Tuesday, November 14, 2006

A tale of two NHL cities – this is the first one

The National Hockey League is nearing its quarter mark in the 2006-07 season, the picture painted by two franchises illustrates how slippery a slope owning a professional sports franchise can be. The St. Louis Blues established the second longest active streak in North American professional sports before missing the playoffs last year. The Blues were a playoff presence every year from 1980 to 2004. The Buffalo Sabres made it to the conference finals last year before losing to the Stanley Cup champions Carolina Hurricanes. For the Blues selling tickets has become a bigger story than the team missing the playoffs. And in Buffalo, while the Sabres are winning and selling tickets, the team could still lose money this year. In the NHL, the challenges are aplenty for those with enough courage and interest in owning an NHL franchise.

Through ten home games (25 percent of their schedule) the Blues are 29th in NHL attendance, averaging 10,813, and the lowest percentage of the 30 NHL franchises filling only 56.8 percent of the 19,200 seat Scottrade Center. Last year the first time the Blues didn’t make the playoffs in twenty-five years, the Blues ended up 27th in attendance averaging 14,213 or 74.7 percent capacity. In 2003-04 the year before the season long NHL lockout (and the last time the Blues made the playoffs) the Blues averaged 18,560 or 97.6 percent capacity. Nearly identical sellouts across the board since the start of the 2000-01 season (the attendance barometer used for this Insider).

Wal-Mart heir Bill Laurie purchased the Blues in 1998, but on June 17, 2005 announced that he wanted sell the team. On September 29, 2005 it was announced that Laurie has signed an agreement to sell the Blues to Dave Checketts.

Almost from day one, skeptics in St. Louis questioned Laurie’s interest in the Blues. Days after Laurie bought the Blues he signed a letter of intent to purchase the Vancouver Grizzlies from John McCaw. The NBA rejected Laurie, when Laurie announced his intention was to move the Grizzlies to St. Louis. The NBA instead approved the sale of the Grizzlies to Michael E. Heisley who moved the team from Vancouver to Memphis.

Laurie’s sale of the Blues to Checketts had enough intrigue, twists and turns to turn off a fan base as committed as the Blues faithful have been. On November 14, 2005 the Blues announced that Checketts' group, Sports Capital Partners, had officially withdrawn from negotiations to buy the team. On December 27, 2005 it was announced that the Blues had signed a letter of intent to exclusively negotiate with General Sports and Entertainment, LLC. However, after the period of exclusivity, Checketts entered the picture again.

On March 24, 2006, the Laurie’s completed the sale of the Blues and the lease to the Savvis Center to Checketts, Sports Capital Partners (SCP) and TowerBrook Capital Partners, L.P. Checketts immediately announced John Davidson as team president and, moving the much-maligned Larry Pleau to a mostly advisory role. Checketts and his Sports Capital Partners bought the team and its arena lease for $150 million.

Checketts has long been considered one of the brightest and best executives in sports, along the lines of former Phoenix Suns and Arizona Diamondbacks owner Jerry Colangelo. At 28, he became president and general manager of the Utah Jazz, making him the youngest chief executive in NBA history. He then spent a year as the general manager of NBA International, where he worked to increase the league's presence around the world.

He became president of the New York Knicks in March 1991, and in his four seasons as president, the team made it to the Eastern Conference Finals three times and went to the NBA Finals in 1994 and 1999. The team set records for attendance, television ratings and revenue under his watch.

He went on to become president and chief executive officer of Madison Square Garden, the company that owns the New York Rangers, New York Knicks, New York Liberty of the WNBA, Madison Square Garden and the MSG television network. In 1997, MSG acquired Radio City Music Hall. From 1997 to 2001, the Rangers failed to make the playoffs four straight seasons despite having one of the highest payrolls in the NHL. Before Mitt Romney saved the 2002 Salt Lake City Olympics, many believed Checketts born and raised in Salt Lake was going to save the Games.

Checketts spoke with The St. Louis Post Dispatch, painfully aware the NHL team he now owns is having its worst year at the box office ever – in a league where ticket revenues are the key revenue stream. The Blues attendance is down more than a stunning 20 percent over the first ten dates of last years record low attendance.

"It's hard for us, but it just makes us want to try harder," Checketts said by telephone this week. "It's going to take a lot of work, but it's something we don't take lightly. We've got to earn the fans' respect and their loyalty. However it was lost, I do know that a group in St. Louis will come if we give them reasons to come."

Market conditions that have nothing whatsoever to do with the Blues have dramatically impacted on the franchises early season attendance issues. Three of the teams’ first four home games conflicted directly with games the World Series champion St. Louis Cardinals playoff and World Series games. In a baseball crazy city like St Louis, the Cardinals winning the World Series took an emotional and financial toll on St. Louis sports fans.

Checketts spent $10 million to buy a new Daktronics center-ice scoreboard, install LED ribbon boards, put in a new point-of-sale system that accepts credit and debit cards, and replace 1,726 club seats in the lower bowl, about 25 rows from the ice.

The new leather seats are wider and have higher backs compared with the old seats, which "didn't set apart the (club) experience," Checketts told The St. Louis Business Journal. The team is talking to three to four companies to sponsor the unnamed club, according to the St. Louis Business Journal.

The Blues increased club seat amenities to include more interaction with players and front-office personnel, first rights to buy tickets to other arena events, and one parking pass for every two season tickets purchased.

After not making the playoffs for the first time in twenty-five years, two years of ownership problems, Checketts announced Blues ticket prices would increase by an average of 10 percent this year, some tickets increasing by 62 percent. According to The St. Louis Post Dispatch, the Blues dramatically increasing ticket prices is the third time in the last ten-years the Blues have tried that sales tactic. The other two times weren’t very well received by St. Louis sports fans. The first time was before the 1996-97 season and paid attendance dropped to 16,807 from 18,806 in '95-96. The second happened before the 2001-02 season, and attendance dropped roughly 1,000 per game that season.

"The majority of markets in the NHL have expensive tickets, but those markets are usually quite large and/or have experienced Stanley Cup success," former Blues President Mark Sauer told the Post Dispatch. "But there are several medium and small NHL markets where ticket prices are a real problem. Any analysis of league-wide ticket revenue supports that conclusion."

Peter McLoughlin, the new CEO of St. Louis Blues Enterprises, told The St. Louis Post Dispatch that the Blues "certainly have a challenge." The team did announce two ticket packages a "Super Saturday Package" and a "Brett Hull 5-game pack," both of which include tickets to Hull's No. 16 retirement ceremony Dec. 5.

"In talking to fans and finding out what's on their minds, I've have heard over and over a frustration about what happened with the team the last several years," McLoughlin said in The Post Dispatch report. "We know that it will take time to heal itself. But we feel we're up to the challenge and we're staying optimistic."

Bill Laurie owned the Blues during the era that preceded the current NHL collective bargaining agreement, which brought economic sanity to the National Hockey League. The Lauries bought the Blues in 1999 for $100 million. They received about $150 million from Checketts, and agreed to spend $60 million of that to pay off the arena bonds, another $50 million out of their own pocket to pay off outstanding team debt plus an additional $15 million to $25 million to cover this season's losses. They also incurred annual losses totaling about $200 million from 1999 through 2005. All told, it appears the Laurie’s left with $285 million less than before they purchased the Blues.

At the end of the day, Bill Laurie had little if any faith in the viability of a National Hockey League franchise in St. Louis.

"People don't realize the Lauries funded this team during the worst economic time in the NHL and they're really not getting the benefit out of the new CBA because they sold the team," Bob Caporale, chairman of Boston-based Game Plan LLC, who represented the Laurie’s in their search for a buyer told The St. Louis Business Journal.

Members of the Blues can’t help but notice the team has a major issue with the teams’ attendance.

"In Buffalo, fans weren't showing up even when we were successful last year," former Sabre and current Blues defenseman Jay McKee told The Post Dispatch. "If you have a couple of rough years ... the fans just don't react. Even if we went on a winning streak, it would still take time. In Buffalo's sense, we had a great playoff run and now all of the sudden, bang."

The Sabres (subject of the second part of this two part Insider Report), cut off season ticket sales 14,815 this season and now have a waiting list of 700.

"We understand the situation ... that this is a big sports town and maybe there's a little hangover with the Cardinals," Blues forward Keith Tkachuk said. "But if ... we win some games, they'll come out."

"It was just crazy in there," Jamie Rivers, who rejoined the Blues last summer told The St. Louis Post Dispatch. "You couldn't hear anything at times. Just the screaming alone, it's almost like it would mess up your thoughts."

Forbes Magazine’s 2006 financial valuation for the St. Louis Blues determined the value of the Blues to be $150 million, 16th in the 30-team NHL. Forbes believes the value of the Blues has increased by 8 percent in the last two years, and places much of that increased value on Checketts and the possibilities he brings to the organization. Bringing John Davidson one of the most respected men in the hockey industry in as team president was a step in the right direction.

The challenge Checketts and the Blues face is the inevitable downturn most sports franchises face in terms of their performance, and the impact that downward spiral has on the teams’ short and mid-term ability to sell tickets.

After making the playoffs for twenty-five straight seasons but never once coming close to winning a Stanley Cup makes it that much more difficult to market the franchise once that decline has begun. The Blues are 5-8-3 after 16 games, 13th overall in the NHL’s Western Conference. If St. Louis sports fans are looking for a winning hockey team headed back to the Stanley Cup playoffs, the Blues appear heading for another season on the outside looking in.

A sports teams’ performance often goes in cycles. The Blues 25-year playoff run was a remarkable accomplishment. Sports fans have an attitude, its not what you have done for me yesterday, not what you might do for me tomorrow, but what are you doing for me today. Dave Checketts has a great reputation. John Davidson is a revered and respected name in the hockey industry. What both men need is time, time to rebuild the St Louis Blues from the ground up into a contender.

The Blues attendance fell by more than 20 percent last year, by far and away the greatest drop of any NHL franchise after the year long holdout over the previous full NHL season, and this year the numbers are dropping by even greater numbers. Soon enough St. Louis once dubbed by The Sporting News as Best Sports City in America (talk about a subjective list) might cause enough concern to suggest St. Louis could be singing the Blues without having the Blues.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The St. Louis Post Dispatch, Wikipedia and the St. Louis Business Journal

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