by PuckStopsHere on 01/22/12 at 04:36 PM ET
Every few months it seems that a new NHL team runs into financial difficulties. This is a problem of a slow economy and of the fact that there do not seem to be 30 markets capable of supporting an NHL level payroll team in North America. The latest team to run into financial difficulties is the New Jersey Devils.
Jeff Vanderbeek, the Devils majority owner, is in financial trouble largely because he made his fortune as an executive vice president of Lehman Brothers, the investment firm that failed in 2008 as part of the financial crisis. This was a bad time for Vanderbeek, who had heavily invested in the new Devils stadium in Newark known as the Prudential Center which opened in 2007. This already placed him heavily in debt.
Since then, Vanderbeek has increasingly run up debt while running the Devils. Despite this he has been willing to invest in a longterm Ilya Kovalchuk contract worth $100 million over 15 years.
Vanderbeek has been unsuccessfully trying to buy out minority partner Ray Chambers, who wants out of this sinking ship. Forbes has listed the Devils as the most in debt team with their debt equal to 115% of the team value. This gives the Devils more than $250 million in debt on the team and the arena. Vanderbeek has been unable to make payments on the interest and bankruptcy looms as a realistic option.
The last ditch attempt to save the team is for the Devils to get the equivalent of a payday loan. They will sell the money that they will be making on their TV deal which runs until 2023/24. Essentially they give up all the rights to TV money in the future for a lump sum payment from the MSG Network, where their games are shown. In the future, the Devils will have to survive with $0 from television revenue for years. That is a tough situation.
Perhaps the hope is that a new CBA will lower the player’s share of revenue and a lower salary floor will allow the Devils to survive as a longterm uncompetitive bottom feeding team. This is a poor situation that the NHL should not allow to exist.
New Jersey is a viable NHL market. They have won the Stanley Cup three times. They have largely succeeded by being part of the New York metropolitan area. As a result they can have large revenue streams from merchandising, advertising and television. The Devils have never been among the NHL attendance leaders, but they have had higher than average ticket prices. If a new owner can be found and a solution to the debt problems, which come from poor ownership, this franchise can be very successful.
Poor ownership has crippled the New Jersey Devils and out of desperation they may be crippled longterm. This is a viable hockey market that has been misrun. A significant part of the problem has been the blowup of Lehman Brothers, which limited Jeffrey Vanderbeek’s financial ability, but this has been misrun. Adding the Ilya Kovalchuk contract when the debt was mounting is not an intelligent move. On a short-term basis, Zach Parise is an unrestricted free agent this summer. There is little hope that the New Jersey Devils can re-sign him. Likely this makes Parise available in a trade deadline deal. Likely this also means that the Devils will fall from playoff contention in the future unless structural changes to the ownership can be made soon.
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