The following is the first in a series of NHL organizational reports by Business of Sports Network staff member, Devon Teeple - Maury Brown, President, Business of Sports Network
The Nashville Predators are in the Western Conference’s Central Division sharing company with teams like the Detroit Red Wings, St. Louis Blues, Chicago Blackhawks, and Columbus Blue Jackets.
The history is short, consisting of being in the league for only about 10 seasons, entering the NHL in 1998. Those ten years have not been quite ones to say the least. Nashville, its seems, since its inception is always surrounded in controversy, even to this day.
In 1995, there were rumors that the New Jersey Devils wanted to relocate the franchise to the newly planned Nashville Arena. (The Nashville Arena, or what is now the Sommet Center, will be further discussed in this report) Nashville did offer any team willing to relocate, a $20 million relocation bonus. The Devils though attempted to terminate their lease before getting it restructured. The Devils agreed to stay in New Jersey for at least 12 years following the 1995 season with a deal that included the following;
A $12 million renovation, financed through authority bonds, of 25 luxury suites, plus the construction of 14 new mezzanine suites, 1,600 lower level club seats and a restaurant. The authority has, for now, rejected as too costly building 30 or 40 new luxury suites in the arena's upper reaches. "But if we find there's a market for 20 or 30 more, we'll think about more," said Michael Rowe, the general manager of the arena and Giants Stadium.
Club seats -- which are usually plushly cushioned and feature services such as waiters and access to a restaurant or club -- sell for a wide variety of prices around the N.H.L. But if they sold at $5,000 a seat per season, for example, they would yield $8 million in revenues, of which the Devils would get a high percentage.
Allowing the Devils to sell advertising in more areas of the arena, rights that are currently restricted.
Guaranteeing the Devils a minimum revenue stream from suites, club seats and advertising in which the authority would make up for any shortfall.
THE SOMMET CENTER
The Sommet Center is owned by the Sports Authority of Nashville and Davidson County and operated by Powers Management Group, a subsidiary of the Nashville Predators. Since its original opening in 1996, it has seen over 12 million guests, has become one the nations most highly acclaimed entertainment and sports venues. With respect to seating capacity, it holds approximately 20,000 for entertainment events, just over 19,000 for NBA games and roughly 17,000 for NHL games. Formerly known as the Nashville Arena and the Gaylord Entertainment Center, the building became the Sommet Center on May 18, 2007 “after the Tennessee-based Sommet Group entered into a multi-year naming-rights partnership with the Predators and Powers Management. The Sommet Group is an established, family-owned collection of companies that provides non-revenue generating business functions (such as human resources administration, payroll processing, insurance and risk management services, tailored benefits programs, as well as information technology consulting and customized software development) to small and medium-sized businesses throughout the United States.” In addition to being the home of the Predators, the arena has been host to numerous events such as;
- U.S. National Figure Skating Championship (1997)
- NCAA Men’s Basketball Tournament (2000,2003 & 2005)
- SEC Men’s Basketball Tournament (2001, 2006 & 2010)
- SEC Women’s Basketball Tournament (2002, 2004 & 2008)
- NHL Entry Draft (2003)
The arena, which cost $160 million, was constructed by HOK Sports, of Kansas City Missouri. HOK Sports is considered on of the world’s leading sports architecture firm.
After the attempted relocation by the Devils, NHL Commisioner Gary Bettman admitted the expansion to Nashville was now open for discussion.
According the Bettman, “Nashville might be considered for an expansion franchise sometime in the future. I don't think they feel like pawns," he said. "They're still building an arena. They might be a city we look at in the future."
In January of 1997, a group led by Minnesota businessman Craig Leipold made a formal presentation to the NHL requesting an expansion franchise. On June 17, 1997, the NHL announced tentative plans to expand to four cities including two new cites where the NHL has previously failed. Each franchise was to cost $80 million and Nashville was the only city of the four proposed cities that had an arena that was considered suitable for a major league hockey. One formality that was standing in the way of Nashville beginning play was a goal of selling 12,000 season tickets before March 31, 1998. As of January of 1998, Nashville was 6,000 tickets short of its goal and rumors were circulating that the team could relocate before the first puck hit the ice. “When awarded a franchise, the Predators got a very lucrative deal. The city of Nashville paid 31.50% of the $80-million fee to join the league. The city also absorbs operating losses from the arena, despite the fact that the Sommet Center is operated by a subsidiary of the team”.
Fast forward to the present. Ten years in the league does not bring much glamour or excitement to the casual observer. Four playoff appearances with their best season being in 2006-2007 where they posted the second best record in the Western Conference with 110 points. What the casual fan is interested in when it comes to the Nashville Predators are the business dealings that have been following them around for the past couple of years.
On May 23, 2007, Craig Leipold made a tentative agreement to sell the team to the Chairman and Co-CEO of Research in Motion, Jim Balsillie. Leipold stated that the team would play the upcoming season in Nashville but was unclear of the future. It was known for quite a while the Balsillie was interested in purchasing an NHL franchise and placing that team in Hamilton, Ontario Canada. The deal was supposed to be finalized by June 30, 2007. A letter of intent to sell the team to Balsillie was signed for $220 million after Leipold had lost $70 million in his ten years of ownership. Leipold seriously began thinking about selling the franchise, after losing $27 million the previous two seasons. Losing was money was becoming consistent though the Predators had their best season as a franchise but averages only 13,815 in paid attendance.
The proposed re-location site was Hamilton, Ontario, with Balsillie's new company, Golden Horseshoe Sports & Entertainment (named after the portion of Southern Ontario centred around the west-end of Lake Ontario, which is known as the Golden Horseshoe), securing exclusive rights to bring an NHL team to Copps Coliseum, as well as the rights to operate Hamilton Place, the Hamilton Convention Centre, and the associated parking facilities for the next 20 years. Hamilton Mayor Fred Eisenberger stated that Balsillie's intention was to bring an NHL team to Copps in Hamilton, and it was reported that Basillie would invest $140 million into the arena to bring it to modern NHL standards. Relocating to Hamilton, however, may have required compensation to be offered to the Toronto Maple Leafs and Buffalo Sabres because those teams have territorial rights to the region.
It has been rumored that a NHL team that would be located in Hamilton would be challenged by both, the Toronto Maple Leafs and the Buffalo Sabres. Challenged because this would draw revenue away from the respected clubs. To be more specific, Hamilton falls within Toronto’s 80 kilometer restricted zone, and under existing NHL rules, would make Balsillie require consent and most notably a financial agreement with the Toronto Maple Leafs and Buffalo Sabres, which would likely cost millions of dollars. A challenge like this has been since in past NHL expansions, most notably when owners of the New York Rangers and New York Islanders were paid $35 million US, in 1982 when the Colorado Rockies relocated to New Jersey. In fact, it happened once again in 1993 when the Los Angeles Kings were paid $25 million US over a 10-year span by the Anaheim Ducks.
Balsillie led a campaign before the sale was even completed through Ticketmaster, to show the league that Hamilton was a hot spot for a NHL franchise. Tickets for the “Hamilton Predators” went on sale on June 13, 2007. When all was said in and done over 13,000 season ticket deposits were sold and over 70 available corporate deposits which cost $5,000 each. At the same time, there were fewer than 9,000 season ticket holders in Nashville. Though this seemed to benefit Balsillie and the relocation plans, this upset NHL governors and shareholders stating that the premature selling of tickets while Nashville was still under lease was the improper way to go about business.
"Nothing could be further from the truth," said Deputy Commissioner Bill Daly. "It has absolutely nothing to do with what's going on in Nashville. The bottom line is that we have a team in Nashville, the Nashville Predators; they have a lease that goes to 2028. It has nothing to do with Hamilton; it has nothing to do with Canada."
The lease in Nashville has a very important loophole, the only reason Balsillie ever put on a bid on the Predators. If attendance falls under 14,000 in average next season the team’s owner can get out of the lease and relocate the team. It was also reported last week that Balsillie could buy himself out of the lease. In the meantime, the NHL says a lease is a lease, which is why talk of relocation is premature. When asked why the league was seemingly protecting a weak market, Daly shook his head. "Because they have a lease. We don't encourage clubs to break leases," he said. "They have a commitment to Nashville. As long as they have a commitment to Nashville, we have a commitment to Nashville."
This know doubt caused Leipold to have second thoughts in selling the team to only Balsillie, and this ultimately lead to the sale of the team to a group of prospective buyers from a Tennessee based group which was made possible after William "Boots" Del Biaggio entered into a partnership with them. The local group headed by David Freeman reached the agreement with the Nashville Mayor Karl Dean, and the NHL Board of Governors approved the sale on November 29, 2007. Changes to the lease with the city that were deemed necessary by the ownership to keep the team viable were eventually passed on April 15, 2008. “Under the terms of the agreement, Del Biaggio and a minority partner acquired about 27% of the club. Del Biaggio is said to have obtained significant concessions from his new partners and the league in exchange for his involvement, including:
- The right to buy out the other owners if the club incurred significant losses.
- The right to sell his stake to the other owners if and when the club became financially stable.
- The right to claim his share of any profits combined with full immunity from any cash calls that might be necessary.
Two NHL owners stood to gain if Del Biaggio bought a stake in the NHL franchise lent the Co-Founder of Sand Hill Capital $27 million to assist in closing the deal. This information was obtained through court records, interviews, and confidential internal documents obtained by The Tennessean. Not only did this situation get more confusing, they got more embarrassing and more difficult. Involved were two lenders – sports entertainment giant AEG who owns the Los Angeles Kings and then Predators owner Craig Leipold.
According to sources, they were in the inner-circles of friends of NHL Commisioner Gary Bettman who claimed zero involvement of the loans to Del Biaggio when the Predators sale was finalized in December of 2007. Then, in June 2008, Del Biaggio, filed for Chapter 11 Bankruptcy, due to numerous unpaid loans. With the bankruptcy and accusations of fraud, and loans from the NHL brought more unwanted bad publicity to the NHL, which raised questions about how well the NHL was screening their potential owners and the integrity of the application process. "If you're involved with somebody who, on a broad scale, is involved in fraudulent conduct, the ability to pick that up in advance is something that's difficult for anybody, including law enforcement," Bettman said in a telephone interview Friday, emphasizing he was speaking hypothetically.
Leipold, who bought and the founded the NHL franchise in Nashville, lent a total of $20 million US, $10 Million to Del Biaggio, and another $10 million to the team. In addition AEG, lent Biaggio $7 million US to be used specifically for the purchase of the Predators. Leipold and AEG’s loans totaled approximately 15% of the $176 million that was necessary in the team’s purchase. Needless to say the bankruptcy and ownership dealings have caused headlines throughout the NHL.
The current situation of the Predators, is much like the rest of the US franchises in the NHL. According to the most recent Forbes Evaluation of NHL franchises, the Canadian Loonie showed a strong surge this year which raised revenue 13% while operating earnings increased 48% to 4.7 million per team. Twelve teams showed operating losses last year, all teams based in the US, including the Nashville Predators at -1.3 million. At its peak in November of 2007, the Canadian Loonie was valued at 1.07 US, one year later it is valued at 83.02, a drop of .34. This will no doubt affect the Canadian teams that showed profit last year. As reported by the Forbes Evaluation and www.bizofhockey.com, “A stronger loonie helps teams north of the border, because they take in revenue in Canadian dollars, but pay their players in U.S. currency. Last season the value of the Canadian dollar increased 15% relative to the U.S. dollar. The average team value rose 10% during the past year, to $220 million. Five of the six Canadian teams —Montreal Canadiens, Vancouver Canucks, Ottawa Senators, Calgary Flames and Edmonton Oilers— rose in value more than the league average”.
The Nashville Predators have been in the league for ten years now, and have seen very few ups and considerable amounts of downs. What will the future hold? No doubt struggles are certain, but despite all the financial difficulties facing the world today, the NHL as a whole is hanging in there with a 2% increase in profit from the previous year, and so is the NHL’s 23rd most valued franchise.
OTHER NEWS ACROSS THE BUSINESS OF SPORTS NETWORK