Globe
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Big dollars for second T.O. team
DAVID SHOALTS
From Monday's Globe and Mail
November 10, 2008 at 1:32 AM EST
The value of a second NHL team in Toronto would range between $400-million and $600-million, and Maple Leaf Sports and Entertainment would be entitled to a one-time territorial payment of up to $250-million for allowing the relocation of an existing team, according to sports economists.
The second team in Toronto would instantly become the third most valuable franchise in the league behind the Maple Leafs and New York Rangers and on par with the Detroit Red Wings and Montreal Canadiens, sports finance expert Marc Ganis said.
Ganis, the president of SportsCorp Ltd. of Chicago and a consultant to professional sports clubs and leagues, said the size and strength of the Greater Toronto Area market would drive the new franchise's value. The payment to MLSE would range between $90-million and $250-million (all currency U.S.), depending on factors such as arena rental, sponsorship, broadcast rights and advertising.
“There is no better [hockey] market anywhere than the one for a second team in Toronto,†Ganis said. “The reason is the strength of the Toronto market for hockey.â€
Brad Humphreys, a University of Alberta professor who teaches sports economics, said many variables would be considered to calculate the rights fee, particularly whether the team would become a tenant at the MLSE-owned Air Canada Centre. The rights fee would be lower if the team rented the Air Canada Centre and significantly higher if the club operated another arena in the GTA area.
Likewise, Ganis said, the team's estimated value would be closer to the bottom range if it rented the Air Canada Centre rather than owning its own arena in, say, North York.
“It's tricky because it involves not just current costs but perpetual costs,†Humphreys said. “Who knows? What if 10 years from now the new franchise has won a couple of Stanley Cups and the Leafs have not?â€
However, Humphreys believes “$200-million would not be an unreasonable figure†as an estimated rights fee to be paid to the Leafs.
Some NHL governors have informally discussed the notion of placing a second team in the GTA rather than in Hamilton or another Southern Ontario market.
But getting another franchise into Toronto could be difficult – to the point of a prospective owner having to resort to litigation. In that scenario, two legal experts say, there's a good chance the league would be forced into submission.
EXPAND OR RELOCATE
There would be two ways of landing a second team in Toronto. One would be through expansion, which would be easier as it would involve implicit support from the league and MLSE. It's also the more unlikely option, as NHL commissioner Gary Bettman has repeatedly indicated North American expansion isn't on the agenda. Bettman's strategy instead is to continue supporting dubious warm-climate hockey markets such as Nashville, Atlanta, Florida and Phoenix.
The other method is to relocate an existing team and be prepared to fight the NHL for the right to move it.
The incumbent owner would ask the NHL for approval to move the team to another city. If the franchise was being sold to a new owner, the league would first conduct due diligence before approving the sale. (The NHL has an uneven record in this area, given the current bankruptcy proceedings involving Nashville Predators minority owner William (Boots) Del Biaggio.)
Assuming the new owner was deemed worthy, the governors could approve both the sale and the move. However, if the governors approved the sale and refused the move, or refused the sale because it involved a move to Toronto, the dispute could go to court.
Two experts in antitrust law both say there would be at least one and possibly two legal avenues for an owner to pursue.
Anita Anand, the associate dean of the University of Toronto's Faculty of Law, said that if the NHL tried to prevent a move, the prospective owner could take the league to court under Section 79 of the Canadian Competition Act.
COMPETITON IN THE COURTS
Theoretically, the NHL could not use its “dominant position†in the professional hockey market to prevent competition with an existing company, in this case the Maple Leafs. Anand said a lawsuit could be filed on those grounds even though the Competition Bureau, which acts as an enforcement arm for the federal government in antitrust matters, ruled last March that the NHL does not engage in monopolistic behaviour.
The bureau stated that its decision could not be used as the basis for a future case. Therefore, Anand said, “it is possible for the dominant position argument to be successful in a new context.â€
The Competition Act states that when “one or more persons substantially control . . . a class or species of business,†it is not permissible for those persons to “have the effect of preventing or lessening competition substantially in a market.â€
Another expert who works in antitrust law for a major downtown Toronto firm said the prospective owner could pursue legal action under the section of the Competition Act that deals with restraint of trade. The lawyer, who did not want to be identified because his firm has had dealings with parties involved with the NHL, said a restraint-of-trade complaint could even involve criminal charges.
“You can look at it as if there is an agreement to restrict trade severely,†the lawyer said. “Then, with a league, maybe that agreement lessens competition unduly. That could get you into the criminal provision of the act.â€
BEEN THERE, DONE THAT
The bureau investigated a complaint last year that alleged the league's constitution allowed any of the NHL's 30 teams to veto the move of another team into an 80-kilometre radius of its home arena.
The bureau's decision dealt with Jim Balsillie's attempt to buy the Nashville Predators and move the franchise to Hamilton. The NHL blocked the purchase.
In its decision, the Competition Bureau said it “found no instance where a ‘veto' was exercised by an incumbent club to protect its local territory from entry by a competing franchise.â€
NHL deputy commissioner Bill Daly affirmed in e-mail to The Globe and Mail that the constitution does not guarantee a veto. “Any [franchise] relocation into Southern Ontario would only require a majority vote of the Board of Governors,†he said.
Since the Competition Bureau has already been satisfied no veto exists, Anand said, “it may be difficult for an argument about restraint of trade to succeed.â€
However, if someone wanted to move a team into Toronto, this would provide the “new context†Anand mentioned, and a different decision would be possible.
What could not be disputed, the experts agreed, is the payment of a territorial rights fee. The NHL and other sports leagues have charged the fees in the past. Most recently in the NHL, former Los Angeles Kings owner Bruce McNall received $25-million in 1993 when the league awarded the Walt Disney Co. an expansion franchise in Anaheim.
