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.

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.

NHL: We've heard this song before

Does this story [David Shoalts, The Globe and Mail] about hockey players getting screwed out of their pension money seem familiar to anyone? It darn well should. The last man to mess with the players' pensions was former NHLPA czar Alan Eagleson and we all know how that worked out ["Eagleson Pleads Guilty", Maclean's via The Canadian Encyclopedia].

Casual students of the game would do well to remember that Eagleson's previous follies weren't exposed until Carl Brewer and Susan Foster courageously ran up massive legal bills trying to expose his shenanigans and Lawrence Eagle-Tribune sports editor Russ Conway spent over a year on Eagleson's trail. As written on Andrew's Stars Page, "Brewer, former player, and Conway, a newspaper writer, were instrumental in exposing the fraud and corruption during Alan Eagleson's reign as head of the NHLPA and his time as the most powerful man in hockey. It helped bring justice to hundreds of retired NHL players, and set the stage for big changes in the league's relations with the players."

On the face of it, this pension scandal doesn't seem to be as serious. There are still major issues at play, though, as the players are charging that the plan is shortchanging widows and beneficiaries to the tune of $1 million. Many will probably argue that the players make so much that this doesn't matter, but it's not really as extensive at that if you look at the average salaries and the average career lengths. Besides, as Shoalts writes, "The union believes the death benefit paid to the widows and other beneficiaries of players who died before they started collecting their NHL pensions was less than required by both the plan and by law."

When you bring in the "by law", that adds a new dimension. Pension rules are usually very strict, and the government doesn't take tinkering with them lightly. This could be very significant for the NHL and the NHLPA, and if it turns out that the shortage was intentional, that could add a whole new level of nastiness to the next collective bargaining session. We'll have to see how it turns out, but this could be big.