By Jeff Buckstein
Let’s step into the wayback machine and remember when Guy Charbonneau accepted the Stanley Cup from National Hockey League commissioner Gary Bettman to the raucous cheers of 18,000 fans in the Montreal Forum. The Montreal Canadiens’ captain and his teammates then took their traditional victory laps carrying aloft the most iconic trophy in professional sport.
Fans across the country had a reason to exult as the Canadiens celebrated the country’s 27th Stanley Cup in 38 seasons on June 9, 1993. With championship banners already hanging in Montreal, Toronto, Edmonton and Calgary, the country’s good fortune seemed destined to continue. But no Canadian team has sipped from Lord Stanley’s mug since. Worse, the seven franchises have frequently missed the playoffs, including one year, 2015-16, when they all failed to qualify.
The financial costs of missing the Stanley Cup playoff tournament are enormous. Teams lose out on lucrative gate revenues as ticket prices are substantially raised each round the team advances, unencumbered by player salaries, which are only paid until the end of the regular season. Add in the adversity of a 75 or 80 cent Canadian dollar in a league where all players are paid in U.S. dollars, and it looks like a recipe for financial trouble.
But in a period of prosperity for the NHL as a whole, its Canadian franchises — situated in a country where hockey is No. 1 from coast to coast — appear to be enjoying more off-ice success than their comparable U.S. counterparts.
“When I give presentations about professional sports valuations, I say the most important factors are demographic, and that is measured in certain ways: the size of a market, the wealth of the market and the popularity of that sport and/or team in the market,” says Drew Dorweiler, a chartered business valuator and managing director of Montreal-based investment bank IJW & Co. Ltd. “That ties directly into Canada where hockey is nearly a religion.”
Dorweiler has assisted Forbes magazine with its annual estimated valuations of professional sports teams in North America and Europe for many years. In 2017, Forbes valued the New York Rangers, who have by far the largest market to draw upon, at US$1.5 billion, with the Toronto Maple Leafs second at US$1.4 billion, followed by the Canadiens at US$1.25 billion. Those three teams have consistently led the NHL valuations, and the Maple Leafs were previously ranked No. 1 for 10 consecutive years until 2015.
“I find it interesting that we have two teams in Canada — Montreal and Toronto — who in recent years have been near the top of the valuation, given the last time they won a championship [and] given their on-ice performance over the last 10, 20 years,” says Glenn Rowe, executive director of publishing at the University of Western Ontario’s Richard Ivey School of Business in London. One reason for that, he offers, is because “there are tribes of fans around these Canadian teams that support them in a way that there aren’t tribes around the U.S. teams.”
Forbes’ annual rankings from 2008 to 2017 indicate a period of explosive financial growth for the then-30-team NHL (the league expanded to 31 with the addition of the Las Vegas Knights in 2017-18).
Team values increased by an average of 172.17% over that period. Despite the Stanley Cup residing in a U.S.-based city in each of those years, the overall value of the Canadian teams — the Maple Leafs, Canadiens, Vancouver Canucks, Edmonton Oilers, Calgary Flames, Winnipeg Jets and Ottawa Senators — soared by 177.9%, compared to 160.84% for the 23 teams playing in the U.S.
A big reason for the difference is broadcasting rights. In 2013, the NHL signed a record 12-year, $5.2-billion agreement with Rogers Communications Inc. for its Canadian teams, the largest deal in league history. It also signed a significant, but less prosperous 10-year deal with NBC for US$2 billion in 2011 to cover its American teams. The revenue from both deals is pooled and shared among all franchises.
“The lucrative Rogers agreement was a reflection of the seven Canadian teams playing in a bit of a euphoric competitive market,” says Bob Stellick, CEO and president of Stellick Marketing Communications in Toronto, and a former director of public relations for the Maple Leafs.
James Brander, an economist and professor at the University of British Columbia’s Sauder School of Business in Vancouver, points out, “Fans all over Canada will watch NHL games on Rogers regardless of where they are, and that just doesn’t happen to anywhere near the same extent in the U.S.”
Local TV deals provide additional valuable revenue to each NHL team. For the 2016-17 season, the latest rankings available, Forbes listed the Canadiens first with rights fees worth US$51 million, ahead of the Leafs at US$42 million and Rangers at US$31 million. The growth in broadcast revenues has single-handedly underpinned the substantial worldwide growth in the value of professional sporting franchises, Dorweiler says. For example, the National Basketball Association in 2014 entered a nine-year, US$24-billion deal for U.S. television broadcasting rights with ESPN and Turner Sports, with average yearly payments from television networks increasing from US$930 million to US$2.66 billion — a 187% jump.
Major League Baseball (MLB) signed an eight-year television agreement that took effect in 2014 with the Fox, TBS and ESPN networks for a combined US$12.4 billion that provides a total of approximately US$1.5 billion annually, or US$50 million to each of its 30 teams. Some national radio revenue also goes to each of the teams through the 24-hour MLB station on Sirius XM satellite radio.
John Olfert, chief operating officer and executive vice-president of True North Sports + Entertainment Ltd., owners of the Winnipeg Jets and the Bell MTS Place arena, sees a symbiotic relationship between the proliferation of TV revenues and in-game attendance in the NHL. “It is still a gate-driven league. As you do well at the gate, that means your suites are doing well. Your food and beverage are doing well. Your merchandise is doing well,” he says. “The fact you’ve got people in the building shows a bit of heat to your product, and that will drive interest in your team and increase the value of your broadcast deal, not to mention the corporate side.”
A key element of corporate sponsorship in professional sports is stadium naming rights fees, which have steadily risen over the past two decades. The biggest Canadian deal, by far, was announced in August 2017 when Maple Leaf Sports & Entertainment Ltd. (MLSE) and the Bank of Nova Scotia struck a 20-year deal to rename the Air Canada Centre, home of the Maple Leafs and the NBA’s Toronto Raptors. It will be called Scotiabank Arena beginning in July. Although financial terms were not disclosed by the parties, widespread media reports say the agreement is for $800 million — or $40 million a year — which is far in excess of any other stadium or arena deal in Canada, and reportedly 10 times more than the $4 million paid by Air Canada.
The Scotiabank deal is indicative that Toronto, the only Canadian venue with an NHL, NBA and Major League Baseball franchise, enjoys inherent advantages. One, of course, is the enormous population base of some 6.4 million people in its metropolitan area, which the Ivey School’s Rowe notes houses about one-sixth of Canada’s population. Second, MLSE, which is owned by Rogers, Bell Canada and Larry Tanenbaum, provides deep-pocketed financial ownership of the Maple Leafs and Raptors, while Rogers owns the Blue Jays by itself. Forbes estimates the value of both the Maple Leafs and Raptors at US$1.4 billion, followed by the Blue Jays at US$1.3 billion, making them the country’s three most valuable sporting franchises.
The Blue Jays also pay the salary of the third-highest paid Canadian athlete, catcher Russell Martin, who is earning US$20 million this season. The only other top 10 paid Canadian athlete competing for a Canadian-based team at present is seventh-ranked Shea Weber, who is earning US$12 million a year as a Montreal Canadiens’ defenceman.
For a smaller location such as Winnipeg, which has a metropolitan area population of about 825,000, the Canadian intangible is especially important. Winnipeg’s size creates challenges, but the NHL Jets are the major sports focus in the city during winter, Olfert says. According to ESPN.com, the Jets attracted an average of 15,321 fans at Bell MTS Place, representing 102.1% of capacity, through the first 39 of 41 home games of 2017-18. Olfert confirms the Jets are running at or near a sellout every game, with about 13,000 full season ticket holders. The Jets were estimated by Forbes to be worth US$375 million, 26th best in the NHL in 2017, up 137.34% from US$158 million in 2008 when the team was the Atlanta Thrashers. The franchise moved to Winnipeg to begin the 2011-12 season.
“As a team operator, it’s difficult to respond to people who put values to your enterprise. We acknowledge it’s difficult for valuators because there are a host of variables that go into a valuation, most of which are not known to the public, given the fact they are private enterprises,” Olfert says.
Ultimately the value of an enterprise is going to be determined by the price a willing buyer and seller negotiate at a particular point in time. But such transactions occur very infrequently in professional sports, so there are few comparatives and, therefore, estimates based on past transactions are equally difficult to rely on, Olfert adds. Nevertheless, there’s no denying it’s a good time to own a Canadian sports franchise. FPM