|Wednesday, August 9
NHL franchise fees: Is price right?
By Darren Rovell
Wealthy people who want to be sports owners -- one of America's most exclusive clubs -- pay a steep price for admission. The expansion fee gets them in, but doesn't equip them with anything else.
And there's no way around it.
A couple of years ago, two investment groups from Columbus and Minnesota each ponied up $80 million for the right to set up shop in their markets. But is the $80 million membership fee fair, or does it put these new members too far in the red before the puck is dropped for the first time?
The four teams added since 1997 (Nashville, Atlanta, Columbus and Minnesota) paid the $80 million fee, up $30 million from the fees paid by the other five that expanded in the NHL in the '90s (San Jose, Anaheim, Ottawa, Tampa Bay, Florida). The increase is supposed to correct for the dilution of the distributed money, since each time a new team enters the league, the money paid to the existing clubs has to be cut into more pieces. And, unlike expansion teams in some other leagues, NHL clubs share in league revenue immediately.
The large sum seems justified given the current value of NHL franchises. According to ESPN.com, average franchise values in the NHL this year are approaching $150 million and the reported sale prices of teams such as the New York Islanders ($187.5 million) and New Jersey ($175 million) are fetching approximately $10 million more than their predicted franchise values.
Expansion franchises have also been appreciating at a rapid pace. Tampa Bay paid $50 million to play in the NHL in 1992 and appreciated substantially -- the team was reportedly sold for $117 million, but that included the stadium lease -- by the time it was bought by Arthur Williams in 1998. Nashville has already appreciated about 75 percent, and the team franchise value is close to the league average.
"It's a tribute to the NHL, that since we granted the last few franchises, the league has continued to grow exponentially in the marketplace and in all its business endeavors," said David Zimmerman, senior vice president and general counsel for the NHL. "This is one of the reasons why the expansion franchise price increased from $50 million to $80 million a couple years later because of the continually rising value of the franchises."
ESPN.com estimates that only four NHL teams could sell today for less than $80 million: Calgary, Carolina, Edmonton and Ottawa.
Part of the reason Columbus and Minnesota made the cut was their ability to pay the fee. Former NHL commissioner Gil Stein says as long as these teams were willing to the price, the number seems valid.
"Franchise fees are really supply-and-demand," said Stein, who was commissioner from 1992-1993. "If the fee is too high, then you will get no one willing to pay. But if you get someone willing to pay, how can you say that the fee is too high?"
But Dean Bonham, president of sports consulting agency The Bonham Group, believes franchises are overpriced, citing that for every skyrocketing Islanders and Devils sale, there seems to be an undervalued Montreal and St. Louis sale.
"The NHL is still the most troubled pro sports league in the country today," states Bonham. "One can make a pretty compelling argument that the value of franchises are down because of the number of problems, so I think selling in anything short of three years and (the recent franchises) will take a loss."
While the NHL has been accused in the past of expanding to pad owner's pockets, the NHL has the lowest franchise fee among the four leagues. The NBA charged Vancouver and Toronto $125 million each in 1995 and Arizona and Tampa Bay paid $130 million each to Major League Baseball. Last year, Robert McNair paid 8.7 times more for his Houston NFL franchise ($700 million) than the owners of the Columbus and Minnesota teams pay the NHL.
NHL owners of the 21 teams that were in the league before 1991 collected a total $23 million dollars off the nine expansion teams in the last nine years. NFL owners that were in the league before 1995 collected the most out of the four leagues on expansion of their four teams -- $49 million -- with the Houston franchise accounting for a $23.3 million contribution per team.
Price tags vary to join club
Darren Rovell writes on sports business for ESPN.com. He can be reached at firstname.lastname@example.org.