Part 2: True North Sports & Entertainment's efforts to acquire an NHL team (Winnipeg)

[MaskedSonja]

Thanks, but i am familiar with what Cristodero wrote. Who do you think i was referring to with my post?

As well, you should probably read your media a little more closely:



Watch out for the well-worn media dodges.

I don't want to speak for Krazy here, but if you're going to throw that out GSC, about media dodges, then that can apply to in any situation to any media, be Winnipeg Free Press, be it AZ media, anyone. Who left in North America is considered a "legitimate source" of objective information short of the Wall Street Journal(and even then I am sure there are baises). We all have to work with what we have, and though we post in the discussion forum, not all of us have the time, ability or inclination to spend looking for lesser known business journals to find a sale of price of a hockey team in a "non-tradtional" market.

I'm not saying either is right or wrong, but if you're going to throw a tidbit like that, then where are getting different numbers for the sale?

 

[peter sullivan]

The asset is worth a lot more than $170M, plain and simple.

what evidence is there that the asset is worth more than $170m?...franchises are worth only what someone will pay for them.....because they are not portable the 'value' is dictated by the economic realities of each market....what teams are bought and sold for in other markets is irrelevant....it only matters what someone will pay for a team forced to play in phoenix.

the effort to find someone willing to pay that amount is evidence that the value is not that high.

i wouldnt be confident that i would get my purchase price back if i had to sell the coyotes in 5 years....not as long as it is tied to the glendale lease.

 

[Rob]

Who left in North America is considered a "legitimate source" of objective information

Gary Bettman

 

[Pegger5]

what evidence is there that the asset is worth more than $170m?...franchises are worth only what someone will pay for them.....because they are not portable the 'value' is dictated by the economic realities of each market....what teams are bought and sold for in other markets is irrelevant....it only matters what someone will pay for a team forced to play in phoenix.

the effort to find someone willing to pay that amount is evidence that the value is not that high.

i wouldnt be confident that i would get my purchase price back if i had to sell the coyotes in 5 years....not as long as it is tied to the glendale lease.

Very true.

By staying in Phoenix the Yotes may only be worth 100 million because of revenue potential in Glendale.

In Winnipeg they may be worth 175 million

In Toronto, they may be worth 280 million..

So, if an owner has to keep them in Phoenix why would they pay over market value of 100 million unless they get to move the team where it will be worth the sale price... This is why Balsillie would have paid 250 mill... Chipman/Thomson would pay 170 million.

This is simple economics 101 (which I have a degree in) How can anyone argue this... Even in-house transactional lawyers should be able to understand.

 

[Confucius]

Let's not forget, what almost everyone told Moyes. You don't own a portable franchise you own a Phoenix franchise. Can't sell what you don't own.

 

[kdb209]

Let's not forget, what almost everyone told Moyes. You don't own a portable franchise you own a Phoenix franchise. Can't sell what you don't own.

Of course, unlike Moyes, the League does own a portable franchise (if they so choose).

They own the rights to Winnipeg, Quebec, Hamilton, KC, Houston, etc - and are free to sell them to a new owner for a relocation fee.

 

[mouser]

Of course, unlike Moyes, the League does own a portable franchise (if they so choose).

They own the rights to Winnipeg, Quebec, Hamilton, KC, Houston, etc - and are free to sell them to a new owner for a relocation fee.

Or sell any of them an expansion team.

Franchises are not a finite resource to the NHL. If they want more than 30 it's easy enough to do so.

 

[MaskedSonja]

Gary Bettman

Well played....

 

[GSC2k2*]

So your position is that the purchase price is not one of the obstacles to concluding the sale of the Coyotes. And you offer as evidence the report the JR was prepared to pay $150 million in 2009 "before he dropped out". But you are not prepared to accept the evidence based on his 2010 MOU wherein his purchase price offer was $103 million, with $65 million financed by others.

You indicate that the inherent value of the franchise has been established by Reinsdorf's offer ($150 million), plus the losses incurred since then. Since when does an asset gain value by losing 17% of its value within one year? I would suggest that the purchase price is set by the NHL to be precisely related to their costs of purchase and operating the franchise, which for a host of reasons might not reflect the actual value.

Pretty straightforward, actually. It is consistent with how businesses are sold and how they always have been sold.

A business is determined to have a price as of a certain point in time. in this case, JR was prepared to buy the Coyotes business at a date in time prior to the commencement of the 2009-10 season. That season would have (and, as we are reasonably certian now via court filings, did) lose ~$25M. That loss amounts to an adjustment to the purchase price so as to still retain the same economic value of the transaction as originally proposed (which was, as i noted above, the acquisition of the business before the 2009-10 season).

To explain further, when parties decide to sell/acquire a business, the value is determined to be $X (the purchase price, in layman's terms) as of a certain date, with the assets and liabilities as of that date. Of course, however, it will take a period of time for the parties to actually conclude the transaction - months, usually (let's call it the "closing period"). Of course, though, the business continues to operate in the normal course, either making or losing money (whatever the case may be). when the date finally arrives to actually conclude the transaction and pass title to the business to the acquirer, an adjustment is made to the purchase price in order to reflect the difference (either up or down, depending on what has happened to the business during the closing period). Consider these losses to be analogous to that adjustment.

 

[GSC2k2*]

I don't want to speak for Krazy here, but if you're going to throw that out GSC, about media dodges, then that can apply to in any situation to any media, be Winnipeg Free Press, be it AZ media, anyone. Who left in North America is considered a "legitimate source" of objective information short of the Wall Street Journal(and even then I am sure there are baises). We all have to work with what we have, and though we post in the discussion forum, not all of us have the time, ability or inclination to spend looking for lesser known business journals to find a sale of price of a hockey team in a "non-tradtional" market.

I'm not saying either is right or wrong, but if you're going to throw a tidbit like that, then where are getting different numbers for the sale?

By "media dodges", i am referring to the little trick that people miss where reporters use fudge words like "reported to be", "believed to be", and the like, which really means "heck, I don't even have a source i can use, but I want to put this in for the sake of the story".

And that applies to all media, whether Canadian, US or Finnish. This Board is far too deferential to what is reported. I have demonstrated on ample occasions that the media reports on something NHL-business-related are flat out factually incorrect, and many others here have done so as well.

This TB trope is in my judgment nothing more than a reporter being told $110M or so in cash changed hands and not understanding that there was also a significant amount of debt assumed as part of the purchase price. Although some media are wilfully disingenuous, i would prefer to think that this is simply a matter of a reporter not being sufficiently understanding of business transactions (which is, to be fair, not his beat) and reporting what he was told incorrectly.

 

[Whileee]

WEll, if you DO have a degree in economics (or as you actually assert, a degree in economics 101 ), your post frankly does not provide much evidence of same. You make your statements based on an assumption - unsupported and apparently pulled out of your butt - regarding the value of the team in the CoG. At their nadir, PHO revenue was ~$58M. That is 1.7 x revenue - and actually less, if you do an averaging of revenues over a recent multi-year period. Can you point to a transaction where an NHL team has sold for such a low multiple? Let me save you the trouble - you cannot (and yes, multiples of revenue is how NHL teams are valued in the marketplace).

So, to answer your question of how inhouse lawyers can argue to the contrary? Pretty simple: by pointing out your made-up numbers, that's how.

When prospective purchasers start offering $100M for the team, then we can revisit this post. Okay?

And as soon as someone steps in and offers more than $165 million for the franchise without some guarantees of substantial operating loss protection I'll be convinced that you are correct in your assertion that the franchise is worth more than $170 million in Glendale.

By the way, didn't Reinsdorf offer $103 million of his own money for the franchise, with an agreement to re-sell it to a local ownership group for the same amount if CFD revenues fell short of $25 million per annum (capped at $100 million)?

 

[Whileee]

Pretty straightforward, actually. It is consistent with how businesses are sold and how they always have been sold.

A business is determined to have a price as of a certain point in time. in this case, JR was prepared to buy the Coyotes business at a date in time prior to the commencement of the 2009-10 season. That season would have (and, as we are reasonably certian now via court filings, did) lose ~$25M. That loss amounts to an adjustment to the purchase price so as to still retain the same economic value of the transaction as originally proposed (which was, as i noted above, the acquisition of the business before the 2009-10 season).

To explain further, when parties decide to sell/acquire a business, the value is determined to be $X (the purchase price, in layman's terms) as of a certain date, with the assets and liabilities as of that date. Of course, however, it will take a period of time for the parties to actually conclude the transaction - months, usually (let's call it the "closing period"). Of course, though, the business continues to operate in the normal course, either making or losing money (whatever the case may be). when the date finally arrives to actually conclude the transaction and pass title to the business to the acquirer, an adjustment is made to the purchase price in order to reflect the difference (either up or down, depending on what has happened to the business during the closing period). Consider these losses to be analogous to that adjustment.

Maybe sometimes... but businesses also lose market value when net operating profits/losses are disappointing.

As far as I can tell, there was no sale "pending" with Reinsdorf, so the sort of transaction that you describe above is irrelevant. Presumably he is under no obligation to assume operating losses as part of an "adjustment" to his purchase price.

In any case, in this instance the purchase price has little relation to what is being offered, or likely to be offered. The NHL paid what it thought it must in order to gain ownership through the bankruptcy proceeding, and have simply added last year's estimated losses to the purchase price to recover its expenditures. One could just as easily argue that if the NHL was confident that it could command a much higher purchase price it could easily have offered more than $140 million for the team during the bankruptcy proceedings.

 

[Confucius]

Of course, unlike Moyes, the League does own a portable franchise (if they so choose).

They own the rights to Winnipeg, Quebec, Hamilton, KC, Houston, etc - and are free to sell them to a new owner for a relocation fee.

So you believe the NHL is selling a portable asset in Phoenix? I haven't seen anything that points that out. As far as I can tell the NHL is selling a team in Phoenix at this time. Maybe in the NewYear the NHL will offer a transportable franchise with Rights to ohh let's say Winnipeg. As of today there is none available.

I do find it amusing that people feel if the CofG offers an out clause, the NHL will just go along. Maybe the NHL should ask the CofG where they can move their team to?

 

[kdb209]

So you believe the NHL is selling a portable asset in Phoenix? I haven't seen anything that points that out. As far as I can tell the NHL is selling a team in Phoenix at this time. Maybe in the NewYear the NHL will offer a transportable franchise with Rights to ohh let's say Winnipeg. As of today there is none available.

I was just pointing out the difference between Moyes, who was contractually tied to Phoenix (by lease and by League approval for relocation, which was never going to happen with JB) and selling something he did not own (a franchise in Hamilton), and the current NHL situation.

The NHL does own a portable asset. It is free of any lease and is free to negotiate any deal they choose now - they just cannot consummate a deal until Jan 1. How, where, and when they sell is up to the League. Glendale may still be plan A - but the 'Yotes are a portable asset, as I said, if they so choose.

 

[MaskedSonja]

By "media dodges", i am referring to the little trick that people miss where reporters use fudge words like "reported to be", "believed to be", and the like, which really means "heck, I don't even have a source i can use, but I want to put this in for the sake of the story".

And that applies to all media, whether Canadian, US or Finnish. This Board is far too deferential to what is reported. I have demonstrated on ample occasions that the media reports on something NHL-business-related are flat out factually incorrect, and many others here have done so as well.

This TB trope is in my judgment nothing more than a reporter being told $110M or so in cash changed hands and not understanding that there was also a significant amount of debt assumed as part of the purchase price. Although some media are wilfully disingenuous, i would prefer to think that this is simply a matter of a reporter not being sufficiently understanding of business transactions (which is, to be fair, not his beat) and reporting what he was told incorrectly.

Thanks for clarifying about what you meant by the dodges, and I agree it's generally hard to take anything these days at face value from any country (but Finnish, come on, that's being hard on the Finns! )

And admittedly I hadn't thought from the TB angle about losses and how through the debt a higher amount than 110 million WOULD be paid if taken into consideration: It's not just the "visible" monies that are paid, but the unspoken amounts (debt) that are also assumed: I guess it's like buying a car privately from someone and assuming the lease payments-sure you paid 3000 grand for the car, but you also assuming another 2 grand in future lease payments(okay, not a pretty analogy ) You've given me food for thought.

 

[Confucius]

I was just pointing out the difference between Moyes, who was contractually tied to Phoenix (by lease and by League approval for relocation, which was never going to happen with JB) and selling something he did not own (a franchise in Hamilton), and the current NHL situation.

The NHL does own a portable asset. It is free of any lease and is free to negotiate any deal they choose now - they just cannot consummate a deal until Jan 1. How, where, and when they sell is up to the League. Glendale may still be plan A - but the 'Yotes are a portable asset, as I said, if they so choose.

Well today they are not, which is all I'm saying. If I want to pay 170 million and move them, guess what, I'll be told. Since there is no lease, I guess I wouldn't even have to talk to CofG. Phoenix is not portable, maybe next year.

 

[MaskedSonja]

So you believe the NHL is selling a portable asset in Phoenix? I haven't seen anything that points that out. As far as I can tell the NHL is selling a team in Phoenix at this time. Maybe in the NewYear the NHL will offer a transportable franchise with Rights to ohh let's say Winnipeg. As of today there is none available.

I do find it amusing that people feel if the CofG offers an out clause, the NHL will just go along. Maybe the NHL should ask the CofG where they can move their team to?

The NHL owns the PHX franchise-if they so desired they could yank the Franchise from PHX and leave them with a white elephant of an arena.

So yes, they are portable-to put it this way, they are selling the "Coyotes"(to give it a name) Franchise, and that Franchise is currently in Phoenix. They could choose to pick up that Franchise and move it to Winnipeg(to use your example). It is not "closing up" one Franchise and moving it elsewhere as I understand it. It is moving the Franchise itself.


When the Colorado Avalanche played a game IN QC a few years ago they wore the old Nords Jerseys-not because they were paying homage, they actually ARE the old Nords Franchise (I believe COL still "owns" the Nords trademark).

 

[GSC2k2*]

Thanks for clarifying about what you meant by the dodges, and I agree it's generally hard to take anything these days at face value from any country (but Finnish, come on, that's being hard on the Finns! )

And admittedly I hadn't thought from the TB angle about losses and how through the debt a higher amount than 110 million WOULD be paid if taken into consideration: It's not just the "visible" monies that are paid, but the unspoken amounts (debt) that are also assumed: I guess it's like buying a car privately from someone and assuming the lease payments-sure you paid 3000 grand for the car, but you also assuming another 2 grand in future lease payments(okay, not a pretty analogy ) You've given me food for thought.

Those Finnish journos ain't getting any love from me.

And actually the car analogy is pretty good, as analogies go around here.

 

[GSC2k2*]

Maybe sometimes... but businesses also lose market value when net operating profits/losses are disappointing.

As far as I can tell, there was no sale "pending" with Reinsdorf, so the sort of transaction that you describe above is irrelevant. Presumably he is under no obligation to assume operating losses as part of an "adjustment" to his purchase price.

In any case, in this instance the purchase price has little relation to what is being offered, or likely to be offered. The NHL paid what it thought it must in order to gain ownership through the bankruptcy proceeding, and have simply added last year's estimated losses to the purchase price to recover its expenditures. One could just as easily argue that if the NHL was confident that it could command a much higher purchase price it could easily have offered more than $140 million for the team during the bankruptcy proceedings.

Sometimes they do lose value. Many business sale transactions have a "material change" clause that allows the buyer an out if something traumatic happens.

If i were advising the buyers, that is what i would be arguing in counter to the NHL's position as outlined in the previous post (that the situation is materially different now due to the delay in closing). There are, of course, counters to that counter. And so it goes ...

I was simply laying this out to illustrate where the numbers come from. It is no coincidence that the NHL's bankruptcy purchase price matched up to the previously expressed offers of JR/IEH.

 

[Wham City]

Would Gary Bettman himself have the balls to argue that a price of 170M$ the for Coyotes is a "dramatic discount" to remain in Phoenix?

 

[Confucius]

Would Gary Bettman himself have the balls to argue that a price of 170M$ for Coyotes is a "dramatic discount" for a team in Phoenix?

I believe there is an offer of 170 million, if/when the team can be moved to Winnipeg. I believe there are no offers to keep the team in Phoenix. So it's presently worth ZERO dollars.

 

[vivianmb]

WEll, if you DO have a degree in economics (or as you actually assert, a degree in economics 101 ), your post frankly does not provide much evidence of same. You make your statements based on an assumption - unsupported and apparently pulled out of your butt - regarding the value of the team in the CoG. At their nadir, PHO revenue was ~$58M. That is 1.7 x revenue - and actually less, if you do an averaging of revenues over a recent multi-year period. Can you point to a transaction where an NHL team has sold for such a low multiple? Let me save you the trouble - you cannot (and yes, multiples of revenue is how NHL teams are valued in the marketplace).

So, to answer your question of how inhouse lawyers can argue to the contrary? Pretty simple: by pointing out your made-up numbers, that's how.

When prospective purchasers start offering $100M for the team, then we can revisit this post. Okay?


Stole my response. Bugger.

well then..i have a bridge to sell to you. we'll start at 58 million.

 

[AllByDesign]

I guess it's like buying a car privately from someone and assuming the lease payments-sure you paid 3000 grand for the car, but you also assuming another 2 grand in future lease payments.

And actually the car analogy is pretty good, as analogies go around here.

No offense meant Tina (I am a fan of your posts), but the analogy that GSC likes can only be liked for one reason. You analogy would never take place in reality. Much the same that the NHL could never get their price and have the team stay in Glendale without a municipal subsidy of some form. If a lease is being transfered, the current owner will pay $3,000 to a prospective buyer to assume the lessee liability.

Here is a car analogy that applies to the Phoenix scenario.

You want a new car but owe $7,000.00 on your current vehicle. The vehicle you wish to purchase is $20,000.00. Your vehicle is actually $5,000.00. Hmmm.. here's a problem. Banks are taking a risk on the new car loan as it is. If you default they will have to eat the depreciation. They don't want to finance the new car and a portion of your old lien.

No Problem

Trade value - $7,000.00 Lien paid
New car selling price - 22,000.00

Loan approved. Maybe... Lets go further with this.. Shall we?

Here is the problem with phoenix. They want to sell a $20,000.00 Hummer for $30,000.00 and bury negative equity.

They are also are trying to sell a Hummer in a demographic that would prefer to buy Prius's

Reinsdorf says... ok.. I'll buy your $20,000.00 car, but I ain't picking up the remaining 10 grand difference. Bettman says 'but my banker needs the $30,000.00' if I sell. It was the only way I was permitted to purchase the hummer in the first place.. I need 30 grand. The HUmmer is sitting in The COG dealership. Reinsdorf says hey... you need this vehicle to be bought here so you can reap the benefit of the regular maintenance... why don't you kick in the 10 grand difference? You'll be getting money back anyhow?

The dealership can't. They are already paying interest on the lot and can't afford both.

Reisndorf decides to not buy the Hummer.

IEH wants a Hummer... we'll pay 30 grand for it. We have been pre-approved for the loan. The COG dealership is very excited about this. Uh-oh.. the pre-approval sheet is one of those 'citi bank' envelopes with the fake credit card in it saying your could be approved right now!

Mark Chipman tells the NHL Hummer owners.. "Hey Gary.... We have a harsh climate here in Winnipeg and Hummers sell very well. We hardly have any. I tell you what.. we'll pay $40,000.00 for your Hummer because we could sell it for $50 grand here. Gary starts getting calls from many places where Hummer's sell well. He starts seeing the light that his bankers could make more money buy selling Hummers in areas wher there is demand... Hmmmm.... tough call.

Gary has given the dealership a deadline to move the vehicle or he'll sell it through another dealership. Afterall... he only has $2,500 afforded to him by the dealership to cover for all of the rust the Hummer will accumulate while it sits rotting on the lot.

 

[GSC2k2*]

blah blah blah....the franchise is only worth what someone will pay...and so far aint nobody paying $170....and nobody ever will without offsetting payments from other sources.

pretty sure someone did offer $100m however....

Pretty sure they didn't.

[Insert previous discussion of how prospective PHO owners have effectively monetized a parking revenue stream that most NHL teams have, up front in order to finance their purchase, thus giving away that stream for upfront cash].

You're right about one thing, though. So far, no one has paid anything. Please read everything as being based on the assumption that a deal DOES close for PHO. If it does not, of course this entire discussion is moot, much as the discussion of WPG as an NHL market is moot unless the WPG ownership group procures a team. Fair enough?