The Ottawa Senators
Case Study, Professor Tuck MacRae
University of Ottawa
The Ottawa Senators Hockey Franchise
Case Study, University of Ottawa*
The bright spring sun danced off the glimmering gold exterior of the Corel
Centre with the intensity of a
thousand Roman centurions
marching off to war. The
temperature was 22 degrees
Celsius; a far cry from the
week before that had seen
lows of minus 20 and had
brought 40 centimeters of
snow to the region. The
winters in Ottawa were no
longer predictable. Enormous
temperature swings, coupled with raging ice and snow storms, had made
1997-98 a winter that would live on for generations in the stories of those
who survived it. Ironically, it was not only the weather patterns that were
changing.
It was March 28, 1998 and the Ottawa Senators hockey club had just lost
a hard hitting, crucial game to the Chicago Blackhawks. With only eleven
games left in their regular season, Rod Bryden, chairman and governor of
the club, wondered if his team could hold on to the last playoff spot in the
Eastern Division. Only four points separated them from the Carolina
Hurricane, a club that had gradually eroded away the point gap from
seven to five and now to four. To make things worse, Carolina had thirteen
games left to play. It would be a tense three weeks.
Bryden knew that the playoffs were the only way to reduce the projected
five million-dollar operating loss, a loss that could make the difference
between the team staying in Ottawa or moving to another city. Since
1992, when the team first entered the National Hockey League, they had
never turned a profit. For most National Hockey League franchises, this
would not have been a problem; they were owned by large entertainment
and communications conglomerates, but not the Senators. Ownership
structures, like Ottawa’s weather, had drastically changed over the past
decade. No longer was there room for community or family ownership and
the old-fashioned syndicates were quickly becoming a thing of the past.
As Rod left his office, he reflected back on the previous season. Ottawa
had made the playoffs and the additional gate receipts and broadcast
revenues had significantly reduced the projected loss. Closing his door,
he speculated on the future of hockey in Canada. He tried to think of ways
* The author wishes to acknowledge the participation of the Ottawa Senators Hockey Club
Inc., Palladium Corp., Ogden Corp., Stormont Entertainment Corp., and all interview
participants (see final page). This case was written for the sole purpose of providing material
for analysis and discussion. It is not intended to illustrate either effective or ineffective
handling of a managerial situation. Any reproduction, in whole or in part, is prohibited without
the prior written consent of the copyright holder.
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to reduce the team’s dependency on playoff revenues, and hoped that
Philadelphia would crush Carolina when the two teams met the next day.
The Entertainment Industry
It was estimated that, in 1997, Americans spent an average of 9.5 hours
each day watching television, going to movies, renting videos, reading
magazines, listening to music, or surfing the Web. Along with healthy
consumer spending on entertainment, there had been a dramatic increase
in the amount of money spent by advertisers.
Sales of advertising space had become so strong that cable and network
broadcast companies were able to increase revenues even as their
viewership shrank. The cost of ad time was not going up, and so the
networks were jamming more spots into each half-hour and hoping the TV
audience would not notice. In 1986, ABC aired an average of 6.25
minutes of ads per hour of prime time. By 1997, ABC treated viewers to
an average of 9.5 minutes of ads. Ironically, ad buyers were still
clamoring to buy time on the networks’ biggest shows. This was because
a broadcast or cable network was still the best way to capture 30% of the
audience in one shot. Unfortunately, revenues are not profit.
As the supply of entertainment and media offerings ballooned, consumers’
appetites had hit a plateau. The investment banking and research firm
Veronis, Suhler & Associates Inc. reported that per capita consumer
spending on media and entertainment in 1997 was approximately $546.
That was up a healthy 40% from 1990, but the growth rate was projected
to slow down. It was estimated that consumer spending would increase
by only 19% over the next three years, despite the booming economy.
Further estimates for 1998 indicated that 58% of American homes would
be tuned in to broadcast TV (cable and network) at some point in time
during a typical 24-hour period, down from 60% in 1997. For the Big Three
networks, the outlook was even worse. ABC, CBS, and NBC had
controlled as much as 91% of the audience in 1980, but projections
showed that their combined marketshare would probably drop below 50%
in 1998.
The ratings race among the networks would, in all probability, tighten
considerably in 1998. There was heavy speculation that, to buttress their
ratings, NBC, Fox, and ABC were likely to bid nearly $7 billion to keep pro
football in their line-up, up 90% from the previous four-year period.
However, with ad dollars for football up by only 27% over the previous
year, margins at the winning networks would still decline. It was notable
that the networks were willing to pay more for football despite slipping
ratings and franchise shifts that had left major markets-Houston,
Cleveland and Los Angeles-without home teams. In the final analysis,
broadcasters wanted the rights because they did not want the competition
to have them.
In general, the cost of programming was increasing faster than advertising
revenues. However, even with the potential for a decrease in profit
margins, media companies were still snapping up sports teams and
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programming for a couple of compelling reasons. In the fragmented
American TV market, sports seemed to be the only way to land a
substantial and predictable audience, and that in turn drew advertising
revenue. Secondly, media companies found it cost-effective to own the
teams that drew the audience. Owners could lose money at the gate, but
get some back by paying themselves for regional broadcast rights and
also through national broadcast revenue distribution to the individual
teams.
The fact that players’ salaries continued to increase at a faster rate than
team revenues, meant that certain teams had to find alternate sources of
funds to remain competitive. Often the best source was a corporate
owner who could realize synergistic benefits between a professional
sports team and its existing businesses. Sports had become an attractive
addition to an entertainment or communication company’s portfolio
because owning a team was similar to owning a movie or television studio;
all could create value by adding customers. Entertainment companies, by
their very nature, knew how to attract customers or they did not remain in
business very long.
As professional sports franchises continued to grow in size (i.e. revenues)
and value, the percentage of corporate owners was expected to increase,
as it became difficult for individuals to foot the bill to remain competitive. In
light of players with multimillion-dollar contracts, the big entertainment and
communication companies offered hometown fans something few
individual owners could: Pockets deep enough to sign the star players
needed to field a contender.
In 1997 the only “pure play” publicly-traded sports team was the Boston
Celtics. This had not always been the case. Previously, there were
several teams whose shares were available to the public including the
Baltimore Orioles, Cleveland Cavaliers, New England Patriots, Milwaukee
Bucks, Toronto Maple Leafs and Vancouver Canucks. Other than the
Celtics, each of these teams had gone “private.” Their prices were
sometimes volatile, and the public shareholders typically made a
meaningful profit only when the team was sold. This was because sports
teams, as “pure plays,” were not good investments due to the highly
seasonal revenue stream, regular labor strife, continually increasing labor
costs, and lack of market liquidity. In contrast to “pure play” investments,
potential synergies and better returns were available when the team
represented a supporting role within a diversified
media/entertainment/leisure company.
The synergistic benefits attained from the alliance of professional sports
teams with media, entertainment and communications companies
continued to be a factor in ownership structures throughout 1995, 1996
and 1997. Notable mergers and acquisitions included:
1. Gaylord Entertainment Co. as an investor in the Nashville Predators
NHL expansion franchise.
2. General Electric, the owner of NBC, as an indirect investor in the
New York Knicks and New York Rangers.
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3. News Corp. as an indirect investor in the New York Knicks and New
York Rangers and its pending acquisition of the Los Angeles
Dodgers.
4. Microsoft Corp., with a growing presence in communications,
became an indirect investor in the Philadelphia 76ers and Flyers
through its investment in Comcast Corp.
5. The Walt Disney Co. and its holdings in the Anaheim Mighty Ducks
and its bid for the Anaheim Angels.
6. The Tribune Company’s ownership of the Chicago Cubs.
7. Turner Broadcasting Systems’ investment in the Atlanta Hawks and
Atlanta Braves.
The Montreal Canadiens’ ownership was another example of the intricate
intertwining of sports and entertainment. The Canadiens Hockey Club
was a wholly owned subsidiary of the Toronto-based Molson Companies
Limited. Molson was a diversified corporation whose primary business
interests were brewing, retail merchandising and professional sports and
entertainment.
Molstar Sports and Entertainment was a wholly-owned subsidiary of
Molson formed in 1996 that combined the assets of Molstar
Communications, a company specializing in sports/entertainment
programming, and Molstar Indy, which handled Molson’s auto racing
interests.
Molson joined CTV, Rogers Communications and U.S.-based Fox Sports
to form CTV Sports Net, an all sports cable network in Canada. In July
1997, the NHL discontinued its practice of selling its Canadian national
television rights to the Canadian television networks. The league
subsequently entered into a four-year, $60 million deal with CTV Sports
Net for national cable telecasts. Molstar then sold its stake in the
company to Rogers in November 1997.
Historically, Canadian sports franchises or leagues generated TV revenue
by selling their rights in three categories: national over-the-air rights, local
over-the-air rights and national cable rights. This changed when the
Canadian Radio-television and Telecommunications Commission (CRTC)
licensed CTV Sports Net as the country’s only “regional” sports network.
This new segmentation provided a fourth TV revenue stream: regional
cable rights.
While new to Canada, this regional cable market had existed in the U.S.
for many years, and it had been an advantage for broadcasters and sports
franchises alike. The channels needed regional programming to fill up
their schedules and the team owners needed the additional TV revenue to
help pay their monstrous player salaries.
In the U.S., the Fox network used regional stations to sell most of its
sports programming. With Fox owning 20% of CTV Sports Net (another
40% was owned by Baton Broadcasting Inc.; Molson Cos. Ltd. and Rogers
held the rest), the strategic direction became clear: using the Fox
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example, CTV Sports Net could piggy-back its operations on the existing
infrastructure of its owners, thereby minimizing the start-up costs.
Due to the CRTC regulations, each of the four regions (the West Coast,
the Prairies, Central Canada, and Quebec/Atlantic provinces) required
33% local programming. This gave CTV Sports Net a grassroots flavor
that TSN could not match. It also highlighted one of TSN’s biggest
handicaps - the fact that it had to schedule a considerable amount of
Toronto-based programming in order to attract the large southern Ontario
audience.
Another realignment occurred in the United States. Comcast Spectacor
launched Comcast Sports Net, a 24-hour regional sports network that
televised Philadelphia 76ers, Flyers, Phantoms and Phillies games. The
network was a joint venture between Comcast Spectacor and the Phillies.
Comcast also owned a series of cable companies along with investments
in the QVC retail television network, Golf Channel, and the majority
interest in the Entertainment cable channel (E channel).
In the west, Fox Sports Rocky Mountain acquired exclusive regional
television broadcast rights to the Avalanche and Nuggets as part of a
seven-year deal reportedly worth $100 million. The Colorado Avalanche
were wholly-owned by Denver-based Ascent Entertainment Group.
Ascent was a publicly-owned entertainment and media company that held
interests in on-demand multimedia entertainment, professional sports
franchises, major motion pictures (Air Force One) and television products.
In general, a sports franchise had an entirely different kind of value for a
corporate owner than it did for a family or an old-fashioned syndicate. If
annual profitability was the key success factor then a company was better
off with a Burger King franchise than it was with a sports team. Soaring
salaries were likely to force almost half the National Basketball
Association teams into the red for 1998, despite an expected 13%
increase in league revenues. In baseball, teams lost in aggregate between
$200 million and $300 million in 1997. However, if the team was part of a
diversified entertainment portfolio, the synergies and economies of scale
and scope could greatly reduce the loss potential.
Professional Sports
Major League Baseball (MLB)
Team Values (7/28 teams)
($000,000’s) 1992 1993 1994 1995 1996 1997
New York Yankees $200 $160 $166 $185 $209 $241
Colorado Rockies ----- ----- $110 $117 $133 $184
Toronto Blue Jays $160 $155 $150 $146 $152 $155
Oakland Athletics $115 $124 $114 $101 $97 $115
Detroit Tigers $85 $97 $89 $83 $106 $110
Anaheim Angels $103 $105 $93 $88 $90 $93
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($000,000’s) 1992 1993 1994 1995 1996 1997
Montreal Expos $75 $86 $75 $76 $68 $77
Team Low $75 $81 $75 $70 $62 $71
Team High $200 $160 $166 $185 $209 $241
Team Mean $116 $109 $108 $111 $115 $134
Major league baseball, which had seen more than its share of problems,
was beginning to climb back. Attendance in 1997 was the second highest
ever. The commissioner’s job, vacant for five years, had been filled and
expansion franchises in Phoenix and St. Petersburg were poised for a
quick start. St. Petersburg’s team, the Tampa Bay Devil Rays, had already
sold 2 million tickets for 1998. Seats for its home opener were snapped
up in a scant 17 minutes.
All things considered, the team valuations were still illustrative of a
professional league without an appropriate economic structure to ensure
long-term competitiveness among teams. Major League Baseball had
minimal revenue sharing and no salary cap. Those two factors allowed
large market teams or those with significant revenue generating capability
to pay large sums of money to attract top players. This situation had
affected league development and had generated a large gap between
those teams that had financial strength and those that did not.
Ownership Guidelines
Major League Baseball (MLB) had no defined ownership criteria. It did
allow cross-ownership and corporate ownership of its franchises; however,
there were certain key characteristics upon which MLB looked favorably.
Generally, the league favored local individuals and not corporations. This
unwritten criteria underpinned MLB’s attempts to keep the interests of
baseball above that of outsiders, and to maintain baseball’s selfgovernance,
and limited financial disclosure.
This restriction was hurting some franchises that had become financially
destitute. Faced with the potential collapse of these teams, the MLB
began to relax the ownership paradigms and began to accept ownership
by media, entertainment and communications companies. At the outset,
these affiliations demonstrated the benefits created by the synergy of
entertainment and sports. Teams served as sources of programming that
drew advertising revenue. The advertising revenues were invested back
into the team and were accompanied by revenues for regional broadcast
rights. These revenue streams were used to develop a more competitive
team that drew more fans to the gates.
Labor Agreement
The collective bargaining agreement called for a minimum player salary of
$170,000 for 1998 and $200,000 for 1999. In 1999, the players would
receive a reduced share of the pool accumulated over the first three postseason
games. Instead of receiving 80 percent, they would receive a 60
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percent share. There were no salary caps in the agreement and teams
were allowed to bid what ever they wanted for the top players.
Stadiums
Baseball clubs began to differentiate themselves from other stadium
sports by breaking their teams out of facilities they shared with football
teams. Through the use of public funds and owner investments, teams
began to move into intimate, highly stylized ballparks.
National Basketball Association (NBA)
Team Values (7/29 teams)
($000,000) 1992 1993 1994 1995 1996 1997
New York Knicks $83 $87 $136 $173 $205 $250
Los Angeles Lakers $150 $155 $168 $169 $171 $211
Portland Trailblazers $78 $84 $122 $132 $137 $179
Toronto Raptors ----- ----- ----- ----- ----- $138
Vancouver Grizzlies ---- ---- ---- ---- ---- $127
Atlanta Hawks $57 $54 $72 $84 $96 $111
Los Angeles Clippers $54 $54 $83 $87 $88 $95
Team Low $43 $45 $67 $77 $89 $95
Team High $150 $155 $168 $180 $205 $250
Team Mean $70 $71 $99 $113 $127 $148
Corporate Ownership and Synergy
The NBA allowed and encouraged corporate ownership and crossownership
of its franchises. Cross-ownership with NHL franchises was a
way to create the number of annual event dates necessary to ensure
successful operation of their new arenas or cable networks. Corporate
ownership in the NBA involved a high concentration of media,
communications and entertainment companies. In most cases, the
escalating costs of owning a NBA franchise, combined with the lack of
synergistic opportunities, discouraged non-media corporations from buying
teams.
Labor Agreement
Under the collective bargaining agreement signed in 1995, players shared
in all revenues from all sources, including luxury suites, arena signage,
sponsorship, parking, and concessions. Under certain circumstances, the
league had the right to re-open the agreement after three years; in 1998,
this was a strong possibility. NBA officials asserted that 13 of the leagues
29 teams had lost money in 1997 and cited rising player salaries as the
chief culprit. However, rising player salaries were the fault of the owners.
A salary cap intended to slow the growth of team payrolls had been
ineffective because of a variety of loopholes and at least 20 teams had
exceeded the salary limit of $26.9 million. Without a new labour
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agreement, it was estimated that players’ salaries could reach $32 million
by the year 2000, depending on the growth of league revenues.
Media Issues
In November 1997, the league signed $2.4 billion worth of contract
extensions with its established broadcast partners, NBC and Turner
Sports. NBC agreed to a four-year, $1.6 billion deal to serve as the overthe-air
broadcast network of the league through the 2001-02 season.
Turner Sports signed a $800 million, four-year contract to serve as the
league’s cable outlet for the same period. As part of the agreements, the
league would receive its first payments from the new deals regardless of
whether the league experienced a strike or lockout.
National Football League (NFL)
Team Values (7/30 teams)
($000,000) 1992 1993 1994 1995 1996 1997
Dallas Cowboys $146 $165 $190 $238 $272 $320
Jacksonville Jaguars ---- ---- ---- ---- $145 $239
Chicago Bears $139 $136 $160 $161 $184 $204
Green Bay Packers $115 $116 $141 $154 $166 $186
Denver Broncos $114 $119 $147 $150 $164 $182
Pittsburgh Steelers $121 $120 $143 $144 $154 $173
Indianapolis Colts $121 $122 $141 $134 $145 $170
Team Low $103 $102 $138 $134 $133 $170
Team high $150 $165 $190 $238 $272 $320
Team Mean $125 $129 $153 $160 $174 $205
Corporate Ownership History
With the exception of two teams, the NFL had restricted ownership to
individuals, partnerships, and family holding companies since 1970. This
ban on corporate ownership was beginning to worry some stakeholders
and many of them had begun to push the league for a review of the policy.
They feared that the escalating costs of owning and operating NFL
franchises would force them into the red and without the potential to tap
into the deeper pockets of corporations they believed that their financial
viability could be in question.
NFL Economics
The economics of the NFL had changed monumentally over the past few
years. The first change was the creation of a player salary cap as part of
the league’s 1993 Collective Bargaining Agreement with its players.
Although termed a “Cap,” the result of this provision was the creation of
another level of revenue sharing, this time with the players. The other
result was the emergence of stadium economics as a unique and
substantive resource in putting a competitive team on the field.
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Over a twenty-five-year period, player costs as a percentage of revenues
had increased from approximately 48 percent in 1970 to approximately 63
percent in 1990. NFL owners recognized that the league could not survive
with its costs growing faster than its revenues.
As a result, the owners asked the players to enter into a new relationship.
In essence, the agreement granted the players a more liberalized form of
free agency in exchange for standardizing the amount of revenues that
had to be shared with the players for the term of the agreement.
One of the most common misconceptions about the salary cap was that it
limited the total amount that teams could spend on players. The
Collective Bargaining Agreement stated that the league would spend at
least 58 percent of gate receipts on player costs in any capped year. In
addition, the agreement with the players allowed teams the opportunity to
prorate signing bonuses over the life of each player contract.
Stadiums
Although market size was important in determining the revenue-generating
power of an NFL franchise, stadium economics had quickly overtaken
market size in determining a team’s fiscal success. In fact, stadium
economics had become such an important part of NFL economics that it
drove many of the league’s most important strategic decisions.
Long gone were the days when team owners were satisfied to lease a
stadium from a city during the season and merely pocket a percentage of
the gate receipts. “We operate in a highly competitive entertainment
environment,” said Roger Goodell, the NFL’s point man on stadium
issues. “Our teams have to be in high-quality stadiums because that’s half
the sports experience. It’s not just about the play on the field anymore.”
That’s why, for example, Oregon billionaire Paul Allen waited to exercise
his option to buy the Seattle Seahawks football franchise until after voters
approved the $425 million stadium-finance package. Without the new
stadium as the core of the franchise, the money-losing Seahawks just did
not measure up as a property worth owning.
The importance of stadium economics on a team’s on-field success was
evident by the fact that Carolina and Jacksonville, both with new state-ofthe-art
facilities, advanced to their conference championship games in
their second year of existence. Both teams’ rosters included several highpriced
free-agent players.
Stadium revenues were derived from skybox leases, advertising,
concessions, ticket sales, naming rights and parking. The importance of
these revenues, in contrast with other forms, was that they were not
shared by other teams or with the players. They were used to invest in
player talent, improved facilities, coaches, and player personnel staff, all
integral components in building and maintaining a successful team.
In September 1997, NFL Commissioner Paul Tagliabue summarized the
league’s position on new facilities. He stated that: “Building on our recent
success in developing stadium partnerships between NFL teams and their
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communities is a major priority. Our goal is for all our teams to play in
state-of-the-art facilities in their existing markets.”
The National Hockey League
In 1967-68, the NHL doubled to 12 teams. At that time the league
charged $2 million U.S. for each expansion franchise. When they added
four more teams in the late 1970s, the price went to $6 million U.S. By the
late 1980s, owners were anxious to generate additional revenues through
yet another expansion, but found it difficult to set a franchise price.
In 1991, when Ottawa and Tampa Bay applied for franchises, the Buffalo
Sabres suggested the league set the fee at $42 million U.S., simply
because it divided neatly among 21 teams. The Pittsburgh Penguins
wanted to ask for $65 million U.S. The owners settled for $50 million U.S.
per franchise. When the established teams came to vote the following
morning, only one was hesitant, the Philadelphia Flyers, which abstained
from the Ottawa endorsement. All 21 backed Phil Esposito and the Tampa
Bay bid. “Take the money now!” one owner shouted from around the table.
“Deal with the future later!” added another.
It was very nearly a total disaster. Both teams had terrible problems
producing the cash they claimed they had. The Tampa Bay Lightning
remained in deep financial trouble through the 1997–98 season. Bruce
Firestone lost the Senators to majority owner Rod Bryden, who later joined
with Ogden Corp., to build the Corel Centre.
By 1996, NHL clubs were losing, on average, between $6 million and $10
million a year. However, this did not seem to bother the corporate heavy
hitters who agree to pay $80 million U.S. or more for an expansion
franchise.
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Team values (9/26 teams)
($000,000) 1992 1993 1994 1995 1996 1997
Chicago Blackhawks $61 $67 $80 $102 $122 $151
Detroit Red Wings $70 $87 $104 $124 $126 $146
Toronto Maple Leafs $54 $63 $77 $90 $96 $105
Montreal Canadiens $62 $73 $82 $86 $86 $95
Vancouver Canucks $45 $61 $69 $87 $91 $91
New York Islanders $53 $55 $53 $53 $60 $74
Calgary Flames $55 $52 $50 $50 $54 $72
Ottawa Senators N/A N/A $50 $56 $56 $67
Edmonton Oilers $55 $51 $46 $42 $42 $52
Phoenix Coyotes $30 $35 $35 $35 $34 $43
Team Low $30 $35 $35 $35 $34 $43
Team High $70 $87 $104 $124 $126 $151
Team Mean $50 $57 $61 $71 $74 $90
In contrast to the other leagues, the NHL was still a fledgling enterprise as
it continued to expand its geographic reach in search of a larger fan base.
The franchise relocations to Dallas, Denver, Phoenix and Charlotte,
together with the expansion franchises of Nashville, Atlanta, Columbus
and St. Paul, gave the NHL hope that it had generated the geographic
diversity required to garner large national broadcasting contracts.
Corporate Ownership
As a league, the NHL encouraged corporate ownership through mergers
and consolidations, especially with media, entertainment and
communications industries. They viewed these changes in the ownership
structures as being synergistic and economically beneficial. They also
saw them as a way in which to capture more network and Cable TV
broadcast dollars.
Labor Agreements
The NHL and its players had a collective bargaining agreement that
extended through the 2003-04 season. Key components of the
agreement included the establishment of a rookie salary cap and the
introduction of a restricted form of free agency. These provisions were
included to reduce the imbalance between small and large market teams’
abilities to attract and retain quality players. Thus, while the agreement
was not a panacea for all small market ills, it did help narrow the gap
between small and large market teams when it came to rookie salaries.
The downside to the agreement was that it did not cap signing bonuses,
nor did it provide protection against bidding wars for veteran NHL free
agents.
Salary Examples as at December 1997
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Player Team 1997-98
Salary
1997-98
Bonus
1998-99
Salary
Joe Sakic Colorado $2 million $15 million $2 million
Chris Gratton Philadelphia $1 million $9 million $1.5 million
Eric Lindros Philadelphia $7.5 million $8.5 million
Wayne
Gretzky
N.Y. Rangers $6.5 million $5.5 million
Mark Messier Vancouver $6 million $6 million
Pavel Bure Vancouver $5.5 million $6 million
Paul Kariya Anaheim $5.5 million $8.5 million
Jaromir Jagr Pittsburgh $5.1 million free agent
Steve
Yzerman
Detroit $5 million $4.8 million
Alexei Yashin signed a $13 million (US) contract with the Ottawa Senators
in December 1995.
Sergei Federov signed a six-year $38 million (US) contract in 1998 that
would pay him $24 million (including $2 million in salary) for playing one
third of the season. That was roughly equivalent to the entire $29 million
Montreal Canadiens payroll.
Expansion
In 1997, the league awarded four new franchises. The Nashville
Predators, owned by Wisconsin businessman Craig Leipold and the
Gaylord Entertainment Company, were scheduled to begin play in 1998-
99 at the 17,500 seat, $144 million Nashville Arena. Atlanta Hockey Inc.
was owned by Time Warner Inc. The team, would begin play in the 1999-
2000 season and would share a 20,000 seat, $213.25 million arena with
the NBA Atlanta Hawks.
The remaining expansion franchises were to begin play during the 2000-
01 season. The Columbus Blue Jackets were owned by JMAC Hockey,
an investor group headed by John McConnell, founder of Worthington
Industries. The team would play at Nationwide Arena, a 19,000-seat,
$125 million arena being constructed in downtown Columbus. The last of
the expansion teams, the Minnesota Wild, were owned by a 14-member
investor group headed by Minnesota businessman Robert Naegele. The
team would play in a new $130 million arena to be built in St. Paul.
Media Issues
In October 1997, the NHL signed a four-year $265 million (Canadian) deal
with the Canadian Broadcasting Corporation for the league’s Canadian
national English language broadcast rights. Shortly after, the league
signed a four-year $60 million agreement with CTV Sports Net that made
CTV the league’s English-language Canadian cable outlet.
In the U.S., the NHL’s $13 million per-year deal with ESPN was to end
after the 1997-98 season and the $155 million, five-year agreement with
Fox Television was to expire after the 1998-99 season.
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1997-98 Attendence
Average Home Game Attendance as at January 16, 1998
Team ‘96-97 Season ‘97-98 to Jan. 16 Difference
Ottawa 15,377 16,050 +4.4
St. Louis 16,807 17,496 +4.1
L.A. 12,297 12,701 +3.3
New Jersey 16,398 16,817 +2.6
Dallas 15,997 16,185 +1.2
Philadelphia 19,313 19,433 +0.6
Edmonton 16,044 16,122 +0.5
N.Y. Rangers 18,188 18,200 0.0
Detroit 19,976 19,983 0.0
Florida 14,703 14,703 0.0
Colorado 16,061 16,060 0.0
Toronto 15,704 15,697 0.0
Anaheim 16,977 16,744 -1.4
Calgary 17,089 16,752 -2.0
Montreal 21,002 20,543 -2.2
San Jose 17,423 17,012 -2.4
N.Y. Islanders 12,495 12,176 -2.6
Vancouver 17,320 16,851 -2.7
Phoenix 15,604 14,899 -4.5
*Washington 15,762 14,746 -6.4
Boston 15,551 14,451 -7.1
Pittsburgh 16,691 15,204 -8.9
Chicago 19,397 17,597 -9.3
Buffalo 16,912 14,766 -12.7
Tampa Bay 17,443 14,122 -19.0
*Carolina 13,680 8,544 -37.6
Overall 16,573 15,891 -4.1
NOTE: *Washington moved into new building in December; Hartford franchise moved to Carolina for 1997-98
season.
Stadiums
By the 1999-2000 season, 21 of the NHL’s 26 franchises would be playing
in arenas less than a decade old.
In November 1997, Ascent Entertainment Group broke ground on the
$160 million Pepsi Centre, a new home for the Colorado Avalanche and
the NBA Denver Nuggets. The negotiated agreement between the
company, city, and county included a series of subsidies and concessions
for the new arena. These included $4.5 million for infrastructure, $2.25
million for sales tax rebates during construction and $2.1 million annually
in property tax exemptions plus rubber stamp zoning change approvals.
The agreement meant that the City and County would lose the
approximately $4 million in seat tax revenues that had been generated at
the existing McNichols Arena.
In return, Ascent agreed to pay the city $1 million to $2 million annually,
providing that it could offset those payments with sales taxes collected on
concessions at the facility. Ascent also agreed to pay the first one million
dollars in demolition costs for McNichols Arena. The new Pepsi Center
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contained 19,309 seats, 1,850 club seats, and 95 fully furnished luxury
suites ranging in price from US$95,000 to $185,000.
On December 2, 1997, the new 20,000-seat MCI Center opened in
downtown Washington D.C., the new home of the Washington Capitals
and NBA Washington Wizard. The Center offered a Models Sporting
Goods store, American Sportscasters Hall of Fame, MCI National Sports
Gallery, and a Destination DC store as some of the unique amenities. The
facility cost $260 million to build ($200 million for the building and $60
million for site costs) and was funded entirely through tax dollars. The
agreement to pay back the public funds was based on a special arena tax.
Each company operating in the arena would be taxed based upon the
companies’ gross receipts. Taxes ranged from $25 to $8,400 per year.
On January 17, 1998, Dallas voters approved a $125 million package to
assist the financing of a new arena for the Dallas Stars and NBA Dallas
Mavericks. In the agreement, the funds to repay the public portion of the
financing would come from a 5 percent car rental tax, 2 percent hotel tax
and $3.4 million from the annual team lease payments. The teams would
build a new 20,000-seat, $230 million facility that would contain 100 luxury
suites and 2,500 club seats. In addition to the $132 million in lease
payments over the term of the 30-year agreement, the teams would
contribute $105 million for construction costs. The teams would be able to
buy the new arena from the City of Dallas at the end of the 30-year lease
for $1 million. The teams would retain all arena revenues as part of the
deal.
On Feb. 12, 1998, Sun Media, owners of the Toronto Maple Leafs,
announced a deal to buy the NBA Toronto Raptors and move both teams
into a “redesigned” Air Canada Centre. The deal also included the
purchase of nearby Union Station, which would likely be the new home of
a sports, entertainment, and shopping complex. In their new home, the
Leafs could build lucrative corporate partnerships and may end up with as
much as $30 million (Canadian) more to play with per year.
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Luxury Suite and Club seat Overview
Name No. of
Luxury
Suites
Luxury Suite Price
Range
Club
Seat
Quantity
Club Seat Price
Range
Boston Bruins 104 $170,00-$260,000 2,350 $10,700-
$13,000/season
Buffalo Sabres 80 $55,000-$100,000 5,000 $2665/season
Calgary Flames 72 C$36,000-$85,000 1,461 C$1,500 1x fee +
$3,195/season
Carolina Hurricanes 65 $110,000-$140,000 2,000 $5,000/season
Chicago
Blackhawks
216 $65,000-$190,000 3,300 $1,000 annual
fee+$50/game
Colorado
Avalanche
27 $90,000 None
Dallas Stars None 5,154 $52-$82/game
Detroit Red Wings 86 $55,000-$175,000 None
Edmonton Oilers 39 C$32,500-$125,000 3323 C$65-$75/game
Florida Panthers 16 $70,000-$120,000 None
Los Angeles Kings None $2,400 $9,200/season
Anaheim Mighty
Ducks
84 $81,900-$114,450 1,716 $4,375-
$7,725/season
Montreal
Canadiens
135 C$64,000-$140,000 2,674 C$1,600 annual
fee+$70/game
New Jersey Devils 29 $155,000-$210,000 None
New York Islanders 33 $84,000-$260,000 153 $80-$90 / game
New York Rangers 89 $250,000-$300,000 3,775 $95,$110,$125 /
game
Ottawa Senators 148 C$39,000-$150,000 2,500 C$3,177-
$3769/season
Philadelphia Flyers 126 $75,000-$155,000 1,800 $3,300/season
Phoenix Coyotes 88 $43,000-$48,000 2,001 $3,300/season
Pittsburgh
Penguins
56 $72,000-$140,000 1696 $4,3000/season
San Jose Sharks 68 $62,000-$125,000 3,000 $63 and $73 / game
St, Louis Blues 91 $37,500-$120,000 1,684 $3,990/season
Tampa Bay
Lightning
72 $55,000-$100,000 3,300 $2,400-
$2,800/season
Toronto Maple
Leafs
85 C$34,000-$192,500 None
Vancouver
Canucks
75 C$100,000-$190,000 2,195 C$3,915/season
Washington
Capitals
110 $100,000-$175,000 3,000 $7,500/season
Naming Rights Deals
The naming rights agreements entered into during 1997 included a variety
of industry categories and saw the establishment of a new record price for
such deals.
It was anticipated that 1998 would see teams and facilities offer more
industry-specific opportunities that would allow sponsors to generate
incremental business as a result of their naming rights deal. The days of a
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team merely placing a name on the facility and putting a logo on
concession containers and employee uniforms were viewed as a thing of
the past. By allowing corporate sponsors the opportunity to generate
more revenues, teams and facilities believed that they could ask potential
sponsors for more money for the naming rights.
Naming Rights Agreements
Cross-section of major league teams
Team Name Company Name Facility Name Length Est. Value
Boston Bruins Fleet Financial Group Fleet Center 15 years $30 million
Buffalo Bills Rich Products Rich Stadium 25 years $1.5 million
Calgary
Flames
Canadian Airlines Canadian
Airlines
Saddledome
20 years C$10
million
Cincinnati
Bengals
Cinergy Corp. Cinergy Field 6 years $6 million
Florida Marlins Pro Player Pro player
Stadium
10 years $20 million
Houston
Rockets
Compaq Compaq Center 6 years $5.4 million
Los Angeles
Lakers
Staples Staples Center 20 years $100
million
Miami Heat American Airlines American
Airlines Arena
20 years $42 million
Mighty Ducks
of Anaheim
Arrowhead Water Arrowhead
Pond of
Anaheim
10 years $15 million
New Jersey
Devils
Continental Airlines Continental
Airlines Arena
12 years $29 million
Ottawa
Senators
Corel Corporation Corel Center 20 years C$26
million
Philadelphia
Flyers
CoreStates Financial
Group
CoreStates
Centre
29 years $40 million
Seattle Super
Sonics
Key Bank Key Arena 15 years $15.1
million
Toronto
Raptors
Air Canada Air Canada
Center
15 years C$45
million
Vancouver
Canucks
General Motors General Motors
Place
20 years C$18.5
million
NHL Revenue Equalization and Sharing
In an effort to stem the exodus of franchises from Canada to the U.S., the
NHL created a currency equalization plan designed to reimburse
Canadian teams for the currency imbalance between countries. Funds for
the plan came from league-generated television, licensing and
sponsorship revenues. To qualify for the plan, a Canadian team had to
show that their revenues were below but not less than 80 percent of the
league average or by selling a defined number of season tickets, luxury
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suites and dasherboards. Eligible teams could receive up to U.S. $5
million. The Calgary Flames, Edmonton Oilers and Ottawa Senators
received funds from the pool in 1997.
After the equalization payments were calculated, the balance of the
league revenues generated from national broadcast and merchandise
licensing rights were split evenly amongst the 26 teams. In 1997-98, this
amounted to approximately $2.8 million per team.
Taxes and Currency Issues
Most U.S. teams paid little or no property taxes on their arenas. Canadian
teams however, were among the most highly taxed in the NHL and would
have welcomed some government relief. Montreal paid the most taxes at
$11 million per year, while Ottawa and Vancouver paid about $4 million
per year.
In addition to tax issues, the 40 per cent difference between Canadian and
U.S. currencies also caused problems because most expenses for
Canadian NHL teams, such as salaries, were paid in U.S. funds, while
revenues were collected in Canadian money.
An example of how sales taxes and currency values eroded most
Canadian team admission revenues could be seen when put in the
context of a $100 admission ticket. Canadian teams paid between 7% and
17% sales and entertainment tax on each ticket sold while U.S. teams
paid between 0% and 10%. The following table shows the resulting
calculations based on a $100 ticket.
Deductions Canadian
Team at 7%
Tax rate
Canadian
Team at 17%
Tax rate
American
Team at 0%
Tax rate
American
Team at 10%
Tax rate
Tax $6.55 CDN $14.33 CDN $0 $9.10 US
Loss on
Conversion
$29.90 $27.36 $0 $0
Net in US$ $63.55 $58.11 $100 $90.90
NHL Financial and Operating Statistics for 1996-1997
Team Payroll
(US$)
(%)
Capacity &
Attendance
Average
Ticket
Price
(US $)
Taxes &
Surcharges
Season
Tickets
Market
%
Index
Fan
Cost
Index
(US$)
Boston
Bruins $20,724,219
(89%)
637,575 $53.56
2% ticket
surcharge N.A. .11 $295.25
Buffalo
Sabres $20,315,835
(91%)
693,379 $31.46
2.25% admit
+8% sales tax 9,120 .58 $184.84
Calgary
Flames $19,955,000
(91%)
697,000 $29.04 7% GST 13,000 .90 $163.78
Colorado
Avalanche $43,699,713
(100%)
658,501 $49.28 0 12,500 .29 $266.62
Dallas
Stars $31,848,522
(95%)
655,878 $28.74 0 9,204 .15 $173.45
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Team Payroll
(US$)
(%)
Capacity &
Attendance
Average
Ticket
Price
(US $)
Taxes &
Surcharges
Season
Tickets
Market
%
Index
Fan
Cost
Index
(US$)
Detroit
Red Wings $28,397,063
(100%)
819,107 $43.68 0 17,000 .16 $237.22
Edmonton
Oilers $20,354,000
(94%)
658,146 $25.50
7% admit,
$0.25 ent + 7%
GST
13,500 1.03 $150.40
Anaheim
M/Ducks $28,950,000
(99%)
695,867 $41.20 0 12,000 .27 $232.28
Montreal
Canadiens $28,130,723
(99%)
861,082 $35.46
7% sales tax
7% GST 18,000 .28 $194.83
New York
Rangers $44,151,893
(100%)
746,200 $38.54 0 14,000 .04 $256.67
Ottawa
Senators $21,850,000
(83%)
630,196 $33.95
8% PST, 7%
GST, 2% ent. 9,500 2.00 $184.53
Philadelphia
Flyers $35,688,855
(99%)
791,753 $52.75
5% sales tax
+5% ent. tax 14,750 .13 $273.02
Tampa Bay
Lightning $21,525,000
(89%)
713,891 $35.90
6.75% admit
tax 7,300 .33 $203.11
Toronto
Maple Leafs $22,747,128
(99%)
643,884 $46.18
10% sales tax
+7% GST 13,773 .16 $247.03
Vancouver
Canucks $32,207,500
(94%)
710,136 $36.01 7% GST 12,100 1.39 $201.07
Washington
Capitals $31,385,704
(80%)
646,234 $50.36 0 5,500 .09 $272.95
Note:
Payroll: total player payroll in US$ for 1996-97 season-figures from the NHL players association.
(%) Capacity & Attendance: total attendance for forty-four home games-1996-97 regular season-and percent
capacity (total attendance divided by total capacity).
Tickets-Avg. price: is a weighted average of day-of-game ticket prices in US$ for all seating areas excluding
luxury suite seats and club seats.
Taxes: include admission tax, surcharges, and sales tax placed on each ticket.
Season Ticket Sales: season tickets sold for the 1996-97 season, which includes either full-season tickets
sold or full season equivalents (i.e.: 20 half season tickets=10 FSE’s).
Market (%) Index: total attendance for 1996-97 divided by the total population of the team’s Metropolitan
Statistical Area.
Fan Cost Index: is the cost in US$ for a family of four to attend a game. It comprises the prices of four
average-price tickets, two small beers, four small soft drinks, four-regular size hot dogs, two twill caps, two
game programs and parking for one car.
Canadian Federal Task Force on Sports
In October 1997, the Canadian government formed a “Heritage Canada”
subcommittee to investigate how the national government could assist
sports in Canada.
The subcommittee was given a $3,000 budget and was instructed to
gather information on how sport contributed to the Canadian economy.
This information was to be used to determine if it was prudent for the
government to invest public money in professional sports. Despite
broader claims of the subcommittee’s interest in sport as a whole, its real
focus was to assess the long-term viability of Canada’s six NHL teams.
The sub-committee began meeting in November 1997 and was to meet
for 3 hours on a weekly basis. Thirty meetings were to be held before
reporting to the Heritage Committee in June. One of the people scheduled
to testify was NHL Commissioner Gary Bettman. In order to aid Bettman’s
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case, the league circulated a questionnaire among its owners to gather
data on the economic impact their teams had on local economies.
One of the responses came from the Edmonton Oilers; a team that was in
poor financial condition and fighting a takeover bid that would move the
franchise to Houston. It contained information, statistics and data showing
that the franchise generated approximately $50 million of indirect revenue
in the city on an annual basis. It was anticipated that Ottawa, Calgary,
Toronto and Montreal would all contribute to Bettman’s quest for
ammunition. No one held high hopes for any American submissions.
It was presumed that the subcommittee would focus on the complicated
area of tax breaks. This was a sore point with Canadian NHL owners. For
years they had watched taxation from all levels of government seriously
erode their ability to generate a profit while, American franchises enjoyed
extensive tax concessions.
The Ottawa Senators
Background
The Ottawa franchise was awarded to Bruce Firestone, then-owner of the
CFL Ottawa Rough Riders, and a group of investors on December 16,
1991. The purchase price was set at $50 million with the provision that a
new hockey stadium be built to house the team and that payment of the
expansion fee be submitted within one year. The deadline for completion
of the stadium was set as February 1996. In the interim, the team would
be allowed to play at the Ottawa Civic Centre, a 9,500-seat arena in the
downtown core that did not come close to meeting the 18,000-seat
minimum capacity requirement of the NHL.
As the deadline for the remittance of the expansion fee grew closer, the
66-member investor group desperately tried to raise the required money.
Advanced season ticket sales, merchandising, and local investment just
was not enough and, with one month to go, Firestone realized that the $10
million short fall could spell the end of the hockey dream in Ottawa. In
order to save the franchise, a major investor was required.
Ogden Corporation, a large, multi-national, U.S.-based portfolio company
with significant interests in arena and stadium property management was
very interested in securing the management and food concession contract
for the future stadium. However, the only way that the stadium would be
built was if there was a NHL franchise to play in it. Ogden Corporation
reviewed the situation and decided to invest the $10 million required to
pay the balance of the franchise fee. Ownership was now divided among
67 members.
The first obstacle had been overcome and a new Canadian team took to
the ice for the 1992-1993 season. The Ottawa Senators’ first NHL home
opener since 1934 was against the Montreal Canadiens. The Senators
won the game in front of a sold out crowd at the tiny Ottawa Civic Centre.
The real challenge however, was just starting. Terrace Investments, along
with the Ottawa Senators Hockey Club Inc, and Palladium Corporation,
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had to come up with the funds required to build the new facility. The plan
was for Palladium Corporation to own the building and for the Ottawa
Senators to play in the building free of charge. Terrace Investments,
owned by Bruce Firestone, would be the holding company for both
organizations. Given that Ogden was now an investor in the team, it was
fairly certain that they would be contracted to manage the facility and the
concessions.
The owners of the hockey team and Palladium Corporation put together a
financing plan for the building that included extensive proformas based on
the projected revenues from the facility. Then they took the plan to a
number of financial institutions in search of construction loans totaling
$130 million. Based on skepticism over the revenue projects, no financial
institution would lend the money. Once again, the Ottawa NHL franchise
was in serious jeopardy of being lost. Bruce Firestone and several of the
other investors were forced to sell out due to financial difficulties and Rod
Bryden became the majority owner of Terrace Investments, the hockey
franchise and Palladium Corp. In a move to distance his ownership from
that of his predecessors, Bryden renamed Terrace Investments to
Stormont Entertainment Corporation and using his entrepreneurial flair
went out to find the money needed to build the new arena.
In order to secure the funding, Palladium Corp. needed a guarantor. To
get a guarantor, Bryden had to find a company with a personal stake in
keeping the franchise alive and getting the stadium built, a company with
deep pockets, a company like Ogden Corporation. Bryden gave Ogden
Corp. a copy of the financing plan and asked them to be guarantor for the
loans.
Ogden Corporation reviewed the revenue projections in the plan, did their
own due diligence and told the owners of Palladium Corp. ”You’re full of
s**t, there is no way in hell you can generate $16 ¼ million a year from
suites, club seats and advertising. There is no way given the market size
and all the dynamics that you can make that kind of money”. To which the
owners turned to Ogden and said, “we think we can”. Ogden said, “OK, if
you think you can do it, guarantee it”.
A document called the Palladium Rights Guarantee was drafted. It
guaranteed Ogden that Palladium Corporation would generate $16.25
million in revenue per year from suites, club seats and advertising or make
up the difference. In the event that Palladium Corp could not make up the
difference, the obligation was passed onto the Ottawa Senators Hockey
Club Inc. In return, Ogden became guarantor for $95 million of loans to
Palladium Corporation.
To make up the balance of the financing for the new facility, Ogden made
a direct investment of $50 million in return for a 30-year arena
management and concession rights contract. The thirty year contract
called for a base management fee of $3 million a year plus incentives. A
typical private management contract with a facility was only five years with
an annual fee of ½ million dollars per year.
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This meant that Palladium Corp. could no longer treat the Senators the
same way that other sports facilities treated their professional sports
teams. It could not provide the stadium for free, nor could it allow the
hockey team to keep all or most of the revenues from parking,
concessions, suites and advertising. Instead, the Ottawa Senators
received 10% of suite revenue, a small percentage of advertising revenue,
one-half of concessions, one-half of parking, and paid the annual $4
million tax bill. In reality, the whole situation had created the worst stadium
deal in the NHL and had put the team’s financial viability into question.
In July of 1994, construction began on the new arena named “The
Palladium” (see Appendix B, Ogden Corporation Press Release).
Unfortunately, neither the provincial nor the municipal governments were
willing to assist with the project in any way. In fact, the municipal
government had attempted every legal means possible to stop the building
from being constructed and refused to build any roads or extend municipal
services to the site. In the end, Palladium Corp. paid to have the roads
built around the building, and financed the essential interchange off the
freeway that bordered the site.
Construction of the Palladium went smoothly and by the middle of January
1996, the Ottawa Senators had a new home. The total cost for the
building, land and roads was $215 million. This was a large debt for a
young team that had consistently lost money and games. Fan support
had remained consistent but well under the numbers required to break
even. Moving into the Palladium meant more seats, a better
entertainment package, and the potential for greater broadcast revenues,
but it also meant the Palladium Rights Guarantee would be invoked,
bringing with it a dilution of stadium revenues, and an enormous tax
burden.
In May 1997, Rod Bryden hired Nesbitt Burns, an investment banking firm,
to seek new investors in the team. The team had accumulated close to
$100 million in debt from paying the expansion fee, playing at the tiny
Civic Centre for four years, surviving a lengthy NHL player lockout in the
1994-95 season and getting through the dreadful years of weak
performance on the ice. Things had started to turn around in 1996-97; the
Senators set a team record for the number of games won in a season and
for total attendance. However, they still lost approximately $6 million,
despite collecting an extra $1.1 million from three home playoff games
against the Buffalo Sabres.
With annual revenues of $40 million, the team was unable to cover all of
the expenses. Annual payments of $15 million to service the debt load
and about $30 million in team operations, including $22 million in salaries,
continually left the team in the red. This did not include the approximately
$3 million of annual payments that the team made on behalf of Palladium
Corp to Ogden under the provisions of the Palladium Rights Guarantee.
Palladium Corp. had yet to meet the $16.25 million yearly revenue clause
and was never able to pay the difference.
Nesbitt Burns spent six months trying to find new investors to buy all or
part of the team with the provision that it stay in Ottawa. The effort failed.
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U.S. investors did not see Ottawa as a viable hockey market and were
unwilling to take the risk.
In October of 1997, Rod Bryden called a meeting of all the investors in the
Ottawa Senators Hockey Club Inc. At that point, Bryden and the Stormont
Entertainment Corporation owned 70 percent of the club. The balance
was spread over 62 other investors. Some came to the meeting hoping
that Bryden would introduce a major new investor who would buy out their
stakes, while others hoped for an investor who would merely bankroll the
Senators into the future.
Instead, Bryden revealed the team’s pressing debt problems and pointed
out the probability that the team would lose about $5 million in 1997-98
unless the team made the playoffs. A strong playoff run could improve
these projections. With the bad news out of the way he then sketched a
rescue plan that could guarantee the team’s future in Ottawa and even
generate a small surplus by as early as the 1998-99 season.
Bryden announced that the Chase Manhattan Bank had agreed to cover
the club’s immediate financial needs. However, the accumulated debt
remained and would continue to cost the team $15 million annually. He
then laid out a proposed financial restructuring plan that would attack the
debt by turning most of it into equity in the hands of shareholders. If he
could convince the debt holders, who included the Chase Manhattan
Bank, to accept preferred shares in a new corporate structure, then the
Senators’ balance sheet would start to look better. The plan could reduce
the Senators’ annual carrying costs by as much as 50 per cent.
The biggest challenge was to convince organizations making a good living
off the debt payments to take stock that might some day generate
dividends and rise in value. It also meant convincing the 63 limited
partners, who had put up $17.5 million of the $50 million franchise fee, to
accept common shares for their holdings. They had already seen their
ownership stake drop from 47 per cent to about 20 per cent when Bryden
found $20 million to cover accumulating losses in 1995.
Neither the investors nor the creditors were willing to go along with the
proposal, but some relief did come in December 1997. The Ottawa
Senators were able to tap into the Ontario Provincial Government Distress
Preferred Shares program. The program allowed the club to restructure
part of the outstanding debt and the lower interest rate cut approximately
$7 million annually from the debt service payments.
Other Financial Considerations for 1997-98
In 1997, the Ottawa Senators received $2.5 million (US) from the league
under the Canadian Revenue Currency Equalization program. It was
anticipated that they would qualify for a similar amount in 1998.
The club sold 1,700 more season tickets for 1997-98 than they had for the
previous season. Moreover, 104 of the 143 luxury boxes were sold for
multiple seasons.
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The “building” generated $2.5 million for the Senators in 1996-97,
including revenue from the naming rights agreement signed with Corel
Corporation.
Expansion proceeds for the club in 1997-98 would amount to
approximately $15 million.
Marketing
The Ottawa Senators had targeted the Ottawa-Hull metropolitan area as
the primary market, with the Seaway and Ottawa Valley as the secondary
market. Within these region’s, ticket sales were aimed at male individuals
between the ages of 25-54 and groups. Another key segment was the
business community because of the lower price sensitivity. Appendix C
outlines some of the group marketing initiatives that the Senators had
developed.
Aside from ticket sales, the team also targeted broadcast media. Regional
broadcast rights for both television and radio were seen as a viable means
of generating needed revenue. Some Canadian teams were able to sell
the rights for as much as $10 million per year. Geographically, the NHL
had determined the Ottawa boundaries to be everything east of Toronto
and west of Montreal. These boundaries were scheduled to change for
the 1998-99 season to include all of the Maritimes.
The Organization
See Appendix A, Organization Table.
Management
Pierre Gauthier, General Manager
Pierre Gauthier became the third general manager in Senators' history on
December 11, 1995. Before joining the Senators, Gauthier served as the
first assistant general manager in the history of the Anaheim Mighty
Ducks. During his time with Anaheim, he assumed the general manager
duties of the Ducks' primary development affiliate, the Baltimore Bandits of
the American Hockey League.
In the years before the Mighty Ducks, Gauthier worked in the Quebec
Nordiques scouting department for 12 years.
In February 1997, Gauthier was named as one of three general managers
for Canada's team at the 1998 Nagano Olympics. He was also Team
Canada's general manager at the 1996 World Championship in Vienna,
Austria, where the squad won the silver medal.
Gauthier received a master's degree in sports administration in 1983 from
the University of Minnesota, where he also served as a teaching associate
in physical education. He was also a graduate of Syracuse University,
where he had earned a bachelor's of science degree in physical
education.
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Ray Shero - Assistant General Manager
Ray Shero's duties with the Senators involved assisting general manager
Pierre Gauthier in all areas of team operations, including contract
negotiations, player evaluation and professional scouting.
During the 1994-95 and 1995-96 seasons, Shero acted as the governor of
the Senators' primary minor league affiliate in the AHL. Before joining the
Senators, the native of St. Paul, Minnesota represented hockey players for
seven years as a contract negotiator.
Marshall Johnston - Director of Player Personnel
Marshall Johnston joined the Ottawa Senators Hockey Club in July 1996
as director of player personnel. He worked through his first season in
1996-97 with the Senators' pro and amateur scouts and guided the staff
during the 1997 NHL Entry Draft.
Johnston brought more than 25 years of NHL experience to the Senators,
including 10 years (1983-1993) as director of player personnel for the New
Jersey Devils, the 1995 Stanley Cup Champions.
Coaching Staff
Jacques Martin - Head Coach
Jacques Martin, 45, was named head coach of the Senators on January
24, 1996. In completing the team's 1995-1996 season, he guided the
team to a 10-24-4 record over 38 games. Under his leadership, the
Senators improved in their goals against average, penalty killing and
powerplays. In 1996-1997, Martin's first full season behind the Senators
bench, Ottawa established club records for most points in a season (77),
wins (31) and goals for (226).
Martin came to the Senators from the 1996 Stanley Cup Champion
Colorado Avalanche. He served as an assistant coach to Marc Crawford
through the first half of the 1995-1996 season, helping to build the
Avalanche into a championship team.
Prior to the Colorado franchise, Martin had been with the Quebec
Nordiques, including four seasons as an assistant coach and one season
as general manager and head coach of their farm team, the Cornwall
Aces of the American Hockey League. He guided the Aces to a third-place
finish in the Southern Division.
He entered the NHL as head coach of the St. Louis Blues in 1986-87,
leading the Blues to the Norris Division Championship in his rookie
season. He then spent two years with the Chicago Blackhawks as an
assistant under Mike Keenan, before joining the Nordiques.
Craig Ramsay, Assistant Coach
Craig Ramsay, 46, was named an assistant coach in June 1996. He
served as a scout with the Dallas Stars during the 1995-1996 season and
was an associate coach with the Florida Panthers for two seasons (1993-
94 and 1994-95).
The Ottawa Senators
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A left winger, Ramsay played his entire NHL career with the Buffalo
Sabres, scoring 252 goals and accumulating 672 points over 14 seasons.
He was drafted by Buffalo in the second round of the 1971 NHL Draft and
capped his playing career by winning the Frank Selke Trophy as the
league's top defensive forward in 1984-85.
After retiring as a player, Ramsay spent eight seasons (1985-86 to 1992-
93) with the Sabres organization, holding various positions, including
assistant coach, interim head coach, director of player development and
assistant general manager.
Perry Pearn, Assistant Coach
Perry Pearn, 46, was named an assistant coach by head coach Jacques
Martin in June 1996. He is with his second NHL team since beginning his
NHL coaching career in 1995-96 as an assistant to then Winnipeg Jets
head coach Terry Simpson.
The St. Albert, Alberta native has established some impressive
international credentials during his career, beginning in 1986 when he was
named as an assistant coach to Canada's national under-18 team. He
was promoted head coach of the elite squad in 1987.
Pearn continued to work with Canadian Hockey's national team program,
where he won two World Junior Championship gold medals as assistant
coach under Guy Charron in 1990 (Finland) and in 1991 (Saskatoon)
under Dick Todd. He also served as assistant coach to Dave King and the
full-time national team program in 1990-91. The highlight of his
international career came in 1993 when he was named head coach of the
Canadian National Junior Team and guided the squad to a gold medal at
the 1993 World Junior Championship in Gavle, Sweden.
The Future of the Team
Rod stepped out of the Corel Centre into the warm spring air on the way to
his car, the thought of Carolina playing Philadelphia the next day still
dancing through his mind. Three weeks left in the regular season and the
Senators were still not guaranteed a playoff spot.
As Rod got into his car, his thoughts switched to the Heritage Canada
sub-committee. In his opinion, to help the Canadian teams, three things
must happen:
1. The NHL must be forced to institute a salary cap and a revenue
sharing plan.
2. The effect of the 40% differential between the Canadian and U.S.
dollar must be eliminated.
3. Public money should be used to build new arenas where necessary,
they should be given to teams free and they should be subsidized
through such means as foregoing property taxes. If this does not
happen then the free trade agreement should be invoked to prevent
U.S. cities from doing so.
The Ottawa Senators
Case Study, University of Ottawa
26 of 27
Over the past weeks, he had been uncharacteristically quiet, not
answering questions from the media, not taking a public stand. This was
because he did not want to prejudice the work of the sub-committee
although, in his own mind, the federal government was powerless to
implement the necessary changes.
As the sun radiated off the Corel Centre, Rod reflected back on the days
when he had built SystemHouse Limited from the ground up. It had been
a challenge but his entrepreneurial spirit and shrewd business sense had
been among the factors that took the company from being an infant in a
giant’s world to a world leader. There was no doubt in his mind that he
would do the same with the Ottawa Senators hockey club, whether they
made the playoffs or not. The only question remaining was how?
The Ottawa Senators
Case Study, University of Ottawa
27 of 27
References
1. Aubry, Jack, “Senators Taxed to the Limit,” The Ottawa Citizen, January 31, 1998.
2. Egan, Kelly, “ Canada’s NHL Jitters,” The Ottawa Citizen, November 16, 1997.
3. Grover, Ronald; Barrett, Amy; Melcher, A. Richard and Harris Nicole, “Playing for Keeps,”
Business Week, September 22, 1997.
4. Hill, Bert, “A Limited Amount of Cheer,” The Ottawa Citizen, December 20, 1997.
5. Hill, Bert, “High Taxes will push Teams to U.S,” The Ottawa Citizen, February 21, 1998.
6. Hyman, Mark, “Media and Entertainment-Prognosis 1998,” Business Week, January 12,
1998.
7. Hyman, Mark, “How to Lose Fans and get Richer,” Business Week, January 26, 1998.
8. Johnson, S. Roy, “Take me out to the Boardroom,” Fortune Magazine, July 21, 1997.
9. MacGregor, Roy, “Insider Spin on Senators Saga,” The Ottawa Citizen, October 25, 1997.
10. Madigan, Kathleen, “Another Dream Team?” Business Week, February 9, 1998.
11. McKay, Shona, “Can We Afford to Play our Own Game,” The Financial Post Magazine,
February, 1998.
12. National Hockey League home page, http://www.nhl.com.
13. National Hockey League Players Association home page, http://www.nhlpa.com.
14. 1998 Team Marketing Report Inc.-A Guide to Inside the Ownership of Professional Sports
Teams.
15. Robinson, Edward, “It’s Where you Play that Counts,” Fortune Magazine, July 21, 1997.
16. Stevens, Lesly, Elizabeth, “The Entertainment Glut,” Business Week, February 16, 1998.
17. The News and Observer Publishing Company “Salary Cap not a Dirty Word,” 1994.
18. USA Today home page, “Top Ten Players Salaries,” http://www.usatoday.com, December
22, 1997.
19. Verburg, Peter, “Ice Guy Finishes First,” Canadian Business, February 27, 1998.
20. Waal, Peter, “The Puck Never Stops,” Canadian Business, March 13, 1998.
21. Warren, Ken, “Senators Attendance on the Rise,” The Ottawa Citizen, January 16, 1998.
22. Warren, Ken, “$53M for a Player?” The Ottawa Citizen, February 21, 1998.
Interviews
1. Bryden, Rod, Chairman and Governor of The Ottawa Senators and Owner of Corel
Center, February 13, 1998.
2. Newton, Roger, Executive-Director, Ogden Entertainment, February 26, 1998.
3. Mlakar, Roy, President and CEO, The Ottawa Senators, February 26, 1998.
4. Violetta, Steve, Executive Vice-President, The Ottawa Senators, February 26, 1998.
The Ottawa Senators
Case Study, Professor Tuck MacRae
University of Ottawa
Appendix A
Organization Table
The Ottawa Senators Organization
Executives
Rod Bryden, Chairman & Governor
Roy Mlakar, President, Ceo & Alternate Governor
Pierre Gauthier, General Manager & Alternate Governor
Cyril Leeder, President, Corel Centre & Alternate Governor
Steve Violetta, Executive Vice-President
Executive Assistants
Secretary To The Governor
Executive Assistant & Office Manager
Secretary To The General Manager
Secretary To The President, Corel Centre
Administrative Assistant To The Executive Vice-President
Operations
Hockey
Operations
 Assistant GM
 Dir. of Player Personal
 Head Coach
 Assistant Coaches (2)
 Video & Cond. Coach
 Equipment Manager
 Head Athletic Trainer
 Assist. Equip. Manager
 Massage Therapist
 Team Doctor
 Chief Scout
 Scouting Coordinator
 Scouts (5)
Administration &
Mis
 Manager, Computer And
Internet Services
 Office Manager
 Office Coordinator
 Receptionist
 Computer Services
Assistant
Finance
 Vice-President, Finance
 Controller
 Payroll Supervisor
 Senior Accountant
 Administrative Assistant
 Accounts Payable
 Accounts Receivable
 Staff Accountant
Ticketing
 Vice-President,
Ticketing
 Ticket Sales Manager
 Admin. Assistants (2)
 Account Reps (7)
 Coordinator, Fan
Development
 Coordinator, Partners In
Caring Program
 Coordinator, Corporate
Ticket Services
 Coordinator, Customer
Service
 Ticketing Coordinator
 Customer Service
Representative
Media, Marketing and Sales
Media Relations
 Director, Media
Relations
 Media Relations
Assistant
Broadcast
 Vice-President,
Broadcast
 Administrative Assistant
Corporate Sales
 Vice-President, Sales
 Manager Of
Sponsorship And
Corporate Properties
 Corporate Account
Managers (7)
 Coordinators (2)
 Administrative Assistant
Community
Development
 Director, Community
Development
 Assistant Director,
Community
Development
 Community
Development
Coordinator
Marketing
 Managing Editor
 Merchandise Manager
 Manager, Graphic
Services
 Administrative Assistant
 Dir. of Game
Promotions &
Entertainment
 Retail Supervisor
 Graphic Designer
 Coordinator
 Promotions Coordinator
 Coordinator, Sales &
Marketing
The Ottawa Senators
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Appendix B
Ogden Corporation Press Release
July 11, 1994
OGDEN ANNOUNCES GROUNDBREAKING OF NEW OTTAWA ARENA
New York, N.Y., July 11, 1994 - Ogden Corporation (Ogden) today announced that
construction has started on the 19,000-seat Ottawa Palladium, the new state-of-the-art
facility for which Ogden arranged the arena financing, will assist in design and
construction, and will provide complete facility management and concession services
for 30 years. The arena is scheduled to open in 1996 and will be the home of the
National Hockey League's Ottawa Senators. Located in Canada's capital and fourth
largest city, the Ottawa Palladium will include luxury suites, club seats and a
restaurant. Ogden's role in developing the Ottawa Palladium is similar to its
involvement in the development of the successful Arrowhead Pond of Anaheim,
home of The Walt Disney Company's Mighty Ducks hockey team.
The construction of the Ottawa Palladium furthers Ogden's international expansion
that includes management of the 19,000-seat Victoria Station Arena currently under
construction in Manchester, England and scheduled to open in 1995. In May of 1994,
Ogden Entertainment Services also began providing food, beverage and related
management services in Rio de Janeiro's 110,000-seat Maracana Stadium and São
Paolo's 100,000-seat Morumbi Stadium, the two largest soccer stadiums in the world.
"The commencement of construction of the Ottawa Palladium once again
demonstrates Ogden's ability to make state-of-the-art entertainment venues a reality
and strengthens our position as a leader in the global entertainment industry," said R.
Richard Ablon, President and Chief Executive Officer of Ogden Corporation.
Ogden Entertainment Services provides facility management, food and beverage, and
related support services to major sports stadiums, arenas, concert halls, amphitheaters,
and parks. Clients include the Arrowhead Pond of Anaheim, the Great Western Forum
in Los Angeles, the Maracana Stadium in Rio de Janeiro, and the Sports Palace in
Mexico City.
Ogden is a leading global provider of support services to sports and entertainment
facilities, airports and airlines, energy and environmental agencies, industrial plants,
office buildings and government agencies. Through its Ogden Projects, Inc.
subsidiary, Ogden is also the industry leader in the design, construction and operation
of waste-to-energy facilities serving municipalities throughout North America. The
common stock of Ogden is traded on the New York Stock Exchange.