Franchise, TV and arena values soar, attracting new blood to NHL ownership circles
The financial landscape of the NHL is changing.
Never before have franchises been worth so much, and the profile of a typical owner has mirrored that change, said Mitchell Ziets, CEO of sports banking firm Tipping Point Sports in New York.
“There's a preponderance of people with financial backgrounds buying teams in the past decade, people tied to hedge funds or private equity firms,” Ziets said. “Historically, it has been entrepreneurs that have built and sold business, but that has changed.”
Should current Penguins co-owners Ron Burkle and Mario Lemieux decide to a sell, the $490 million average value for an NHL franchise that Forbes estimated in November — already an all-time high — will incur another boost.
Forbes has valued the Penguins at $565 million, but Vanderbilt sports economist John Vrooman said he thinks Burkle and Lemieux could fetch 40 percent more.
“In the open market, the Penguins could probably (sell for) $800 million,” Vrooman said.
The principal owner in such a scenario likely would be someone such as Burkle, the cofounder and managing partner of a private equity and venture capital firm, and he'd be backed by a large group of investors, said John Clark, a professor of sport management at Robert Morris.
“If you go way back and look at who bought pro sports teams, it was (people) with the design to make a business out of it and have it be ancillary income,” Clark said. “Now you're seeing new ownership groups use the purchase as a strategy to grow wealth.”
Forbes' value on the Penguins ranks the team 10th in the 30-team league. Before the decline of the Canadian dollar, the NHL saw three franchises cross the $1 billion threshold for the first time: the Toronto Maple Leafs ($1.3 billion), New York Rangers ($1.1 billion) and Montreal Canadiens ($1 billion).
In its most recent franchise valuation, issued Nov. 25, 2014, Forbes said the value of the average hockey franchise rose 18.6 percent over the past year, another all-time high.
Vrooman and others point to TV rights for the boom. The NHL and Rogers Communications agreed on a 12-year deal worth $4.9 billion at the time and gave Rogers rights to all games in Canada beginning with the 2014-15 season.
The contract is worth 2.6 times the league's previous Canadian TV deals, according to Forbes.
The current marketplace essentially has boxed out potential owners who are not loaded with cash or do not enjoy the benefit of sturdy financial backing, Clark said.
“As the value of franchises has increased, it's a lot harder for an individual to buy in,” he said.
Pressed for an example of a stereotypical, modern-day owner, Clark cited Jeffrey Vinik, the Tampa Bay Lightning owner who made billions through his hedge fund. Vinik also owns the Tampa Bay Storm of the Arena Football League, is a minority owner of the Boston Red Sox and sits on the board of directors of the Liverpool Football Club.
Forbes reported Vinik's purchase price as $93 million in 2010. The Lightning's current valuation is $230 million.
“He has approached running that franchise much the same way that he did when he was running his hedge fund: very analytics based,” Clark said. “What's unique about him is he's really doing a great job being customer-focused while at the same time employing those analytics.”
Tampa Bay also has been a case study in tangible results to these businessmen.
The Lightning's success under Vinik has paid off to the tune of a local TV deal, agreed upon during the 2013-14 season, that runs through at least 2020. No terms were reported, but Clark said he believed it was “two to three times” more than the old one.
The Penguins' deal with Root Sports, which began in 2012 and runs through 2028-29, is for about $18 million, the 10th largest in the NHL, according to Forbes. That makes it more valuable than the Lightning's.
“Local TV contracts have gotten better for teams,” Ziets said. “Media companies view teams as significant content and content that is DVR proof.”
Stadium deals similarly are attractive to the new wave of owners, many of them developers. Vrooman said the Penguins having Consol Energy Center increases their value 25 to 30 percent.
Those quantifiable items, which seem to keep growing in lockstep, have created a different economic climate for the NHL, one that has attracted a new style of owner.
“The NHL is fast becoming a $4 billion revenue, ‘big-boy ownership' league because of the rising franchise values and the hard-learned due diligence and scrutiny of the of the Board of Governors,” Vrooman said. “The explosion in TV rights fees and the cash-cow arena revolution are the hard-to-get tickets. Only big boys can now play this syndicated ownership game.”