Buying a Brooklyn Bridge
I don’t think we will learn a lot more about the NHL role in the Del Biaggio fiasco, but I have expected we would learn a lot more about the sale of the Nashville Predators and I have expected we would learn a lot more about the financial state of one of the NHL weak sisters. The Tennessean has published some documents that do exactly that, although with a caveat.
(The information comes from a package put together by Boots Del Biaggio. The package is designed to convince a “limited number of sophisticated prospective investors” to give Boots money for pieces of his slice of the pie. I assumed the numbers are correct and the forecasts are real, but the Del Biaggio opinions? Consider the source. Want to buy the Bettman – er, Brooklyn – Bridge?)
First, the Nashville team sold for $176 MM, and not the announced $193 MM because there was a “purchase price adjustment” at some point. The group of Nashville investors were short $70 MM and Boots stepped in. He and his partner put up $30 MM (Del Biaggio apparently obtained his share of this money fraudulently) and Boots guaranteed – and was to pay the interest on – a $40 MM mortgage on the team.
We can see the problems the fiasco creates for David Freeman and his partners. They had to replace the gaurantee on the mortgage, they have to pay the interest costs on that mortgage, and they had to come up with $10 MM to cover Boot’s share of the arena deal.
The structure of the deal was designed to give Boots the chance to sell the opportunity to invest in the team as a win-win move. Under one scenario, the team succeeds in Nashville. If that happened, the Nashville group would probably buy out Boots (and any investors). Boots is out with a nice return. Under the other scenario, the Predators continue to bleed copious amounts of red ink. If that happened, Boots would probably get control of the team. It could be flipped or relocated.
I don’t think it would be quite as easy to get control of the team as Boots makes out because the Nashville investors would have other options. However, it does appear that those options are less than attractive. I think the key point is that anyone who gets the Del Biaggio shares coming out of the bankruptcy will have the same opportunity to acquire portability value.
The State of the Franchise
This really is the last chance for the Nashville market. We don’t know whether the best case scenario in the document really comes from the Nashville investors, but we do know that the future looks bleak.
The team turned revenues of only $48 MM in 2005-06 and $56 MM in 2006-07. Locally generated revenues are substantially less, and probably not enough to cover the team’s payroll. The team will have a negative cash flow for the next five years despite the fact that the new arena deal provides a taxpayer subsidy of more than $50 MM. (Yowza. I suppose the city has good reason to pony up, but I can’t imagine it. I wonder whether the arena revenue counts as HRR. If not, I’ll bet Paul Kelly isn’t happy about it.)
The worst part of this news is that six teams turned less ticket revenue in 2006-07 than Nashville. Are the Predators even the weakest of the weak sisters?
Postscript: I’d like to know whether every team is projecting a $15 MM expansion boost to revenues in 2010-11. Is this just a Nashville guess or is the plan on the drawing board?
Update: I was wrong about whether we would learn more about the NHL role in this mess. According to the Tennesean and one of Boots Del Biaggio’s potential investors, Gary Bettman has his fingers all over the deal. According to Doug Bergeron, Bettman told him the deal structure was his idea, and Boots told him the NHL did not really investigate him as a potential owner.
Bill Daly sort of denied the story. “With respect to Mr. Del Biaggio’s apparent claim that the League waived certain of our standard financial background checks, we do not believe that to be the case.”
We do not believe that to be the case? Don’t they know?