Thursday, April 23, 2009

New NHL team to Toronto takes another step

There's big news in today's Globe and Mail from columnist David Shoalts (as well as Jeff Blair, Roy MacGregor, Paul Waldie, Andrew Willis and Jane Taber) on the idea of another NHL team for Toronto, which I initially wrote about back in October. Then, it was informal conversations between NHL governors; now, it's moved on to a two-and-a-half hour meeting between deputy commissioner Bill Daly and a group of interested businesspeople. Sounds like it's getting more serious by the minute.

The primary problem involved in bringing a new team into southern Ontario is getting the Maple Leafs and Buffalo Sabres to go along with it thanks to their territorial rights. This is where location becomes a key issue, and it's more of an issue for the Sabres than it is for the Leafs. The Leafs already have a huge market to draw from with the massive suburban population of Toronto, and they're in incredibly good financial shape. There's an almost inexhaustible demand for their product (despite the downturn in their on-ice fortunes of late), so another team in the region is not going to kill them. Their main concerns are to keep the team from being placed in downtown Toronto (leaving them with a sizeable competitive advantage, as that's where the big money and the highest concentration of people are) and to get a suitably massive territorial rights fee.

In Buffalo, it's a different story. There's substantial cross-border support for the team, particularly from the Hamilton and St. Catherines areas. Tickets for Sabres' games are easier to come by and much cheaper than the equivalents for Leafs' games at the Air Canada Centre. Thus, a team in Hamilton (as previously suggested by one Jim Balsillie) would be a considerable blow to the Sabres' cross-border fanbase, and a team in Kitchener (as also mentioned in the Balsillie discussions) would be a similar, if lesser, blow. That's been the main sticking point in these discussions so far.

The new proposal suggests putting an arena in Vaughan, which is a suburb north of Toronto. This is considerably different from the Hamilton and Kitchener proposals, as the Leafs are now between the new franchise and the Sabres. Thus, in theory, most of the Southern Ontario fans who currently go to Sabres' games from Hamilton and St. Catherines would continue to do so. The new franchise would draw from Toronto proper and the northern suburbs. Of course, that doesn't take into account issues with the border or the novelty value of a new Canadian team, which would likely cause some of those cross-border Buffalo fans to switch allegiances. Moreover, I'd venture that those fans are much more likely to transfer than the died-in-the-wool Leafs' fans; the Sabres are more of a marriage of convienience than a true love for many in Southern Ontario who can't afford the prices of the Air Canada Centre. Still, in all likelihood, a new franchise in Vaughan would hurt Buffalo much less than one in Hamilton or Kitchener, and the market research cited by Shoalts suggests that a Vaughan franchise might not appreciably impact the bottom line of either Buffalo or Toronto. That makes a lot of sense, considering the number of people in the area and the massive love for hockey they display. See the map below for an indication of where all these different cities are.

View Southern Ontario in a larger map

Now we come to the specific problem of where to put an arena. Shoalts enumerates several possibilities in the article, and I've marked them on the map below. The first key one is on land owned by Victor De Zen, a perhaps somewhat-sketchy businessman (Shoalts mentions that he's facing fraud charges) who's interested in an arena deal, but not in owning a team. His land is at the intersection of Highway 427 and Highway 7, northwest of the airport. Other possibilities include the area around Woodbine Racetrack and the area around Downsview Airport. All of these would be somewhat accessible from downtown; the Downsview site is near York University, while there are plenty of ways to get to Woodbine and the new transit expansions around Pearson Airport would help with that site. The De Zen site is slightly more remote, but not incredibly so; it's not too far from downtown and it's close to several of the northern suburbs, plus its location just off the highway would also help. See the map below for these three locations, as well as Pearson Airport and the Air Canada Centre as references.

View NHL in Vaughan in a larger map

This would be a pricey move, and would take quite a while. At the moment, there are no firm plans for a new arena. It takes time to draw up blueprints, arrange financing and figure out construction details. Shoalts suggests that the cost of an arena alone could be up to $400 million, which is a hefty chunk of change. You then still would have to pay territorial rights fees to both the Leafs and the Sabres, and those aren't going to be cheap; the Sabres need all the fan support they can get, and the Leafs won't give up their ridiculously lucrative monopoly in southern Ontario for a mess of pottage.

The last payment for territorial rights that I know of was the Mighty Ducks, who paid $25 million to the L.A. Kings in 1993. That doesn't seem like much now, but it was half of their franchise fee of $50 million. If you go by the most recent Forbes valuations, the Leafs are currently worth $448 million U.S., a good part of which is due to their monopoly status. They'll want a lot of cash to give that up, and the Sabres will likely want a similar amount. Even the lowest-valued team on that list, the Phoenix Coyotes, has an estimated value of $142 million (perhaps less these days given the franchise's losses); going by the 50 per cent standard would suggest that a group trying to move Phoenix to Toronto would owe at least $71 million to each of the Leafs and Sabres. Shoalts figures that these rights could go up to $200 million (presumably $100 million to each club), but my thinking is that they could run even higher given the stature of the Leafs and the prestige and numbers of the southern Ontario market.

The final question is where the team would come from. NHL expansion at the moment isn't all that likely, which would suggest relocation would be the next logical option. There are plenty of interesting candidates in that regard, including the cash-strapped Phoenix Coyotes, the attendance-lacking Atlanta Thrashers and the New York Islanders, plagued by arena woes. Something has to be done about all these teams eventually, and Phoenix first of all; the team is hemorraging cash, has an owner looking to cut his losses and is being propped up by the league. That isn't a tenable situation.

The big problem here is that this is still Gary Bettman's league. Moving an American team north of the border would be a colossal loss of face for the commissioner, who has spent most of his time in power trying to sell hockey in the Sun Belt and vault it into major-sport status in the U.S. A second team in Ontario makes tremendous financial sense for the league, but it would also be seen as a retreat from trying to gain mass acceptance in the States. In many places in the U.S., hockey's still seen as a primarily Canadian sport, an image that Bettman has bent over backwards to try and remove. Other possible areas for relocation, such as Kansas City and perhaps even Las Vegas, would be available more quickly and wouldn't carry the stigma of adding another Canadian franchise. Thus, the league may not do anything more than look at this until they're desperate. It would be a terrible economic opportunity to pass up, but Bettman and company have always been more about saving face than making smart business decisions, so it wouldn't surprise me if nothing happens on this front for a while. We'll see how it turns out.


  1. I think Bettman is still loathe to make this happen, largely b/c he's a stubborn dude. But a team in the Vaughan area, I think, makes a lot more sense than Hamilton or Kitchener. The idea is to tap into the GTA market; it's huge, the Leafs suck, and it's a market where people can't get enough hockey.

    Phoenix makes the most sense. But that means it won't happen, b/c the NHL never does anything the smart way.

  2. Absolutely. Bettman's still worried about losing face in a retreat to Canada, and the Leafs and Sabres are concerned about territorial infringement (although enough cash would handle that quite nicely). Otherwise, this would have have happened already; it makes so much economic sense.