Tuesday, May 05, 2009

Basillie's back, and a new Toronto team may ride with him

The perfect storm continues to build and a second NHL team in Southern Ontario comes closer by the day. Back in October, this was only informal discussions among NHL governors; late April saw NHL deputy commissioner Bill Daly engage in protracted meetings with interested parties about a team in Vaughan. I predicted a while back over at Out of Left Field that NHLPA executive director Paul Kelly would have to be heavily involved for this to have any chance, and lo and behold, the players' association jumped in full force [Tim Wharnsby on the side of this relocation. The next crucial element was a team in significant trouble; enter the Phoenix Coyotes, a team heavily in debt, apparently run by the league [Greg Wyshynski, Puck Daddy] and entering bankruptcy protection [Craig Harris, The Arizona Republic].

All that remained to be found was a prospective owner rich enough to buy the team, throw enough cash into the black hole to keep them operating in Phoenix until he could buy or sue his way out of the Coyotes' ironclad arena lease, pay off the Leafs and Sabres for invading their territory and offer a substantial enough premium on the franchise fee that El Supremo Gary Bettman would overlook his aversion to fleeing the scorching desert for the welcoming tundra of Canada. Moreover, this owner had to have the backbone for a potentially prolonged legal battle with Phoenix and the guts to take Bettman to the wall over this. Who could meet such a demanding description?

Is that... Jim Balsillie's music?

[Photo from dalnews.ca]

Yes, it's Bettman's worst nightmare, returned from obscurity after failed attempts to buy the Pittsburgh Penguins and Nashville Predators. Balsillie is the Mark Cuban of the NHL, a rogue who doesn't stick to the traditional rules of running a sports franchise when he sees a good economic opportunity going unexploited. In his previous appearances, Bettman was able to convince the other owners to combine forces to keep Balsillie out in favour of local deals. This time, he may not be so orlucky.

The battlefield has shifted significantly from Balsillie's previous appearances. For one thing, the sinking economy is a huge factor in his favour. Previously, Bettman was able to find alternative options; there are far less people out there interested in and capable of buying sports franchises than there were last time around.

Of course, it also helped that both Pittsburgh and Nashville had substantial hockey fanbases and were only in moderate financial difficulty; it was possible to bring in investors interested in preserving those teams in their present locations because there was the potential to eventually make a profit there. With Nashville, even that was difficult and led to the Boots Del Biaggio fiasco, but the team's found some success since that time with the local ownership group [James Mirtle, From The Rink].

Phoenix is a vastly different scenario. Looking at the losses current owner Jerry Moyes has racked up over his tenure there, there doesn't appear to be a good way to make a profit in that market given issues with arena location, the deal with the city and just selling hockey as a whole in the area. In Forbes's profile of the franchise this fall, the team was valued at $142 million, dead last in the NHL. They were estimated to be losing $9.7 million a season and had only increased their franchise value by $15 million over the seven years since Moyes bought the franchise in 2001. That's not a winning recipe for economic success in that location.

Previously, Bettman was able to hold the owners together in the name of preserving franchises in their existing locations even if that meant taking lower offers. With the Penguins, this approach made a great deal of sense given their history and their market. It made less sense in the Nashville case, but it was still workable. This time, however, Bettman may not be able to find an alternative. Basillie has already bid $212.5 million [James Mirtle, From The Rink] significantly above most estimates of the franchise's worth, and Moyes is saying he's not likely to settle for anything less.

These are all just flesh wounds, though. Bettman's real Achilles heel is the collective bargaining agreement, and it may prove the difference in this case. The CBA makes Kelly and the players effectively partners with the NHL and gives them a great deal of incentive to maximize the league's profits, given how revenues and salaries are now directly linked. They've got a lot at stake here and a lot of leverage to work with; a new Southern Ontario team would bring a lot of money into the league that could be distributed to the players through an increased salary cap, important in an era when many franchises are running into fiscal difficulties and the cap is anticipated to fall dramatically. Plus, the latest proposed location would likely not significantly hurt the Leafs or the Sabres, a potential obstacle that reared its ugly head before.

Moreover, the revenue-sharing aspects of the league mean that other franchise owners have their own rationale to maximize league profits. You can bet they don't want to see the league pouring money into Phoenix indefinitely, especially when that franchise could be increasing the size of their own revenue-sharing chequest instead of diminishing them. Balsillie has tried and failed at this game twice before, but the third time may well be the charm. The board is set, the pieces are moving, and a seventh Canadian NHL team may be the eventual endgame.

1 comment:

  1. reg byrnes9:18 AM