Saturday, October 24, 2009

NHL Loonie for Hockey in Quebec City or Winnipeg?

NHL Loonie for Hockey in Quebec City or Winnipeg?

By Evan Weiner

October 19, 2009

5:00 PM (ADT)

(Saint John, New Brunswick) – Saint John, New Brunswick is not anyone’s idea of the first stop of any major league sports tour, but walking through the downtown area of Saint John gives you a quick idea why it is possible that Canada is once again high on the list of possible destinations for financially failing NHL teams. A Saint John’s visitor does see an alarmingly high number of empty storefronts while walking through the downtown but a visitor armed with American dollars and ready to buy items gives you a quick answer as to why the National Hockey League is at least entertaining thoughts of putting franchises in either Winnipeg or Quebec City again.

The Canadian dollar is nearly on par with the American dollar for the first time in two years. That is not necessarily good news for Canadian companies hoping for American investors because the US dollar is worth on the other side of the 49th parallel has evaporated nor is it good news for businesses along with US-Canadian border as Canadians shop in American stores as American prices for items are cheaper. Eventually that can hurt Canadians as fewer US dollars flow into the country. Canadians have a major balancing act always. But the fact is that the loonie is getting stronger while the greenback has weakened.

All of this is good news for the six existing NHL franchises along with the National Basketball Association’s Toronto Raptors and the Toronto Blue Jays of Major League Baseball. Every time the Canadian dollar goes up against the American dollar, the franchises have more disposable income. The inverse holds true while the loonie backs off. The strengthening loonie is also helpful to Major League Soccer’s Toronto team and probably is good for the National Football League’s Seattle Seahawks, Detroit Lions and the Buffalo Bills as those border three teams draw from the British Columbia and Ontario parts of their markets. It also helps Mike Ilitch’s Detroit Tigers baseball team and his NHL Red Wings.

The road back to Winnipeg or Quebec City in the NHL, Vancouver in the NBA and Montreal in Major League Baseball will be long and there is no guarantee that the loonie will maintain it’s present value. The NHL left Winnipeg and Quebec City when the loonie was heading to a low of 62 cents back in the late 1990s.

The situation in Quebec City has not changed much since Marcel Aubut sold his Quebec Nordiques to Charlie Lyons and Ascent back in 1995. Aubut was looking for a publicly backed new Quebec City arena and was told no by both Quebec City and the province of Quebec. Lyons moved the team to Denver. Recently Quebec City’ Mayor Regis Labeaume talked with NHL Commissioner Gary Bettman about his plans to build a new, taxpayers funded arena. Labeaume figures it will cost $400 million (Cn) to construct the building with $175 million coming from Canada, $175 million from the province and $50 million from Quebec City coffers.

There is no doubt that Quebec City has passionate fans but the financially the NHL of 2009-10 differs from the final days of the Nordiques franchise. Ticket prices have skyrocketed along with player’s salaries. There also might be some English-speaking Canadian players who might refuse to play in the French-speaking city as well although only player, Eric Lindros back in 1991, flat out turned his back in the city. Quebec City had a long history of having fine non-French players who wanted to play there including the Statsny Brothers and Joe Sakic.

The founder of the Kontinental Hockey League and the CEO of Russia’s Gazprom, Alexander Medvedev, suggested last spring that he thought Quebec City would be a great hockey market.

But the market still lacks an arena and there is no suggestion that either the city or the province is ready to spend hundreds of millions of loonies on a building and then give 85 or 90 percent of the revenues generated in the building to the owner of a hockey team. Arena costs have risen from the $70 million dollar (US) range in the late 1980s to the more than a billion dollars (US) for places like the new Yankee Stadium in New York, the new Dallas Cowboys stadium in Arlington, Texas and the new New Jersey football stadium in the Meadowlands. It was far cheaper to build in 1995.

If the province or city doesn’t come up with loonies, then a prospective owner will have to put up cash in the building process and will have to pass along building costs to the fans or customers and it would have to be customers because ticket prices for regular seats and for the higher end items like luxury boxes and club seats will be astronomical.

Quebec City hockey proponents need to only look south of the border to New York where Major League Baseball’s New York Yankees and New York Mets had trouble filling up the high end tickets and where the National Football League’s New York Giants and New York Jets are having problems getting people to reach into their pockets to pony up thousands of dollars for personal seat licenses for the right to own a seat and then buying a ticket for that seat.

No matter how rabid an area’s fan base might be, the harsh realty is that fans don’t have the wherewithal to spend a small fortune to attend a game. National Basketball Association Commissioner David Stern claims that the NBA might sell more tickets in 2009-10 but that owners’ revenues will be down because they are discounting tickets.

Stern though is also positioning the owners in the upcoming collective bargaining talks with the players. The present owners-players agreement ends in 2011.

Quebec City remains a small market with limited corporate and TV money although that could change depending on the definition of the marketplace. If Quebec becomes a provincial team, perhaps a local cable TV entity will offer New York or Toronto like prices for rights fees. A $250 million contract over 10 years would certainly make a Quebec City franchise more viable. The roughly six million people in the Province of Quebec (along with nearby New Brunswick) is certainly large enough to handle an NHL team if the franchise can position itself as the province’s team but there is another factor here that will present a significant obstacle, Quebec already has a provincial team -- the Montreal Canadiens.

Will the Molsons, the Canadiens owners, want to see another team in Quebec City? Thirty years ago, the NHL rejected overtures from World Hockey Association members Quebec City, Edmonton, Winnipeg and Hartford to join the league. Hockey fans in the three Canadian cities threatened a boycott and would not purchase Molson beer if Quebec City, Edmonton and Winnipeg were denied NHL entry.

Eventually the four WHA teams entered the league for the 1979-80 season after some NHL owners relented and took WHA owners money to enter the league. But throughout the years there have been suggestions that the NHL never shed any tears when Quebec City, Winnipeg and Hartford departed although Bettman did work feverishly with Edmonton officials and businesses to prevent the franchise from moving to Houston in 1998.

Bettman, who gets bad reviews from what appears to be very provincially minded Canadian sportswriters for various reasons that don’t always seem to stem from his policies, has been in the forefront of preserving Canadian franchises in Edmonton and Ottawa. Bettman’s lobbying efforts did get Alberta officials to throw some money into Edmonton and Calgary’s coffers from the province’s hockey lottery and Bettman worked the Ottawa business community along with Ontario leaders to make sure the Senators remained in the Canadian capital after the team’s financial problems in the 1990s surfaced and through the team’s bankruptcy in 2003.

The NHL does have a Canadian commitment despite the writings of Canadian scribes although those writers seemed to suffer from memory loss during this year’s Phoenix Coyotes saga when Jim Balsillie attempted to buy the team and move the franchise to Hamilton, Ontario. Bettman showed the same tenacity in the Phoenix situation as he did in Edmonton and Pittsburgh and in Buffalo after the both the Sabres ownership declared bankruptcy in 2003 and in New Jersey in 1995 to keep the franchises in their home cities.

The Winnipeg situation has changed somewhat since Barry Shenkerow sold his Winnipeg Jets to Richard Burke and Steven Gluckstern in 1996. The team moved to Phoenix that fall. Shenkerow was looking for a municipally funded arena with all the gadgets that were state of the art in 1995 including luxury boxes and club seats. He never got the building but there is a new structure in Winnipeg today that probably would be considered state of the art. The problem with Winnipeg in 1995 remains the same today; there is a limited population, which means a limited cable TV market and limited corporate support. In other words despite a high interest from a local fan base, there are too few people to make it worthwhile. A potential owner would have to get virtually every penny spent in the new arena and have a cable TV operator willing to spent New York or Toronto money for TV that would include the entire province of Manitoba along with western Ontario and Saskatchewan and possibly make the games available in northern Minnesota and North Dakota to make it worthwhile.

In both cases, Quebec City and Winnipeg, the local market may be hockey fertile but is it financially fertile? That is why the teams left in the first place. Aubut decried the 1995 Collective Bargaining Agreement and predicted his Quebec Nordiques would not survive because he could not compete financially with the terms of that agreement. Despite the 2004-05 NHL lockout and the implementation of a salary cap, the business of the NHL remains very expensive.

Two years ago when the Canadian dollar overtook the US dollar in value, NBA Commissioner David Stern lamented that there was no interest parties in British Columbia who wanted any information on the finances of an NBA team. Vancouver was an NBA failure between 1995-2001 because the owner of the Vancouver Canucks Arthur Griffiths got into financial trouble by spending his own money to build an arena and then bought an NBA franchise for about $140 million Canadian. Eventually Griffiths sold the NBA Grizzlies to Michael Heisley who was so desperate to own an NBA team that he accepted Griffiths lease in the building which gave him virtually no luxury suite, club seat or concessions money. Heisley move his team to Memphis where it has struggled financially since day one in the new city.

There seems to be no interest in returning a team to Vancouver but if the loonie remains hot, there might be someone who might want to kick the tires in Vancouver.

There is no information suggesting that Major League Baseball wants to return to Montreal or that Montreal city officials want MLB back. Montreal Expos owner Jeffrey Loria was unable to build a stadium in the city in the early 1990s and ended up owning the Florida Marlins in a swap of franchises that saw MLB take over the Expos and Marlins owner John Henry end up with the Boston Red Sox. The deal was 10-strike for Henry’s portfolio, some much so that wife is now buying up property near the Garden in Boston as the family continues to gobble up properties near Fenway Park and now the Garden and Loria is getting a ballpark at the old Orange Bowl site in Miami. Montreal had changed throughout the years since MLB expanded there in 1968 but the end of the Loria years, no English-speaking Montreal radio station even bothered to bid for the team’s play-by-play rights.

The best area in good or bad economic times for an NHL team is probably the Kitchener-Waterloo area, which is just outside Toronto’s territorial rights. Hamilton lacks a suitable arena. If any Major League sport returns to Canada, it will be the NHL with the NFL keeping a close on Toronto.

The NFL-Toronto situation is difficult because of the presence of the Canadian Football League in the city. The Toronto Argonauts used to be a big deal in the city which had just one big league sport franchise---the Maple Leafs—but that was before 1977 when the American League put a baseball team in the city. Toronto is big league in every sense of the way and the CFL isn’t but the CFL is uniquely Canadian and in 1974, Parliament wanted to protect the league by imposing laws making it very difficult for any American football entity to operate in the country.

Buffalo Bills owner Ralph Wilson is selling one home game a year to Toronto sports operators through 2012. Wilson, who is 90 years old, has a deal with New York to keep his Bills playing in Orchard Park through the 2012 season. Wilson has been regionalizing the team in the past few years in order to broaden his fan/customer/corporate base and part of his market is the Niagara Frontier of Ontario. Toronto would probably be a strong NFL franchise even though 12-man football is played in Ontario high schools and there are no football factories in Canadian colleges. Still, Toronto offers a football owner something that no other non-NFL city can – Bay Street – the financial capital of Canada. Toronto has corporate dollars that Buffalo (and Jacksonville) does not have. Toronto and Los Angeles are the best football markets available in North America and neither has a team.

Because of politics, the best solution for the NFL might be a split of the Buffalo-Toronto franchise like the Green Bay-Milwaukee situation that existed until 1994 when the Packers played home games in both Wisconsin cities.

The hot loonie has attracted Bettman’s interest but whether it is a passing fancy or the real McCoy will be answered by financial markets and politics because at the end of the day, it is not about the game that is played, rather the factors that fans never think about like currency rates, availability of credit and political sensibilities.

1 comment:

John said...

One note: the population of the province of Quebec actually is just under eight million.