Balsillie to buy the Predators
Earlier this past week, Craig Leipold announced that he signed a letter of intent to sell his team, the Nashville Predators, to Jim Balsillie. Leopold has owned the team since it was introduced to Nashville nine seasons ago. Balsillie is believed to want to move the team to his hometown area, Kitchener-Waterloo in Ontario. He is co-CEO of Research in Motion, which created the Blackberry. Balsillie grew up watching and playing hockey and still plays competitively today. The sale has not been finalized yet as it has to be approved by the league, but it is believed that this sale will go through.
It’s interesting to me that the sale would be for $220 million, which is $86 million greater than the $134 million value projected by Forbes earlier this year.
The Nashville Predators are one of the most subsidized teams in hockey. The city of Nashville covers any operating deficits at Gaylord Entertainment Center while the Predators, who operate the arena, keep most of the revenue (the city also paid for $25 million of the team’s $80 million expansion fee). Also, the NHL gave the team about $10 million from the league’s revenue-sharing pool last season. To his credit, Predators owner Craig Leipold used most of the proceeds to boost his team’s payroll by signing free agents Jason Arnott and J.P. Dumont.
By overpaying for a team that’s losing money left and right, why would he want to keep the team in Nashville?
Balsillie almost purchased the Pittsburgh Penguins this year, but had to drop out when when the league was going to make it hard for him to move the team.
Balsillie’s $175 million deal to buy the Penguins unravelled when commissioner Gary Bettman attached a list of conditions to the sale, including, it is believed, one that he not move the club until every possible avenue was exhausted.
That condition likely wouldn’t be needed this time, given Leipold’s many failed efforts at wooing the local corporate community. While the NHL doesn’t want teams moved, Nashville hasn’t shown that it will support the Predators long term.
How could Balsillie move the team from Nashville?
Well, there is an exit clause in the Predators’ contract with the arena lease that if the team does not average 14,000 fans or greater, the Preds can leave Nashville after the 2007-2008 season. The city can choose to pay the team and make up for attendance if it is short of the 14,000. This year, the Preds average 13,800 fans so they aren’t that far off. But will some fans return this year if they know the team could leave the following season?
“I think he’s going to give it a chance,” said Craig Leipold, who agreed to sell the team for $220 million. “He’s going to be required to give it a chance. The NHL would not permit him just to pick up this team and move it without the NHL believing he did what he could to make it work here.”
Even if the Predators choose to exercise an exit clause in their contract with Metro next month, the team could still be held to its lease here — either by paid attendance averaging 14,000 next season or if Metro makes up the revenue difference if the team falls short of 14,000. Under either of those scenarios, the Predators would stay in Nashville.
The business community also could increase its support of the team, making the Predators profitable and improving their chances of staying in Nashville. …
The Predators came close to the 14,000 mark last season, averaging over 13,800 fans in paid attendance.
“If the fans support the team and (improve to) a 14,000 paid attendance level, we’ll have hockey here for a long time,” Leipold said. “That’s not that hard to do. Twenty of the 30 franchises are over 14,000. The average of the league is 15,500. That threshold is pretty low.”
If I was Balsillie and I wanted to move my team as soon as possible to my hometown, I would not invest much in the Nashville team. The franchise has a lot of players who are UFAs this year and you may see the team reducing its payroll in order to cut costs. If Nashville already struggles to draw in fans with a top team, how do you think attendance would be with a mediocre roster? I certainly would not want to be a Nashville fan right about now. It has to suck.
What do I, as a Wings’ fan, think of this move?
I love it. If the Preds are moved to Kitchener, the team would now be the closest one in the Central Division to the Detroit Red Wings. I went to my first Wings’ road game last year in Chicago and loved it. I plan on going to a couple road games next year (potentially Columbus and an East Coast team) with a friend. I know I wouldn’t be able to go to a Predators’ road game because I have classes and it’s too far by car. A closer city in Kitchener would definitely be better.
Here’s the time it takes to get to the other Central teams by car according to MapQuest:
Detroit to Kitchener, ONT = 3 hours, 18 minutes
Detroit to Columbus, OH = 3 hours, 24 minutes
Detroit to Chicago, IL = 4 hours, 28 minutes
Detroit to St. Louis, MO = 8 hours, 38 minutes
Detroit to Nashville, TN = 8 hours, 36 minutes
Kitchener is less than 100km away from Toronto. The Maple Leafs recently announced that they will be raising ticket prices by 5% this year. The team hasn’t won the Cup in 40 years, yet continues to sell out. Demand for tickets is so great that the team can afford to raise ticket prices despite failing to make the playoffs this season.
This area of Canada is so completely hockey crazy that they are willing to pay these high-ticket prices. I think adding another NHL team to compete with Toronto’s market would be great for the area. I have no doubt the team would sell out and be successful. Plus, you may see the Maple Leafs’ ticket prices level off when a competitive team appears nearby.
I do feel bad for Predators’ fans who’ve devoted a lot of time and money towards a team that will most likely move away. There are slightly less than 14,000 fans who regularly attend every game and they are the ones who will obviously lose in this sale. It has to be frustrating to them to watch a great hockey team consistently struggle in ticket sales despite being only one of two professional sports teams in the city. The other team is the Tennessee Titans (NFL).
An editorial by in The City Paper believes this sale will hurt the city of Nashville in terms of perception as a big league city:
Once the Predators’ troubles became widely known, it was incumbent on Metro government’s economic development infrastructure, Purcell’s office and business leadership in this city to help preserve Nashville’s good name by stepping in to help the team. The forces that drive this city should have realized that Nashville’s national reputation as well as a major catalyst for tourism and commerce downtown was in danger.
It would appear that realization was not made.
There are no solutions to be offered that might cure Nashville or the Predators’ woes in this situation. It is likely Nashville is about to lose one of its two major professional sports teams. City leaders in government and business need to take a long hard look in the mirror. For all of the talk about Nashville’s forward progress, this is likely a huge step back.
Unfortunately, corporations just aren’t supporting the Predators to the extent that they need to remain a economically viable franchise. When the franchise was first introduced to Nashville in 1998-1999, the team had 8,500 corporate season tickets. This past season? Less than 3,000. The corporate support definitely suffered when the Titans arrived in the Predators’ second season. Due to the NFL’s popularity in America, there tends to be a bigger draw to football games than hockey.
Why is Leipold selling the team?
According to a statement made by Leiopold in an email to Predators’ season ticket holders, the team has been losing lots of money for quite some time. Over the past ten years (nine seasons), the franchise has lost $70 million. In the last two seasons alone, the team has lost $27 million in real cash (not sure what that means).
While individual fan support has always been strong, we’ve worked aggressively to increase our local business support since Season Four. We’ve tried a variety of approaches with minimal success. Our records show today that corporate support for the Nashville Predators makes up about 35% of our season ticket base. The average in other markets is around 60%. During our first two years, approximately 4,000 businesses owned season tickets. Today, only 1,800 businesses have season tickets.
Leipold tried to make it work here in Nashville. His team provided a good product on the ice and an affordable product on top of that. Plus, the Preds only had one other professional sports team to compete against in their market. Unfortunately, the team was losing money hand over fist despite receiving the most money from the NHL’s revenue sharing program.
Leipold also pointed out that the losses came despite the Preds having garnered more in NHL revenue sharing dollars than any other team in the league and that over the last five seasons (all of them somewhere between reasonably successful and outstanding on the ice) the franchise lost a combined $60 million. In that time, no one has stepped up to buy an always-for-sale minority interest in the team (the losses therefore all going to Leipold). In addition, the corporate community, the bulk of which rolled over and panted like Pavlovian dogs when the National Football League relocated the pirated Houston franchise there, never embraced the team or moved in any meaningful way to help sell the sport there.
As a result, the franchise had a lower than NHL average attendance despite having a better-than-average team and a lower-than-average ticket prices. Couple that with a lack of community and media support and it was a ticket to fiscal disaster.
Most chilling to other U.S. and even some small Canadian markets is Leipold’s contention that he couldn’t make money even under the NHL’s new collective bargaining agreement. He was kind in the way he stated it, but it will still echo as a withering blast to the agreement he helped forge via a season-long lockout in 2004-05.
That column then goes to talk about other small to mid-market NHL teams and their struggles financially when the league’s salary cap is rising and they aren’t receiving much from the national TV deal. It definitely makes you worry about the future of some of the teams in this league.
If Nashville can’t float, who can?
When looking at the mid-markets for NHL teams, one would think Nashville would have the best shot at making it. Why?
1) The Predators receive the most money out of any NHL team from the revenue sharing program. The franchise received $14 million after the 2005-2006 season. Even with this income, the organization is still losing money hand over fist. They lost $15 million during this past season.
And in 2008-09, the Predators must average 14,000 in paid attendance or they will miss out on 50 percent of the money available to them from the NHL’s revenue sharing plan. The Predators received more than $10 million in revenue sharing from the NHL at the end of the 2005-06 season, invaluable capital to a team unable to sell more than 13,000 tickets in a gate driven sports league.
2) The city of Nashville worked very hard to bring an NHL team to the city and continues to be very generous in that regard. Leipold had to pay the NHL $80 million to pay for a new league franchise. The city paid $25 million of the total cost. As if that wasn’t enough, the city absorbs any operating losses that result from the arena.
3) Leipold wanted to see his team succeed and has made going to games affordable. His average ticket price is $40.78 according to the Team Marketing Report with the league average at $43.13. They spent $50 million to market their team, but still can’t get 14,000 people to every game.
4) The salary cap looks like it will only continue to rise. That will make it even harder for teams already financially struggling to continue to compete, as they may have to restrict their payroll due to economic restraints. The Wings are very fortunate to be in a great hockey city with an owner who is willing to spend a lot to win. Unfortunately, not all owners can do that and many run a team like they would any other business and you definitely don’t want to lose $15 million in one year.
The outcome of Nashville’s situation certainly doesn’t bode well for other teams in non-traditional markets.
Reactions from the Blogosphere
Dave @ Gorilla Crouch offers up his own opinion on the potential sale:
So there goes the best “rival†in the Central Division. Craig Leopold, owner of the Nashville Predators, announced that he is selling his franchise to Jim Balsillie. Balsillie, you may recall, was the guy who was the front-runner to buy the Pittsburgh Penguins but eventually pulled his offer, probably due to pressure from the league to keep the team in Pittsburgh. Balsillie was expected to move the franchise to Ontario.
So the thing to pay attention to is whether the league courts Balsillie or tries to find a potential owner who would keep the team in Nashville. I suspect this is a deal that has already received the league’s blessing -otherwise why would Balsillie even make the offer so soon after being rebuffed by the league? It wouldn’t surprise me in the slightest if the league told him to bow out of the Pittsburgh bidding and that he would get another franchise in fairly short order. It has been no secret that the Predators have struggled to gain support and that Leopold could have pulled the team out of the city as soon as the 2008-09 season if certain benchmarks weren’t reached.
Moving the franchise to Ontario makes perfect sense. For those who aren’t familiar with the geographic makeup of the province it is likely the biggest hotbed of hockey in North America. Within the province you have Toronto and Ottawa. But just beyond its borders you also have Detroit, Buffalo and - perhaps a stretch - Minneapolis. Legendary coach Herb Brooks said that Minnesotans think of themselves as southern Manitobans. But Manitoba doesn’t have any current NHL teams. Toronto is obviously the Notre Dame of the NHL - and they’ve had about as much playoff success lately. It is the media epicenter of the NHL. Ottawa, meanwhile, has been a very successful franchise over the past decade and has a chance to claim their first Stanley Cup since being reconstituted in the nation’s capital.
Well, I’m back at the helm after a few days at a conference in Las Vegas, but don’t even know where to begin. Obviously I need to recap my picks from the conference finals (both duds) and look ahead to the Stanley Cup Finals, but when I flipped the radio on during my drive to work and heard about the impending sale of the Nashville Predators to Jim Balsillie, well, that was quite a kick in the nuts. This guy has no intention of keeping the team in Nashville, and money to burn through buyout fees or costly lawsuits to get his way.
This just underscores how disappointing the Preds first-round playoff exit was. A couple more home games, and they would have surpassed the 14,000 average paid attendance mark, and kept the lease buyout option off the table. Now, we’re left with a deathwatch as a new owner takes the reins, undoubtedly makes some personnel changes that leave a diminished product on the ice, and loads up the moving trucks next summer for whatever market he can claim north of the border. Regardless of what the Canadian experts say, the hockey fan base is significant and growing here in Middle Tennessee, and today marks the beginning of a long, sad struggle. I was excited when I moved here 1.5 years ago to come back to a city with an NHL team, and I’m not at all happy about the prospect of losing that so quickly.
Let’s just say that it’s all smiles north of the border today.
Balsillie’s essentially acting out every Canadian’s boyhood dream with this buy, grabbing his very own professional hockey franchise and trying to transplant it into his backyard, whether that be Kitchener, Hamilton or the parking lot of his BlackBerries ‘R’ Us compound. And while the resident hockey fans in this part of the world have grown accustomed to their lot in life, namely being punted around by American television interests and the like, it’s always a good thing when the Maple Leaf strikes back. …
This is, I realize, heartbreaking business for the few mustard-blooded Nashville hockey enthusiasts who helped prop up the team — and I know they exist because there was always an earful in the comments section every time the market was dumped on here. But while the city is not the weakest home to an NHL club, it’s in the running for the title, and an owner who had been railing against the losses was surely a telling sign.
But the honest truth is that the league should never have ventured there in the first place, lest the franchise’s inevitable failure break the hearts of those who grew attached to what has become a pretty stellar team on the ice. Those pockets of fandom are now likely to atrophy into bitterness toward a ragtag league and its commissioner of false promises — not to mention the Canadian billionaire who stole their team away.
Just don’t expect any sympathy from the puck-rabid masses to the north, where they’ve seen their fair share of heartbreaking hockey exits.
As Paul McCann said, this throws everything into question. Could be awesome. Or he could immediately exercise the out clause the Predators have with the city (which honestly Leipold would have been dumb not to do himself) and start the wheels for the team to move. He has many times in the past expressed a desire to have another team in north, even another in the Toronto area (which could easily support an additional team).
FYI: the deadline for the team to notify the city of its intent to exercise the attendance-based out clause in their contract is June 19th (60 days after the end of the season). Even if they do exercise that clause, the city can always buy the extra tickets and prevent the move. The team would have to stay here. And honestly, given the sweet deal with the city that the team has, they would REALLY have to have a lot of money to throw away to move the team…which I guess Balsillie does…
On the other hand, this could be the boost the team needed. A Canadian (read: long-time, hardcore) hockey fan takes over the team to make it a quality product on the ice (which it has been) and off the ice (not so much lately). We could get new coaches after all (though he’d have to fire them since Leipold just resigned them) and he could invest major money in major players, which Leipold did some, but these pockets go much deeper.
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4 Responses to “Balsillie to buy the Predators”
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May 28th, 2007 at 3:31 am
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May 28th, 2007 at 1:40 pm
You should be careful what you wish for. If the Preds move to Kitchener or Hamilton, they will be moving east of Detroit, Columbus, and Atlanta. The NHL has been trying to find a way to get Atlanta into the West without having to move Detroit east, and you can bet there’d be realignment if the Preds move east. There go our biggest rivals. Hello, Ilya Kovalchuk!
And in the meantime, Balsillie is likely to slash payroll and cause the Preds to tank to ensure he can move the team. Do you really want the Wings’ 8 most entertaining games to become more of the StL/Columbus/Chicago-type wimpfest? (To say nothing of further cries of what a weak division the Central is from everyone else in the West).
May 28th, 2007 at 9:37 pm
It is ironic that one of the owners most responsible for the lockout, and the salary cap, is now leaving the league due to massive losses. Nothing could save this franchise. It is not a hockey market. It is football country and not just the Titans. The Vols spring practice gets more coverage than the Preds. The Lady Vols basketball team gets more media coverage. Those are the sports the fans follow. I have no problem with that whatsover. Leipold participated in ruining the NHL, consistently voted for the current ridiculous schedule, and was one of the most active owners resisting the Wings desire to move to the East. He also was in the forefront of moving the NHL away from it’s past and diminishing existing rivalies, especially the Original Six rivalries, in favor of “creating” new ones, in particular a Preds/Wing rivalry. Even with all of this he was unable to survive, even while receiving the biggest handout from revenue sharing. Yes, he put a product on the ice that was respectable, but he did it by lessening the product everywhere else and breaking up the elite teams. I feel sorry for Preds fans who will lose their franchise, but they were doomed from the beginning. I feel much more sorry for those fans in Winnepeg and Quebec, who had their franchises hijacked years ago.
May 28th, 2007 at 11:01 pm
Pete- Thanks for the comment & welcome to the Wings’ blogosphere! You definitely bring up a valid point about the realignment. I didn’t think about that and I do want the Wings in the Eastern Conference. Yes, I like having at least one decent team in our division, but who knows if Balsillie will actually try to tank the team.
Doomsberry- Nice to see you on BTJ! Now that you mention it he was one of the owners really pushing the new schedule and CBA. It’ll be nice to be rid of him and his obnoxious votes (at least from Detroit fans’ perspectives).