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Pucks and PR

Because hockey is more than just a game

While I enjoyed a cup of home brewed Folgers coffee and browsed the weekly flyers for the best sales on groceries, Bell and Rogers Communications announced a $1.32 billion deal to buy the majority stake of Maple Leafs Sports & Entertainment.

It’s hard to really nail down the most interesting aspect of this deal. Is it two bitter rivals in sport broadcasting partnering to own the most valuable Canadian sport and entertainment group? Is it the sudden change of heart from the Ontario Teachers’ Pension Plan? Is it the valuation of MLSE? How about the unknowns for fans? Or it could be that both Bell and Rogers saw their stock value fall on announcement of the deal.

For me, while all of those things are interesting, I find the deal interesting and relevant because of one main aspect – the disparity in the NHL.

MLSE makes the Toronto Maple Leafs different than some other NHL teams. When buying a stake in the Leafs, one also buys a stake in the Toronto Marlies, Toronto Raptors and TFC. However, with a Forbes valuation of over $520 million, the Leafs are clearly the cornerstone piece of MLSE.

In comparison to the perpetually for sale Phoenix Coyotes, with a valuation of $134 million, the Leafs can spark a bidding war with only a whisper of availability.

Before the chorus of comments about Southern USA markets, let me just point out that the Los Angeles Kings are 10th in valuation at $232 million, the Dallas Stars are 11th at $230 million and the San Jose Sharks are 16th at $211 million. The NHL can work in non-traditional markets.

Toronto should not be used as a measuring stick – instead, it is a starting point for conversation. Toronto is unusual in every way. The professional teams that call Toronto home can’t remember the definition of championship. The Leafs could wallow in the basement of the NHL for years and still sell-out the Air Canada Centre. Whether it is the result of population, history or simply unbridled fanaticism, the Leafs will forever be the crown jewel of the NHL, no matter their success. The NHL can’t duplicate that in other markets, so people should stop making the comparison.

However, if several other NHL teams went on the market, they would also draw incredible interest. The remaining Original 6 teams, Philadelphia, Pittsburgh, Vancouver – all would be strong investments.

And that’s how people need to view NHL clubs. They are, ultimately, investments. They are not bought out of passion or shear enjoyment, no matter what an owner says. There has to be a return when hundreds of millions of dollars are being spent.

So how does the NHL make clubs valuable? Winning is important, and the NHL has a big part in that. From a business and PR perspective, the NHL needs to ensure that there are 30 competitive teams. When all teams are successful on the ice and profitable off the ice, each owner sees a return on investment, the players have more stability and the NHL can tout itself as a model for professional sport.

From my perspective, there are many aspects of how to make successful teams and profitable clubs.

Everything starts with the goal of NHL management. Sustainability in non-traditional markets is important, but it cannot be unrealistic. When clubs come up for sale, perspective buyers need the freedom to know they can manage their clubs in a way that will produce the best product on the ice while also providing them with a return. Why would anyone buy something that is proven to lose money and club location is restricted to the point that continuing to lose money is almost guaranteed? This means the league needs a more open mindset on relocation. This doesn’t mean just Canada though, as many people contend. If a strong case can be made for Las Vegas or Kansas City, then by all means, move a team there. Teams need to play where they can be profitable.

The salary cap continues to be a big issue when talking about club equality. The cap limits – both floor and ceiling – have continued to rise since the current CBA took effect. This has led to a bizarre dance by GMs. Managing contracts has become a field of expertise in and of itself. Holes in the CBA have allowed teams to bury unwanted contracts in the minors and lower cap hits with front-loaded salary distribution or massive bonuses. The teams with deep pocketed owners have not been held accountable, on or off the ice, for poor contract decisions. Wade Redden and Jeff Finger are some of the most cited examples. What needs to happen, and what is most unlikely, in the next CBA negotiation is a balance of player and owner needs.

Start with the obvious – player cap hits need to be a straight average of total contract value divided by contract length. Performance bonuses, not signing bonuses, should be outside of the cap. This allows for contract negotiation incentives and competition, but also holds players to performance standards in order to obtain them. Signing bonuses should be factored into cap hit to ensure an even playing field between deep pocketed owners and those with self-administered spending limits.

There also needs to be contract buyout amnesty periods. Times where a Wade Redden contract can be bought out with reduced impact to the club’s cap. While this helps the teams, it also gives players a chance to get back into the NHL rather than be stuck in the AHL until their contract runs out.

With that said, contracts need salary guarantees. If owners and managers are given ways to get out of contracts, players need to be given guarantees that they aren’t just pawns for strategic managers. The hope being that outrageous contract offers will be less likely if owners know that a large percentage of the contract is guaranteed to be paid no matter what.

Player escrow needs to be addressed. There needs to be less money held back from players in order to cover revenue shortfalls in the league. Using player salaries to make up for operational and business decision issues is not a free market. This is why teams in unviable markets continue to operate and lose money. Success cannot be forced or built on the backs of the players. That said, players would also need to give up the component of escrow that gives them bonuses when the league does especially well – you can’t always have your cake and eat it too.

Not every team can be worth $500 million. But the most important part is revenue. Teams like Phoenix continually lose millions of dollars. On a year-over-year basis, business needs to be profitable. The NHL is lucky in that they can average out revenue and continually push a profitable league. That is both a business and PR smokescreen that hides the real financial issues of several clubs.

The reality is that the NHL is a two tier league. The MLSE deal is only one more example of that. The solution lies in recognition by the league, owners and payers that this is the case. The number of brilliant business minds working in or with the NHL means that there is no need for the disparity that exists.

If parity is truly the goal of the NHL, as they so often say it is, there needs to be an acceptance that true parity goes beyond the number of points a team gets or playoff appearances and extends to the economic viability and sustainability of clubs and their owners.


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