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.
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).
