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?)
The Sale
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?
When does this get to be just plain old embarrassing for the BOG?
I mean, Gary has time to ban octopus twirling from the Joe, but apparently vetting an owner-to-be properly is simply too time consuming.
I think it is way past embarrassing, but I’m not holding my breath in terms of Bettman losing his job over it. Whenever that happy day happens, I think it will come as a surprise, out of the blue.
I think it is telling that there has not been any damage control on the story. Bettman hasn’t even tried to spin it. Coming out of the last meeting, the storyline was the NHL was defrauded, too, and Bettman didn’t know about the loans made by Anschutz and Leipold, but they are ducking now.
They apparently are going to stonewall it all the way. They will ignore it and hope it stays really quiet.
So what is the state of the cleverly structured preferred shares deal now? Is Freeman taking it all on, and will now go looking for investors for it? Or is there a different type of deal going forward?
Earlier, when there was a rumour Del Biaggio might sell to Balsillie, i thought i remembered reading somewhere that the portability option of the deal was non-transferrable.
These preferred share type deals with $2 mil dividend payments secured by franchise revenues, i wonder if that has an effect on HRR that would concern the PA, as an ownership structure not in the players best interest. Or is revenue just revenue, and how the ownership structure chooses to finance debt or sell shares moot to the amount of revenue becoming hrr?
That would not have an impact on HRR, Stephen.
Regarding the “stonewalling”, Daly has been speaking quite directly and categorically on behalf of the NHL in this matter. If he were not, one might say that the NHL was stonewalling. Tom, Daly has come out with a much more direct statement since the one posted above stating that what Bergeron said is factually inaccurate and that Boots went through the same process as everyone else.
As an aside, folks, the whole notion of “portability” is erroneous. Speaking as a lawyer who has read the documents, the only way that could be done is if the collective investors of the Preds opted – let me repeat that, OPTED – to effectively (in layman’s terms) abandon control over their investment and put it entirely in the hands of Del Biaggio to do with as he wished.