Tuesday, December 06, 2011

The value of an NHL franchise

Forbes Magazine released their 2011-12 NHL valuation a few days ago and pegged the average value for an NHL franchise at $240 million, a five percent increase over their valuations one year ago.

According to Forbes somewhat subjective data, revenues increased by an average of five percent to $103 million per team.

They did express some concern in their look at the business of the National Hockey League claiming “the 2010-11 season the league posted operating income (earnings before interest, taxes, depreciation and amortization) of $126 million, 21% lower than the previous year.”

Last year player costs increased, on average, to $59 million per team. Forbes reported that 18 of the NHL’s 30 teams lost money last year, up from 16 during the 2009-10 season.

A look the market value opens the door to a number of questions the NHL and commissioner Gary Bettman will be forced to consider in the next few years.

The Toronto Maple Leafs tops the list of NHL franchises at $521 million. Three years ago RIM CEO Jim Basillie attempted to move the Phoenix Coyotes into the Maple Leafs backyard in Southern Ontario.

Bettman stopped the move cold. The Maple Leafs made it clear they had no interest in another NHL franchise moving into what they believe was their protected territory.

The Buffalo Sabres made it clear in no uncertain terms would they not allow another NHL team to move within the 75 mile radius each NHL franchise has a right to protect.

Bettman may have been able to stop Basillie from moving to Southern Ontario but much sooner rather than later there will be a second NHL franchise in the heart of Maple Leaf Country. It likely won’t be an NHL franchise interested in moving their team, but rather an expansion franchise.

The NHL added the Minnesota Wild and the Columbus Bluejackets at the start of the 2000-01 season. If the NHL decides to expand by two teams, a Toronto franchise could generate as much as $350 million in expansion fee with $100 million sent to the Toronto Maple Leafs as compensation.

The NHL could then award a second franchise to Las Vegas for $250 million. Las Vegas wants a ‘major league team’. While the NHL might not be Las Vegas first choice, city leaders want a team and they’ll find a buyer at $250 million.

Divide the $500 million among the 30 NHL teams and each team receives a financial windfall of a little more than $16.8 million. The 18 NHL teams that lost money last year will be better prepared to deal with any losses when the NHL expands.

There are three NHL teams in the Greater New York area and two in Los Angeles. While both New York and Los Angeles have bigger populations than Toronto, the Greater Toronto Area represents hockey’s most fertile market. The GTA can add at least one NHL franchise.

The franchise at the bottom of the Forbes list is the Phoenix Coyotes at $134 million. After Bettman stopped Basillie from buying and moving the Coyotes on the eve of the 2008 season the NHL was forced to take over the franchise.

The NHL’s other 29 teams continue to throw good money after what has become a bad idea. Two years ago, Glendale politicians gave the NHL $25 million to help offset some of the Coyotes losses.

The end of the road is about to arrive for the Coyotes. Gary Bettman knows the league’s Board of Governors want the team sold to anyone who might keep the team in Phoenix. There isn’t any chance Glendale taxpayers are going to invest any additional dollars in the Coyotes.

Former San Jose Sharks president and CEO Greg Jamison and Chicago Bulls and White Sox owner Jerry Reinsdorf have expressed an interest in buying the Coyotes and keeping the team in Phoenix.

The NHL wants $170 million for the Coyotes; the team isn’t worth more than $135 million in Arizona. It doesn’t make sense to pay $170 million and keep the team in Phoenix.

It does, however, make sense to pay $170 million to move to Quebec City, a city ready to build a $400 million NHL arena. The new arena would be ready in time for the 2015-16 NHL season. An NHL franchise could play in Colisée Pepsi, the former home of the Quebec Nordiques while the new arena is being built.

The Nordiques became the Colorado Avalanche after the strike shortened 1994-95 NHL season and until a shovel is in the ground, the NHL won’t be returning to Quebec City.

Forbes believes the value of the New York Rangers is $507 million, the second highest figure among the 30 NHL franchises. 29th on Forbes 2011-12 NHL list are the New York Islanders at $149 million.

Why such a disparity between two franchises based in the Greater New York area?
The Rangers play in Madison Square Garden, one of sports mecca’s, a money making machine. The Islanders play their home games at the Nassau Veterans Memorial Coliseum.

The Coliseum was built in 1972. The building is outdated and doesn’t offer the Islanders any of the revenue streams most current arenas offer NHL and NBA teams.
Islanders’ owner Charles Wang has four choices, sell the Islanders, move the team and maintain ownership, move the team to the NBA’s Nets new arena in Brooklyn, or find a way to have a new arena built on Long Island.

None of Wang’s choices include keeping the team at the Nassau Veterans Memorial Coliseum.

On August 1, 2011, voters in Nassau County rejected a proposal for a new arena to replace the Nassau Coliseum. The Islanders current lease expires at the end of the 2014-15 season.

Either Wang has his new arena or he will sell the franchise and the team will move. Given that taxpayer haven’t shown must support for a new arena, the Islanders’ future on Long Island is very much in doubt.

All one needs to do is look the Forbes numbers and it becomes easy to predict what the landscape of the NHL will be in the next few years.

For Sports Business News this is Howard Bloom

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