Tuesday, January 16, 2007

Yet another NHL franchise facing an uncertain future

Lost in the avalanche of sports business news Thursday and Friday relating to the Los Angeles Galaxy’s signing of David Beckham several reports from Nashville on the future of the NHL’s Nashville Predators. The Predators having a good season on the ice are not having as much fun off the ice. The franchise reportedly is facing serious challenges both in selling tickets and more importantly in reaching Nashville’s corporate base. One of the NHL’s franchises located in the American southeast appears to have an uncertain future in their current home.

When the National Hockey League awarded the City of Nashville a franchise, the Predators ownership group received a very lucrative deal. The city of Nashville paid 31.25% of the $80-million fee to join the league. The city also absorbs operating losses from the arena, despite the fact that the Gaylord Entertainment Center is operated by a subsidiary of the team.

And the City of Nashville is the gift that keeps on giving to the Predators. In the last six months taxpayers agreed to $8 million in renovations to the Gaylord Entertainment Center which included a new state-of-the art taxpayer paid scoreboard. The breakdown according to taxpayer records – a $3.6 million scoreboard, a $2.4 million digital control room and $1.85 million in other facility improvements. The current lease (the one the team may try to break) guarantees that any loses the arena accrues as a direct result of the arena operations are covered by taxpayers. The teams’ lease also allows the Predators to keep a significant portion of the revenue generated by the arena.

"It's a very positive deal for them because they're not placed at any risk associated with the operation of the facility itself," Metro Finance Director David Manning told The Tennessean.

On the surface the Predators are filling more than 80 percent of the Gaylord Entertainment Center the teams’ home. However when the franchise averages over the last four plus seasons (the previous four complete NHL seasons and the 21 home games the Predators have played this year) stands barely above 14,000 fans per game, the challenges the Predators are facing begin to surface.

Nashville Predators owner Craig Leipold announced he believed for the franchise to remain economically viable, he had to sell 40 percent of the franchise for as much as $50 million. Given that the City of Nashville paid more than $25 million of the Predators $80 million franchise fee, in essence if Leipold managed to sell 40 percent of the team for $50 million he would own 60 percent of the team for pennies on the dollar.

Last Tuesday, the Predators first in the NHL Central Division and second in the NHL’s Western Conference met the Anaheim Ducks (the team with the best record in the NHL). Two of the NHL’s best teams and less than 12,000 in attendance caught Leipold’s attention.

"Attendance has been an issue for six or seven years," Leipold told The Tennessean.

"I think our players were very disappointed in the attendance when the No. 1 team is playing the No. 2 team in the league."

According to The Tennessean the Predators have an opt-out clause in their 30-year lease with the City of Nashville (the owners of the teams’ arena) if the team isn’t happy with their attendance. If the Predators exercise their out-clause they would be free to move to another city at the end of the 2008-09 season

The Predators out-clause, according to the Tennessean is directly linked towards total ticket sales, not number of tickets sold based on building capacity. The club's lease works like this:

• If attendance slips below 14,000 a game this season, the Predators can signal an interest in exercising their Gaylord Entertainment Center escape clause two months after this hockey season ends.

• Average attendance would have to fall below 14,000 a game again in the 2007-08 season for the team to actually leave by October 2008.

And here’s the kicker – the clause is based on paid attendance and according to what Leipold told The Tennessean, the Predators actual paid attendance is actually just over 13,000 per game (the team gives away 1,500 tickets per game).

Leipold told The Tennessean he believes one or more local owners with influence in the community could "open doors to get businesses involved. We don't have that. We need some local owners."

"Who it is will make a lot of difference. ... A country star, someone along those lines, would get attention, and that would work for at least the short term," said Jim Grinstead, publisher of Revenues From Sports Venues (a Nashville based industry trade magazine). "But it depends on how much they are at the games and how involved they are with the team.

"If you bring in the right folks with the right company, those folks will buy a block of tickets, and that company will set an example for others."

One interesting name that hasn’t been offered, but remains a hockey fan is ‘retired’ country superstar Garth Brooks. Brooks has worked with NHL chantries on several initiatives and would be the perfect music icon that could help build the franchises base.

"Local ownership typically makes a difference, particularly if they've got a relationship with the corporate community and with the civic community that they're able to tap into," Marc Ganis president of Chicago based Sportscorp told The Tennessean.

Mark Bloom, a minority owner of the Nashville Kats of the Arena Football League (who also call the Gaylord Entertainment Center home) believes securing local minority ownership for the Predators will be easier said than done.

"I've lived here for 25 years now and one thing I've noticed is that the most prominent families here are not necessarily too interested in sports ownership," Bloom said. "There are a lot of wealthy families here, but traditionally it seems like they've been more involved in philanthropic things. We've never really had a big sports family."

The NHL’s revenue sharing plan (part of the current CBA) dictates that for the 2007-08 season, the Predators must average 13,200 in paid attendance (almost where the team currently stands in the number of paid admissions) or they will miss out on 25 percent of the total money available to them from the league's revenue-sharing plan.

And in 2008-09, the Predators must average 14,000 in paid attendance or they will miss out on 50 percent of the money available to them from the NHL’s revenue sharing plan. The Predators received more than $10 million in revenue sharing from the NHL at the end of the 2005-06 season, invaluable capital to a team unable to sell more than 13,000 tickets in a gate driven sports league.

A breakdown of the Predators ticket base painted a picture as to what the challenge is. On average most NHL teams believe 60 percent of their ticket base is corporate (businesses) with the remaining 40 percent individuals (fans). The Predators ticket base is 70 percent individuals (fans) and 30 percent corporate (businesses).

“That’s why you see the upper bowl filled and the lower bowl sometimes half empty,” Steve Violetta, executive vice president of business affairs for the Predators told The Nashville City Paper “It is exactly the opposite of other NHL cities.”

“I’ve had conversations with people in Nashville, but no one was really interested in being part of an ownership group,” Leipold said. “Nashville is a market with significant wealth. It is probably one of the wealthiest cities in America. There are a lot of very wealthy individuals and companies with high net worth’s. We would like to share this with four or five people who each come in for five or 10 percent.”

“It is not the local ownership that is the problem,” Leipold told the Nashville City Paper. “We need local owners to help us get into the doors of the corporate business community. We have talked on numerous occasions about having local ownership to help with this.”

Violetta is one of the best in the industry. His background includes working with Roy Malkar to build the Ottawa Senators into one of the strongest NHL business operations and most recently Violetta worked with the San Diego Padres in helping launch Petco Park. In the not too distant future expect Steve Violetta to become president of a major sports franchise.

One of the ideas Violetta tried when he moved from the Padres to the Predators was a sales plan that targeted 250 Nashville based businesses. Of that number, the Predators were able to actually make a 30-minute sales pitch to about 70 of the companies. He said that 10 companies actually bought ticket packages.

“We sent them a pretty nice direct mail piece,” Violetta said. “We sent them each a DVD player with a portable DVD already loaded. Each one had batteries in it. They were all charged up. All they had to do was press play.”

When one of the industries best and certainly a marquee NHL executive like Steve Violetta managed to only connect with less than 5 percent of a highly targeted market in a well organized campaign its easy to understand the concerns Leipold has about the Predators future in Nashville.

"We were not disappointed in how many we got in to see, but we really weren't happy with the number of people we were able to close," Violetta told The Tennessean Monday.

Violetta and his sales staff followed up their initial campaign by producing 10,000 additional DVD’s (this time without the DVD players included). The 10,000 DVD’s was a case of throwing more good money after a failed idea.

“Part of the challenge of this market is that the Predators have only been around nine years and the Titans have only been around eight years,” Violetta said in The Nashville City Paper. “So there is not a huge history here about how to use pro sports team tickets to drive your business. When you compound the short life span of the franchise with the fact that hockey is not native to the area it makes it very difficult to get the interest of businesses.”

While the teams overall attendance is around the targeted figure, Violetta is like a salmon swimming upstream. The Predators had 4,000 corporate accounts when the team arrived nine years ago; the number has shrunk to 1,800. Its going backwards not forwards, a dangerous trend for any sports franchise. During the teams first season the teams’ corporate season ticket base accounted for 70 percent of the teams total season ticket base (8,500), today it stands at 2,600 among the lowest corporate ticket bases among NHL franchises. When Nashville was awarded an expansion franchise a condition was the selling of 12,000 season tickets. How little that seems to matter nine years later when the franchise in the not too distant future could be fighting a battle to save its existence. The key isn’t selling the 12,000 tickets in year one, but selling the tickets in year nine.

One of the keys to how the Predators sold the needed 12,000 season tickets nine years ago how proactive the business community was. A task force was organized that helped arrange one-on-one meetings between Predators sales personal and Nashville based businesses.

"It was a very well-organized campaign," said John Stein, Tennessee president of Bank of America.

But season ticket sales according to published reports began to slide as soon as the Predators took the ice. By the 2000-2001 season, the team's third, season-ticket sales fell just below 10,000. In 2003-2004, the team sold 6,532 season tickets.

"Hockey is not a native sport here," Stein said. "I think because of the cultural element of their geography, it's going to be a challenge in many seasons."

The NHL for its part keeps on insisting the NHL can work in the American southeast. One of the shining examples Gary Bettman and company like to use is the Carolina Hurricanes. How convenient an example to make – the team that won last year’s Stanley Cup. However upon closer inspection attendance figures aren’t what they appear to be in Raleigh.

"The boost that we've seen in our attendance … is more due to individual families and fans," said Jason Karmanos, the Hurricanes vice president and assistant general manager. "The corporate support, quite frankly, is lagging."

Assume for argument sake the Predators legitimately challenge for the Stanley Cup. In the best of scenarios the Predators follow the path the Tampa Bay Lightening and the Carolina Hurricanes managed to accomplish – warm weather NHL franchises winning the Stanley Cup. A Stanley Cup would push Predators season ticket sales past 12,000 but unless there is a dramatic change in the attitude towards the Nashville Predators from Nashville’s business community in the not too distant future the National Hockey League will be forced to look at another franchise searching for warmer hockey weather – one where tickets can be sold.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The Tennessean and The Nashville City Paper

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