The National Hockey League would likely command a record expansion fee worth as much as $1.2 billion for a second franchise in Toronto, sources tell TSN - a sum that would eclipse the previous North American sports record of $700 million that the Houston Texans paid to join the National Football League back in 1999. While NHL commissioner Gary Bettman has insisted the league in not currently considering expansion or relocation, several senior NHL team sources said expansion - along with the leagues strategy to grow international revenue - would be key topics during the NHL board of governors meetings on Sept. 30 in New York. Five investment bankers who advise NHL team owners on the sales of franchises said it would only be a matter of time before the league entertains offers for another team in Toronto. The bankers, who collectively have advised both buyers and sellers of NHL teams, as well as owners who have sought new limited partners, said bidding for a new team in Toronto would begin around $800 million. Opinion was split on how high the bidding might go. Three of the bankers said they could see the auction reach $1.2 billion. The other two doubted the bidding would eclipse $1 billion. In an auction situation, I could see it getting to $1 billion or even $1.2 billion, said Drew Dorweiler, a Montreal economist who has been hired by the owners of the Toronto Maple Leafs, Vancouver Canucks, Manchester United and other sports teams to estimate their franchise values. An NHL team in Toronto is a marquee property. Another sports banker who has consulted on more than a dozen NHL team sales said the Leafs profit eclipses $80 million a year. They are making more profit annually than many NFL teams, he said. You cant stand in the way of the tide of history. There are more hockey fans in Toronto than in New York or Los Angeles combined, cities that have five NHL teams between them (Anaheim - a 30-minute drive south of Los Angeles). Some of the bankers would not agree to speak for attribution because they said it might negatively affect their business relationship with the league. A decade ago, it would have been ridiculous for anyone to muse about a billion-dollar price tag for an NHL team. In 2004, a league-commissioned report by securities and exchange commission official Arthur Levitt claimed that 19 of the NHLs 30 teams were losing money. But today, the NHL has a labour agreement with players that include revenue sharing and more importantly, has strong national TV contracts in both Canada and the U.S. Increasingly, skyrocketing media rights are influencing the purchase price of sports franchises. The NBAs Los Angeles Clippers recently sold for $2 billion, largely because the NBAs national TV contract in the U.S. is up for renewal in two years and is widely expected to double in value to $15 billion over eight years. To put a possible $1.2 billion Toronto expansion fee into context, the NHLs last two expansion teams Columbus and Minnesota joined the league in 1997, paying $80 million apiece (The Blue Jackets and Wild began play in 2000). The bankers said they expect the NHL would probably announce at some point over the next year that its officials are accepting bids for expansion franchises. Toronto and Quebec would be the most coveted markets, the bankers said. Often, when the subject of expansion or relocation to Toronto is raised, media reports suggest Maple Leaf Sports & Entertainment, the parent company of the Maple Leafs, might manage to block an expansion team in North Americas biggest hockey market. Its unclear whether that might happen. Bettman told TSN that the NHLs owners collectively decide where to expand or move teams. That means a second team can be added in Toronto with the support of the majority of the 30 NHL owners - even if the Leafs oppose the move. Bettman wouldnt say why the league has not already added a second team in Toronto. TSN owner Bell Media is a part owner of the Leafs parent company, along with Rogers Communications and Larry Tanenbaum. In 1992, when the Mighty Ducks joined the NHL, the Los Angeles Kings were given half of the Ducks $50 million expansion fee. But today, according to terms of the NHLs constitution cited by the bankers and Bettman, the Leafs have no right to demand a fee if their local territory is encroached on by another NHL team. The only way MLSE gets money for an expansion team in Toronto is by the good grace of other owners and why would the new team owners to the league, with debts of their own and no longstanding relationship with MLSE, say to MLSE here, take this $100 million, money that would have been shared between all of us, one banker said. Maybe a new owner makes an offer to MLSE to keep them as good neighbours, added Dorweiler, who has worked for six NHL teams. A source close to the MLSE board said that both Bell and Rogers did due diligence when they partnered to buy the interest in the Canadas largest sports company for $1.4 billion. Both companies believe they have a legal challenge if the NHLs other teams owners pushed forward with a second Toronto team and declined to compensate MLSE. Its unclear how a successful bidder might finance such a massive NHL purchase and there are certainly significant hurdles for any new owner. The league allows team owners to borrow 50 cents for every dollar worth of equity. That means a buyer might borrow $600 million, based on a $1.2-billion purchase price. Bank of America and Citibank are currently expand a league-wide credit facility to give each team a $100 million line of credit at low interest rates. An expansion team owner could borrow $100 million through that credit line and another $500 million from a bank. Assuming an interest rate of about 6 per cent, a buyer might have about $30 million worth of annual debt payments on the expansion fee alone. If a new arena did not receive public funding, a further $24 million a year would be required to pay the interest on financing a $400 million facility. Then there are player costs of perhaps $70 million a year and coaches salaries, travel and other administration costs of as much as $15 million, giving a new owner some $140 million a year worth of expenses. Still, one banker said there would be a huge buzz around a new Toronto team, and annual ticket sales could generate $80 million, with another $20 million coming from corporate sponsorships. The NHLs national TV deal in Canada pays each franchise $13 million, and its contract with NBC in the U.S. pays another $7 million. The biggest challenge may be in generating local broadcast revenue. Bell and Rogers may not want to pursue local broadcast rights with a team thats competing with the Maple Leafs. There could also be scheduling problems since TSN carries NBA games in the winter and Rogers will be dedicated to its national TV package of NHL games. Brian Cooper, president of S+E Sponsorship Group and a onetime Maple Leaf Sports executive, said an expansion club would get both a large rights fee as well as carriage on cable TV services. No one is going to give up the rights to an NHL team in the biggest TV marketing the country to the other regardless if its a new team or not, he explained. They will get an audience and its NHL hockey. I think both Rogers and Bell would bid aggressively on the broadcast rights. There are other solutions to a potential broadcast quandary. Perhaps one of the two media companies would consider being bought out of its interest in Maple Leaf Sports to take an ownership position with a new franchise. Its also possible that a new team could start its own regional sports network, or, with the media landscape changing fast, cut a deal with the likes of YouTube, which last year struck a deal for exclusive streaming rights to past episodes of Saturday Night Live, or one of the many other companies that specialize in Internet video streaming. Maple Leaf Sports current TV agreement with Rogers and Bell will pay the club as much as $1 million a game, or $42 million a season (TSN and Sportsnet have 26 and 16 regional Maple Leafs games, respectively, this season). If an expansion franchise several years from now could generate $40 million in broadcast revenue, that would give the team sales of perhaps $160 million, enough to clear a profit. To be sure, there are also hurdles with a place to play. While two NBA teams play in the Staples Center in Los Angeles, that might not be so easy in Toronto. Even if Bell and Rogers decided to allow another club to play in the Air Canada Centre to boost their own profits, there might not be enough available dates to accommodate another NHL team because of the contract Maple Leaf Sports has with Live Nation to host concerts. The most likely solution would involve construction of a new arena, and bankers and NHL team executives are split on whether the most logical place for that is near the Highway 401 corridor or another location. Its not a investment a billionaire would make based on sound financial judgments. But an NHL team is a trophy investment. Clubs rarely come on the market, and its even more seldom to have a chance to own a team in a hockey-mad market such as Toronto. I know at least a dozen guys who would want to talk about bidding for an expansion team in Toronto, and at least six who have the money to do it, said one investment banker, who said several billionaires have asked him to advise them when the NHL gets serious about a Toronto expansion club. If the NHL does it right, it would attract interest from investors around the world. Besides Toronto, Seattle is the strongest untapped U.S. market, the bankers said. Its a logical choice for the NHL because of the natural rivalry with Vancouver, Calgary and Edmonton, one banker said. It cuts down on travel costs. Las Vegas has long been considered a potential expansion market and it has been said that it would be a feather in the NHL cap to expand there before the NBA does. Still, a team in Las Vegas is far from a financial sure thing. At least one-third of Las Vegas residents work at night when NHL games are played. Even with slot machines being added in private suites, its unclear whether casinos would be willing to encourage visitors to leave the gaming tables for more than three hours to watch a game. Las Vegas is also not a large U.S. TV market, meaning the teams local broadcast rights would not generate considerable revenue. (Las Vegas is the 42nd largest market, trailing Harrisburg, Pennsylvania; Grand Rapids, Michigan; and Birmingham, Alabama.) The latest U.S. census showed that in 2010, Nevada had the second highest increase in the U.S. poverty rate behind Florida. Las Vegass $26,993 per capita income was less than the $27,334 U.S. average. A recent NBA-commissioned survey found that a team in Las Vegas would not make a profit. Its also hard to predict what will happen in coming years with the Florida Panthers and Phoenix Coyotes, the leagues biggest money losers. The Panthers, one investment banker said, are locked into a long-term lease with their country and the teams new owner Vincent Viola loves the team there and has so much money to fund its losses, an NHL source told TSN. Even so, if the cash-strapped Panthers do move, it would help the Tampa Bay Lightning become a more financially viable team because the Lightning could then boost revenue with a statewide TV contract. The Coyotes, meanwhile, continue to lose money under new owner George Gosbee. One banker told TSN that the Coyotes are losing at least $20 million per year, although $15 million worth of those losses are being covered by the city of Glendale.
Posted on: Mon, 08 Sep 2014 21:40:37 +0000
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