Wednesday, August 01, 2007

So much for staying local
Predators stay for now; Boots buys in

The Nashville Predators aren't going anywhere.

Owner Craig Leipold signed a letter of intent Wednesday to sell the team to a local group of investors trying to keep the NHL franchise from leaving town.

The group of eight partners plan to pay $193 million (all figures U.S.), according to Leipold. One of the partners, David Freeman, chief executive officer of 36 Venture Capital LLC, has put down a $10-million deposit to make sure the deal is completed.

The only partner from outside the Nashville area is William (Boots) Del Biaggio, a California venture capitalist who is a part-owner of the San Jose Sharks.
Well... isn't this interesting.

Del Biaggio still buys in, and the price is reportedly in the same range as he was prepared to purchase the entire team. Given the difficulties involved in potentially breaking the team's lease, he's only in partway.

It's an arrangement that allows him to, potentially anyway, still get his team to Kansas City if Nashville can't hit their ticket targets, but where there's a backup plan given local investors will eat some of the losses if the team does, indeed, stay in Tennessee long term.

For all of those Predators fans who rallied to keep the team, this is definitely a victory, and I'm glad to see that they'll get their second chance. If the team is well-supported and can generate enough revenue to compete, here's hoping they'll be around for a long, long time. I have little doubt the on-ice product is once again going to be strong, especially given all of the young talent there, ready to step up.

But make no mistake: With Boots still in the picture, this team remains far from safe. The Predators are going to need to start breaking even, and soon, in order to stay in Nashville.
  • As an aside, the wire article quoted above notes that Del Biaggio will give up his minority stake in the San Jose Sharks as part of completing this deal.

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22 Comments:

At 4:39 PM, August 01, 2007, Blogger BlackCapricorn said...

"But make no mistake: With Boots still in the picture, this team remains far from safe. The Predators are going to need to start breaking even, and soon, in order to stay in Nashville."

EXACTLY James. How many of these individuals and companies that have been cobbled together will want to stay in the game if they continue to lose money at the rate the previous owner did over the last 2 years with a top-notch team. Boots will be able to snatch up the investor's stakes as they fall by the wayside. Very smart.

Still don't think KC is a good NHL home.

 
At 5:18 PM, August 01, 2007, Anonymous Baroque said...

I recall something in the Toronto Globe and Mail (I think yesterday?) about the ownership group trying to negotiate an annual $5 million from the city to try to keep the club's financial head above water.

Not a good sign, methinks, if the team can't be profitable and successful with revenue-sharing dollars AND more money from the city of Nashville. And I wonder what the non-hockey fans think about their money going to the Predators? Five million isn't a lot, but it is almost never the amount of the money but the recipient that riles folks up.

 
At 5:39 PM, August 01, 2007, Blogger Paul Nicholson said...

The city of Nashville has never and will never actually pay any money to the Predators to keep them above water. There were some rumors that they may try to renegotiate their lease with the city and the arena to sweeten the deal, but i can garuntee you that there is no way May Purcell or whoever is about to succeed him will make cash payments.

The Predators lots money in the past few years because the previous owner went for bust - and busted. Not that i didn't appreciate his efforts as a Predators fan. But he spent more money than the franchise could support in salary (without winning a cup).

These owners will be more conservative, spending near the floor. Poile and the prospect system we have in place are some of the best, and i think the teams will still be entertaining and competitive, if not favorites every year.

The team won't be making huge profits, but they wont be losing money hand over fist the way they were.

They also stated during the press conference (and post-conference interviews on the radio in Nashville with the new owner) that Boots is a minority owner, and there are no stipulations currently in any agreements for him to buy a larger portion of the team at any time.

Not that that couldn't change...

More details here.

 
At 5:44 PM, August 01, 2007, Blogger itchit said...

Who will be first to find the missing S30 million pay-off to Leipold from the Leaf's MLSE bank vaults? Stay tuned...

 
At 5:55 PM, August 01, 2007, Anonymous Eric L said...

With Boots still in the picture, this team remains far from safe.

You just couldn't resist trying to put a negative spin on this, could you, James?

 
At 6:06 PM, August 01, 2007, Anonymous Gerald Carpenter said...

James, it occurs to me that the Del Biaggio/KC/AEG connection is entirely overblown and that there has been a lack of appreciation for what it really is/was.

Del Biaggio is not some guy that has a burning desire to put a team in KC above all other goals (as opposed, perhaps to JB and Canada). He is a guy who wants to own and control an NHL team. In order to do so, he needs someone to provide him with a free arena with an excellent arena deal. KC, and AEG as the operator of their arena, presented him with that opportunity. To me, that appears to be all there is to it from Del biaggio's POV.

With Nashville, he has that same opportunity. Unless he holds the view that KC is substantially a better market than Nashville (a difficult proposition, at best), despite a lot of the early years out of the wy in Nashville, he would have no reason to move to KC. He has what he needs already.

The other possibility as to why he might move would be if he has a REALLY sweet deal available to him in KC, but given the very beneficial lease in Nashville, that would be hard to beat.

I think people have gotten too wrapped up in the Boots/KC connection and not given enough thought to why that relationship existed from Boots' POV. It is to get a free arena for whatever team he might own. In Nashville he already would have that.

 
At 6:10 PM, August 01, 2007, Blogger James Mirtle said...

He has an agreement with AEG to provide a team for the Kansas City market. That's his relationship to the NHL, not as some sort of would-be benevolent owner that wants a bigger stake in the league.

I addressed a lot of this here.

 
At 6:11 PM, August 01, 2007, Anonymous Frank said...

James, we need to make sure we are comparing "apples to apples" in the prices offerred by Balsillie and the local group.

From the press reports it would appear Balsillie bid $220 for the franchise plus an extra $18 million for the estimated net working capital and tax losses/credits available to the franchise at the estimated closing date - or $238 in total.

It would appear that the local group bid $175 million for the franchise plus an extra $18 million for the net working capital and tax losses/credits for a total of $193 million.

Therefore the proper comparisons are $175 million vs. $220 million or $193 million vs. $238 million. Either way the local bid is $45 million less than the Balsillie bid.

The numbers from the local group are almost identical to those "Boots" originally bid for the team. Therefore, I believe the local group is simply a "cover" being used by "Boots" and Bettman to disguise the fact that "Boots" is really buying the team to move it to KC in a year or two.

I'm sure the partnership agreement allows "Boots" to buy out the local partners in a year's time at a "nice premium" over their original investment. This will be their reward for participating in this sham.

So don't get all excited Nashville fans. The team will be gone in a year or two.

 
At 6:16 PM, August 01, 2007, Blogger James Mirtle said...

James, we need to make sure we are comparing "apples to apples" in the prices offered by Balsillie and the local group.

I don't mention the Balsillie bid or the figures involved.

 
At 6:27 PM, August 01, 2007, Anonymous Anonymous said...

Paul, I'm sure you're a nice guy, but a team that spends near the floor will not be a contender, though being in the league's toilet division will help foster the illusion that the Predators aren't as craptastic as they ought to be given the talent exodus. Teams that suck ought to struggle at the gate. Teams that do well should sell out. Contenders that have to rely on massive giveaways to hit 80% occupancy are a lame horse and should be taken out back and shot.

 
At 6:35 PM, August 01, 2007, Anonymous Anonymous said...

Kiss your team goodbye Nashville. You have one more year and then they are on their way. My guess, and I've seen this play out in Vancouver and Montreal with the Grizzlies and Expos, is that the Preds will raise ticket prices, do little to no marketing, and set certain financial benchmarks that are literally impossible to achieve. They will then blame the market and promptly move the team to Kansas City claiming "they gave it their best shot now it's time to move on". Let's face it. There is no way that Boots gets involved if he doesn't have assurances from the group that this team is moving to KC at the first sign of financial trouble. The worst part is that the Preds are going to field a terrible team which means the best marketing tool - a good team - will not be available to them. KC will likely not be any better but they will probably have some success at the outset so the owners can make a little money and then find another sucker to unload the team.

The Nashville Predators have just become the red-headed step child of the NHL.

 
At 7:07 PM, August 01, 2007, Anonymous Gerald said...

He has an agreement with AEG to provide a team for the Kansas City market. That's his relationship to the NHL, not as some sort of would-be benevolent owner that wants a bigger stake in the league.

James, you appear to have fanned on the puck in regards to my point.

My point is that one must consider WHY he had an agreement with AEG. If one believes that he has a burnign desire to own a team in KC, then I guess you can take the view like Frank did above. IF you take the view that he was with KC because they had an arena already built (which he did not need to finance - a huge nut to cover, by the way) and were prepared to give him a good deal, then his links with KC can be dissolved as other opportunities present themselves. I feel pretty confident in assserting for a relatively thinly capitalized guy like Boots, the arena is the thing - not the place.

TO clarify, my point has nothing to do with benevolence. It has everything to do with money, and avoiding the capital expenditure of building an arena, and getting a good arena deal.

I hope that clarifies the point I was trying to make.

 
At 7:17 PM, August 01, 2007, Anonymous Gerald said...

the Preds will raise ticket prices,

The Predators raised ticket prices this past year, and paid attendance actually increased. I guess that strategy would not necessarily work.

do little to no marketing, and set certain financial benchmarks that are literally impossible to achieve.

I have talked about this on James' blog before. In short, it would render it very easy for the City to successfully apply to the courts to prevent the team from relying on the attendance clause to leave. Section 1-304 of the uniform Commercial Code would make it a virtual layup for the City. It reads as follows:

"Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement."

[Disclaimer: I am not called to the bar in the US. As such, this does not constitute legal advice. However, I have done many a transaction in the US, and am familiar with many facets of US commercial law, particularly those parts which are similiar to that of Ontario. Accordingly, assign whatever value to this you deem appropriate.]

 
At 7:17 PM, August 01, 2007, Anonymous Lyle Richardson said...

I drew the same conclusions (though not as detailed as yours, James) regarding Boots' presence as a minority owner on my blog.

Looks like ol' Boots is keeping a poker in the fire here.

 
At 7:18 PM, August 01, 2007, Anonymous Frank said...

To Paul Nicholson:
Paul your thesis that the reason Nashville lost money is because it spent too much on payroll - and that if it spends at the "floor" level it can make money - is totally false.

Here are the payroll numbers for Nashville:
98/99 - $13.6 miilion
99/00 - $16.6 million
00/01 - $19.6 million
01/02 - $22.0 million
02/03 - $23.3 million
03/04 - $23.2 million
Lockout - Salary Cap
05/06 - $31.7 m (vs. $23 m floor)
06/07 - $39.9 m (vs. $28 m floor)
Estimates:
07/08 - $34.3 m (vs. $34.3 m floor)

For the first six years of the franchise, salary costs averaged only $19.7 million a year, and even at that the franchise was losing money.

In the last two years Nashville spent $20.6 million more than the salary cap floor. However, Leopold says that he has lost over $70 million since owning the franchise. So had he spent at the salary cap floor and saved the $20.6 million, he would still have lost $50 million over the eight operating years of the franchise.

So lets assume Nashville cuts back to the floor of $34.3 million this coming year. The $5 million saving will only offset the revenue sharing money Nashville will lose in the next year once its entitlement reaches the limit.

Then what are you going to do the year after when the salary cap and floor rises by another $5 million to $39.3 million, and then another $5 million the year after that to $44 million and so on.

Its ironic that Leopold - who was such a big supporter of Bettman and the salary cap - is actually one of the small market owners who is getting "screwed" by the salary cap floor.

No Paul, Nashville doesn't have a cost problem - it has a revenue problem. Unless it increases attendance, ticket prices, corporate support, advertising revenue and comes up with a substantial regional television contract, it cannot be viable in Garry Bettman's new salary cap NHL.

 
At 7:18 PM, August 01, 2007, Blogger James Mirtle said...

But I think Del Biaggio has made it pretty clear (again, via the link I provided) that his interest lies in acting as an agent on behalf of AEG. That's where the real money would come in, as Anschutz has apparently promised him a significant cut of whatever revenues they can squeeze out of Missouri.

I can't see the Nashville situation intriguing any right-thinking businessman as a moneymaker right now; your whole premise is way off in left field (with your pal Tom Benjamin).

 
At 7:33 PM, August 01, 2007, Blogger The Forechecker said...

One aspect on the business side that totally gets ignored is the arena management outside of hockey. There is supposedly a great deal of improvement to be made there (the new ownership group apparently plans to swap out the management), as well as opportunity since a competing outdoor venue (Starwood) shut down.

Also, there is tremendous growth going on residentially and business-wise in Nashville that the Predators should greatly benefit from.

 
At 7:40 PM, August 01, 2007, Anonymous Frank said...

James, I apologize. When I referred to comparing "apples to apples" I was refering to the Associated Press "linked" article which compared the $193 million to the $220 million. I should have made that clear.

 
At 8:19 PM, August 01, 2007, Anonymous Anonymous said...

With all the losses and expansion fee it was still a 30M profit in the end.
That's not too bad in a lousy hockey city, eh?
Much bigger return with RIM offer but even I could live with this 30M return. For a while.

 
At 9:16 PM, August 01, 2007, Anonymous Gerald said...

(with your pal Tom Benjamin)

{Falls off chair ...}

 
At 1:19 AM, August 02, 2007, Anonymous Anonymous said...

Once again, though, its been made pretty plain that Balsillie could have easily finessed this deal like Del Biaggio has apparantly done. JB probably could have even done it MORE quietly than Del Biaggio and had his team in Ontario in a few years, but Balsillie managed to screw it up. I'm really wondering about his suppossed competence: he IS rich, right? Thats really HIS money? I don't know how many more times Bettman is going to have to kick this guy in the eggs before he figures out how things work.

 
At 3:05 PM, August 02, 2007, Blogger Darrell said...

Balsille has an extra hurdle, getting approval to move the team to Hamilton. It is one thing to want to move the team to some US market that isn't close to any other team, and another thing to move it right next to the richest team in the league.

 

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