The Expansion Question


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Wednesday, August 9
 
Low cost + big help = expansion profit

By Darren Rovell
ESPN.com

If you want to know if the Minnesota Wild and Columbus Blue Jackets will make a profit in year No. 1, just ask them.

"The Wild expect to turn a profit, but we also want to be a fiscally responsible organization," said Bill Robertson, VP of communications and broadcasting for the Wild.

"It's a goal and expectation of our owner Mr. (John) McConnell that we will operate the franchise like a business and keep it in the black," seconded Mike Humes, VP of business development and broadcasting, Columbus Blue Jackets.

With an expansion fee of $80 million, rent for a new arena and an entire staff and players to pay, you might wonder how much debt the new franchises will accumulate after their inaugural season. That's why it's not easy to understand how both teams, unlike the majority of the league, are boldly proclaiming that black and not red will be the color of their books.

'90s expansion salaries for '99-00
Team Payroll Rank
Panthers $36.9 million 7
Ducks $33.8 million 10
Sharks $33.4 million 11
Senators $22.2 million 23
Lightning $18.5 million 25
Thrashers $17.8 million 26
Predators $17.5 million 27
Avg. of '90s teams: $25.7
NHL average: $31.6

But with every expense comes some of the best help a new team could want: Public and private funding, personal seat licenses (PSL), year-round arena ownership, busy turnstiles, club seats, luxury suites and naming rights deals. With all those so-called revenue streams, the burden of start-up costs now seems a lot less and has the dirty word "profit" freely floating around the offices in Columbus and St. Paul.

Craig Leipold, owner of the 1998 expansion Nashville Predators, valiantly proclaimed the profit he made in his first year of owning a franchise and says that people shouldn't be surprised. "We expansion teams have the newest arenas that there are, and all the revenue streams are made available to us that other teams have tried and have been successful at," Leipold said.

He now says that every expansion franchise should be expected turn a profit right away.

"I would say, for expansion teams, they should be making a profit," Leipold said. "We can control our expense more than a team that has been in the league for a longer amount of time. When you come in, you don't have the baggage of old contracts that are five years old for player that got hurt, or the player that retired, or coaches that you bought their contracts out. As an expansion franchise, you are not throwing money away from years of mistakes."

Not only is there a little extra money floating around, but expansion owners spend less money on their teams, which are usually not expected to be playoff competitive for several years. For the '99-00 season, the nine teams that expanded in the '90s, spent about $6 million less than the league average on payroll. The most recent expansion teams, the Predators and Thrashers, spent less than $18 million for their players.

Don Waddell, general manager of the expansion Atlanta Thrashers, says paying for an A-level player would not be worth the price.

Are their markets good enough?
Columbus
Pro: Tremendous support from city. Ticket sales and PSL's are in line with lofty goals. One-hundred acre revitalization project around arena, privately financed by Nationwide. Cincinnati and Cleveland are two-hour drives, and 20 million people are within a 500-mile radius of Columbus.

Con: Columbus is definitely not the first city you think of as a "can't-miss" hockey market. Columbus is the 34th TV market, while once-talked-about Houston is No. 11.

Minnesota
Pro: Hockey is king in Minnesota -- yes, before baseball, basketball and football. Stadium location is much better than when the North Stars' days. Slightly new breed of fans now that the stadium is located in St. Paul. Ownership is very financially sound -- very different from the North Stars in the early '90s.

Con: It's the smallest metropolitan city housing four major sports teams -- probably not enough room for them all. "If you really want to look at competition, we have to start with movie theatres or barbeque pits or TV sets," said Tod Leiweke, president of the Wild. "We identify our competition as ourselves. The history of hockey is truly extraordinary here."

But, professional hockey has had somewhat of a bumpy road in Minnesota. "Pro hockey here has had its ups and downs; it's failed a number of times," said Jay Weiner, author of Stadium Games and a Minneapolis Star-Tribune reporter. "It failed with (North Stars owner) Norm Green for strange reasons. When the World Hockey Association was here, there was the Fighting Saints, and it failed. And the North Stars had to merge with the Cleveland Barons. It has failed here those times because, while we are a hockey state, there is a tremendous amount of hockey here. Hockey fans have a tendency to go to high school and college hockey. And this is on what the Wild face with a very upscale ticket price in a community whose core is a blue-collar, belly-bumping hockey crowd."
-- Darren Rovell

"If I'm going to go out and get a star player, how much of an impact is that one player going to have on the team?," Waddell asked. "The only way to get a player to my team is to drastically overpay him, and the way free agency in hockey is right now is a player goes to a place that he can win right now. You could give me $50 million, and I'd have a hard time spending it."

Profit is also possible for the NHL's new expansion franchises because companies and corporations, as well as city and state governments, absorb the immediate losses.

Neil deMause, author of Field of Schemes -- a book on how public money helps teams make a profit -- says since arenas in expansion cities are usually being paid for by the city and state, franchise fees are easier to handle.

"If a team was going to have to pay for an arena, no one will be able to afford the $80 million expansion fee," deMause said. "But with the city and state funding the stadium, it's less of a problem."

For Leipold, the city went all-out for his franchise, purchasing the entire arena and practice rink as well as fronting 25 percent of the expansion fee. In return, Leipold controls the building all year, collects advertising revenue, cashes in on a 20-year, $80 million naming rights deal, and pays back a measly five percent of ticket revenue. Leipold also says his team sold 96 percent of all tickets in its inaugural season.

Columbus and Minnesota's deals are not far behind what the city of Nashville gave its team. Although county voters denied the Blue Jackets a 21,000-seat arena as part of a sports complex, the team found a willing partner in Nationwide, which agreed to pay 90 percent of the $150 million arena. In exchange, Nationwide received indefinite naming rights to the building. According to the Chicago-based Team Marketing Report, the $135 million deal is topped only by Federal Express in Washington, American Airlines in Dallas, and Royal Phillips in Atlanta. The Blue Jackets control the arena, and the stadium is the centerpiece to an arena district revitalization in downtown Columbus.

The Wild, in a city and state where public funding of sports teams has been turned down many times, secured $65 million in state funding and $30 million from the city of St. Paul -- whose residents will pay an additional sales tax to pay back the arena loan. The team will run the arena and the surrounding St. Paul RiverCentre.

Onlookers in Minneapolis are shocked the Wild received such a great deal. "The fact that the community would build an arena with nothing up front and every dollar in the building goes towards the Wild is amazing," said Jay Weiner, author of Stadium Games and reporter for the Minneapolis Star-Tribune. "They came in under the radar while the Twins debate was going on. Remember, this is the same public that has been saying no, no, no to stadiums for the Vikings and Twins for the last six years. In fact, don't ask, because it's just goofy."

The Wild have since contributed a total of $75 million to the arena, which will feature a Zamboni-shaped organ, a veteran players lounge and four jumbo video screens. The teams' contribution is equivalent to the amount the team reportedly will make from their 25-year naming rights deal with Xcel Energy.

According to Team Marketing Report, only the Predators (Gaylord Entertainment) have signed a single sport arena deal worth more per year than the Wild. Out of the eight hockey-only arenas with naming rights deals, the average price paid is $1.57 million a year.

It almost seems unfair. The city and state government often finance the new stadiums, but the team is granted the right to sell the name on the stadium.

"There is so much money accruing from the naming rights, and it's all going to pay off what was supposed to be the team's contribution," DeMause said. "The team hangs a sign on what is really city or county or state property and then the money goes all to the team."

The Blue Jackets are also making additional revenue by selling personal seat licenses. If a fan wants to be a season ticket holder, he or she has to buy a PSL, which ranges from $750 to $4,000. Although clubs have recently come under fire for charging for the right to buy tickets, it is a tremendous source of revenue and expansion teams have found that they can get away with it.

"It's a question of price elasticity," said Matt Freedman, editor of Team Marketing Report. "If they feel that they can sell these tickets with a personal seat license, then there's no reason why they shouldn't do it. (The Blue Jackets) must have done some extensive market research that told them that the demand for tickets, even with a personal seat license, was there."

And most importantly, both teams are confident the fans will come to games. The Wild already have sold 13,000 seats and all luxury boxes and clubs seats are locked up. "Our arena will be full every night," predicts Robertson. "We're expecting over 15,000 season-ticket holders, and we feel really good about the position we are in with all our club seats and suites sold and the corporate support has been phenomenal."

The Blue Jackets have sold 12,500 PSL's for their 18,500-seat arena.

In the end, with financing, personal seat licenses, low payrolls, naming rights deals, control of arenas and packed houses, the Blue Jackets and Wild could very well make a healthy profit this year.

"My advice to them is really pretty simple," adds Nashville's Leipold. "Run their hockey teams just like they run their own businesses. All of these owners have been very successful in business, that is how they have bought these teams. Please don't lose that business acumen. ... In the NHL, we believe that we have to work a little bit harder."

Darren Rovell writes on sports business for ESPN.com. He can be reached at darren.rovell@espn.com.





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