What Would be Involved in Moving to Copps

Discussion in 'The Business of Hockey' started by GSC2k2*, Jun 5, 2007.

  1. GSC2k2*

    GSC2k2* Guest

  2. soundtigersfan

    soundtigersfan Registered User

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    Yeah, but you have to figure that it will generate much more revenue than the Bulldogs, so that will most likely cover the $2.7 million in operating costs currently subsidized by the city. Whether the bottom line would be worth it after you figure in the territorial right fees and everything else is debatable, but as soon as the transfer of ownership is approved it's Balsillie's team. If he wants to take on those losses he has every right to.
     
  3. Irish Blues

    Irish Blues Still on hiatus

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    So the city would own the arena but the team would be responsible for making all of the improvements. Ask the St. Louis Blues how that arrangement has worked for them since Kiel Center (now Scottrade Center) was put up. (Hint: not as well as one might like to think.)
     
  4. MAROONSRoad

    MAROONSRoad f/k/a Ghost

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    $150 million could be a bargain if the end result would be a state-of-the-art facility. As the article notes,

    "Eisenberger said Balsillie would have to spend up to $150 million to bring Copps up to National Hockey League standards -- a bargain compared with the estimated $250 million it would cost to build a new arena."

    The bigger issues are the territorial rights payments and the fact that the BOG may be against a third team in the area.

    GHOST
     
  5. GSC2k2*

    GSC2k2* Guest

    Clearly you must not be thinking this through, GHOST. I know you are better than that.

    Balsillie would have to spend $150 million on improvements ... and he would NOT own the facility. At the end of his lease, those $150 million in improvements would revert to the City of Hamilton. Effectively, it is $150 million given away.

    If that is a "bargain" for you, call me. I definitely want to do some business with you.

    Incidentally, while I am not 100% certain, in such an arrangement the $150 million could not be project financed, as Balsillie would not own the improvements. Accordingly, he would have to fund the $150 million out of personal funds, which (as I have outlined in another post) he would be hard pressed to come up with, since the vast majority of his wealth is tied up in RIM shares.

    Finally, as the article states, the up-to-$150 million (Eisenberger has said elsewhere it is at least $100 million) would be required to bring the arena up to NHL standards - not to "state of the art".
     
  6. MAROONSRoad

    MAROONSRoad f/k/a Ghost

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    I actually did think about that. Whether someone "owns" something or "leases" something is not a significant point in itself. There are many ways to structure transactions; what matters is how much you have to put into the deal and how much you stand to make. Then there are tax issues which are part of that. The lease would likely be for 30 years, which is typical, at which time the renovated Copps could be obsolete.

    I was just making the observation that renovating Copps appears to be cheaper than building a new arena in the southern Ontario area, regardless of how such renovation is financed.

    GHOST
     
  7. GSC2k2*

    GSC2k2* Guest


    Well, with all due respect you apparently need to think quite a bit harder in order to appreciate the difference.

    Assume a thirty year period (a good assumption for the lease, BTW):

    If one purchases land and builds an arena, at the end of thirty years one still owns the land and arena. While it may be significantly depreciated, it would nevertheless retain considerable residual value.

    If one leases an arena, at the end of the lease the tenant retains nothing.

    It is not a matter of financing it differently. It is a completely different transaction.

    As well, there is a substantial difference in the level of depreciation that one can use to shelter otherwise taxable income (it is much better for an owner than a lessor). Perhaps those are the tax issues to which you allude. They are a considerable impediment.

    Incidentally, in reading your post it did tweak me to remember that leasehold improvements are financeable if the period of the lease is long enough. for the length of the lease that one would probably require (thirty years), that would not be an impediment.

    Sinking $150 million in leasehold improvements that cannot be later recouped at the end (unlike owning one's own place) would, however, be a serious impediment.

    Is there anyone aware of a circumstance where someone has sunk $150 million into an older arena in one fell swoop? Given the finances, I highly doubt it, but if so, was it a leasehold scenario or was it an owner investing in his own facility? Anyone.
     
  8. Dogbert*

    Dogbert* Guest

    They'd only be in Copps for one or two seasons at the very most. Balsillie couldn't move the Preds to Hamilton if he tried. How do people still not understand this?
     
  9. GSC2k2*

    GSC2k2* Guest

    It mystifies me, that's for sure.
     
  10. Irish Blues

    Irish Blues Still on hiatus

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    Apparently people thing that either MLSE won't demand both arms, both legs, a kidney, a spleen and half a liver, or that the NHL will force MLSE to allow a 2nd team in the market for a minimal, token payment. Regardless, there is no "god given right" for Hamilton to have a team without the Leafs being properly indemnified for the infringement on their market.

    If Balsille wants the Predators in Hamilton (an idea which has still yet to be confirmed in any way by Balsille himself), the Leafs will have to be compensated - and it will not be cheap.
     
  11. fan mao rong

    fan mao rong Registered User

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    My reading of the Balsillie as Prospective Owner of Predators Story was that this was a contingency plan in the event the Nashville Lease was caput before the new arena in the (what?) Golden Triangle Region of Kitchener, Waterloo, whatever. Hamilton, I believe, is within both Buffalo and Toronto's territory. I don't believe it has the best future economic prospects in that region. Moving there on an other than temporary basis might be problematic. I thought that the "150 million renovation is cheap" story was speculation added by the writer.
     
  12. Fugu

    Fugu Guest

    GC-

    The Ilitches are looking at this very scenario for Joe Louis arena. The city of Detroit owns the Joe, but the Ilitches pay for all the upkeep, improvements, etc. The arena is about 30 years old now and the Ilitches are considering whether to make further upgrades or build a new arena on some land in downtown Detroit they recently purchased. I'll see if I can hunt up a reference - if it isn't behind an archive fee by now - but the expectation was that they'd go the new building route.
     
  13. Wetcoaster

    Wetcoaster Guest

    Didn't the Kings receive $50 million when San Jose came into the league and a similar amount when Anaheim came in?
     
  14. Northern Dancer

    Northern Dancer The future ain't what it used to be.

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    There were rumours that back when Hamilton was in the running for an expansion team (Ottawa got it instead) that the Hamilton group had agreed to pay the Leafs and Sabres 50 million each for territorial infringement.

    I would think that amount would have soared with Nashville trading 220 million U.S. (I believe the expansion fee paid by Ottawa and Tampa Bay was 50 million back then).

    The only hope (I think) for Hamilton would be for Buffalo to move to Hamilton thereby NO infringement fees would be necessary. (as technically Bufflao is within Toronto's territory anyway).

    So forget the arena costs, the whole thing makes NO sense.
     
  15. Northern Dancer

    Northern Dancer The future ain't what it used to be.

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    Anaheim paid 50 million to join the league and the Kings got 25 million of that for territorial rughts. (in effect the rest of the NHL subsidized the cost). San Jose is San Fransicso turf many miles from L.A.
     
  16. Wetcoaster

    Wetcoaster Guest

    The Canucks were in the same position with the Pacific Coliseum (now the home of the WHL Giants) and as result built their own arena (GM Place) which opened in September 1995.
     
  17. Wetcoaster

    Wetcoaster Guest

    Thanks for the info.

    Somehow I do not see the rest of the NHL looking to subsidize any rights fees to MLSE.:D
     
  18. Northern Dancer

    Northern Dancer The future ain't what it used to be.

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    It was one of Bruce McNalls better scams !!!

    And re MLSE you are correct there will be no subsidies for them however evrey NHL owner will have a vested interest is supporting MLSE and the Sabres for getting as much as humanely possible as one day it may happen to them.
     
  19. Irish Blues

    Irish Blues Still on hiatus

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    I don't see MLSE settling for only $50 million; if Buffalo has to be indemnified as well, it could easily cost $200 million total at this point to settle with Toronto and Buffalo ($125M for the Leafs, $75M for the Sabres).

    Add the estimated $150 million to renovate Copps to just bring it up to NHL standards, and we're already at $350 million - and that's not accounting for any payment needed to get out of a lease in Nashville. Let's pretend that Balsille can get away without paying a dime (even though we all know he won't) - that's a $350 million up-front cost just to get a team in Hamilton. How long before he hits a "break even" point there as opposed to leaving the team in Nashville? What if people don't flock to the new team like some people SWEAR TO GOD they would, and it's a "Yankees/Mets" deal where the Leafs continue to get all kinds of coverage and fan support and the relocated team gets the leftover scraps for the first 10 years, 15 years, 30 years, ...?
     
  20. Northern Dancer

    Northern Dancer The future ain't what it used to be.

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    Add in the 220 million U.S. cost of the team and it makes NO SENSE whatsoever. Especially when there are at least 2 U.S. cities offerring free rinks and no territorial fees.
     
  21. GSC2k2*

    GSC2k2* Guest

    Ta dah!!!

    And there you have it.

    Thanks for coming, everyone.
     
  22. Egil

    Egil Registered User

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    I think due to the combination of Arena renovations AND territorial fees that Hamilton is not practical. But, since Waterloo only requires an Arena, it is far more likely. The question is would a team in K-W be able to generate $20-$25 mil a year more than a team in Nashville (or KC)? With the dollar at $0.94, I believe the answer is a resounding yes. Calgary is exploring building a rink on their own, Edmonton has a billionaire willing to do the same. And, due to the potential TV bonanza, a K-W team has a similar potential for income as Calgary/Edmonton.
     
  23. GSC2k2*

    GSC2k2* Guest

    Actually, I believe that Darryl Katz is not a billionaire. He is merely a rich, rich man.
     
  24. SoCalPredFan

    SoCalPredFan Registered User

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    The most important question to me is HOW does Balsillie get the team out of Nashville.

    Paid attendance is 13,815. With fan rally's and now business support stepping up (http://www.nashvillecitypaper.com/index.cfm?section_id=9&screen=news&news_id=56507), it seems logical to me that the Preds will be in Nashville for the next 7 years.

    Logically.
    1. Leopold will enact "the clause" putting the 14k attendance mark at "must hit"
    2. Fans and/or city council will achieve that mark
    3. Lease will remain in affect and Preds are in Nashville 7 more years.

    Obviously, if the 14k mark isn't hit, it's a whole new conversation, but I just can't realistically see that not happening given the momentum and energy going on in Nashville right now.

    and what if, and it's a big IF, the Preds staying in Nashville for 7 more years actually yields a "real" hockey market ... and Balsillie has no real choice to but to keep the team there long term?

    Nashville is a growing market with a TON of upside. The first "generation" of hockey fans there is still not "of age" to have/use discretionary income ....

    ... I believe, wholeheartedly, that Nashville CAN be a very, very viable market. it's just not there YET. The question is will the city be able to keep the Preds there long enough to realize its potential.

    -Tom
     
  25. GSC2k2*

    GSC2k2* Guest

    Actually, Egil, Hamilton is not practical for reno reasons alone. The territorial issue is simply icing on the cake.

    It is one thing to discuss building an arena when one has made an initial investment of the size made by the Calgary owners or EIG. It is quite another when one is making an initial investment of $220 million. I have done this in another thread, but allow me to run you through the math and some economic realities (all figures US$):

    The purchase price for the team is $220 million.

    The cost of building a state of the art arena is approximately $250 million (based on the cost of NJ's arena).

    Add in the cost of breaking the Nashville lease and various and sundry items (including the cost of moving 25 players, severance, start-up costs, etc.).

    Total cost = $500 million.

    The debt service on that amount is in the range of $40 million ANNUALLY. $40 million before one even pays down a penny on the principle.

    Amortized over an aggressive 25 year period, that amounts to nearly $650 million in interest costs.

    Now as to whether one would suggest that Balsillie has $500 million sitting in between the cushions of his couch, or even if it is sitting around in easily liquidated assets which he could easily cash in, Balsillie's wealth has been variously quoted as being in the $2 billion range. You want to know what that is made up of? It is made up of 11.5 million RIM shares. Multiplied by $164/share, that works out to $1.88 billion. I am sure he has exercised a stock option or two in his time, but I think you will find the number to be shockingly low, and the ones he has exercised and then sold have been sold in order to finance completely the shares that he has retained. People seem to think that a non-dynastic billionaire like Balsillie has hundreds of millions in his checking account. Such is not the case. As stated above, Balsillie's billions are in his company's shares, as they should be. To the extent that he has other capital assets, they are most assuredly tucked away in investments.

    Now, if one were to suggest that he would finance the purchase by selling 2 or 3 million of his RIM shares, well that person would really not know too much about finance or taxes. The act of him doing so would result in his stock price coming under pressure and depress the value of his remaining holdings as well as his fellow stockholders. Suffice it to say that such things are simply not done by anyone who has significant holdings in their company. What's more, he would generate a gigantic capital gain on the enormous appreciation in those shares and be forced to pay tens of millions in unnecessary taxes, which would further increase the amount of shares he would need to sell.

    As for his other capital investments, he would face the very same tax issues. It would be horrific financial planning, and I assure you that guys who get as rich as this do not engage in poor fiancial planning.

    FURTHERMORE, given that he would be paying interest of something less than 10% (perhaps much less, in fact) if he were to borrow the money, he would be foolish to finance the purchase instead through the sale of assets which are currently appreciating at much more than that interest rate (RIM is doing wonderfully, having tripled over the past year), on top of the huge tax bill as aforesaid. Frankly, the tax issues alone would prevent it.

    In short, he would borrow the purchase price for the team and project finance the bulding of an arena if he were to want to move the team to KW. There is no other remotely feasible manner of proceeding.

    $200 Million, plus a $250 million arena, plus incidental and start-up costs and lease breaking fees (to say nothing of territorial fees, if applicable) is a big nut, even for a billionaire. Contrary to some around here, it is not petty cash.

    While a franchise might very well appreciate, that appreciation is not monetized until the team is sold by him (if ever). The $650 million in carrying costs is hard cash that must be financed out of cash flow. What that means is that, right out of the box, a KW team would have to generate revenues of probably somewhere around $110 million ($40 in carrying costs, a $40-45 million payroll and $25-30 million in operating costs), which in fact would put them in the upper echelon of revenue generators, which would result in a revenue sharing bill on top of the above (say $5-10 million more, who knows).

    This is to say nothing of the cost of operating his new facility (the $25-30 million simply refers to the operating cost of the team itself). One might think that a shiny new arena would be filled up by concerts and other events? As we have discussed, I highly doubt that, given that Toronto's venues would provide huge competition for those acts, as well as Copps here in Hamilton, which has a hard enough time getting major acts in itself.

    It is for this reason why it is so critical in the US that arenas be financed publicly. MLSE built their own arena. They of course did not have to finance the $220 million to buy the team. Also, the Teachers Pension Fund is in another league entirely from mere billionaires like Balsillie. Also, the Leafs themselves are in another league entirely as well with their ticket prices and (more importantly) box prices.

    So you see, the question of whether a KW team could generate $20-25 million more than Nashville is not the right question. They need to generate $20 million more just to keep up with how the team is doing in Nashville (the additional debt service form financing an arena).
     

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