Tuesday, July 24, 2007



Jumping off from the much-linked Tim Wharnsby piece Cracks show in NHL player, owner partnership in Thursday's Globe & Mail, Tom Benjamin takes a look at the disincentive for growth created by the CBA. And for once, I think he misses the mark by a bit. Read the whole thing, but here's the gist of the argument:
Higher league revenues are not in the interest of any (not just American) individual team unless those increases are driven by their own or pooled centralized revenues... When the Leafs raise ticket prices, salaries go up for everyone. As pay per view expands in Vancouver, player costs are driven up in Washington.

The owner of the Atlanta Thrashers would be very happy to see Nashville stay put. If Hamilton generated $50 MM more than Nashville, the Thrashers don't see a penny of that money and player costs across the league go up by about $1 MM a team. Why does Atlanta want Nashville to move? Why would a Toronto? The Leafs might like the idea if it reduced revenue sharing costs but it won't because those are tied to revenues, too. If Nashville doesn't get the money, another poor team will get more.

[...] In the Gary Bettman Hockey League, the big market teams don't even have to spend to drive up salaries. Now salaries can be inflated by big market revenues whether the big boys spend or not. Most teams don't want to see league revenues grow.

The first point to make here is that, while I'm no fan of the CBA for all sorts of reasons, I fail to see how the CBA creates or exacerbates this problem, such as it is. It certainly is a rebuke to those who believed (as advertised) that the new CBA would usher in a new "one big happy family" world order, but it's not a problem created by the CBA.

When the Leafs raised ticket prices (or created new revenue streams) in the old days, salaries went up. When any team found a new way to make money, they'd use some of it on their player budget, which increased salaries. It happened via market forces rather that direct linkage, but it happened all the same. It doesn't mean much when Tom says "Now salaries can be inflated by big market revenues whether the big boys spend or not", because they did and do. It doesn't really matter what the system is: it is never going to be in Team A's direct & immediate interest for Team B to find new money and gain a competitive advantage.

That's not really the point I wanted to focus on, though: I point to Tom's piece because I think we have different senses of the interests of NHL owners in the grand scheme of things, and maybe the commenters can referee.

In the context of competitive advantage (relating to player signing and thus on-ice success), maybe Tom is right when he says "The owner of the Atlanta Thrashers would be very happy to see Nashville stay put." But what about, "The owner of the Atlanta Thrashers was happy to see Jim Balsillie's bid for the Predators fail"? That is a different matter, and it seems to me a lot less likely to be true.

While Balsillie probably went too far with the selling of season tickets in Hamilton (and that stupid business with the Competition Bureau), I think he was right -- or rather, wise -- to make his big-dollar bid for the Predators with the plainly stated condition that he did not intend to keep them in Nashville. I think the aggressiveness of the thing was by design, despite that fact that he knew full well that the league machinery wasn't going to snap promptly to life and give him an "As you will!" And the design was to appeal directly to the 29 other owners' own interests, rather than Gary Bettman, or "The NHL" as a collective.

Think of it as a pop quiz, Speed-style, to any owner who has the imagination to realize that their best exit strategy someday might be a sale to someone who wants to relocate. "OK hotshot, so you feel like franchise relocation needs to be considered carefully, deliberately, and collectively. Fair enough. Now, what if that opinion could cost you 50 million bucks? What do you do? What do you do?"

My guess is that, among others, the owners of Atlanta and Florida threw up when they got word that Balsillie had been denied the Predators. I'm not denying that NHL owners can be long-range thinkers (see below); I am saying that the existing arguments against franchise relocation are nowhere near compelling enough to induce these guys to forsake tens of millions of dollars for themselves.

When Tom says that teams care more about themselves more than about "the league", he's right, but there's something missing there that's important. Order of concern for Team A in a league with teams A to Z goes like this:
I hope that's clear enough. I think it's fairly obvious that most people in the Flames organization, scouts to accountants, worry about the Flames most days, not the league. I do think that observers (media etc.) get confused about 2 & 3. Some other team is not the league. If Cal Nichols said that he doesn't care if the Predators survive in Nashville or not, the temptation is to label him as short-sighted or selfish. He may be both of those things, but it's worth considering if maybe he simply thinks the league would be just fine if the Predators had to move, or even that it'll be better off.

Also: there is the short-term, and the long-term. I'm literally the last person that would argue with Tom that people behave according to the incentives that exist, but I think he puts too much weight on the incentives that exist specific to this CBA.

The present CBA has an expiry date. The next one, and the one after that, will be different. Extremely different? I doubt it, but time will tell. Maybe some of the cost certainty elements will be watered down. Maybe some of the revenue-sharing provisions will be altered. I dunno. What I do know is that NHL owners have to plan for this in some way; they do have incentives to make decisions that will benefit the value of their businesses regardless of exactly what the next CBA says.

Steadfastly supporting a franchise that appears to have no chance of being profitable in their present location is not one of those things. Keeping a team from relocating into a market that will be extremely lucrative is not one of those things. Exercising an extreme amount of collective control over the fate of an individual franchise is not one of those things. And being indifferent -- or hostile -- to overall league revenue growth is not one of those things.

(And let's not forget: the next CBA will not drop out of the sky, it will be negotiated. If the league and owners spend the next 4 years trying to torque everything except Hockey Related Revenues, then the notion of the "partnership" will be in much bigger shambles than it is now, and it will considerably more difficult to negotiate a CBA with terms favourable to them.)

When I assess the short, medium, and long-term interests of NHL owners, each weighed as appropriately as I can figure, I think they must be in favour of the Balsillie bid for the Preds. It got denied this time, because Gary Bettman aggressively intervened (note: his interests are not identical to the owners'), and because Balsillie overplayed his hand (acting as if it was a done deal, instead of simply being clear about his intentions). Next time -- especially after all the owners have had time to reflect on this past bid -- Gary's veto is going to be overridden. Or at least, that's my prediction.

Epilogue on Price:

Colby Cosh had a pretty good column a few weeks ago about Balsillie and the Predators, where he accurately described the consensus on the stunningly huge bid as "a swashbuckling gesture by an old collegiate sportsman." Cosh himself characterizes this as questionable; I agree, and then some.

Ballpark at least, I'm certain that Balsillie believes it to be a good investment at that price (subject to his relocation plans). I'll concede gladly that there might be an "I really want it!" premium included; there's also clearly a "No Hassles" premium in there to bolster his relocation plans. (I'd offer the analogy of a buyer adding $15k to an offer on a house in exchange for the current owners leaving in 15 days instead of 60, and throwing in the window coverings. It's not really "worth" $15k, but the buyer wants to get it done, move in, and not have to jack around with buying and installing new blinds.)

Even without knowing the exact magnitude of those "premiums" -- or understanding what considerations are included in the bid re: lease breakage, legal fees & penalties, etc. -- it would seem that Jim Balsillie is bidding over $200M for an NHL franchise with no real history, to move it to a market that, while rabid for hockey, has no arena.

In other words, there's no real mystery why Darryl Katz' bids for the Oilers (now up to $175M) have, in Cosh's phrase, "been greeted with stony silence". The Oilers have some Stanley Cups (5 is it?); Top 10 revenues; the legend of Gretzky and the Boys on the Bus; a recent playoff run that reinforced (with a sledgehammer) that love and demand for everything Oily is massive beyond quantifying; and an arena that, while not state-of-the-art, is jammed full every game and perfectly amenable until the day that the political climate is suitable for extracting much $$ from the taxpayers for a new one.

Katz is simply not offering near enough money. I have to laugh when Cal Nichols grunts that "we have no interest in selling". Ri-ight... is there an alternate universe where he could say, "We'd consider selling, but the club is worth A LOT more than what's being offered!"? Cause he'll never say it in this one.

There's one other notable element of the Cosh piece that goes to the main part of this post: the references to Craig Leopold's decision making ("..the second-best bid now apparently being preferred out of sheer pique by Predators owner Craig Leipold." and "Even after deliberately turning down the high bid for his asset,.."). What explains this decision to forsake $40-$50M? I doubt it's pique. A massive cash payment from MLSE for ridding them of a potential headache? I doubt that either. Personal affection for Mr Bettman, or Mr. Boots? Nah. It has to be the "No Hassles" premium, upside-down. He had to have been put under serious duress by Bettman: the league wasn't going to approve the sale, so he could either reject Balsillie's bid outright, or plan on spending months or years, and millions of dollars, in court. He "voluntarily" chose the former. Think the owners of the Thrashers and Panthers envied the position Bettman put Leopold in? Me neither, and as such I doubt it'll happen that way again.

Cripes, I need an editor.


Nice analysis about the CBA. If Balsillie played this differently, he might have been able to move the team where he wanted to.

Being aggressive in technology markets sometimes does not equate with other business ventures.

Here is Daryl Katz in a written announcement showing his feelings on a possibility of owning the Oilers and other developments he has in the works

Daryl Katz comments on offer to purchase the Edmonton Oilers


In general terms, Bettman works for the owners. How much do Bettman's goals differ from those of the owners?

I can see Gary's goals not being met, and indeed, being hindered by a move back to a traditional NHL market. There would be marginal, if any, additional TV money for the league. It is one less US TV market that the league is in. There are no new fans being created for hockey. As far as "growing the game", moving a team back to Canada does nothing. And I think that is why Gary has opposed this deal; going so far as to put the Board of Governors under a gag order on this issue.

My question is, if this deal is in the best interests of the Predators as well as a large majority of other teams, (as I believe it is) how long do the Board of Governors wait until they override Bettman's position?

Do the players, a "partner" in the new NHL, get any input on this issue?

Have there been any statements from Jeremy Jacobs (new head of the Board Of Governors) in the past about his views on relocation?

Tom Hicks is the vice-Chair of the Board Of Governors and owner of the Stars. Earlier this year his franchise was highly critical of the Predators organization when they didn't recognize one of Mike Modano's milestones when it occurred in Nashville. The lashing out included complaints about the amount of revenue sharing the Predators had received. Allowing this move would seem to solve that sort of a revenue sharing issue, at least as far as the Predators organization goes. I wonder what Mr. Hicks' views on this relocation are, and what sort of leverage he has as vice-chair?

It seems that there are many agendas all exposed by this issue.

If my word count hadn't been so high already, I would have expanded on this issue:

The interests of Gary Bettman and the owners are not exactly aligned right now. Much more than any owner, Bettman was the face of the lockout and the "30 healthy viable franchises" sell-job behind it. The fact that the Predators are basically no longer viable in Nashville is to his shame more than any owner, and furthermore, when a franchise is sold and relocated, *he's* not receiving millions of dollars to ease the embarrassment. He would much, much rather see expansion than relocation.

The problem is that, even with huge expansion fees and the fact that the owners don't have to "share" that money with the players, that money is a pittance compared to the added resale value that owners gain by removing hurdles to relocation (or more generally, just having the ability to dispose of their own property as they best see fit).

[($200M expansion fee x 2)/30teams] = $13.3M. That's nice "free money", except when you compare it to what Leopold is forsaking to sell to "approved" (local) buyers. And while this exact calculation applies only to the handful of teams that would/might be more valuable in a different market, the principle extends somewhat to all of them.

You gonna let Gary Bettman undercut the value of your investment by micro-regulating what you can do with it, or who you can sell it to? Surely you didn't lose a year of hockey to gain a CBA that greatly increases the value of your franchise, only to have the Commissioner not permit you to monetize that increased value?

My three cents.

I'd love to be a fly on the wall of the next BOG meeting.

Why doesn't Katz pick off the smaller members of the EIG one at a time? Then he eventually gains control, probably at less than majority of ownership, and can then squeeze out who's left.

I have to laugh when Cal Nichols grunts that "we have no interest in selling". Ri-ight

I think Nichols is sincere in his lack of desire to sell. Where he is off-base is in speaking for the others. The beauty of Katz's new offer is that it is going to the entire group. He obviously feels that Nichols isn't in the majority in terms of refusing to sell.

Have there been any statements from Jeremy Jacobs (new head of the Board Of Governors) in the past about his views on relocation?

Wait. They made Jacobs the chairman of the Board of Governors? What?

Wait. They made Jacobs the chairman of the Board of Governors? What?

Really? Maybe I only noticed because I was surprised by the choice of Jacobs.

June 20, 2007

The NHL's board of governors has elected Boston Bruins owner Jeremy Jacobs as its new chairman.

The board also elected Tom Hicks of the Dallas Stars to the position of vice-chair at its meeting ahead of this weekend's draft.


Editor's note No. 1: Craig Leipold is not related to Jordan Leopold and should not have his name spelt as such.

Nice post otherwise.

Brilliant, Matt.

BEIJING, Nov. 19, according to Xinhua Taiwan's "Today" reported that Chen Shui-bian's four-day fasting guard for medical treatment, including the Oriental Hospital and the Panchiao to spend a wow power leveling total of nearly 20,000 yuan (NT, the same below) medical wow powerleveling expenses, as His health insurance card to stay in Taipei Detention Center, must first serve their own expense, the medical expenses from his detention in custody of the gold deduction, but Chen Shui-bian's custody, only 16,000 yuan deposit, the deduction is not enough, said the detention center, not wow gold part of the Will be asked to make up for the families or lawyers.

Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?