Tuesday, October 21, 2008

A new NHL team for Toronto?

David Shoalts has a very interesting piece in today's Globe and Mail that certainly opens with a bang. As he writes:

"NHL governors are talking informally about placing a second hockey team in Toronto alongside the Maple Leafs, The Globe and Mail has learned.
'Why shouldn't we put another team in the best and biggest market in the world?' one of several NHL governors who spoke with The Globe anonymously said of the Greater Toronto Area.
According to this governor, one idea floated is for prospective owner Jim Balsillie to be rewarded with an expansion team in Toronto after helping to restore financial ballast to the Nashville Predators.
'I've heard this exact scenario,' a second governor said."

This is a very interesting idea, and one that certainly hasn't been floated very much relative to the idea of putting another team in either Hamilton or Kitchener-Waterloo. Toronto could sustain two teams in my mind, given the hockey-mad population, the size of the city and the massive suburbs surrounding it.

However, I'm not sure the Leafs would be overly eager to go along with this plan. Here's the part of Shoalts' piece that deals with their reaction:

"Richard Peddie, president of Maple Leaf Sports and Entertainment, said the organization would not automatically reject the idea of a second team in Toronto.
'When and if the league brings expansion to the table, we'll listen and decide what is best [for hockey],' he said."

This isn't as positive as it sounds. First, Peddie is absolutely non-committal there, which makes sense: this is pretty speculative at the moment, so you don't want to irrevocably commit your organization to a certain course in the media just based on what's come out so far. All he said is they wouldn't reject a proposal before looking at it, which seems reasonable.

I'd also be rather interested to find what Peddie said that Shoalts (or his editors) replaced with the [for hockey], as that seems like a curious comment. It isn't Peddie's primary job to make decisions that are best "for hockey" or even best for the NHL: his job is to run the Leafs and MLSE's other franchises and venues. Thus, anything he and the franchise owners decide upon will be best for their franchise first and the league second. This is logical: these franchises are commercial enterprises with shareholders, so it's up to their management to do what's best for those shareholders. At times, league interests come into it: a healthy league means higher TV revenues and lower revenue-sharing, so it's in the Leafs' interests to go along with the NHL when doing so will undoubtedly and dramatically improve the league. Keep in mind that their motivation and mindset is likely always to help their franchise first and the league second, though: the same is true of almost every professional sports franchise.

A further illuminating passage of the article discusses the economic ramifications.
"As to the potential economic impact on the Maple Leafs, the first governor dismissively waved his hand. 'The Maple Leafs would not be hurt one bit. In fact, it would help them. They could make all kinds of money renting the Air Canada Centre to the other team.'"

Now, I'm not so sure if this governor is thinking straight. First, if the Leafs allow another team into their city, they lose market share. This may not be huge at first given their market dominance and history, but they're no longer the only game in town. They'll likely still sell out every game, but the supply of NHL tickets has just doubled and it's hard to imagine the demand rising at a similar rate. Therefore, the premiums they can charge for their tickets will drop. Of further importance is the impact on merchandising, advertising and television revenues. Yes, there will still be a huge demand for the rights to Leafs' games, but television networks now have another viable alternative source for hockey if MLSE demands too much money: thus, the Leafs will earn less from their television contracts.

Yes, people will still buy Leafs' gear, but some will choose to buy merchandise from the new team instead. The same holds true for corporate sponsors, who gain leverage from the doubling of the supply of boxes and advertising opportunities. If the teams both play at the ACC, they could package their corporate and advertising sales together. That would have to involve some sort of discount for a bulk rate, as no one will pay double the current fees for the Leafs and a new team. You can bet that the new team would take a large share of any profits as well. If they don't package them, all of a sudden that supply of corporate boxes and advertising opportunities doubles, reducing the value of those items if the demand doesn't double as well.

Also, keep in mind that any ACC rental deal wouldn't just be filling "blank slate" days. The facility currently offers big-ticket concerts on most days when the Leafs are out of town. A new team would mean that the amount of concert dates would be drastically reduced, further reducing MLSE's revenue streams from their facility.

A better situation would involve a new arena, but that doesn't seem too likely. Public funding would likely be almost out of the question, given the current state of both the Toronto and Ontario economies. Plus, both governments (and the federal government) just finished building an expensive stadium in Toronto, for MLSE no less. Think they want to get involved with another one in the middle of a recession? With the current high costs of both land and construction, it's tough to see a 100-per-cent private solution working in Toronto either.

None of that is to say that this couldn't work. Most of the concerns mentioned above that MLSE would likely express could be solved by Balsillie (or whoever the new owner is) paying a very hefty fee for entering their territory, similar to the New Jersey Devils. The question is if a second franchise in Toronto is worth that kind of expenditure.

The Ottawa and Buffalo franchises might have concerns with this plan as well. The Senators are finally starting to make some progress at positioning themselves as Ontario's alternative to the Leafs. If this goes down, it affects their market share as well, especially in the area of television rights but also in advertising, corporate support and merchandising. Ticket sales might come into it too: those of us around the midway point between the two cities might opt to travel into Toronto and see the new team instead of going to Ottawa for a Sens game.

For Buffalo, the tickets are probably the biggest concern, as Shoalts points out further on in the article. They have a massive Canadian fan base, particularly in Southern Ontario. Shoalts' sources argue that one of the main reasons the league won't let Balsillie put a team in Hamilton (and by extension, probably not Kitchener-Waterloo either) for fear that those fans might decide to avoid the border and stay in Canada to watch hockey, hurting the Sabres' revenue streams.

As he writes, "Mr. Balsillie, the co-CEO of Research in Motion Ltd., angered league executives by attempting to buy the Nashville Predators with the intent of moving the franchise to Hamilton.
The league will never allow Mr. Balsillie to put a team in Hamilton for two reasons, according to one governor. One is that the city would be a tough sell for U.S.-based teams, and the other, more significant reason, is the belief it would ruin the Buffalo Sabres.
'It's a minor-league town,' the governor said of Hamilton. 'How could we sell a team from Hamilton? Do you think the New York Rangers want to put the Hamilton Steelers on their marquee at Madison Square Garden? Do you think anyone in Manhattan would buy tickets to see them?'
He also said a team in Hamilton would mean thousands of fans in the Niagara Peninsula who attend Sabres games would simply drive to Hamilton to avoid border lineups.
'We do not want to kill the Sabres,” the governor said. “But if there was a second team in Toronto, that would not hurt Buffalo.'"

Both points are valid, and the second one is particularly interesting. However, contrary to this governor's opinion, there's a good chance that the migrating fan base would also be a concern with a second Toronto franchise. Hamilton to Toronto is not a long trip. One of the main reasons for the support for the Sabres in Southern Ontario is the accessibility of tickets, not the driving distances involved, which are often similar to the distances these fans would face if they went to a Leafs' game. A new franchise means many more tickets, and given the hassles involved with crossing the border these days, it probably would be an easy decision to stay at home if tickets are available. That may be the case regardless of if the team is based in Toronto or Hamilton.

Again, this isn't to shoot the idea down out of hand. The league could desperately use another team in Southern Ontario, especially given how much of a subsidy they get from the current one. Relocation of a struggling team would make more sense than a straight expansion, but that's also a far more complicated process. In either case, the NHL could also benefit from letting Balsillie in before they face an antitrust case, and he'd be very good for the league. If he's willing to pay large amounts to compensate the Leafs, Sabres and Senators for moving into their territory and if an arena solution is found (renting the ACC or building a new rink), this could work. One governor suggests $700 million as an expansion fee, which seems outrageous given that Forbes.com ranked the Leafs as the top NHL team last season with a valuation of $413 million. It's hard to think an expansion team would be worth twice as much as that.

In any case, though, the sum would likely be astronomical. The question is how deep Balsillie's pockets are, and if he's willing to pay that much of a premium to bring another hockey team into Southern Ontario.


  1. Nice post, Andrew. The Star is reporting that this is all bullshit, with an NHL source saying the idea has never even been discussed. Frankly, I'm skeptical it was discussed as well. The Leafs simply won't let it happen, and Buffalo wouldn't be too pleased about it either.

  2. Yeah, I saw the Star piece as well. It's a little iffy itself, though, as it only quotes one source and just describes him as "highly-placed". Shoalts has three and identifies them as governors. There may or may not have been official discussions around this, but it's certainly on the minds of some important people. The biggest obstacle is the other franchises, as you've mentioned, and that's why this probably won't happen. In the end though, it's a financial game. If someone (Balsillie or anyone else) is willing to pay those franchises enough to negate or minimize the losses they'll incur, they might go for it. If not, there could be pressure from the other teams to force the Sabres, Leafs and Sens to back off a bit or ease their demands: if one Toronto franchise can subsidize the worse-off teams, another one would probably help them as well. It's highly speculative and a long ways off at this point, but that doesn't make it impossible.

  3. Anonymous1:10 PM

    whats the the team name gonna be