June 15, 2008

Relocating the Predators: The NHL an era of Expansion or Relocation

Try as it might the Nashville Predators haven’t quite imploded, no sooner is the first financial threat to the franchise quelled by a deal with a Nashville based business consortium fronted by David Freeman, then the second majority shareholder under the new consortium, William Del Biaggio, files for bankruptcy. Of course anybody who has been following this story will be aware that Del Biaggio had previously lobbied to bring an NHL franchise to Kansas City and the AEG group owned Sprint Centre for whom he was in agreement with; but ceased his Kansas City intentions upon entering into business with the Nashville Consortium.

Nevertheless with his 27 percent interest (worth around $60 million) in the Predators up for grabs after Del Biaggio’s assets were placed in the hands of a trustee, one name refuses to go quietly into the night.

Jim Balsillie had been in the frame to buy the franchise in May 2007, making a bid in the region of $220 million when the Nashville Predators were first put up for sale by then owner Craig Leipold. The deal went hand in hand with Balsillie’s inaugurated company, Golden Horseshoe Sports & Entertainment, securing exclusive rights to bring an NHL team to Hamilton, Ontario’s Copps Coliseum alongside reported intentions that Balsillie would spend a further $140 million bringing the Southern Ontario arena up to NHL standards.

Having previously been snubbed by the NHL when he tried buying up and relocating the Pittsburgh Penguins in December 2006 when he was told that the NHL would restrict his control of the franchise, Jim Balsillie did little to improve his relations with the NHL board of Governors this time when he started accepting season ticket deposits for the “Hamilton Predators” season 08-09’ through the Canadian branch of Ticketmaster. Conceived as a PR stunt to show the league that hockey in Hamilton was more viable than Nashville, sales were extremely healthy; deposits totaled all 80 luxury boxes under support of Hamilton based businesses as well as selling a further 13,000 seat deposits, far surpassing the Nashville Predators 06-07’ 9,000 season ticket uptake. However this strong arming was seen in contradiction to the leagues policy of “Good Faith” for potential buyers who are expected to make some effort to keep the franchise in its initial location whilst angering NHL Commissioner Gary Bettman who has been a keen supporter of NHL franchises in unconventional American markets.

Despite support from Phoenix minority owner and hockey great Wayne Gretzky who sits on the NHL board of Governors and Ontario Premier Dalton McQuinty who suggested that the provincial government would consider offering financial support if the team relocated, Balsillie’s interest in relocating to Hamilton was further muddied by the Canadian Competition Bureau who informed the NHL over its relocation policies in regards to territorial infringement in light of Balsillie seeking legal opinions in fighting the current rulings which would have forced Golden Horseshoe Sports & Entertainment to offer compensation to both the Toronto Maple Leafs and the Buffalo Sabres if a team began operating within 50 miles of these existing markets.

With the league leaning on Leipold and Leipold himself indicating that extra time would be granted to seek a Nashville based financier, the Balsillie deal soured at the same time Leipold denied dealing exclusively with Del Biaggio’s Kansas City consortium bringing a Nashville investors group into the picture as a third party. Del Biaggio later became involved with the Nashville investors through Leipold who then signed a letter of intent to sell the franchise to the Freeman headed; Del Biaggio backed 36 Venture Capital LLC upon receipt of a $10 million deposit for the full $193 million purchase price being tabled. After protracted negotiations with Nashville Mayor Karl Dean and the NHL Board of Governors, the sale of the Predators was approved in November 2007 seemingly securing the teams future in Nashville.

However the recent bankruptcy of Del Biaggio, who currently owes Craig Leipold $10 million, has left the franchises financial position in a questionable state. Whilst the league and owners group has brushed aside the immediate turmoil, branding Del Biaggio a minority investor, his $52 million stake alongside partner Warren Woo’s $10 million leaves a sizeable hole in the 36 Venture Capital LLC purchase. With Del Biaggio’s creditors scrambling to reclaim as much as possible from the fiscal debacle and a vacuum forming in the deal, the league alongside the remaining Nashville investors, may not be able to hold of a renewed effort by Balsillie in the current credit crunch climate who it immerged was approached by Del Biaggio in the weeks leading up to his bankruptcy filling leading to a verbal agreement that was, once again, refused by the NHL. Furthermore, the Predators have got to exceed an average of 14,000 fans a game for the next two seasons otherwise their current lease agreement in the city and with the Sommet Centre could be terminated.

What does this all mean? The blue touch-light paper has been lit for another NHL rumor mill abound by relocation and expansion talk.

Of course the above story negates the probability of expansion with the league trying to secure its current struggling franchises whilst the fiscal credit crunch would be an inopportune backdrop for seeking investors for new arenas. Whilst expansion talks have reputedly been tabled at recent Board of Governors meetings, Bettman has remained coy about broaching the subject in a public domain on one hand and flat out denying any further expansion plans on the other. Still conventional wisdom dictates that in the long run Bettman is a proponent of two 16 team conferences totaling 32 franchises, bolstered, of course, by exorbitant expansion fees in a time of poor television revenue.
Cities that are regularly cited are Las Vegas and Kansas City with parties also interested in Winnipeg and Seattle. Contrary to constant black balling, Balsillie clearly has the money to float a team in Hamilton whilst Oklahoma City has bust a gut on two previous occasions offering tax incentives. Houston has made a move on the previous two NHL expansions also but now look to be outsiders with Indianapolis and Milwaukee who are floated more by talk than any real corporate interest. If Seattle were to fall out of the picture a popular support is building behind any potential Portland bid whilst Quebec City remains a nostalgic candidate.

Whilst expansion maybe a while away, the possibility of franchises relocating is clearly greater in a time of financial difficulty. A recent leak of franchise ticket revenues for 07-08’ obtained by CBC, underscored some of the lame duck teams operating from under Bettman’s contrived American footprint. Whilst Canadian teams, who make up 20% of the league, are currently responsible for 31% of all league ticket revenues with all six teams featuring in the top seven, (the only American team to break into the top seven earners are the New York Rangers in fifth) the bottom fifteen franchises in the ticket revenue league, or 50% of the league, account for just 35% of league ticket revenues, the bottom of the pile being Phoenix ($0.45m), Florida ($0.5m), Chicago ($0.5m), New York Islanders ($0.55m) Atlanta ($0.55m), Washington ($0.55m) and Nashville ($0.6m). Whilst Chicago’s poor finances can be put down to a prolonged period of chronically poor team management, the other six teams are in genuine trouble with four of them representing Bettman’s push for unlikely American hockey markets in the 90’s.

Hockey is clearly proving a hard sell in the desert and Gretzky, a part owner of the Coyotes, has often waxed lyrical about a return to Canada in future league expansion. Florida is hitting an even greater wall as the sport fails to grasp even the slightest foothold in the sunshine state whilst the Islanders are facing increased pressure in the leagues highest density geographical market. Whilst Atlanta and Washington are under no immediate threat, Nashville, as mentioned above, clearly are and the basement of the leagues revenues are not the only financial danger spots. Season’s of on ice rebuilding saw Los Angeles ticket revenues fall by 7.1% between 06-07’ to 07-08’, one of only six teams to post such losses, another being the Columbus Blue Jackets whose sales were down by 5.9%. Further towards the top San Jose finished 13th in the revenue table ($0.95m) but announced that ticket prices would rise for 08-09’ campaign due to hockey operations costing the franchise a purported $5 million in losses in each of the last two seasons.

Paul Kelly head of the NHLPA has been quick to jump on the figures suggesting that looking north would clearly be the way to push the league forward citing the 30 team setup to be ideal. Of course this hints to relocation over expansion and Kelly has been a supporter of Balsillie, if not by name, recently stating:

“I think it would be a huge error not to relocate one of the existing franchises
to Hamilton or Winnipeg"

When speaking to the Toronto Star in early June.

On the contrary, the end of last season was abuzz with swirling reports that Expansion plans were to be set in stone, whilst these announcement proved to be unfounded expansion remained at the forefront of rumor mill agendas with the two most likely expansion franchises continuing to be cited as Las Vegas, fronted by multi millionaire film producer and avid hockey fan Jerry Bruckheimer and Kansas City, still backed by AEG and bolstered by the presence of the NHL ready Sprint Centre. This of course would continue in Bettman’vein to force feed hockey into unsustainable markets at a time when the league is becoming increasingly
bloated by such franchises.

Potential NHL Locations:

Las Vegas and Kansas City

Whilst Bruckheimer toyed with purchasing the Penguins in October 06’ Bruckheimer seems to be more interested in expansion than relocation and is in cahoots with AEG President and CEO Tim Leiweke, the man behind the Kansas City bid and Sprint Centre, to build an NHL ready arena. Whether a possible partnership to build such a venue in Las Vegas along the Strip would muddy both cities getting a team is too be seen but the Del Biaggio saga has done little to strengthen confidence in the Kansas market whilst analysts are quick to point out the failings of the 1974-76 Kansas City Scouts who up’d sticks after two years and moved to Colorado as the Rockies. Of course Kansas City supporters would quickly retort that the Rockies failed but the later relocation of the Quebec Nordiques to Colorado as the Avalanche has been a relative success proving that market re-entry can be viable whilst a scheduled pre-season exhibition game between the St. Louis Blues and Los Angeles Kings at the Sprint Centre is being touted as the NHL testing waters in the Missouri market. Nevertheless what would quickly become an AEG duo would do little for the supporters of the NHL’s confidence in Bettman nor would blindsiding a desperate northern market yet again.

Seattle and Portland
So if the unlikely were to happen and the NHL did expand in alternative cities to Las Vegas and Kansas many would taut Seattle as a front runner. Remaining in America, Seattle would not be as unpopular in the eyes of traditionalists owing to the cities history in the sport, after all the Seattle Metropolitans of the Pacific Coast Hockey Association were the last winners of the Stanley Cup in 1917 before the foundation of the NHL and were losing finalists in 1920 before the NHL assumed total control over the cup. The city can also boast a profound history in major junior hockey, playing in the Western Hockey League since 1977 as first the Breakers and then the Thunderbirds under which moniker they were losing finalists in 1997. Seattle would also provide a plug in the NHL geographical map and give the Vancouver Canucks a much needed rival (although questions remain over the fiscal loss or gain by obtaining a close geographic rival). Nevertheless Seattle are a candidate without an venue, the Key Arena where the Thunderbirds played until this season has a capacity of 15,177 for ice hockey but the over subscribed venue has forced the Thunderbirds to seek a new home in Kent, Washington for next season. Questions are also raised about the cities cosmopolitan demographic for what is seen as a blue collar sport and the subsequent manhandling of the NBA Seattle Sonics franchise.

With this uncertainty and a perceived Pacific Northwest audience, Portland has been banded around as a potential home for the NHL owing to its further geographical positioning to Vancouver and its excellent Rose Garden Arena, home of the NBA’s Portland Trail Blazers and WHL’s Portland Winter Hawks. With an ice hockey capacity of 18,280 and a state of the art facility, “The Gardens” multi-billionaire owner Paul Allen has researched interest for a second winter sport, but the perception is that Portland is too smaller market and the Trail Blazers too big a financial burden with a history of fiscal disasters in the wake of the NBA franchise and arena.

Winnipeg and Quebec
It would be frivolous to reiterate the position of Hamilton, Ontario and the Copps Coliseum but as Paul Kelly underlined, Canada is a market which could easily sustain another one or two franchises in the current NHL market, subsequently whenever the subject of expansion or relocation arises people can’t help but look back with a hint of bitterness to two Canadian cities who had their franchises ripped from them.
Off course, Winnipeg stands out for potential investment due to the previous popularity of the Winnipeg Jets and the recently built MTS centre which hosted a sell out pre season exhibition game between the Edmonton Oilers and the Phoenix Coyotes (the contemporaries of the Jets franchise) in September 2006, however with a seating capacity of just 15,015 for hockey, the arena would require a sizeable expansion. Furthermore, whilst there has been league wide support from such luminaries as Wayne Gretzky, Ottawa owner Eugene Melnyk and Gary Bettman himself, Winnipeg audiences have proved resistant to the perceived top dollar costs of modern day NHL tickets. Nevertheless the comparably poor currency exchange between the Canadian and US dollars of the mid 90’s, that was in part the downfall of both the Jets and the Nordiques, has improved notably in the franchises 13 year absence and now looks a better time than any for a return to the great white north especially with the leagues new collective bargaining agreement and salary cap.
For Quebec, corporate support and league wide backing has been somewhat more subdued and in the modern climate of the NHL, a lack of corporate backing both putting up an offer and buying up luxury boxes alongside a lack of an NHL capable facility, scuppers any realistic chances for a prompt return to the big league and the general feeling is one of financial apathy. Furthermore, both teams would face the potential wrath of the Canadian Competition Bureau which could provide a legal maelstrom that Bettman’s southern outlook would keenly avoid whilst a there is an awareness towards the cyclical nature of the Canadian dollar and the struggles some of the Canadian franchises were facing prior to the lockout.
Oklahoma City
The overlooked outsider, Oklahoma City, is yearning for a high level pro league sports team to house in its impressive Ford Centre Arena. Already trying to relocate the Seattle Sonics, the city government has shown in the past its willingness to offer tax incentives to draw the big leagues. Indeed it was a major part of their 1997 attempts to bring the NHL to Oklahoma and now it has an arena to go with its aspirations and a hockey fan base borne out of the Oklahoma City Blazers who play in the Central Hockey League and have housed hockey teams on and off since the original Blazers were founded in 1965. Whether Oklahoma has a sufficient fan base for the NHL as well as an NBA franchise; or anybody will come forward to tender a bid awaits the day the NHL needs new buyers. It seems likely that Oklahoma will remain an unlikely site for the NHL in the near future.
In my opinion the league needs to stick to 30 teams and concentrate on marketing the game and increasing television revenues and interest. A watering down of the NHL’s current talent pool is the last thing the league needs when its revenues are still small fries to the big three of the MLB, NBA and NFL with the upstart MLS providing real competition in a number of American markets.
Still I am not opposed to a realignment of the league and relocation of some of Bettman’s struggling brainchildren. Hockey was never going to be a good fit for Florida and Arizona whilst Nashville could be as good as buried if Balsillie can surpass hockey politics and become a big money minority investor. Sure an increased number of Canadian teams will partially dilute some existing markets and Hockey Night in Canada income, but in the current financial climate, a mid pack Canadian team, in terms of revenues, will do better than bleed money hand over fist like the Coyotes and the Panthers. There is a hunger for the sport in the North that Bettman’s purported plans for Las Vegas and Kansas City continues to ignore in the face of stone wall facts, sure the initial $300 million will boost league coffers, but the heritage and strength of the game should have some part in Bettman’s long term plan.
In my ideal world I would relocate the Panthers, Coyotes and Predators, putting two in Canada, be it Winnipeg, Quebec, Hamilton or less likely Halifax and one in Seattle or Portland, it would make sense and it would renew the NHL, both in terms of the sport and the business. Many think that Bettman’s reign has been money orientated; if that were the case surely the time is right for a return to Canada and a new franchise in the Pacific Northwest.

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