Evaluatiing the Pros and Cons of the Balsillie Offer

Steve ThompsonAnalyst IIIMay 7, 2009

PITTSBURGH - OCTOBER 05:  Jim Balsillie Chairman and Co-CEO of Research In Motion and new owner of the Pittsburgh Penguins poses with his Blackberry in a press conference announcing the purchase of the team after the first period at Mellon Arena on October 5, 2006 in Pittsburgh, Pennsylvania.  (Photo by Harry How/Getty Images)

While I predicted changes would come to the NHL, probably starting in this coming off-season, I did not envision things happening this quickly.  First there was New York Islanders' owner Charles Wang publicly regretting his purchase and now comes Jim Balsillie rearing his relocation head again.

I knew that Phoenix was in the worst shape of all the money-losing NHL franchises and predicted that if there was to be relocation/contraction, this would be the franchise to go first.

You could tell this was coming as early as the All Star game when Gary Bettman was forced to publicly admit that Phoenix needed capital to survive.

The second indicator was at the NHL trade deadline when the Coyotes held a "fire sale" of all their top players even though they were still in contention for a playoff position.

And with these developments, you could sense Jim Balsillie just sitting there waiting for the explosion to occur.

So what are the pros and cons of the Balsillie offer? 

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First I'll take the Bettman/Governors' side.

1.  Balsillie is unpopular with both Bettman and the governors.  He comes on like a pushy house-buyer to a seller and hopes to bash his way into the league.

2.  Since his earlier rebuffs, Balsillie has tried to enter the league by showing up its shabbier side.  He has become the fount-head of anyone who wants to see the NHL as anti-Canadian.

3.  The NHL has "ways/rules" of shifting a franchise.  Ballsillie has ignored them.

4.  By moving a team to Canada, it hurts Bettman's chances of getting a lucrative American tv contract.  It is an open admission that hockey is a failure in the United States and should not be counted as a "big four" sport.

5.  It means getting a franchise at the expense of another city.  Canadians may dismiss it, but Phoenix does have some fans (One is one of my fans).  It is certainly preferable that everybody gets a team to cheer for including both Hamilton and Phoenix. 

At least this offer is based on the fact that Phoenix has been losing money for several years and not like the recent, crass, Los Angeles NFL franchise attempt where the prospective owner has said he will not build a stadium unless he can take an established team away from its city even if it is making money there. 

But Phoenix is in a tight spot and has been receiving bailout money for years from the NHL and ugly financial facts may force a move despite the loyalty of what fans it has.

6.  There may yet be a buyer who will appear and commit to Phoenix and turn the franchise around.

7.  Much of Phoenix's woes comes from the poor teams they have iced.  A decent team might lure fans and turn the franchise around like what has happened in St. Louis, Columbus, Carolina, and Tampa Bay.  But if the franchise is shifted, nobody will know if the market was viable.

8.  Shifting a franchise that Bettman has helped relocate will be a personal humiliation that he wants to avoid.  Any other positive alternative is better in his eyes.

9.  As in the past, established Canadian teams don't like sharing Canadian tv money with new franchises.  Quebec, Winnipeg, and Edmonton were kept out of the NHL for several years when the WHA tried to merge itself with the NHL.  So much for Canadian patriotism...

10.  The NHL has hung a territorial issue over the head of Hamilton.  Toronto does not want to share the southern Ontario market with another team.  And Buffalo claims its very existence is at stake if Hamilton gets a franchise.

11.  Hamilton is a small market city compared to Phoenix.

And now the Balsillie side...

1.  Hamilton may be a small city but the surrounding area has nearly 7 million people.

2.  Hamilton already has an adequate small-size NHL arena built, holding over 17,000 seats, and $50 million has been pledged to upgrade it to NHL standards.  A team could start playing there immediately.

3.  There is a huge, established fan base in southern Ontario.  While Toronto would be hurt a bit, there is plenty of room for a second southern Ontario city.  Perhaps even a third or fourth franchise like Kitchener, London, or Oshawa as well.

4.  Buffalo's peril is an exaggeration.  In an article I wrote about that subject, I estimated that if Buffalo confined its market to Northern New York State from Syracuse to Erie Pennsylvania and to the northern shore of Lake Erie, in Ontario, it still would have a market of 3-4 million people.

5. Both Buffalo and Toronto will receive compensation from Balsillie.

6. A franchise will be shifted from a money-losing situation to a guaranteed money-maker.  It has been estimated that a Hamilton franchise would be the third most valuable in the NHL behind only Toronto and the New York Rangers.

7.  Phoenix has several negative factors that discourage buyers from keeping it there.  These include few fans, low ticket base, and a bad lease.

8.  Balsillie is in for the long-term and has vast resources to keep a franchise going in a lucrative market.

9.  Despite Balsillie's unpopularity, many NHL owners are sick of propping up money-losing franchises like Phoenix.  It is a financial no-brainer to shift Phoenix to Hamilton. 

10.  If the NHL cannot find a buyer committed to Phoenix and rejects Balsillie's offer, it will probably have two ugly choices: pumping more money into a money-losing situation, or the greater humiliation of contraction.

11.  Contraction is just as humiliating for Bettman as Balsillie and relocation, only it would be worse because there would be one less team and the NHL would not get any of Balsillie's money.

12.  Contraction would hurt Bettman's chances of getting an American tv contract just as much as relocation to Canada would.

13.  While the NHLPA would support a healthy Phoenix franchise, it would welcome a move to money-making Hamilton.

14.  Hamilton has been shabbily treated by the NHL for years.  It is time that ended.

15.  Despite Balsillie's crass methods of trying to get in the NHL, he's doing them a favour by bailing them out of a tight situation.  It will be difficult to find owners who are committed to Phoenix with the bad factors I've listed above.

16.  The NHL has been just as devious and unsavory as Balsillie. 

The conclusion:

As I mentioned in my NFL article about the Los Angeles bid, nobody likes to see one city get a franchise at the expense of the other. 

But the NHL has pumped around $20 million dollars into the franchise, has tried to lure fans with Wayne Gretzky being coach and part owner, and can't continue to operate a money-losing franchise like this much longer.  If no other buyer appears who wants to stay in Phoenix, moving the franchise to Hamilton is a no-brainer.

Some sidelines to this story:

1.  If I lived in Hartford and wanted the Whalers back, a shift from Phoenix to Hamilton would whet my appetite.  The mayor has recently met with Bettman about getting the Whalers back within five years and has agreed that building a proper NHL-size arena is a priority.

Behind Phoenix lie Atlanta, New York Islanders, Nashville, and Florida, with serious financial problems.  If Hartford could get its investors, fans, and politicians on the same page with regards to a new arena, it would be ready to pounce if the situations in those markets get worse.

2.  Building an AHL-size arena was a foolish mistake as far as Winnipeg's NHL ambitions go.  If it had a proper NHL-size arena, it could have challenged Balsillie for the Phoenix franchise.  The NHL would have preferred going back to Winnipeg where there is no territorial issue and would have given Bettman and the Board of Governors the pleasure of sticking it to Balsillie again. 

Instead Winnipeg is now stuck in no man's land.  It will not get a franchise because its arena is too small, or admit its mistake and build a second NHL-size arena, something it will not do in the near future.

3.  Similarly, if Quebec had made a commitment to building a proper NHL-size arena, it could have stepped into the bidding for this franchise.  But a shift from Phoenix to Hamilton should spur its efforts to get back into the NHL. 

80,000 fans signed a petition to try and get the Nordiques back.  Like Hartford, if they could their act together on the arena issue, they would be ready to swoop in if more franchises face bankruptcy.

4.  Unless a buyer can be found that wants to keep the franchise in Phoenix, Bettman and the NHL's attempt to be one of the "big four" leagues in the United States will take another blow.  Contraction or relocation to Canada will not land an American tv contract.

5.  Similarly, Bettman's strategy of placing franchises in unfamiliar hockey markets will take a blow.  It has worked in Dallas, Anaheim, Colorado, and San Jose.  Carolina and Columbus seem to be turning the corner. 

But Phoenix, Florida, Nashville, and Atlanta are all trouble spots.  And having franchises in unfamiliar markets still has not got the NHL a rich American tv contract.

6.  What if a buyer appeared that did not want to stay in Phoenix but wanted to move to another American city?  Would Bettman and the NHL treat him different to Balsillie?  And where would the buyer want to go?  To more "unfamiliar" markets like Houston, Kansas City, Las Vegas, or Oklahoma City?  Or to more "traditional" markets? 

Canada was not the only "natural" market spurned by Bettman and the NHL.  The northern United States with Milwaukee, Seattle, Portland, and the disenfranchised Hartford were all shunned by Bettman and the NHL. 

Ironically, if they had expanded into these markets instead of the money-losers, they might have got a better American television contract than the one they have. 

7.  If a move to Hamilton occurs, will this trigger other moves?  And if more franchises are shifted, should the strategy of trying to be a "big four" sport in the United States be abandoned and a new strategy adopted?