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Putting The NHL Back In The ‘Peg

Note from Paul: I wanted to bring this post by George back to the front page. George posted this last Friday around 6pm, just about the time KK readership drops for the weekend. Very well written and I did not want it to get lost, never to be read again... By George Malik: As soon Jim Balsillie got involved in the bidding for the Pittsburgh Penguins, it was assumed that the CEO of the Blackberry-producing RIM corporation would attempt to move the team to Hamilton, ON. Balsillie was part of an earlier group of Hamilton-based investors who approached the NHL directly about moving the Penguins to Steeltown, but the league's desire to keep the Pens in Pittsburgh--provided that the franchise receives a new arena--nixed those plans. But Balsillie's purchase of the Penguins sparked renewed the hopes of those who believe the Maple Leafs Ontario monopoly must end.

Al Muir cut to the chase:

Still, when the new owner is based in Kitchener-Waterloo, a white-collar bedroom community of about 365,000, located an hour’s drive from Toronto and millions of hockey fans, you can’t rule out a move to southwestern Ontario for all the usual reasons. Balsillie didn’t get the money to purchase the team by picking a lucky scratch-off ticket. He’s a smart guy who knows where the dough is and isn’t. And unless that arena deal is finalized quickly, and to his benefit, it ain’t in Pittsburgh.
The math is simple: The top ticket price that the market will bear in the Steel City: $90 on the glass. The same seat in Hogtown—not that you can actually buy one—is about $335.
No one’s suggesting that a brand-new team could stroll into southwestern Ontario and charge that amount. Loyalty and tradition create the demand that fuels sky-high ticket prices. But when you compare the entertainment value of the products side-by-side, which one would you rather spend your money on: Alexander Steen and Kyle Wellwood and 40 years of futility or Sidney Crosby, Evgeni Malkin and a club that looks on the verge of dynasty?

Eric Duhatschek believes that another NHL team wouldn’t adversely affect the Maple Leaf Monopoly:

A second team in the metropolitan Toronto area would galvanize all the Leaf haters into one faction and presumably, put them squarely behind the new team, in the same way the New York Mets came along at the start of the 1960s to give New York baseball fans an alternative to the Yankees.
If anything, the presence of a second team in Toronto would only enhance the franchise — by adding one more natural geographic rival — and if they ever met in the playoffs, it would represent great drama, a Gardiner Expressway series between the downtown Leafs and the Mississauga-based newcomers.

There’s one small problem here: The economic giant that is Maple Leaf Sports and Entertainment, as well as their biggest investor—the Ontario Teachers’ Pension Fund—have as much interest in competing for dollars as OPEC does in sharing their oil wells. 
So, in the unlikely event that the Penguins were to move, where would they go?  Kansas City?  Las Vegas?  Houston?  Seattle? 
How about Winnipeg?
Winnipeg has a rich hockey history.  Hockey was well-established in Manitoba before the turn of the century.  The Winnipeg Victorias won the Stanley Cup in 1896, Winnipeg Falcons won Canada’s first Olympic gold medal in 1920; the University of Manitoba Bisons have been playing for 85 years; Winnipeg’s junior and professional hockey leagues have produced Hall-of-Famers like Bill Mosienko and Terry Sawchuk; Winnipeg was the home of the Canadian Nationals; and the Jets, established as a WHA team in 1971, won the Avco Cup three times in seven years. 
And the fans are as hockey-mad as could be.  In the Jets’ 25-year history, the successes of 18-year NHL tenure were middling at best, but the old Winnipeg Arena was packed to the rafters almost every night, and fans from Saskatoon in the West to Kenora in the East, and from Iqaluit down to Fargo and the Minneapolis suburbs bled blue, red, and white, spending thousands of hockey dollars on guys named Hawerchuk, Steen, Selanne, and Essensa.  It wasn’t about the star power in Winnipeg—it was about the fact that they were Jets.
In the end, however, when the NHL got too big and too expensive, all that passion and economic might couldn’t keep the Jets in Manitoba.
The Winnipeg Jets moved to Arizona in 1996 despite the efforts of hundreds of thousands of Manitobans, who repeatedly gathered in massive rallies that rivaled Winnipeg’s WWII demonstrations, and raised almost $20 million in corporate and private funds.
Ordinary Winnipeggers emptied their piggybanks and bank accounts to raise the $110 million they needed to buy the Jets, and they tried to sway the Manitoba Legislature to spend another $110 million on a new rink.  But the value of the Canadian dollar was plummeting down to 70 cents, and, over the next four years, down to 62 cents on the American dollar. 
With Canada’s economy in a tailspin, and NHL salaries rising into the $30 million range, Winnipeg had to say goodbye to their NHL team.
Manitoba’s sporting pride was ripped from the Winnipeg’s heart.  25 years after the Jets were able to outspend the NHL to snag Bobby Hull from Chicago, the city could no longer afford an NHL team that lost money despite stellar ticket sales.
The city moved on as best it could: the AHL’s Manitoba Moose gave Winnipeggers their hockey fix in the Arena until it was demolished last March, and the 15,000-seat MTS Centre has given the city a downtown rink to be proud of.  The CFL’s Blue Bombers have become the sports show in town, and the Moose are very good, but…
It’s not the same.  Fans politely clap after goals, and the lower bowl fills up, but the passion the Jets generated has been replaced by tepid enthusiasm.  The city and province feel palpably different; whether you’re walking down Portage downtown, or you’re talking hockey while visiting relatives in Beausejour, the “big city pride” that the Jets gave Winnipeg and Manitoba is conspicuously absent. 
The whole province is, in its own polite, Western Canadian way, in dire need of a reminder that Winnipeg hasn’t been left behind as the Albertan economy’s ballooned as the Canadian dollar’s rebounded, and as a town that’s lost so much, from its status as the world’s biggest railway hub to the collapse of its farming-based economy. 
Bringing a team back to Winnipeg would restore the fervor of a hockey market that very literally put its money where its mouth was a decade a go, and an NHL team would give Manitoba and Saskatchewan something to cheer about, it would provide geographic rivalries for not only the Oilers, Flames, and Canucks, but also the Wild, Blackhawks, Blues, and even the Red Wings, and in the “new media” era, the hype generated by another Canadian team would give the NHL an even bigger slice of the sports dollars spent by Canadian fans and upper Midwesterners alike.
There’s just one problem: Winnipeg and its assorted burbs have a population of just over 700,000.  That’s as small as a small market gets.  Even with a salary cap, revenue sharing, and a strong Canadian dollar, an NHL team that needed to make a profit to survive wouldn’t break even in a league where Buffalo, Carolina, and Edmonton didn’t break even until the Conference Finals. 
Then again, the sports world is changing, even in big cities like Detroit:

Mike Ilitch says this is the first season the Detroit Tigers have earned a profit since he bought the team in 1992, but don’t feel too sorry for the billionaire, economists say.
The Detroit business mogul, who paid an estimated $80 million to $85 million for the team, has built a formidable franchise that’s now worth $352 million thanks to this year’s winning season, based on an analysis by Anderson Economic Group in Lansing. Forbes magazine pegged the worth of the Tigers at $292 million after the 2005 season.
“Back in the day when a person owned a baseball team to get profits mainly from the team—that’s disappeared from the face of the planet,” said Rod Fort, a sports economist at Washington State University and co-author of “Hard Ball: The Abuse of Power in Pro Team Sports.”
Ilitch is working as many angles as possible. As operator of the stadium, Ilitch Holdings gets the revenue from ticket sales, concession stands, the advertising within the park and the lucrative corporate suites. He also owns many of the parking lots that surround Comerica Park, including the Foxtown parking garage.
Add to that the Foxtown Theatre complex across Woodward Avenue that houses the Da Edoardo Foxtown Grille, Johnny Rockets restaurant and the corporate headquarters for his Little Caesars Enterprises pizza chain, valued at $1.5 billion two years ago, as well as Hockeytown Cafe next to the Fox.
“Virtually all owners of baseball teams have other businesses that they’re involved in; transferring profits from one company to another, taking money out of one pocket and putting it into the other pocket,” said Andrew Zimbalist, a sports economist at Smith College, whose latest book on the subject is “The Bottom Line: Observations and Arguments on the Sports Business.”

The same economic theory applies to the NHL.  Unless you’re operating in a market like Toronto, Boston, Montreal, New York, Dallas, Vancouver, or Detroit, where you’ve got a gigantic population, a profitable TV market, and a demand for tickets that allows you to sell them at a premium price, gate receipts won’t offset operating costs. 
But a team that is tied to a cap system, where costs at least theoretically have a ceiling, increase exponentially in value.  The crux of the lockout wasn’t about profit or loss; it was about franchise equity.  As your franchise increases in value, you can cash in on the perceived bank value of your team by opening side businesses.  Econonmic experts say that the NHL’s franchises will make their real money as legal and sports consulting firms, and even as financial consultants, offering loans for capital investments, backed by the team’s equitable value.
There’s no way that True North Sports and Entertainment, the company that owns the MTS Centre, could go it alone.  But Winnipeg is the home the CanWest Global chain of newspapers, IGM Financial, Great-West Life Assurance…
And Winnipeg’s film industry is absolutely huge.
Did you like “My Big Fat Greek Wedding?”  “Capote?”  “K-19: The Widowmaker?”  “Resident Evil?”  Or “X 2?”  All of those films were shot at least partially in Winnipeg.  If a film production company were to allign with an NHL team, a moderate investment would yield an influx of visitors, another filming location for concerts, shows, and sporting events, and the not-so-insubstantial prestige that goes with owning a pro sports team.
Winnipeg makes sense economically for the NHL, and a team would be greeted with 15,000-seat “whiteouts” in a town where hockey’s been an integral part of the city and province for over 100 years. 
It just needs a business partner that would make the hockey team itself economically viable, because gate receipts are no longer the currency of hockey. 
It’s all about intangibles and equity now, and in this day and age, making inroads into the Prairie Provinces makes a lot more sense than trying to pry open the fingers of the gigantic blue-and-white fist that won’t let go of its grip on Ontario’s hockey dollars.

Filed in: NHL Talk, George James Malik, | KK Hockey | Permalink


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Paul Kukla founded Kukla’s Korner in 2005 and the site has since become the must-read site on the ‘net for all the latest happenings around the NHL.

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