Posted by John Vrooman on Tuesday, February 16, 2016 in National Hockey League.

Interview with Raleigh News Observer.

Hurricanes compared.

* The Hurricanes owner, Peter Karmanos, announced in Sept. 2014 he would put his majority ownership stake on the market. Karmanos said at the time that the proper value for the franchise would be $400 million, or near what the Islanders were acquired for that year. Was this realistic at the time, and is it realistic now?

The New York Islanders reportedly sold for $485 million in 2014, but the Florida Panthers were sold for less than $200 million a year earlier. Given the move into Barclays Center where the Islanders pick up an extra $35 million guaranteed, the value of the Islanders is probably about $450 million (3.5 x revenues of $125 million). Forbes now has them valued at $325 million.

The Pittsburgh Penguins are on the market for an asking price of $750 million (including Igloo development rights), but Forbes has them valued at only $560 million. The estimated value of the Pens without Igloo development rights is probably $600 million (4 x revenues of $150 million) compared to the average NHL value of $500 million for 2015. With development rights the Pens + rights bundle could maybe fetch $700 million.

The actual auction price for NHL franchises are usually biased upward by as much as 20 percent because of a relative scarcity of franchises on the market. The Pens price in a seller’s auction market could go as high as the reported asking price of $750 million.

Recent rumors of NHL expansion by 2 to 4 teams, however have flooded the market and flipped a big market advantage to the buyers. In the current buyers’ market, the parties in the Pens deal are probably spread out between a $600 million bid and $750 million asked for the Pittsburgh development bundle.

Forbes currently values the Canes at $225 million which is about 2.27 times annual revenues of $99 million. The fundamental value of the Canes could be as high as $300 million (3 x revenues of $100 million), but in the current buyers’ market depressed by pending expansion and other franchise instability the asking price of $400 million seems to be a touch on the high side.  (see attached comparisons of Pens and Canes)

The reported asking price for a NHL expansion franchise is $500 million and the expansion frontrunners in the mind of the BOG are apparently down to Quebec City and Las Vegas. The troubling issue about possible over-expansion is that the superior option of putting a NHL club in Seattle didn’t even merit an application.

* The Hurricanes are last in attendance in the league. The team has reduced the amount of complimentary and discounted tickets it offers to put more of a premium on season-ticket holders. Is this a smart strategy? And can the strategy succeed in smaller markets in the NHL’s Sun Belt, where hockey faces strong competition from college basketball?

The key to survival in the NHL is gate revenue and the most valuable tickets are sold to corporate clients and season ticket buyers. On average season tickets are about half of the tickets sold in the NHL, NBA and MLB. In traditional hockey market the season ticket base is probably 80 percent corporate and 20 percent human, where the opposite is true in non-traditional sunbelt expansion relocation markets like Carolina, where the corporate ticket base is significantly lower.

It makes good marketing sense to solidify the season ticket base because it is risk-free (low variance) and therefore more valuable positive cash flow. That strategy however, does not necessarily require a reduction in comps and discounted admission which increase lagging attendance and contribute to venue revenue from concessions and parking the overall fan experience of a fuller PNC

* How much of a hindrance to attracting a buyer for the Hurricanes is the fact that the NHL is actively looking to expand and the Penguins are also up for sale?

From the internal profit max perspective of Karmanos, Super Mario and the two expansion applicants, the market for NHL hockey is already flooded by rapid over-expansion of the Sun-belt strategy that added nine teams in nine years and relocated four other clubs (including the Canes). From the external welfare maximizing perspective of hockey fans there is still not enough hockey and the luxury ticket prices are over way the top.

Both the NHL commissioner and Karmanos have said the team will stay in Raleigh, but how likely does that seem given the other markets that now desire a team?

From the short-run internal profit max perspective there are currently three relocation candidates: Coyotes, Panthers and Canes. From the long run profit max perspective in non-traditional sunbelt markets club survival ultimately depends on winning and the quality of the product on the ice.  Compare the dismal attendance of the Panthers last season with this season in first place in the Atlantic Division ahead on rival Tampa. (See attached relocation realignment plan B)

* The Canes have reached the playoffs just once since winning the Stanley Cup in 2009. Do you think a team can succeed in a Sun Belt market the size of Raleigh without sustained success on the ice and frequent deep runs in the playoffs?

The hockey business is not rocket science and good hockey doesn’t need to be played on frozen ponds in the land of the ice and snow. When sports teams are on the market it is customary to down-size (rebuild) and cut payroll to increase the net cash flow and franchise value. Karmanos may have lost his passion but Canes fans have not, remember that Karmanos also once said the Whalers would stay in Hartford.

There is no chance to chill-out in the sunbelt. The good news and the bad news about professional hockey in the sunbelt are the same.  Attendance in non-traditional markets is winning elastic and the bottom line grows in the playoffs. Build a winning team and they will come. Everybody loves a winner, but if you lose you lose alone.

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