NHL to Hamilton conference call, part IV: Muddying the waters

The NHL to Hamilton situation continues to get stranger by the day. Yesterday, a new group came forward with their own plan for a team in Toronto [The Canadian Press via The Globe and Mail], which involves a 30,000-seat arena at Downsview Park (with Olympic-sized swimming pool!), a percentage of the profits going to charity and possibly the stupidest name ever proposed for an NHL franchise, the Toronto Legacy. MLS and WNBA clubs laugh at that name. Even the Oklahoma Thunder snicker at that name. Anyway, add them to the list of prospective owners for a GTA franchise. Of course, that list also includes Balsillie and his Hamilton plans as well as the group led by former Leaf Kevin Maguire, who are trying to bring a team to Vaughan.

Even more interesting, though, was today's revelation that Toronto Argonauts owners Howard Sokolowski and David Cynamon are apparently interested in buying the Coyotes and leaving them in Phoenix [Paul Waldie, The Globe and Mail]. Here's the information from Waldie's story, which comes from court filings by NHL commissioner Gary Bettman:

"Bettman said the league has received a “preliminary background application” from four potential buyers for the Coyotes including Howard Sokolowski and David Cynamon, co-owners of the Argonauts. The others applications have come from Jerry Reinsdorf, owner of the Chicago White Sox and Chicago Bulls, as well as current Coyotes co-owner John Breslow and another unidentified Phoenix businessman.

Bettman said each group has “indicated an interest in operating the franchise in Phoenix.”

Bettman did not provide details of the proposals, citing confidentiality issues, and said the league is reviewing each application."

Now, of course, it isn't particularly hard to "indicate an interest in operating the franchise in Phoenix". Clay Bennett indicated an interest in keeping the Sonics in Seattle, and we all know how that worked out. To see if this interest could be at all genuine, we return to some of the material from this week's conference call (earlier posts on the matter are here, here and here), particularly the information dealing with the financial situation of the club in Phoenix.

The application (available via fadoo.ca) to relocate the team that was the subject of said conference call was written by CFL commissioner Tom Wright, but he was retained to do so by both PSE (Balsillie's group) and current Coyotes owner Jerry Moyes. Thus, by working for the franchise, Wright was able to gather complete information about its financial health.

"We had access to all the finances of Mr. Moyes," Wright said. "In its 13 seasons, the club has never approached a profit." Wright added that Moyes had injected $380 million into the team since 2001 without any discernible impact. "The club is not financially viable, and the prospect for it to become financially viable is not there either," he said.

How bad is the financial situation in Phoenix? Wright said the club's studies showed that even if they doubled ticket prices AND increased their attendance by 20 per cent, they would still lose $40 million dollars annually. Clearly, that's not a desirable prospect for any investor focused on the bottom line. Now, NHL franchise values have been increasing, so if that trend continues, the team could still be a worthwhile investment despite operating losses. However, it's doubtful that those values would go up by $40 million a year given the NHL's current struggles, and if losing $40 million a year is the best-case scenario, it's tough to imagine that any smart businessman would want to keep the team in Phoenix for the long haul.

Two of the four prospective ownership groups listed have local connections, though (current co-owner John Breslow and another unidentified Phoenix businessman), so the team could potentially be a loss-leader for them. The PR benefits of being "the guys who saved the Coyotes" might counterbalance the amounts of money they'd have to pour into the team, and they might be able to get a sweetheart deal from the city of Glendale and the other creditors to keep the franchise around. However, it's difficult to see any benefits in owning a team in Phoenix in the long run for either the Cynamon/Sokolowski group or White Sox owner Jerry Reinsdorf, the other prospective owner listed by the league.

Past history may prove instructive here, though. The NHL takes care of those who play by its rules. One example is Craig Leipold, who famously took less money from a mostly-local (except for noted crook Boots DelBiaggio) ownership group in Nashville to keep Balsillie out of the club. Shortly thereafter, Leipold wound up as the owner of the Minnesota Wild. Would anyone really be surprised if Sokolowski and Cynamon take over the Coyotes, keep them going in Phoenix for a year or two, and then either move them to Southern Ontario with the approval of the league or sell them to local interests at a discount and receive an expansion franchise in Southern Ontario as their reward? From this corner, that's the most plausible explanation for their sudden interest.

However, it's also possible that all of this is an elaborate series of smokescreens. A new ownership group in Toronto with massive amounts of funds that wants to play by the league's rules and promises to donate profits to charity? Hmm; that sounds like an attempt to cultivate an even more glossy PR image in Canada than Balsillie's pulled off to date. One of the big things in Balsillie's favour so far is how he's managed to get large amounts of Canadians onside and play on anti-Bettman sentiment. He's seen as the good Canadian willing to stand up to the evil American commissioner, and Bettman's attempts to paint him as a dangerous rogue threatening the entire structure of the league have failed so far. Those attempts look a lot better if there's suddenly a more palatable group on the scene claiming to want to play by the rules and only stating interest in an expansion team, which would certainly be a long and complicated process and probably wouldn't happen for years given the league's current economic state. Bettman and co. can now shoot down Balsillie but fend off some of the backlash in Canada by claiming to work with a new group for an expansion franchise down the road.

Similarly, Cynamon and Sokolowski don't actually have to be serious about purchasing the Coyotes and keeping them in Phoenix. A big part of Balsillie's case to the bankruptcy court so far has been the idea that his bid is the only reasonable one, the only legitimate offer that would satisfy creditors. In the conference call, Wright said that none of these supposed other bids had ever been received by Moyes and that they weren't offering enough money to keep creditors happy.

It's unclear what the terms of any of these offers are at the moment, but consider this scenario: perhaps the NHL has one somewhat legitimate offer (probably Reinsdorf's, as it's been mentioned before), but it's nowhere nearly as attractive as Balsillie's. To make it look better, they recruit other businessmen and have them submit slightly lower offers. Thus, Reinsdorf's offer goes from being a low-ball bid to keep the team local to a reasonable deal slightly above "market value". Of course, there's no indication that this has happened, but it would help to explain why these bids came in so late in the game. If all of these other groups are just to confuse the central issue of Balsillie v. Bettman, they're doing a pretty good job of it so far.

New group enters the second NHL team in Toronto fray

Very interesting stuff here from The Globe and Mail. Apparently, a group led by Paul Pellegrini and Andrew Lopez has lined up $1 billion in financing and scheduled a news conference for Friday to discuss application for an expansion franchise, a potential arena site and a name. I wonder if this group is at all related to the one that provoked the earlier Vaughan rumours I covered back in April?

If Vaughan is indeed the plan, that would make a lot of sense. Vaughan is a better site than Hamilton in my mind; it wouldn't affect the Sabres as much, and there are more people within close range of the arena. Plus, an expansion franchise (especially one with this amount of cash) would allow Gary Bettman and co. to cut Jim Balsillie off at the knees and maintain their control of where franchises are placed. Furthermore, a generous payment could stifle any potential objections from the Leafs and Sabres and prevent what could be a nasty antitrust fight in court. If these guys are serious about coming in through the front door, the NHL may be tempted to go with them to keep Balsillie out. In any case, it will be interesting to watch. In my mind, we will see another NHL team in Southern Ontario relatively soon, as the market's just too desirable to neglect. The questions are where it will play, when it will arrive, and who will be involved. I'll have more on this one as details come out.

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.