Some are suggesting that given the drastic loss in company value around the world with the current recession, NHL team values should also drop. While the premise in lowered values is right, the recent number of NHL team transactions can be argued as artificially boosted to begin with.

A quick background on team values first. Ottawa and Buffalo were bought out of bankruptcy each for a relative song. Also note that the last 4 expansion teams paid $80 million per team (Minnesota, Columbus, Nashville, Atlanta). Soon after, Disney was granted their one remaining Genie wish and got rid of the Ducks and its’ arena for less than $68 million.

After the new CBA arrived, franchise values for the bottom one third of the NHL were around $80 to $100 million per team. These values were up significantly post lockout due to the long-sought-out concept of cost certainty had finally arrived.

This was the “new NHL’s” franchise value state of equilibrium B.B. (Before Balsillie)

Yes, that’s right, Jim Balsillie, the man championing the dream of more NHL teams in Canada, is Offside this time for pushing NHL team prices, including the failing teams, higher than any US TV contract Commissioner Bettman could have ever negotiated. Jim Balsillie boosted the entry fee to bring more teams to Canada.

This state of balance was temporarily destabilized when Balsillie offered a very arbitrary, some say half-cocked, $175 million for the Pens. And then he backed away from his offer when the NHL insisted, rightly so, that Sidney Crosby’s team stay and rejuvenate the NHL’s marketing plan while playing in a US city.

Next a slightly–ruffled Balsillie offered $220 (or depending on the news story) $238 million for the Preds. David Freeman drank the same electric Koolaid that Balsillie did and offered $193 million for the Preds to stay in town.

In due course, Craig Leipold was "rewarded" for being a good governor and "team player" and received the Minnesota Wild for $250 million as prize for keeping Balsillie's deal off the BOGs table for acceptance while introducing Freeman’s group instead. In NHL circles, this is now widely referred to as the “$40 million Leipold haircut”.

Now over this time, we heard rumours of Jerry Bruckheimer willing to part with $250 to $300 for an expansion franchise in Las Vegas. But remember this rumoured offer wasn't made until Balsillie started bidding up team prices like a sailor on short shore leave.

Then Darryl Katz in Edmonton finally realized a dream and ponied up $200 million to buy the Oilers and their collective debt. No doubt this number was based on the Balsillie-involved transactions. (There simply were no other team transactions post lockout that Jim Balsillie that didn’t involve himself, other than Edmonton.)

So owners looking to sell are in a very unique opportunity right now. Much more pressure is facing their current revenue streams while the minimum cap floor player costs have doubled in three years. And Balsillie is still looking to buy a team. Just what are you owners waiting for? A change in commissioners maybe? The US annexing Canada?

This bidding for teams will remain artificially high while Balsillie still hunts for a team. Once he gets his team (and he will, as the NHL needs him more than he needs the NHL, read further to see why), then the number of sellers will number larger than buyers. If you’ve ever played Musical Chairs then you know what to expect from failing NHL teams in the next short while. The classic supply and demand theory will be very evident once the recession hits full on to team revenues and Balsillie’s chequebook is done its’ work and is put away.

This then leads to an "After-Balsillie-Buys" market correction. Team prices will come back down as bidders know that Balsillie is removed from the process, only too happy to sleep off the effects of his shore leave binging.

How far will team values fall? Nobody honestly knows. All the way back down to the $80 million expansion price? Maybe or maybe not. After all, what is the value of a team that loses $5 or $10 or $30 million every year, with no end in sight? Only the seller and the buyer know for sure. And the buyer isn’t too worried as every year waiting is another year closer to buying the team out of bankruptcy for a song. Besides other teams are also in a similar predicament, so the buyer can be choosy too. Time really is on the buyers’ side. And the failing teams are running out of musical chairs to move to. We are just waiting for the first domino to fall.

One more point: if Balsillie or anyone buys the 27% of the Preds for say $27 million or even $21.6 million then the market correction just happened instantly! That would mean that the Preds are only worth between $80 and $100 million total not the $193 that Freeman's group paid for it less than one year ago. Same team, same city, same arena (with even better city incentives one year later) now potentially selling for way less? Sounds like the NHL’s own real estate bubble is about to burst.

I wouldn’t feel sad for Leipold’s haircut, as he ended up with a top revenue team in the Wild using mostly Freeman’s money. But I do wonder how Darryl Katz would feel then?

More to the point: What does this mean for the hockey fan in Manitoba? It means that the Winnipeg ownership group approach in working with the NHL and its’ 30 governors is playing to our strengths. Balsillie has shown himself to be a renegade at every turn, while Winnipeg’s group is the opposite. While I have no doubt that Balsillie will get a team before Chipman’s group, Balsillie will pay top dollar to do so. And it may be Jim Balsillie will have to wait years later before he can move it to Ontario. The Chipman group in Winnipeg is a quick and easy yet rational and financially sound “Plan B” for the NHL. And this is a league that will need several similar “Plan B’s” in the near future. Helping out the NHL to take a relocated team using the NHL’s timetable puts Winnipeg at least tied for head of the class while also most likely helps reduce the cost of the transaction, assuming the Blackberries have hit the ice by then somewhere in North America.

If you think I’m Offside, here’s your chance with the whistle. Send an email or post feedback.

Chris
Chair, Manitoba Mythbusters
ManitobaMythbusters.com