		12	11	11	Bombers
(players)	Demons	12	17	16	45		13	11	11	Flyers
	Jets	14	13	11	38		14	11	11	Pirates
	Tigers	15	—	18	?
	Saints	—	14	17	?
	Sharks	—	13	YTP 1	?
— league av.	actual	14	14	15	14		13	11	11	actual
	optimal	16	16	16	16		17 2	16	16	optimal
	shortfall	-2	-2	-1	-2		-4	-5	-5	shortfall
Ice/round	hire ($) 3	14	14	7	12		13	14	11	hire ($) 3
	fees ($)	21.67	21.67	13.33	18.89		21.00	21.00	14.33	fees ($)
	time (hrs) 4	1.07	1.07	0.50	0.88		1.03	1.03	0.83	time (hrs) 4
	/hr ($)	20.25	20.25	26.67	22.39		20.39	20.39	17.27	/hr ($)
	optimal ($)	10.12	10.12	13.33	11.19		10.19	10.19	8.63	optimal ($)
	actual ($) 5	11.74	11.57	14.07	12.51		13.33	14.83	12.56	actual ($) 5
	— % ∆	15.9%	14.3%	5.5%	11.7%		30.8%	45.5%	45.5%	— % ∆
Ice/season	hire ($) 3	212	212	100	174		192	204	165	hire ($) 3
	fees ($)	325	325	200	283		315	315	215	fees ($)
	excess ($) 6	24.21	21.70	10.99	19.67		47.05	69.51	58.87	excess ($) 6
	— % 7	7.4%	6.7%	5.5%	6.9%		14.9%	22.1%	27.4%	— % 7
	fees optimised	$301	$303	$189	$264		$268	$245	$156	fees optimised
	[1] YTP = yet to play [2] 2 goalies/team [3] Real hire cost ($210/hr) at optimal utilisation, including $1.20 allowance for finals. — included only as a baseline; calculations based on fees charged, not actual ice hire. — ($210/hr x no. hrs + $1.20 / by optimal no. of players). [4] 0.5 hr for all teams + training ice. Finals excluded. — 15 matches/league. No of adult matches reduced due to withdrawal of Bendigo teams. — Prem A now plays 14 not 15 matches. Reserves and Prem C play 13 not 15. — cost difference does not effect calculations if refunded. [5] per actual match attendance [6] x'tra over optimal ice fees; savings potential thru' optimisation. [7] per season fees Data sources: IHV Fixture Schedule v. 2.0 and Players Statistics

Ice fees, and therefore participation, are also effected in similar, but less obvious ways. For example, the Bendigo rink closed at the start of 2008 and the Raiders had no home ice for months. Yet, the Melbourne comp was structured in the hope that they would repair it in time. They didn't, so 3 by 15 byes or 45 hrs of unutilised ice rentals appeared on Premier league calenders. If Premier league players paid for it in their fee instalment/s, the cost was something like 10 to 15 percent of total fees on average per player (45 x 200 = $9,000 / 150?). Even if they didn't, prospective players made their decision to play or not, on the basis of costs or 'likely' costs that were very different to what they could have been. That was so, irrespective or whether or not the cost of unutilised slots is waived or refunded. Perhaps Bendigo just didn't have the numbers. In 2007, only 10 played more than half the senior comp; only 8 played more than half the Senr B comp, and only 12 played more than half of one junior comp. Three teams of 30 committed players, none of which were optimal strength. In 2008, all teams needed a roster of 20 eligible players and a minimum of 10 players to compete on any given match day. Leagues should be structured for least cost, particularly when they are in decline, yet that was not achieved in the adult leagues in 2008 because player ice fees were determined with Bendigo participating, and they didn't.

In addition, 2008 ice fees for Bendigo players were heavily cross-subsidised by 20 to 25 percent at the expense of Melbourne players. The cost of this cross-subsidy would have been up to $5,000 or $350 per round to accommodate Raiders Premier A and Reserve teams at the discounted rates. Ice fees for Melbourne Players must have been overcosted by a similar amount to pay for it. For example, the cost spread over say, 100 Premier A and Reserve players is about $3.50 per round, or 16% of ice fees. Or $1.75 per round spread over 100 adults and 100 juniors. Checking adults and juniors paid almost the same hourly ice fees, so the subsidy was probably applied to both. Actual player ice costs reduced when Bendigo withdrew by an amount equal to the ice hire no longer required, AND the overcosted increment built-in to them to pay for this cross-subsidy. So, player ice fees should also reduce. They were inflated by that amount in 2008, and it must therefore have had an adverse effect on affordability and resultant participation. A 'tax' like that could have been more appropriately used to shore-up troubled Junior leagues. Melbourne Clubs are 10 times worse-off per capita than Bendigo. After schedule adjustments, Premier A plays 14 not 15 games and Reserves and Premier C play 13. Each season, one way or another, a Bendigo-related problem effects the attractiveness or costs of participation for Melbourne players. Fortunately, it did not impact Junior schedules in 2008, but it did inflate their ice fees. Recovery plans for struggling Melbourne metro leagues can ill-afford much more of it.

In 2008, adult teams were downsized by a merger of two teams in the Premier A comp only, and the first round suggests that they are close to optimal (table above). Three new Junior leagues were created, and teams were downsized in 2 leagues from 6 to 4, with two teams sharing a training slot (table below). Under 12 Juniors play in 3 teams with an average of about 11 players. All three junior leagues are performing below optimal because they are still only moderate strength (a little over 2 lines on average). Junior attendance had averaged around 70 percent the year prior, and so it is likely that actual participation in 2008 will average only 8 or 9 players per team; less than 2 lines, when 3 are optimal. Competition quality reduces because players tire more. Two lines leave little in reserve on the bench after absences, penalties, injury, players not performing well. Player ice fees are less than optimal, because more smaller teams require more ice rental than fewer larger teams. The optimal number of teams in a league can be estimated by the formula: T = rp / 16, rounded to the nearest whole number; where, T is the number of teams; r is the number of registered players in the league including goaltenders; and p is the expected player match attendance rate, on average over the season. The constant 16 is the optimal number of players with 1 goaltender.

This results in 2 teams for each junior league in 2008; 3 at most (48 x 0.7 / 16 = 2.1), if player attendance was expected to be similar to 2007. However, 2 teams per league is insufficient for healthy competition. Three teams are not much better and the format requires byes. Collapsing the 3 junior leagues into 2, still only provides 3 teams (72 x 0.7 / 16 = 3.2), although 2 leagues of 4 teams is more efficient than 3 leagues of 4. However, downsizing leagues is not a good option because it precludes the 3-league structure that is best-suited to junior development hockey in Victoria. Thus, 4 teams in 2 leagues, and 3 teams for Under 12, is its workable minimum, noting that they are less flexible than adult leagues, partly because there is much greater physical, mental and skill variation among junior participants. And, partly because adult leagues receive the largest proportion of their new recruits from this source, yet the junior leagues themselves must recruit mostly from the open marketplace, in direct competition with all other sports and recreation alternatives. Voluntary associations are insufficiently resourced to pay for the marketing and promotion expenses that are required to do that effectively.

The optimal number of player registrations within the junior structure can be derived from the same formula transposed (r = 16T / p). If each junior league started season 2008 with an average of 50 players, each needed a minimum of 60 players, with an expected attendance of 90 percent, for optimal performance and economy. This is an increase over current levels of at least 25 percent in each division. Alternatively, each needed 90 players with expected attendance of 70 percent (2007 levels). This, together with a rethink on ice rental cross subsidies (overcosting juniors while undercosting adults), and a re-negotiated price for Junior league ice rental, are among the most important short-term objectives on which to focus. Participation costs will be lower; leagues will be more attractive to prospective new Junior players; and competition quality will further improve. In the meantime, Junior leagues are inherently less able to derive optimal economy and value from ice slots. That will not change whilst ice fees for Junior Elite and Bantam players remain substantially higher per hour than need be. To turn it around, prices for all three Junior leagues need to be significantly lower than adults, in order to make participation more affordable and better value.

As mentioned above, further downsizing Juniors from 4 to 3 full-strength, 3-line teams results in odd-number scheduling, and no-one really wants byes. But it would also result in a 25 percent reduction in player ice fees and better quality competition, because 3 lines tire less than 2 over the course of a match. Player ice fees would be about $15.00 per round, and total fees including registration would be about $385 for the season; a saving of $90 for Juniors. Alternatively, 3 teams can play a 4-team format without byes (table above). The number of slots is the same as 4 teams, but each player gets 25 percent more value in the form of extra games and training time; the equivalent value to a 3-team bye-schedule format. Some players may prefer the neat, four-team schedule adopted by IHV, all played on weekends. Perhaps it suits younger players and families, and four teams is certainly a better competition format than three. Nonetheless, others might prefer more games and training for the same money, and it is certain that prospective new players are more likely to be attracted by lower costs, or better value in the form of more ice time for their dollar. Fewer teams are inevitable anyway, if costs remain high or value-for-dollar does not improve, because fewer existing players will participate, and fewer new players will be attracted.

Junior pricing needs to be lower than this to retain players and attract new ones in ALL Junior leagues. This should be a greater priority than subsidising an adult competition like Bendigo. Yet, ice fees for those adults in 2008 are less than Junior Elite and Bantam. Premier C subsidise others, but it is still hard to fathom why teams that are significantly less than optimal are permitted. For example, Jets Premier C played the first round of 2008 with the minimum required 10 skaters and a Reserve-grade goaltender. They are, in effect, subsidised at the expense of others in the same league. Game quality and competitiveness were also very low (Jets defeated 2-12). Something is not in order when 20 players are required to legitimate a team and only 10 attend the first match. There are no obvious checks or disincentives in the new structure to discourage more teams from following suit. This is a club that denied it had a problem whilst their top adult team attempted to compete with an average of 7 or 8 players per round in recent years. Parochial wooden spooners who declined to merge in the overall best interests of hockey in Victoria. A club whose adult teams are still short 6 or 7 players on average, compared to others (table above). Hockey in Victoria could do better without the intransigence and disregard that rule that Club. The extra cost of structuring leagues for short teams like this is one-third greater than optimal, and all other players pay extra as a result. There would be less ice rentals and greater economy, if that team was merged with one or more others, and played a 6 not 7-team format as in the Premier A league. There are no valid economic reasons for it, particularly in a League in decline. In the absence of a fairer alternative, short-handed, entry-level adult teams should pay their way in full, with their total ice rental cost shared equally among themselves, similar to court hire for amateur basketball.

Young families should not be subsidising either adult leagues or children under 12 years if IHV are serious about reducing costs in order to retain existing junior players and draw more. That is so at any time, and not just because junior leagues are presently in the most serious pickle of the two. Adults don't incur the significant additional expenses of about one-third of all Juniors whom IHV need to represent the State nationally each year. There are more junior than adult National tournaments, and for good reasons. There are also many other costs paid by their families, such as Development Council and try-outs, that just mount and mount. Unlike most adults, children quickly out-grow expensive skates, jerseys and protective equipment, long before the end of their useful life. Tallied up, extra participation costs for children make it difficult for a fair proportion of families to keep up, particularly those on low or single incomes, and those who might have more than one child interested in the sport. About 1 in 5 juniors had siblings who also played in 2007, and it should ideally be higher. Yet, these extra costs are hard to avoid because they are so integral to a well-rounded development experience. Development lead-times for players to reach adult Premier standard can be 5 to 10 years. So, the sport needs a constant flow of Juniors to replenish and sustain its adult leagues, including AIHL. It can least afford to lose those players in whom it has already invested heavily and prices need to be kept as low as possible to maximise the attractiveness of the sport to prospective new players in all junior age bands, not just entry-level. It is quite possible for talented athletes even 14 or 15 years of age, to develop from scratch to Premier league standard by the time they are age-eligible. Older players can finish development in reserves.

Participation cost is crucial in junior leagues for these and related reasons, both now and in future. For junior participation to happen, families must be able to cover the very significant costs of many years of development and competition; fees, equipment replacement, consumables, related expenses, frequent and increasingly expensive car travel for those who live some distance from Oakleigh, interstate travel and accommodation. Some organisers in Victoria think parental pride will keep it all ticking over. It might for those organisers' own children, but not for the many who might otherwise participate, but who organisers will never see. Nor for those who move on to something else, equally or more appealing, and at a fraction of the cost. There are a good many Victorian families who would never enter into it, if they knew in advance what they were getting themselves into. Every non-discretionary cost contributes to raising the bar, no matter how small or unforeseen, no matter how important they appear to organisers. For example, the costs of 11 prime-time slots for Junior selection camps adds about 3 or 4 percent to player costs (11 x 200 / 150), and most players would probably benefit more from either lower costs or an extra game or focused training slot each. League try-outs are avoidable with a player ranking system or something similar. They are at least able to be minimised, and IHV need not rely on them annually.

To summarise, least-cost and best value is achieved when leagues are scaled to accommodate the expected number of active participants in full-strength teams, and nothing more. Teams are only added when increased player registrations are sufficient to cover most or all of the cost of additional ice rental, and only at or near full-strength. Cost-effectiveness is never more necessary than during a decline in participation such as Victoria is experiencing. Organisers then have to make difficult choices between cost and quality on behalf of participants, and the right balance is indeed very hard to pick when it has reached crisis-point. The balancing act is difficult enough with low player numbers like Victoria now has, but it will become even more difficult if they slide still farther until, eventually, it will no longer be workable. In this case, IHV have determined that quality is a critical factor in restoring participation levels. Participation cost is still not in full focus, because real participation costs have not been cut, just contained. IHV did acknowledge the situation was critical and, to their credit, their new league and organisational structure is ideally suited to dealing with many of the factors influencing the decline. But, to be fully effective, they must be actually used to extract maximum cost-efficiency from ice slot rentals whilst preserving reasonable, not necessarily optimal, team and competition formats. Whatever means they choose, league competitiveness must still be restored then maintained, and player costs must be reduced as low as possible, without seriously compromising player experience. That may prove difficult for organisers in Victoria. Resourcing the quality of players there has long dominated the drive for quantity of players. Even so, the new structure has held up very well to all this scrutiny. It is only unfortunate that its subsequent implementation meant that juniors subsidise adult competition instead of the other way around, and one adult Club in particular is permitted to reduce competitiveness in at least one league, and the cost-effectiveness of slot rentals for all. There is still room for improvement.

The Oakleigh ice rental rates themselves are much too high for Junior hockey in this state of decline. Junior slots cost $200.00 per hour; more, depending on the effects of cross-subsidies in any given year. This is a typical commercial rate in a competitive market for adult leagues on IIHF-size rinks; not for junior development leagues, and not for a rink two-thirds IIHF-size. On top of that, price structures determined by the controlling authority can equate them to ice rentals of $300 per hour. To help restore growth, they should be about $150 per slot. Real costs appear to be about one-third higher than that, and the association's price structure can effectively double it for most Juniors. As it happens, rink running costs and capacity (for training) at Oakleigh are one-third less than IIHF-size. Just as importantly, despite the high fees, no player in Victoria receives the seriously under-estimated experience of developing on an IIHF-size rink. The actual prime rental rate at Oakleigh is $210 per hour, and juniors rent one hour each round, split 50-50 to match and training. With optimal teams and match participation, junior ice cost should be no more than about $13 per round (210 / 16), yet for most it is $21 or 60 percent more. Ice rentals need to be somehow reduced to around $150 per hour for all Juniors.

A similar rate is adopted for the business plans of the academies because, although factors like those outlined above clearly show that there is a need for lower ice rentals all round, that is particularly so for Junior development leagues. They are the supply lines that are absolutely critical to the health of adult leagues. Yet, direct and indirect development costs during junior years are much higher than adult years, and usually unavoidable; the costs are borne by young families, who are partly attracted for family reasons and who have, or who may want to have, several children participating; and, finally, junior leagues may not always be able to be organised as efficiently as their adult counterparts, because their priority is player development. They must also compete for recruits against all other sports, without adequate marketing and promotion resources. As a result, they may be less able to derive the same pricing economies from their ice slots, for valid or unavoidable reasons. Reduced ice rentals will help boost player numbers considerably, but they must still be optimised every season by attracting and maintaining minimum ACTUAL participation levels of about 15 skaters and a goaltender in each team, of each division, in the current junior league structure. Finally, Junior development leagues should NEVER be used to subsidise the cost of adult participation. It is self-defeating. Participation in hockey in Victoria could be significantly improved by less blind faith in Canadian price models. Subsidising only Under 12 juniors might work OK there, but it is not working in Melbourne for the reasons outlined above. In Victoria, the Bendigo subsidies should be removed. Junior ice fees should be significantly lower overall, compared to adults. Then, first year juniors of any age, and the second and third players registered in any family, should be substantially cross-subsidised.

(Footnote: For those who still doubt cross-subsidies have been created: junior leagues cross-subsidise adult leagues if and only if the price of junior league ice fees is greater than their stand-alone cost, and the price of adult fees is less than their incremental cost. The stand-alone cost of junior leagues is the cost that the association would incur producing them, but not adult leagues. The incremental cost of adult leagues is the additional cost of producing them, given that the association is already producing junior leagues. As long as all prices fall between the stand-alone and the incremental cost, the price differences do not contain cross-subsidies. In the case of ice fees, the stand alone cost of renting ice for one, is the same as the incremental cost of renting it for the other. This assumes the ice centre has not yet otherwise discounted junior or adult ice rentals. When that occurs, Elite and Bantam juniors pay one-half as much again as Premier A and Reserve adults, and the difference is greater than the Junior Pee Wee ice fee discount. This means those juniors are cross-subsidising those adults. A cross-subsidy partly funds the consumption of adult ice with revenue raised from what is effectively—if not in name—a tax on another good in the same industry; a tax on most junior competition players. In 2008, ice fees were structured to subsidise at least Bendigo players, the majority of whom are adults. Many won't play, but the price that other adults and juniors paid, must have already included an incremental amount for that purpose.)

2-sheet Ice Centre

Operating Costs

[... to be continued.]

Notes and Bibliography

.

[1] Australian Bureau of Statistics, 3235.0 Population Estimates by Age and Sex, Victoria by Geographical Classification [ASGC 2006], Released at 11.30am (Canberra time) 24 July 2007

[2] Australian Bureau of Statistics, 3218.0 Regional Population Growth, Australia, Released at 11.30am (Canberra time) 24 July 2007

[3] SEIFA 2001 data is most current and was placed onto the ABS website 28/2/2006. SEIFA is a set of indexes developed by the Australian Bureau of Statistics and includes five indexes, two of which are most relevant to this strategy: (1) Index of Relative Socio-economic Disadvantage (IRSD), which focuses on items such as low-income earners and high unemployment. It takes into account variables relating to income, education, occupation, wealth and living conditions; and (2) Index of Economic Resources (IER), which highlights disposable income and the economic resources of a household. It reflects the income and expenditure of families, such as wages and rent. Variables which reflect wealth (such as dwelling size) are also included. The income variables are specified by family structure, since this affects disposable income. A higher score on the Index indicates an area has a higher proportion of families on high income, a lower proportion of low-income families and more households living in large houses, that is four or more bedrooms. A low score for this Index indicates the area has a relatively high proportion of households on low incomes and living in small dwellings. SEIFA indexes have been standardised to have a mean of 1000 and a standard deviation of 100, which means that 95% of SEIFA scores lie between 800 and 1200 (Australian Bureau of Statistics, 1998, p. 12). SEIFA scores are ordinal measures, not interval measures, and as such there is no meaningful arithmetic relationship between the values (eg., an area that has a SEIFA score of 1200 is not twice as advantaged as an area with a SEIFA of 600).

[4] Ice Hockey Victoria, Hockey Strategy Review, 2008

[5] Strengthening Canada : The Socio-economic Benefits of Sport Participation in Canada (2004), based on analysis of original data from The Conference Board of Canada’s National Household Survey on Participation in Sport, and an international literature review conducted by the Conference Board. Online

[6] Participation in Sports and Physical Recreation, Australia 2005-06, ABS cat. No. 4177.0

[7] Rules of the Victorian Ice Hockey Association Incorporated (Ice Hockey Victoria Constitution), Jan 1987. By-laws of the Victorian Ice Hockey Association Incorporated, undated.

© 2007 - 2015 Ross Carpenter B Arch (RMIT) M Des (Urban Design) ARAIA.
All Rights Reserved. Original Research Nov 2007.

Reproduction prohibited without prior written permission of the author except for the inclusion of brief quotations in a review.

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