I'm a Former fan of the Toronto Maple Leafs

Those who have known me a long time know that I grew up a fan of the New York Islanders.

My introduction to hockey came shortly after immigrating from Korea.  As a five year old, I was living in Queens, New York.  This was in 1975 so New York City was a very different place.  Times Square was not a place where you would take a child unless you really wanted them to see neon lights, prostitutes and drug dealers.

(If you want to see what Times Square looked like back then, watch this video by Pat Benatar  http://www.youtube.com/watch?v=CjY_uSSncQw )

In this new environment I remember watching a strange and magical sport on TV.  The New York Islanders were playing their cross town rivals, the New York Rangers.  I was captivated by this game where men seemed to move with such grace and power while walking on knives.  The Rangers had a habit of beating the Islanders back then and as a child feeling awkward in a strange place, I took pity on the Islanders and their sorry bullied state.

We moved a lot when I was a child.  We first came to Canada when I was 8 and moved to Toronto briefly before moving on to Alberta and then back to Toronto.

The year 1980 was a magical one for this young hockey fan.  The team that I took pity on as they got bullied by their big city rivals, rose to become Stanley Cup Champions!!

The Islanders went on to win 4 straight Stanley Cups....this is a feat that has not been matched since then.  I scoff at the talk of different "dynasty" teams such as the Oilers, Red Wings, Devils and Penguins.  The definition of a dynasty is an "unbroken" reign.  No team has won more than 2 Cups in a row since.  Those other teams are all false dynasties.  The Islanders won 19 playoff series in a row.  No other team has won more than 11 in a row since.  Mike Bossy scored 50+ goals in 9 consecutive seasons....not even Wayne Gretzky can say that.

Moving to Toronto provided another team to take pity on....and how!!  It was inevitable that a young hockey fan living in Toronto would eventually end up pulling for the Maple Leafs.  The year 1984 saw Toronto start 2-0 on the back of two overtime victories with a young tandem of Allan Bester and Ken Wregget in goal.  Alas that start did not presage a victory parade down Yonge Street.  The Leafs finished 21st overall.....and for those too young to realize how bad that was, the NHL had but 21 teams at the time.

Even that pitiful finish did not dim the enthusiasm of die hard Leafs fans (of whom I was one by then).  The last overall finish gave the Leafs the top pick which they used to pick future Captain Wendel Clark.  This kid from Kelvington, Saskatchewan was all heart and muscle.  He would take on and beat up guys much bigger than he.  I remember skipping school to line up for playoff tickets.  Attending playoff games at Maple Leaf Gardens was an experience I'll always remember....what an atmosphere, what emotion, what fun!!!!

In the years that followed, the Leafs bounced between Stanley Cup semi finalists and mediocrity.  In recent years, MLSE has become the most profitable hockey operation in the world.....and consistent losers on the ice.  I've had the good (?)  fortune to attend a number of Leafs games in recent years.  However, I am not sitting in the cheap seats.  I am usually in the private box owned by my employer entertaining clients.  For those who have not attended in a private box, it is a somewhat surreal experience.  It is a room that holds about 12 people with an attractive young lady tending the bar.  She will bring you a drink since it would be so very onerous to walk the 5 feet to get a drink yourself.  You get to munch on sushi, ribs and when you go to sit in the platinum seats to watch the game, that very nice young lady will bring you a Haagen Daas ice cream bar during the game.   All in all, I would much rather be in the cheap seats at Maple Leaf Gardens!!!!

The last few years have not been kind to Leafs fans.  The most profitable hockey team in the world last made the playoffs in 2005.  This year they will (barring a miracle) miss the playoffs for the 6th consecutive year.  MLSE continues to rake in the $$$ with condo developments and other sports teams.  Leafs fans continue to pay top dollar to see a losing team.

I was so completely disgusted that last year I resolved to cheer against the Leafs.  This proved far more satisfying as they finished 29th overall in a 30 team league.  I am cheering against them again this year.  Despite a 4-0 start, the Leafs quickly crashed back to earth and now sit 25th overall.

I love hockey and I still don't hate the Leafs.  (I'm not a Habs fan after all!!!).  Still I think that the hockey fans of Toronto would do well to administer some tough love.  If MLSE can still ring the till without producing a good product, why would they ever try harder??  I will cheer against the Leafs until they prove me wrong.  I refuse to buy any Leafs merchandise and I will not pay for a ticket (the last point is a tad disingenuous since I haven't paid for a ticket in some time but you get my point).

People of Toronto, stop being played for such a bunch of suckers....boycott the Leafs!!!  Here's hoping that Hamilton gets a team so that there will be at least one NHL calibre team in the area!!

Miracle on Ice 2011

I am still in California finishing off my late Christmas break and as such was unable to watch today's Gold Medal game in the World Junior Hockey Championships.

Nonetheless, the headlines that speak of an "Epic Collapse" and broken Canadian hearts speak to the result.

A Canadian team is always favoured in any hockey championship.  It doesn't matter if the oddsmakers say that the Americans were pre-tournament favourites (as the defending champs were this time around)...the expectation is still that the Gold will either be won by Canada or must be won by beating Canada in a shock upset.

So today Team Canada surrendered a 3-0 lead that they carried into the 3rd period to lose 5-3.  As a Canadian I am disappointed.  As a hockey fan, I am not.  As a sports fan, I find it heartening.

The Russians used to be famous for their training techniques that created superbly conditioned athletes that often rolled over the opposition.  Seeing something as simple as a line change was a thing of beauty.  Unlike standard North American hockey where a line change is preceded by dumping the puck deep into the opposition end, the Russians would change their forward line by passing the puck back to a retreating defence  pairing. When fresh forwards jumped over the boards, the defence would send a pass forward and change themselves without ever relinquishing possession.

The Big Red machine was brought to heel some time ago and they were no longer able to roll over Canadian teams.  Their mystique disappeared.  It was said that Russians were superb athletes who were well conditioned and well coached.  However they lacked the "heart" of the Canadians.  It was said that hockey simply meant more to Canadian kids who would sacrifice their bodies and play with a level of emotion and desperation that Russian automatons simply lacked.

That is true no more.  The Russians found themselves in a 3-0 hole and scratched and clawed their way back.  They showed .....well a lot of heart.

Good for them.  Congratulations to Russia for showing such spirit.

Congratulations to Canada too.  Silver really ain't too bad!!!

"Journalism" again

I am sometimes accused of not doing my homework or glossing over some important details.  I have a long history of the former stretching back to primary school days and I occasionally plead guilty to the second.

This article in the Toronto Star caught my eye today.

http://www.thestar.com/business/article/914809--academics-critical-of-skyrocketing-pay-for-ceos?bn=1

I will not take issue with the view that CEO pay has skyrocketted....it clearly has.  I don't know at what level a CEO's pay is excessive....is it twice the national average or 300 times the national average.  There must be a dividing line in there somewhere but I don't know where it is.

I take issue with one particular point in this article which states:

"The CEO pay figures may even be underestimated owing to a change in the way stock option compensation is reported, according to the report.  Corporations used to report the amount of income that executives actually realized when they cashed in their options.  Beginning in 2008, rather than reporting the amount their executives realized during the year by cashing in options, they reported a statistical estimate of what the options might have been worth in the market when they were granted”.

Let me explain why this particular point is so unsavoury to me.  Stock options are typically granted such that the "strike price" is higher than the current stock price.  So an executive who receives options that expire in 5 years with a current stock price of $50 dollars might have options with a 'strike price' of $75.  This means that in 5 years the options are worth something only if the the stock is trading above $75.00.  

So what is this option worth today if the stock price needs to rise by 50% plus a penny for the option to be worth a penny??  The tax code treats them as if they are worth nothing today and value is assessed at expiry.  If the options are "exercised" due to a price that is higher than the strike price in 5 years, then the value above the strike price is treated as income.  This is the actual cash that the executive receives and as such makes sense.

However is it really fair to say that an exec who receives one million stock options today has received nothing?  If so many people would be volunteering to receive many such nothings.

Valuing these options is not easy.   The key factor in determining the "fair value" on the date of issue is the volatility of the underlying stock.  A stock that is very very low in volatility is less likely to rally by 50% than a stock that is very very volatile.

The formula for valuing these options is called Black-Scholes. 

By assessing the value of the options and attributing that to the executive's income in the year in which it is granted, a more accurate picture of the exec's income for the year comes into focus.  This does not cause the exec's earnings to be understated.  On the contrary, it would be higher than if only the cash income was counted.

Additionally, such deferred compensation (which only yields cash after a significant increase in share price) aligns the CEO's financial well being with the long term interests of the shareholders.  It is good for corporate governance and should be encouraged rather than used to make a false point about CEO pay.

Not every reader of the newspaper has worked as an options market maker, and the author of the article clearly hasn't either, however it would not have taken much to get the right background on stock options.