Wednesday, November 16, 2011

Today’s Big Deal of the Day – Maple Leaf Sports and Entertainment

Eighty percent of Maple Leaf Sports and Entertainment, one of the sports industries biggest brands and Canada’s pre-eminent sports property had been for sale for close to a year.

The Ontario Teachers Pension Fund who own a majority stake in MLSE reportedly have been looking for a buyer for their shares in one of the sports industries most valuable entities since December 2010.

The Ontario Teacher’s Pension Fund are in the business of making as much money as they can for their fund. Owning the Toronto Maple Leafs, Toronto Raptors, Toronto’s MLS franchise, the Air Canada Centre, and two regional sports networks isn’t what the Pension Fund cares about – making money is all they care about.

The Toronto Star reported Providence Equity Partners are ‘interested’. Whether that interest is real or simply speculation on the part of the newspaper remains to be seen. Rick Westhead, who has an outstanding reputation and understanding of the business of sports, reported that Providence Equity Partners have “inquired” but admitted that “it’s unclear whether it has made a formal offer.”

Providence is a 12-year-old U.S. private equity firm with $23 billion in capital under management and focused on media, communications, information and education.

The Globe and Mail reported, “banking sources familiar with the company dismissed the idea the parent of the Toronto Maple Leafs could wind up in the hands of a U.S. equity fund.”

Is the Toronto Star report “much to do about nothing” – not if Rick Westhead is reporting the news. And it does make sense a company like Providence Equity Partners would at least take a serious look at a company like Maple Leaf Sports and Entertainment.

Providence Equity Partners were one of the original equity partners in Yankees Entertainment and Sports Network. YES Network, which started in 2002, broadcasts more than 130 New York Yankees games a year and is the most successful regional sports network.

The New England Sports Network is another example of what Providence may be looking at if their interest in MLSE is real.

MLSE is a money making machine. From the NHL, NBA, MLS, arenas, stadiums and properties MLSE owns in Toronto – if ever there was time to sell 80% of MLSE the time is now.

“They’ve done an unbelievable job maximizing revenue,” Bob Stellick, a Toronto-based sports marketing consultant told the Toronto Star. “They’ve taken their last speck of land and turned it into valuable condos and they’ve done better than anyone could have expected getting the most out of their ticket revenue.”

Providence has to be thinking about creating a YES Network II in Canada’s most densely populated area – the Golden Horseshoe. More than 7 million people live in the Greater Toronto area.

What about an American based equity company owning Canada’s most important sports property? Half of the England’s Premier League's 20 clubs are under foreign ownership. If its working in England the concept will work in Canada.

The proposed sale of the Ontario Teacher’s Fund 80% stake in MLSE makes sense if a company like Providence grabs the opportunity. Content remains king for media companies and sports properties continue to generate unbelievable interest and investment.

Canada’s Rogers Communications owns the Toronto Blue Jays, the Rogers Centre (where the Blues Jays play their home games) and five Canadian regional sports networks.

Rogers’ tentacles extend far beyond their sports properties and sports related media outlets. Bell Globe Media owns TSN (Canada’s biggest sports cable network), CTV (Canada’s biggest television network), newspapers and radio stations.

If Rogers buys MLSE they’d have complete control of the Toronto sports market. If Bell Globe Media bought the 80% stake, Rogers and Bell will both control Canada’s premier sports properties.

“Now it’s all about the financial play and the investment, not the emotion or getting into the locker room,” said Brian Cooper, a former Maple Leaf Sports executive, who is now president of S&E Sponsorship Group, a sports consulting company in a Toronto Star report.

As quick as the Globe and Mail are to dismiss the report the more it makes sense. A few of the facts:

• MLSE isn’t in the business of owning sports properties
• Sooner or later a second National Hockey League franchise is going to either relocate, or the NHL will expand, to Southern Ontario
• A Maple Leafs/Raptors regional sports channel featuring Maple Leaf games would overnight become one of Canada’s most valuable media properties

How dedicated are Toronto Maple Leaf fans? Last week the Maple Leafs Channel began televising Toronto Maple Leafs practices.

In the Greater Toronto area, its “Maple Leafs forever”. The last time the Maple Leafs won the Stanley Cup was 1967. The Red Sox brand increased dramatically winning the 2004 World Series for the first time in 86 years.

If the Maple Leafs win a Stanley Cup, the Leafs value might double almost overnight.

Would Providence, Rogers or anyone else be better owners than the Ontario Teachers Pension Fund have been?

The real owners of any sports team are the fans who support that team. Anyone owning MLSE and in particular the Toronto Maple Leafs has to be in the business of making as much money as possible.

The bottom line is if under their stewardship of the Toronto Maple Leafs the Leafs manage to win the Stanley Cup the owners will turn a money making machine into overdrive.

MLSE chairman Larry Tanenbaum owns the remaining 20% of MLSE. Tanenbaum has the right to purchase the Ontario Teacher’s Pension Fund’s 80% stake in MLSE. Tanenbaum might be able to put together a group of investors, but if he decides to pursue the Ontario Teacher’s Fund 80% it will largely be based on emotion.

It doesn’t make sense for Tanenbaum to try and make this happen.

Sooner rather than later the Ontario Teachers Pension Fund will sell their stake in MLSE. The Steinbrenner family owns the New York Yankees out of respect to the legacy George Steinbrenner built.

John Henry, Tom Werner and Larry Lucchino own the Boston Red Sox and have brought two World Series to Boston since 2004. However if either ownership groups were offered the right opportunity they would sell the teams.

The Ontario Teachers Pension Fund cares only about the bottom line, and if you want to buy their 80% stake in MLSE you had better have more than $1.5 billion and that is a great deal of money.

For Sports Business News this is Howard Bloom

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