Monday, June 25, 2007

Selling a sports franchise – a lot like a roller coaster ride

Over the last few years MasterCard has created a serious of ingenious commercials built around the theme “Priceless Moments”. Friday night’s National Hockey League draft offered one such priceless moment in time – but you’ll never see this as part of a MasterCard commercial campaign. NHL draft coverage offered live on Versus, Canada’s TSN and streamed live at the NHL.com opened with TSN’s Bob McKenzie breathlessly reporting Nashville Predators owner Craig Leipold had sent a letter to the NHL informing the NHL the league was no longer to consider Jim Balsillie’s controversial proposed purchase of the Predators.

The MasterCard moment took place about an hour later when Bob McKenzie now literally shaking in his boots attempted to explain that he had quite correctly reported what would have been the biggest news of the NHL draft. McKenzie clearly holding a Blackberry did his best to correct his mistake that Leipold’s proposed sale to Balsillie (Balsillie is the billionaire who created the Blackberry) might indeed not be dead in the water. The irony of McKenzie doing his best to wiggle his way out of a firestorm indirectly aimed at the creator of the Blackberry, while holding a Blackberry was priceless.

Selling a sports franchise, a multi-million dollar business is easier said than done. Nearly a year ago Seattle native Howard Schultz sold the Seattle Sonics to Clay Bennett for $400 million. Bennett an Oklahoma City native continues to insist if he can (he won’t) secure a taxpayer financed arena deal in the Seattle area he’ll keep the Sonics there. Expect the Sonics to be at Oklahoma City’s Ford Center in time for the 2008-09 NBA season. Bennett understands there’s a process he needs to respect, understand and go through – but when that’s completed the NBA will allow Bennett to move his team.

Liberty Media’s multi-million purchase of the Atlanta Braves took more than two years before Major League Baseball finalized the sale. The Braves are staying exactly where they are in Atlanta. That sale which was in the works since early January 2005 was finally completed on May 17, 2007.

If nothing else, when it comes to Jim Balsillie’s interest in purchasing the Nashville Predators; unlike Clay Bennett and Liberty Media, Balsillie has shown little, if any interest in respecting the process associated with buying a sports franchise. Balsillie is continuously putting the cart so far ahead of the horse, as SBN suggested last week, the cart is carooning out of control with the horse left behind in the barn. There may be plenty of blame to access (just ask the Canadian media who they’re blaming) but the fact(s) remain – if Jim Balsillie had paid more attention to the process he wouldn’t be on the outside looking in when it comes to buying the Nashville Predators. Balsillie could still end up buying the Predators and moving the team to Hamilton, but his own actions are making his intent to buy the Predators much more difficult than they had to be.

Nashville Predators Owner Craig Leipold issued the following statement Friday, in response to a TSN report (Balsillie out as prospective owner?):

“We did send the NHL a letter today requesting that it not do any further due diligence on Jim Balsillie’s offer for the Nashville Predators until we reach a binding agreement. If Jim is interested in reaching a binding agreement, we are prepared to move forward.”

If you ask anyone close to Jim Balsillie nothing whatsoever has changed (give this source the prize for having his glass half filled at all times). If you ask the NHL they’re not quite as sure it’s still smooth sailing for Balsillie and company.

"The Predators' lawyers have informed us that they want us to put a hold on the Balsillie application for now," deputy commissioner Bill Daly said Saturday during the NHL entry draft according to a Canadian Press report. "To the extent that there's anything to consider in the future, they want it to be their application, not Balsillie's."

"It stopped. But it doesn't mean it can't recommence," Daly said. "We've had a number of examples in the past where there's been a breakdown and people have come back. So who knows?"

"Mr. Leipold at this point has decided he's not going to pursue the Balsillie application unless or until they have a binding agreement," Daly said in the Canadian Press report.

"Obviously he's going to look at what his other options might be."

The Balsillie story has received little coverage in the States (with the exception of sports business publications) but remains a burning issue in the Frozen North. Given the passion Canadians have for the Frozen Sport, it’s developing into a motherhood issue when it comes to issue of more NHL teams in Canada.

Friday’s letter written by Leipold and sent to the NHL obtained by The National Post (a Canadian national daily) was written by Leipold's Tennessee lawyers to David Zimmerman, an NHL attorney -- the Predators owner wrote: "Given the lack of a definitive agreement between the club and Mr. Balsillie, the club requests that the NHL refrain from taking any further action with respect to the Application To Acquire the Nashville Predators' previously filed by Mr. Balsillie.”

"Further, the club requests that the NHL simply disregard the request for a 'Conditional Consent to the Transfer of Franchise Location,' “the letter added. "As we have discussed, this 'Conditional Consent to the Transfer of Franchise Location' was not contemplated in the Term Sheet and was submitted by Mr. Balsillie without the club's prior review or approval."

Several sources suggested the abrupt halt to Balsillie’s purchase has more to do with the ever increasing legal bills associated with the process than anything else. Given that Jim Balsillie is worth a reported $7 billion it’s interesting if indeed Balsillie looked at the positives and negatives of Friday evening’s announcements and decided it was more prudent to save a few dollars than the negative media associated with the various weekend reports.

On the other hand, it makes just as much sense to consider what really took place at Wednesday’s NHL Board of Governors meetings and the implications that may have had on Leipold’s actions. Sources told SportsBusinessNews NHL commissioner Gary Bettman made it clear to the Board of Governors the process associated with buying an NHL team and moving that team was going to be respected (see Clay Bennett’s purchase of the Seattle Sonics). With numerous reports emanating from the center of the known hockey universe (Southern Ontario) that Jim Balsillie intent is to move the Predators and not respect any of the NHL bylaws, its easy to understand why Bettman is warning the NHL Board of Governors of what could take place.

Yes, if Jim Balsillie pays Craig Leipold an inflated $238 million for the Predators the financial valuation of every NHL team will increase dramatically, but at what greater cost. If Jim Balsillie follows through on the rumors that he’ll move the Predators to Hamilton with or without any due process, refuse to pay the Toronto Maple Leafs and Buffalo Sabres any relocation fees and has no interest in respecting the local television rights of the Maple Leafs and the Sabres (talk about a horrific triple play for the NHL to consider) Balsillie’s proposed purchase of the Predators is easier said than done.

If all suggestions Jim Balsillie is prepared to take the NHL and its 29 member franchises to court over the above matters if the NHL forces Balsillie to deal with those issues are true– when NHL owners are being forced to consider both sides of the issue – and that might make more sense for NHL owners to reject Jim Balsillie or face millions of dollars in legal bills that could forever change the fabric of how the NHL conducts their business affairs?

"The NHL is trying to drive a wedge between Leipold and Balsillie," said a source close to the events to The National Post. "[Leipold] is caught between a rock and a hard spot."

Hamilton Councilor Terry Whitehead, chair of the steering committee that worked the lease deal at Copps Coliseum did his best to do what politicians believe they’re magicians -- spin the potential disaster as no big deal – all is well.

"I'm hoping that we continue to be — I don't want to say a thorn in the side of Mr. Bettman — but we continue to be on the radar whether Mr. Bettman likes it or not, and I'm hoping that common sense will prevail in that southwestern Ontario deserves another team."

Given that Jim Balsillie is holding more than $10 million in season ticket and suite deposits for the proposed move of the Predators to Hamilton (everyone’s money is safer than it would be in a bank so there’s no fear there), Whitehead’s greater concern has to be a complete rejection of Jim Balsillie and what effect it would have on the psyche of Hamilton hockey fans and Hamilton taxpayers. Make one point very clear – Southern Ontario hockey fans have stood up and made it very clear they’re prepared to support an NHL franchise.

"I wouldn't read into this that the deal isn't there any more," said Mr. Whitehead, adding that Mr. Leipold will likely have a tough time keeping the Predators in Nashville.

"Here's a guy who lost $70-million in the last number of years. I would ask you the question, who's going to buy a team that's going to lose money year in and year out, without having an option of moving?"

That may be true, but consider the long-term implications if the NHL Board of Governors made it clear to Leipold that the biggest issue they have with his proposed sale of Jim Balsillie isn’t the proposed sale but the potential legal ramifications? Leipold is active in numerous civic and corporate organizations as well as several charities benefiting children. He has been named Nashville Sports Council "Sports Person of the Year," "1999 Father of the Year" by the Nashville Father’s Day Council, and "Nashvillian of the Year" by the Easter Seals, following a highly successful 1998-1999 season for the Predators.

Leipold founded Ameritel Corporation, a telemarketing firm that specialized in business-to-business sales contracts for major companies. He then purchased Rainfair Corporation, a 125-year-old manufacturer of protective clothing and footwear. Craig and his wife Helen (Chairman and Chief Executive officer of Johnson Outdoors, Inc. and Chairman of Johnson Financial Bank Corp.) Does Craig Leipold want the specter of a protracted lawsuit involving a business he currently owns being a very public battle? What damage and harm would that do to Leipold’s reputation? Might that now be factoring into Craig Leipold’s thought process when it comes to pushing Jim Balsillie into a binding agreement that factors in current NHL bylaws?

An interesting note in Sunday’s Tennessean only made the situation regarding the Predators future cloudier. One of the conditions that would allow the owner (Leipold or whoever owns the team) the right to break the teams’ current lease with the City of Nashville (the City of Nashville owns The Summit Center the Predators home) is an average paid attendance of 14,000. The team has to fall below the 14,000 ticket threshold for two consecutive seasons. Once that takes place whoever owns the team has to serve notice he intends to break the teams’ lease by June 20 of the second season. It isn’t necessarily apples and oranges but the Predators have in fact fallen below the 14,000 goal the last two NHL season with the caveat being the two seasons where interrupted by the 2004-05 NHL season that was cancelled.

There are many close to the Predators within the Nashville community who believe only after the Predators fail to hit the 14,000 per game mark for the 2007-08 season could the team move. The Tennessean reported Sunday 67 percent of current Predators season ticket holders have renewed their tickets for the upcoming season (exactly the same pace the team was at last year at this team) and in addition have sold 1,000 new season tickets, an increase of 25 percent over where they where last year at this time (750 new season tickets sold). The Predators, who averaged 13,815 fans in paid attendance last season.

Optics being what they are, the NHL sent more than a subtle message with Leipold’s draft day antics. Jim Balsillie may have been surprised by what went on Friday night, but if Balsillie wasn’t in Columbus’ Blue Cross Arena Friday night, William “Boots’’ Del Biaggio III, the man interested in bringing an NHL team to Kansas City’s Sprint Arena set to open in October without a major tenant was sitting front and center at the NHL draft was very visible for the assembled media and television cameras.

Boots said all the right things when he was approached before news broke that Leipold was again in search of a buyer for his team (“That’s Jim’s deal now,’’ Del Biaggio said. “I’m not going to get involved there. “My interest is in Kansas City right now. It looks as if (expansion) would be the only chance.’’) Based on the events of the past few days that may not be the case much longer and would that change how Boot’s is looking at the opportunity?

The great irony about what Jim Balsillie wants to do is, is he’s right about most of the issues he’s raised. He has the financial wherewithal to own an NHL team. He has a passion for hockey and the NHL. Regardless of what people believe, it is the NHL’s inevitable destiny that there will be one if not two more franchises in the Toronto area. And, Hamilton beyond any reasonable doubt will be the home to an NHL team in the not too distant future. If 30 Jim Balsillie’s owned the 30 current NHL teams the NHL would be a much more stable business.

On the other hand, how Jim Balsillie has gone about this has been wrong from the beginning. He’s acted like an enraged King Kong looking for Fay Wray in a china shop. The examples are numerous but consider this one recent example – why would anyone put tickets on sale for a proposed NHL franchise in Southern Ontario on the same day the NHL is hosting their awards ceremonies in the same geographical area? Balsillie could and should have waited until July 9 (after the NHL awards, after the NHL draft and after the start of the NHL free agent season) before he made his very public move. Making it on the day Gary Bettman and the Lords of the Rink where center-stage in Toronto took away from the NHL awards night served to embarrass the NHL.

Just another mistake made by Jim Balsillie. How could someone who is so right about what he wants to do, be so wrong in the way he’s going about making that happen? The real issue – has Jim Balsillie done too much damage to what is a great idea, or can he take a step back and make it work? If nothing else, Jim Balsillie would be well advised to look at how others having conducted themselves when they have gone through the process of buying a sports franchise.

For SportsBusinessNews this is Howard Bloom. Sources cited and used in this Insider Report: The Globe and Mail, The National Post and The Tennessean

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