Coming from America: Why the Maple Leafs Will Sooner or Later Have Neighbours

Coming Soon to This Corner - NHL Hockey?

James Mirtle’s work following the Phoenix Coyotes bankruptcy matter as it has unfolded has made for a fascinating read.  If you ignore for a moment the fact that this corporate soap opera is a passion play wreaking havoc with the emotions of fellow hockey fans – fans  who are loyal, hardy and dedicated enough to (in the middle of a desert, mind you) root for a perenially underachieving and brutally mismanaged team that has so often been an unwanted afterthought for its own owners – it’s been an entertaining diversion, and a way to fill the days in an off-season locally short on summer weather.   At some point in the next few days Judge Redfield T. Baum will deliver a ruling as to whether Jim Balsillie’s company, PSE, is a bidder qualified to participate in the upcoming auction of the team.  Many other consequences will flow from that ruling for the Coyotes and their fans;  depending upon the identity of the successful bidder, a greater or lesser likelihood that the team will leave town.  Whatever the result, appeals and further litigation remain a distinct possibility.  For the Coyotes, all that is presently certain is that there will be uncertainty surrounding the future of the team.

Regardless of Mr. Balsillie’s status upon delivery of that ruling, however – whether he’s declared a qualified bidder or not -Balsillie’s desert offensive is likely to have far-reaching implications for fans of NHL hockey in southern Ontario.  Specifically, it now seems very probable that at some point, someone will bring another NHL team to southern Ontario.  If and when that happens, fans settling into their seats before the faceoff will have Balsillie and his attorneys to thank for it.

Balsillie’s choice to force his showdown with the NHL into the public arena via the courts has, for the NHL and the Toronto Maple Leafs in particular, opened a kind of Pandora’s Box.  As a result of the public nature of this dispute, we now know the following things about the business of hockey in southern Ontario:

• There is potful of money to be earned by anyone who puts an NHL franchise in Hamilton.  Through Dr. Andrew Zimbalist’s declaration on the relocation fee issue, we learned that PSE was estimating (in its pro formas) first-year revenues for the Hamilton club at almost $73 million dollars – in relative terms, more than 12 other NHL clubs, and “within five million dollars” of another four (see Zimbalist’s declaration, paragraph 12).  According to Zimbalist’s declaration, PSE believes that revenues would increase by a little more than 9 per cent annually in each of the first four years, as renovations to Copps Coliseum are completed and the capacity of the building to earn some bank for its corporate masters is suitably tricked out. Common sense tells us that Balsillie’s expert analysis, advanced in a situation in which (by relocating into a market) he may well be required to compensate the league for the theoretical value of a lost expansion opportunity, would have a tendency to quantify the value of that lost opportunity somewhat conservatively.  Seventy-three million bones coming in the door starting in year one is likely to get the attention of sports-minded capitalists everywhere.
• Did I mention that there is a potful of money to be earned by anyone who puts an NHL franchise in Hamilton?  The NHL responded to Zimbalist’s declaration with two reports of its own:  The first estimated the value of a team in Hamilton as between $261.8 million and $279.8 million.   The second estimated the value of a team in Hamilton as approximately $315 million. By comparison, the same reports suggest the value of a team in Phoenix somewhere in the range of $120 million to $176 million dollars.
• The Toronto Maple Leafs don’t have a “veto” that would allow them to prevent another team from moving into the area.  The commonly accepted wisdom is that the Leafs have been the driving force behind the league’s historical refusal to place a team in Hamilton.  In view of the almost papal level of secrecy surrounding NHL Board of Governors meetings, it is difficult to know the truth of the matter on that issue, but it does seem clear that – at least as recently as 2006 – the Leafs have behaved as though they do have a veto over such a relocation.  Forced into the courts by the Coyotes bankruptcy, however, and facing certain immutable facts of life in terms of the applicable antitrust law, the NHL sees the writing on the wall and cannot espouse the untenable position that one of its member clubs could unilaterally prevent the relocation of another into its home territory.   Backed into a corner in the courts, the NHL has had no alternative but to publicly align itself with the “no Leaf veto” theory.   Whatever the secret and private reality of the arrangement between the Leafs and the NHL in the past on the issue of the veto,  the league has now been forced to publicly espouse the view that relocation of a member club into the territory of another may be approved by a majority vote of the Board.
• We also know that quite apart from the Coyotes, there are already a number of other NHL franchises in failing financial health.

So let me do the math for you:  quite a few NHL teams are losing money in their current market.   The market in southern Ontario has been identified as undoubtedly superior to many such existing markets.  It seems likely that a team relocating to that market would quickly become one of the more valuable properties in the league.

And all it takes is a majority vote of the Board to get you there.

It’s one thing for the NHL to clandestinely or surreptitiously enforce a Maple Leafs veto by denying entry into the league for someone wishing to avail themselves of the Hamilton opportunity (perhaps by rejecting the prospective owner on the grounds of his purported lack of “character” or “integrity”;  such a thing might easily be accomplished when the votes are taken behind closed doors by folks who are already members of the fraternity.  It’s quite another for the league to be able to preserve unanimity on this issue in perpetuity among its existing members.  Sooner or later, one of the have not franchises – already admitted into the league, present for the discussion and votes on all league issues, able to avoid any backroom chicanery – will seize the southern Ontario opportunity for itself.

How long will it be before a club wanting to seize such an opportunity would have the votes necessary to achieve the result?  Teams struggling in their own markets and receiving financial assistance from their richer brethren might want to see one of their fellow have nots stop taking funds from the revenue sharing pool – and likely start paying a substantial amount into the fund instead.