Thursday, December 21, 2006

The Death of the Pittsburgh Penguins

History will record the end of days arrived for the Pittsburgh Penguins at 11:30 AM, Wednesday December 20, 2006. The Penguins died when the Pennsylvania gaming control board awarded Pittsburgh's sole stand-alone casino license to Don Barden's PITG Gaming. The Penguins and the National Hockey League had put all of their cards (pardon the gaming related pun) in the failed Isle of Capri bid. Close to two-years of planning went down the drain, along with plans to build a $290 million arena. The so-called “Plan B” remains an option, but it’s as likely to occur as the return of the Montreal Expos to Montreal’s Olympic Stadium.

NHL Commissioner Gary Bettman released the following statement after the Pennsylvania Gaming Control Board announced its decision regarding the awarding of a slots license in Pittsburgh:

“The decision by the Gaming Commission was terrible news for the Penguins, their fans and the NHL. The future of this franchise in Pittsburgh is uncertain and the Penguins now will have to explore all other options, including possible relocation. The NHL will support the Penguins in their endeavors.”

“We congratulate Don Barden and PITG Gaming on their successful bid. Obviously, we are very disappointed that the Isle of Capri was not awarded the slots license. We want to thank them for their effort over the past year, including an unprecedented offer to fully fund construction of a new arena had they received the license.”

“We also want to thank the dozens of local leaders and thousands of fans and concerned citizens who voiced their support for what they believed was the best plan for our region. Had Isle of Capri been selected, it would have ensured the long-term future of the Penguins in Pittsburgh and would have delivered a $1 billion development opportunity to the Lower Hill and Uptown.”

“At this point, our franchise enters a period of uncertainty, with our lease at Mellon Arena set to expire this summer. We will re-evaluate all of our options before deciding on a course of action and making further comment.” Penguins CEO Ken Sawyer offered.

The so called Plan-B to keep the Penguins in Pittsburgh was first floated in mid September. Plan B includes: The company (one of the two other companies – the successful bidder) to contribute $7.5 million a year for 30 years, the Penguins $8.5 million up front and $4.1 million per year, and the state $7 million a year through a slots-backed fund, all toward the new facility. There also is $26.5 million in state funds for land acquisition and site preparation in Uptown, adjacent to Mellon Arena.

Don Barden made it clear immediately following the announcement he would be moving forward with his casino plans that he would indeed honor the pledge he had made to contribute $225 million towards the building of a new arena. However the rest of the plan is where the real issues lie. Plan B calls for whoever owns the Penguins to contribute $131.5 million for forego any revenues from naming rights to the facility. There is no chance anyone willing to pay Mario Lemieux the $175 million he wants for the Penguins, will be prepared to invest at least $300 million. Then factor in what should be painfully obvious to everyone, the $290 Isle of Capri arena plan was nothing more than smoke and mirrors. The Isle of Capri plan had been proposed close to two years ago, and had been on the books for more than twelve months. In the last six months the costs of sports facilities have increased.

The proposed arena voters in Sacramento overwhelmingly rejected on November 7 would have cost $540 million. The Dallas Cowboys last week announced their plans to build a $1 billion stadium. The New York Yankees and the New York Mets have broken ground on stadiums that will each cost in excess of $550 million.

There is no doubt whatsoever the cost of building a state-of-art arena in Pittsburgh will cost close to $400 million and not the outdated $290 million Isle of Capri failed plan. Given that for better or worse Isle of Capri was prepared to write a check to cover the costs, Plan B requires extensive financing and support from financial institutions. While that may not be an issue, who will cover the increased costs associated with the borrowing (the tens of millions of dollars in interest payments) will further cripple Plan B.

There also has to be a buyer who is prepared to keep the Penguins in Pittsburgh. Dismiss Canadian beer man Frank D'Angelo. His bid to buy a Canadian Football League franchise was dismissed by the CFL before D'Angelo, who appears in his own commercials in embarrassing situations, doesn’t have either enough money or common sense.

Frank D'Angelo is a poor man’s version of Mark Cuban. There are those who believe Cuban, a Pittsburgh native, is going to rescue the Penguins and keep the team in his hometown. Much of that belief is based on an entry in Cuban’s well read blog “Blog Maverick”. An entry Cuban posted on November 3 lamented how “upset” Cuban was that he had been beaten by Jim Balsillie in putting together an ownership group to buy the Penguins. Cuban never met a media opportunity he didn’t crave. His complete silence on Balsillie’s decision to end his pursuit of the Penguins is all one needs to understand Cuban’s real interest in buying the Penguins was a lot of hot air, and nothing more than that.

NHL deputy commissioner Bill Daly appearing on Primetime Sports, a national radio show broadcast in Canada, made it clear the clock is ticking on Plan B. What was clear from Daly’s interview, the NHL didn’t have a clear understanding of Plan B, but if there is to be an alternative concept to keep the Penguins in Pittsburgh, it had better include extensive public (taxpayer) support. As currently presented, Plan B does not include any financial commitments from Pittsburgh taxpayers.

Daly also discussed Jim Balsillie’s decision to withdraw his bid Friday. Wednesday, Canada’s National Post offered a front page expose on what happened to Balsillie’s bid and what went wrong. The report refuted in its entirety by Daly, suggested the rationale behind Balsillie’s decision to end his bid to buy the Penguins was in large part based on what unnamed sources The National Post used for their front page report, a series of new conditions were presented "without any warning or discussion" on Dec. 8 as part of the NHL's consent to his offer. Daly told Primetime Sports there was nothing presented to Balsillie on December 8 the two sides hadn’t discussed previously.

The report asserted Balsillie would be forced to keep the franchise in Pittsburgh until 2013. Daly made it clear with the failure of the Isle of Capri’s arena/casino deal, if the new owner of the Penguins couldn’t reach a similar arena funding plan in the near future, that owner would be free to relocate the team to another city as early as next year. That alone suggests Balsillie and the National Hockey League at the very least are suffering from a total breakdown in communications. The two versions of the truth are so different, it defies logic.

Daly told the NHL did not impose last-minute conditions.

"Obviously, there is a much bigger picture here, including that Mr. Balsillie had verbally and in writing agreed to everything that was in the letter," he said in a e-mail.

He added that Balsillie "was asked by [the league's] executive committee whether he would give the league an option to buy back the team and he said he would. The 'unreasonable' condition is one he participated in creating."

Balsillie hasn’t offered a great deal since Friday’s withdrawal and hasn’t commented on The National Post report or Daly’s comments Wednesday that it was Balsillie and not the NHL who didn’t seem to understand the agreement.

Wednesday, Balsillie told he was prepared to make another bid for the team.

"All it takes is three motivated parties and a five-minute phone call to get this deal back on track," he said in an e-mail referring to himself, the NHL and the Penguins' current owners. "We've fully studied the situation, and are prepared to complete the purchase and immediately commence good faith 'Plan B' negotiations with the government officials to keep the team in Pittsburgh."

Jim Balsillie may be worth a reported $7 billion, he may have purchased the option on a parcel of land in the Kitchener/Waterloo area where he would or wouldn’t build an arena, but it’s a near certainty the National Hockey League has had enough of Jim Balsillie for the near future. The time may come again when Jim Balsillie may be in a position where he can buy a National Hockey League franchise, but given Bill Daly’s version of how Jim Balsillie’s decision to withdraw his bid for the Penguins played itself out, and regardless of how much money Balsillie’s worth, the NHL isn’t going to welcome him back with open arms anytime soon. Its clear Balsillie sees the Penguins for what they represent, the NHL’s team of the future, with the NHL’s next gilt-edged superstar in Sidney Crosby, but the prize won’t be Jim Balsillie’s to have.

Which leaves the future of the Pittsburgh Penguins in the hands of two cities, and two people – Les Alexander and the Houston market, and William “Boots” Del Biaggio and the Kansas City market.

Del Biaggio made a serious bid to buy the Penguins in 2005. Penguins’ owner Mario Lemieux took the team off the market soon after the franchise drafted Crosby. Del Biaggio, a minority-partner in the San Jose Sharks, has signed an agreement with AEG to own and operate an NHL franchise when one becomes available. AEG have built The Sprint Center, a new arena without a major tenant set to open in time for the start of the 2007-08 season.

Brenda Tinnen, general manager of Sprint Center, told The Kansas City Star while expressing disappointment for the fans of the Penguins, who have been a mainstay in Pittsburgh since 1967, expressed the feeling of many in Kansas City.

“Let’s just say it’s beginning to look a lot like Christmas,” Tinnen said in the Star report.

The National Hockey League expanded to Kansas City before the start of the 1974-75 season. Two years later the franchise moved to Denver, where the team became the Colorado Rockies. The Rockies moved to New Jersey before the start of the 1982-83 season. The NHL has failed once in Kansas City, where an NBA franchise also failed. With a new arena and Sid the Kid, and if William “Boots” Del Biaggio is ready to write a check for at least $175 million, the Penguins could be on their way to Kansas City.

Les Alexander the owner of the NBA’s Houston Rockets visited NHL commissioner Gary Bettman 19 months ago (May 2005) with the expressed purpose of making clear to the National Hockey League he was very interested in bringing an NHL franchise to America’s fourth biggest market. Alexander told The Houston Chronicle on November 3, 2005 he was ready to move forward with his plans to bring an NHL franchise to Houston’s Toyota Center.

"I am trying to get a team. I am trying," Alexander said. "I went to see the commissioner. I told him about my interest. I can't disclose teams, but I've been talking to people (in the NHL) and to investment bankers.

"I had conversations a month ago with an investment banking firm. I'm looking to buy a team. So people know my interest. You hear from time to time that teams might be for sale, then it changes or something else happens. But my interest is out there."

The other cities that will be mentioned as potentially new homes for the Penguins include Oklahoma City, Las Vegas, Seattle and Portland. None will play a serious role, and none offer what either Les Alexander or William “Boots” Del Biaggio businessmen with arenas, in cities the NHL wants to be in, likely ready to write Mario Lemieux a check for at least $175 million. The NHL with either Alexander or Del Biaggio will have an opportunity to buy into an NHL with a salary cap and financial restraint. What creates ‘the perfect storm’ for Mario Lemieux and Gary Bettman isn’t the sale of an NHL franchise but with Pittsburgh nothing more than a technicality away from becoming the death of the Quebec Nordiques repeated is the Penguins.

The Quebec Nordiques were the NHL’s best young team in 1993, the team of the future. The owners of the Nordiques sold their team to Denver interests at the end of the 1994-95 season and won their first of two Stanley Cups their first year in Denver.

Forbes Magazine recent subjective financial valuation for NHL franchises determined the average hockey team is now worth $180 million and makes an operating profit (in the sense of earnings before interest, taxes, depreciation and amortization) of $4.2 million. During the 2003-2004 season, the last before the lockout, the average hockey team was worth $163 million and lost $3.2 million. Recent sale prices for NHL teams (the St. Louis Blues) have been around $150 million. It’s reasonable to assume if Alexander and Del Biaggio are serious (and there’s nothing to indicate they are nothing but serious) its possible Mario Lemieux might be able to sell the Penguins for close to $200 million.

Handicapping the race to buy the Pittsburgh Penguins:

Les Alexander (Houston’s Toyota Center). Would serve as a natural rival to the Dallas Stars. Fourth biggest market. If the NHL holds onto their dream of building the sport in non-traditional hockey markets, this has to be the dream scenario come true. Odds even.

William “Boots” Del Biaggio (Kansas City’s Sprint Center). A building in search of a major tenant. AEG owns the Los Angeles Kings, what could be a small but important advantage that shouldn’t be dismissed. Odds even

Jim Balsillie (Southern Ontario). Before Bill Daly’s Wednesday evening revelations that it was Balsillie and not the NHL that had turned the tables, Balsillie might have been the favorite. There will be a price to pay, and that price will not come back and visit us when we’re fed up with one of our other problem franchises, you can’t have this one. Odds (again after Daly spoke) 15-1

Oklahoma City, Las Vegas, Portland and Seattle. Nothing more than cannon fodder, with no real serious ownership groups. The markets may work one day and there may be interested ownership groups one day, but that day isn’t today, and Mario Lemieux and the NHL will want to sell the team now. Odds 100-1

Mark Cuban (Pittsburgh). The sports industries version of a Macy’s Thanksgiving Day parade float (a hot air balloon) would be great for the NHL and even better for Pittsburgh, but Cuban’s heart is in his Dallas Mavericks. Odds 250-1

Frank D’Angelo (Pittsburgh). No chance, no way, no money, no common sense, no business sense. Odds 1 million to one.

For Sports Business News this is Howard Bloom.

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