The billionaire's new game plan

 

Canadian billionaire Jim Balsillie, whose fervent desire to bring another NHL team to Canada has made him the scourge of league officials, is expected to make his third attempt in less than two years to purchase an NHL franchise.

 
 
 
 

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Canadian billionaire Jim Balsillie, whose fervent desire to bring another NHL team to Canada has made him the scourge of league officials, is expected to make his third attempt in less than two years to purchase an NHL franchise.

Sources say Mr. Balsillie, the 47-year-old co-founder of Reseach in Motion and lifelong hockey fanatic, is considering the final terms of an offer to acquire a 27% minority stake in the Nashville Predators, whose backer filed for bankruptcy last June.

The details and price have mostly been negotiated for the bid, which now rests with Mr. Balsillie to determine whether he wants to go ahead with the risky venture for the team, which has an estimated book value of US$30-million. If he proceeds, sources say a final offer is to be filed for approval with the U. S. Bankruptcy Court in the Northern District of California within a few weeks.

This will be Mr. Balsillie's third attempt to purchase a franchise, and his second effort to go after the Predators, but with this latest bid, the businessman appears to be changing tactics --and it just might work.

By seeking to purchase a minority stake in an NHL team rather than outright control, he may be demonstrating a willingness to be a team player.

Mr. Balsillie would not comment, but sources say he desperately wants membership in the exclusive sports league and may be willing to play by the NHL's rules, rather than challenge them outright.

It is a dramatic turnaround for the tenacious Canadian businessman with a reputation among some league officials, and particularly league commissioner Gary Bettman, as a one-issue maverick bent on bolstering the Canadian portion of the league.

"I think his way of doing business is in stark contrast to what the board of governors is all about. It flies in the face of what Bettman is trying to do," observes Wayne McDonnell Jr., a clinical assistant professor of Sports Management at New York University.

What hasn't changed is Mr. Balsillie's desire to repatriate a team to Canada. That's why the 27% minority stake is key. If this bid is successful, Mr. Balsillie would become an alternate governor for the team and would be eligible to attend meetings of the NHL's board of governors. The rookie owner could then try to force the Canadian relocation onto the agenda from the table, rather than taking shots from the sidelines.

The NHL is closely monitoring the machinations in the California bankruptcy court and is well aware of Mr. Balsillie's latest move.

"He's certainly free to pursue that interest and we'll play the normal role in approving or considering any new owner," William Daly, NHL deputy commissioner, told the National Post in a recent interview.

"I don't know what's in his mind and I don't know Jim well enough to speculate," Mr. Daly responded when asked about Mr. Balsillie's latest gambit. "Who knows what his motivations are and what he's trying to do and not trying to do."

A fiercely passionate hockey fan, who grew up near Peterborough cheering for the Montreal Canadiens, Mr. Balsillie is an intensely focused businessman worth an estimated $1.97-billion.

The co-chief executive of Research in Motion Ltd. has named the Waterloo, Ont.-based company's boardrooms and conference rooms after retired hockey legends Gordie Howe, Maurice Richard, Frank Mahovlich, Bobby Hull, Guy Lafleur, Bobby Orr and Wayne Gretzky.

"I'm going to get my name on the [Stanley] Cup one way or another," he said when he offered to buy the Pittsburgh Penguins in October, 2006, for US$175-million from a consortium led by NHL all-star Mario Lemieux. "What Canadian boy wouldn't do it [buy an NHL team] if he could?"

That dream ended bitterly two months later when he withdrew his offer after a dispute over two dozen conditions imposed by the league, including a seven-year prohibition from relocating the team.

Five months later, however, all seemed forgiven. By May, 2007, Mr. Balsillie was in Mr. Bettman's Manhattan office wielding a letter of intent in which he agreed to pay a whopping US$220-million for the Nashville Predators, an ailing U. S. Sunbelt team that Forbes business magazine had valued at half the price.

The NHL commissioner marvelled at the Canadian hockey fan with the deep pockets willing to dole out a princely sum for an ailing franchise in a bid that would raise the market value of the league's other 29 franchises.

That was until Mr. Balsillie began talking publicly about moving the Predators out of Nashville, and relocating the team to Hamilton, Ont. To punctuate the point, he initiated a ticket campaign that attracted more than 10,000 paid season-ticket holders, easily trumping the number of seat holders in Nashville.

Mr. Bettman and his associates at NHL's head office seethed, worried that the public musings about relocation and the ticket drive further destabilized the fragile franchise in Nashville, where the league insisted on keeping the team.

After months of backroom manoeuvring, Mr. Balsillie wound up empty-handed. His lucrative bid for the Predators was snubbed last year in favour of a community-based group that had tabled an offer US$27-million lower than his.

Hockey fans and pundits in Canada cried foul, claiming the NHL and Mr. Bettman stacked the pads against Mr. Balsillie. Worse for the league, its most loyal customers denounced the NHL as anti-Canadian.

Publicly, league officials dismissed the allegations, while privately they decried Mr. Balsillie as a rich rogue player who defies all the rules.

"What I can say is from our owners' perception that there is a concern that there is a refusal to abide by the proper processes to become an owner in the league," Mr. Daly said of Mr. Balsillie's past attempts at purchasing NHL franchises.

Sources say Mr. Balsillie understands that his chances at restoring his reputation improve significantly as a member of the club rather than an outsider. The Canadian businessman had attempted to buy the 27% preferred equity stake in the Predators before its financier filed for bankruptcy, but the NHL was lukewarm on the idea. William "Boots" Del Biaggio, the financier for the Tennessee-based franchise, filed for bankruptcy last June amid allegations of fraud, and his minority interest in the NHL club has been part of a liquidation process under the supervision of a court-appointed trustee.

Since then, officials for Mr. Balsillie have travelled to California to meet with the bankruptcy trustee to hammer out details and garner support from the creditors' committee.

The minority stake would make Mr. Balsillie the second-largest owner of the Nashville Predators, giving him a number of contractual rights that would allow him to buy out his co-partners' shares after two years if the team sustains cumulative losses of US$20-million or if it fails to maintain average attendances levels at 14,000 a game or more.

Conversely, Mr. Balsillie could "put" his shares to David Freeman and the rest of the local Nashville-based group of investors -- Predators Holdings LLC--forcing them to buy him out after two years if the team successfully meets its financial criteria. In other words, Mr. Balsillie could keep his options open and even wait for the opportunity to buy another team as a majority owner.

Still, even if he is successful in court, Mr. Balsillie needs the blessing of NHL commissioner Mr. Bettman, and the league's 30 governors, which endorse any changes in the ownership of clubs.

Despite the turbulent history, some NHL officials may be ready to forgive the deep-pocketed Canadian businessman, especially with a souring U. S. economy, Prof. McDonnell says.

"Some owners will bite their tongues even though they don't like certain people," he said, "because they believe those people can bring cachet and asset value to the league."

Mr. Bettman's game plan is to grow hockey in the United States in non-traditional markets where college football and basketball attract most of the disposable income earmarked for sports.

Since the 56-year-old lawyer from Queens, N. Y., assumed the helm in February, 1993, the NHL has expanded by six teams and all but one (Ottawa) has been located in U. S. cities, most of them in the south.

Mr. Bettman's mandate has also seen two labour disputes that resulted in lockouts, including the cancellation of the entire 2004-05 season.

His march to expand the league's footprint across the United States and away from traditional hockey markets, as well as relocating the NHL's head office to New York from Montreal, has garnered him criticism in Canada.

"It's embarrassing for him when he gets booed by the fans -- they aren't remembering other things he's done for the game," says Prof. McDonnell, who worked as a financial analyst and accountant at Madison Square Garden in New York.

He may be unpopular with the fans, but Mr. Bettman's iron grip over the league is a sign that most of the 30 team owners and the league's board of governors, who appointed him to modernize the league and expand its markets, appear content with his track record.

Under his tutelage, hockey has grown from a business worth hundreds of millions into an estimated US$4-billion-a-year industry. (Compare that with US$6.5-billion for Major League Baseball and US$7-billion collected annually by the National Football League.)

The six Canadian teams -- Toronto Maple Leafs, Montreal Canadiens, Ottawa Senators, Calgary Flames, Edmonton Oilers and Vancouver Canucks --generate just more than 30% of the NHL's net revenues. That figure is buttressed by a national broadcast contract --estimated at just under US$150-million -- the league signed with the Canadian Broadcasting Corp. to broadcast the Canadian teams nationally.

Compare that with the estimated US$80-million broadcast deal the NHL has signed in the United States with Versus, a cable network with limited branding and reach, to broadcast the 24 U. S. teams. In both cases, the broadcast revenues are shared by all 30 NHL clubs.

"God bless the Canadians. The fact that they love hockey so much is great for us, and great for our business," concedes Mr. Daly.

Still, the NHL's deputy chairman, who negotiates the broadcast contracts, maintains that the lucrative Canadian national rights are "not necessarily attributable" to the Canadian clubs.

"It's a reflection of the popularity of the NHL, not the six Canadian clubs. They aren't the ones generating the estimate of TV revenues, it's the National Hockey League that is generating those revenues," he explains. "We look at them as league deals."

None of the six Canadian NHL teams are currently receiving funds as part of the league-wide revenue-sharing assistance program, due in large part because of the stronger loonie.

The NHL's revenue-sharing pool is comprised of money collected from the top 10 revenue generating clubs and distributed to the league's most financially challenged teams.

The 12 clubs currently receiving assistance are U. S.-based teams, most of them located in Sunbelt states.

At least half of those teams -- Atlanta, Phoenix and Nashville -- are struggling financially, despite repeated denials by NHL head office.

Court documents filed in October by the Nashville owners suggest otherwise. Predators Holdings LLC, the partnership group that owns the club, petitioned the California bankruptcy court for damages of up to US$100-million, as a result of Mr. Del Biaggio's bankruptcy without factoring in the effects of a deteriorating U. S. economy.

The group claims the fair market value of the team, which was purchased for US$193-million in December, 2007, has been reduced by 15% -- or US$27-million -- since Mr. Del Biaggio filed for bankruptcy protection. As well, the team calculates an estimated loss of between US$5-million to US$10-million annually --as much as US$50-million in lost revenue--as a result of diminished sponsorships, ticket sales and other revenue streams.

Still, Mr. Daly told the Post the NHL is not concerned about the Predators' financial health, because "there is no apparent stress in terms of [the current owners]meeting their financial obligations to the club."

Some league officials are privately incredulous over the NHL's sanguine view of the slumping economic conditions and are expected to express concern about worsening debt levels of some of the teams at the board of governors meeting next month.

Prof. McDonnell says the NHL's senior brass recognizes there are weak markets but is desperately trying to manage them. "I think Bettman's thought process on this is if he were to relocate a franchise it would be an admission of failure," he explains.

More importantly, he says the NHL commissioner is determined to avoid setting a precedent by allowing one team to move because others in similar financial straits will want to do the same.

"I am a firm believer that at least one of these struggling U. S. teams should be relocated to Canada," Prof. McDonnell says. "I think the NHL recognizes there are fragile markets but are concerned about setting a trend that they probably can't control in the long term."

At the same time, Mr. Bettman wants to avoid a potential showdown with the NHL's most valuable franchise -- the Toronto Maple Leafs, worth US$448-million according to Forbes--and the Buffalo Sabres. The league's constitution grants territorial rights to the 30 teams, outlining "each member shall have exclusive territorial rights in the city in which it is located and within 50 miles of that city's corporate limits," known as the club's "home territory."

Teams also have exclusive control over its "home territory," and each club can prohibit hockey games from being played on its turf without their consent. In other words, existing hockey teams have the right to veto relocation of other clubs within an 80-kilometre radius of their own market.

Confusing matters further is a league bylaw that prohibits relocations, although Mr. Bettman has said a majority vote by the governors could give a team the right to move into another club's turf. But another clause in the NHL constitution says such a move would require a unanimous vote by all the teams.

Thus, Mr. Balsillie's desire to relocate a team to Canada could force the NHL to confront the sensitive issue of enforcing territorial rights.

Rather than risk a messy, internecine battle, the league head office sticks to its mantra of no expansion, no relocation and no contraction.

"We have 30 teams in 30 markets and we're not looking to expand," says Mr. Daly when asked why the NHL has not studied whether Southern Ontario could support another franchise.

"We're hoping to avoid any need to relocate a franchise and we want to make our franchises as healthy as they can where they are."

After 15 years at the helm of the NHL, Mr. Bettman is protecting his legacy, observes Prof. McDonnell, and "if clubs start relocating, it reflects badly on the teams, its owners, the league and head office and raises questions about Bettman's leadership."

Against this backdrop, Mr. Balsillie is winding up to take another shot.

 
 
 
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