Thursday, May 24, 2007

Here we go again – Jim Balsillie reportedly buys the Nashville Predators

If at first you don’t succeed try, try again. According to Nashville Predators owner Craig Leipold has reached an agreement in principal to sell the Predators to Canadian billionaire Jim Balsillie. It should at the very least be amusing, more likely alarming Leipold met with the NHL Board of Governors Wednesday afternoon informing the Lords of the Rink that he had reached an agreement in principal to sell the NHL franchise to Balsillie. Both The Tennessean and a Nashville TV channel reported the sale and linked Balsillie as the buyer. The reported sale price for the franchise is $200 million, which if true would establish a new benchmark for the sale price for an NHL franchise.

"Both parties intend for it to happen, subject to final negotiations," said the source, who spoke on condition of anonymity to The Tennessean. "The purpose of the letter of intent is to demonstrate the degree of seriousness of both parties."

Before anyone gets too excited its well worth recalling the path of destruction Balsillie left in the wake of his failed attempted to purchase the Pittsburgh Penguins. Let’s just say it would have been interesting to see how Penguins owner Mario Lemieux reacted when Leipold told the Lords of the Rink Balsillie was back as a potential NHL owner.

Just days before the Pennsylvania Gaming Association was set to award the sole gaming license for the Pittsburgh region one of the keys to the bid made by the Isle of Capri’s casino bid took a dramatic step backwards Balsillie announced he had decided he was no longer interested in buying the Penguins.

Mario Lemieux released a pretty calm statement that day: “Jim Balsillie delivered a notice of termination Friday, and it is our understanding that he has stopped negotiating with the National Hockey League to get the necessary consent to buy the Pittsburgh Penguins”

And NHL Commissioner Gary Bettman added: “Friday’s development was unfortunate. If the Isle of Capri is not granted the license on Wednesday, then an already difficult and volatile situation will be aggravated. It is imperative that the Penguins have a new arena on economic terms that make sense for the franchise for the team to remain in Pittsburgh.”

Balsillie and Lemieux announced an agreement in principal to purchase the Penguins on Thursday, October 5. The announcement of the purchase coincided with the Penguins season opener at the Mellon Arena, the oldest facility any NHL franchise in playing in. Built in 1961, the arena features few of the amenities NHL franchises need to survive economically. Now Penguins reached an agreement to build a new arena and have broken ground on that arena but Balsillie created a sea of turmoil in the days and weeks after he bailed on his plan to purchase the Penguins.

What seems even stranger now varying accounts from Balsillie and the NHL’s executive vice-president (number two on the NHL food chain) as to how and why Balsillie’s purchase of the Penguins imploded in the face of the NHL.

Daly appearing on Primetime Sports (a syndicated radio sports show) discussed Balsillie’s decision to withdraw his bid to buy the Penguins. Daly’s comments followed, a front page expose in Canada’s National Post on how Balsillie’s saw his failed bid fall apart.

The National Post report refuted in its entirety by Daly, suggested 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 was 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.

On December 21, 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."

Given that Lemieux suggested he was so angry with Balsillie he intended to keep the multi-million deposit Balsillie had made to Lemieux and the distain Daly had for Balsillie when he spoke to the media days after Balsillie’s botched attempt at buying the team, it’s really is amazing any NHL owner would suggest he was ready to sell his franchise to Jim Balsillie. That said, Predators owner Craig Leipold made it clear earlier this year he was ready to look at all of his options when it came to the Predators future.

The franchise reportedly is facing serious challenges both in selling tickets and more importantly in reaching Nashville’s corporate base. The Predators according to a report in the Globe and Mail fell well short of the benchmark ticket sales goals needed to ensure the teams’ future in Nashville.

The Globe and Mail’s Stephen Brunt broke it down the following way: Under the club's 30-year lease with the city, its owner could walk away if average attendance in consecutive seasons after the club's fifth year in the league dropped below 14,000 a game.

This past year, the Predators fell just short, attracting 13,815 a game. Coupled with the 11,350 average they drew in the 2003-04 season (the lockout year and the year after were excluded from the calculation under the terms of the lease), that meant by exercising their option within 60 days of the final game of the season, the Predators could relocate.

That hasn't happened yet. The deadline is June 19, by which time Balsillie's deal will almost certainly not be completed. So it would be up to the current owner to pull the plug — and even if the owner does, the city would retain the option to guarantee a 14,000 average for next season by buying unsold tickets and thus closing the escape route.

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. Needless to say with reports Leipold is ready to sell 100 percent of the franchise to Balsillie, he may have tried to sell a minority interest but after failing decided to sell the team and move forward. It’s easy to understand how and why Craig Leipold reached the decision he did.

It was a Tuesday in early January when the Predators then 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 at the time) in Nashville. 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."

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

Leipold told The Tennessean at the time he believed 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.

That local investor either never emerged or didn’t have enough to keep Leipold interested opening the door of an NHL franchise again to Jim Balsillie.

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.

Upon further examination it’s easy to understand why Balsillie who has made it clear he wants to buy an NHL franchise to move that franchise, found what he was looking for in the Predators opt-out lease clauses.

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 current ticket based paints 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.”

Jim Balsillie may be worth a reported $7 billion but what he actually does with the Predators is going to be very interesting. Balsillie has purchased the option on a parcel of land in the Kitchener/Waterloo area where he could build an arena, but it’s a pretty good bet the National Hockey League has had enough of Jim Balsillie, and are going to have a great issues if Leipold as expected announces that he will sell his team to Balsillie in the coming days. Just what NHL commissioner Gary Bettman needed on the eve of the Stanley Cup Finals – the sale of an NHL franchise to someone slammed in the media just months ago by the NHL’s deputy commissioner and reviled by Mario Lemieux one of the sports most beloved players.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The Tennessean, The Globe and Mail and Nashville’s NewsChanel 5

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