The Business of Hockey

Hockey isn’t a game anymore – it’s a business – and today’s brand of hockey journalism extends well beyond the arena all the way to the boardroom. The Hot Stove League, which ran on Hockey Night in Canada from 1939 to 1957 (first on radio and then on television), brought together well-known hockey writers to gab about the evening’s game. Today’s version, renamed The Hotstove, has nothing to do with the game itself and everything to do with the business behind it. Despite valiant efforts, the show’s participants aren’t always up to the task of truly understanding the business behind their sport.

The typical panel consists of Ron MacLean (long-time junior hockey referee and host of Hockey Night in Canada), Glenn Healy (former NHL goaltender and current colour commentator), Mike Milbury (former NHL defenseman and head coach), and Pierre Lebrun (sports reporter with the Canadian Press). Although each of these four gentlemen has secondary experience in the business world, such as Healy’s involvement with the NHL Players Association and Milbury’s time as General Manager of the New York Islanders, their collective background is clearly sports first and business second. Their business knowledge is adequate, but not extensive enough to truly understand the intricate nuances being debated in the boardroom. Why? The boardroom isn’t filled with hockey people who dab in business from time-to-time. Rather, it’s filled with business people who dab in hockey from time-to-time. Let’s take a look at the principal players in the Phoenix Coyotes saga as a typical example:

Gary Bettman, Commissioner of the NHL, is the highest ranking executive in the league. But he didn’t get the job because he was a former player. Bettman’s background includes his study of Industrial and Labour Relations at Cornell University and a Juris Doctor degree from New York University School of Law. He practised at the New York law firm of Proskauer Rose Goetz & Mendelsohn before serving in the legal and marketing departments of the National Basketball Association. Since joining the NHL in 1993, Bettman expanded the league by four teams, relocated four other teams, and broke the player’s union during the 2004-2005 lockout. He may not be a popular figure in Canada, but Bettman’s business acumen ranks above that of the Hockey Night in Canada panel.

So does that of Jerry M. Reinsdorf, Certified Public Accountant, lawyer, real estate tycoon, owner of the Chicago White Sox and Chicago Bulls, and, if you believe rumours, possible future owner of the Phoenix Coyotes. Then there’s Canadian billionaire David Thomson – as in the Thomson Reuters business information empire kingpin – who, if you believe rumours, could eventually be responsible for landing an NHL team in Winnipeg. Finally, there’s the Goldwater Institute, a Phoenix-based conservative think-tank whose policies of lower taxes, limited government spending, and a reduction in government management of the economy could, if you believe rumours, serve as the catalyst for the Coyotes deserting Arizona for the Manitoba capital.

Now I won’t pretend to be in the same league as these esteemed business veterans and organizations, but my background is very much business-oriented and I can tell you that the Hockey Night in Canada panel – like all the other sports shows heavy on athletic glory but a little low on business savvy – has it wrong when it comes to the Phoenix Coyotes current ownership situation. Specifically, this week’s vote by city council to guarantee a payment of up to $25 million to the NHL does not – I repeat - does not mean the team is safe in Phoenix for at least another year.

To make a fortune – and continue to hold on to that fortune – business people have to adapt to the changing environment in which they find themselves. A few years ago, having a $25 million insurance policy underwritten by a large U.S. municipality would have probably been sufficient for Gary Bettman and the NHL. After all, what’s the worst that could happen? If Reinsdorf walks away and no one else (i.e. Ice Edge Holdings) expresses interest in purchasing the Coyotes for retention in Phoenix, the NHL would just pocket its $25 million and move the team the following year. Right? Wrong!

The 2008 financial meltdown was all about credit and defaulting on that credit. Institutions thought they were adequately protected against nightmare scenarios because they had taken out the appropriate “insurance policies” – both literally and figuratively – only to find out at their time of need that underwriters weren’t liquid enough to pay. The lesson? A guarantee may not be worth the paper on which it’s written. I believe that’s the case with the so-called $25-million “guarantee” made to the NHL this week - and not just because the municipality is in dire financial straits - and I’m pretty sure that Gary Bettman does too.

This week’s financial “commitment” to the Phoenix Coyotes was nothing more than a political stunt – both by city council and the NHL – because neither party wants to be held directly responsible for the team’s potential departure. Yes, there is always a chance that the $25 million could be paid out, but in the absence of finding a credible buyer committed to keeping the team in Phoenix, it is far more likely that one of two scenarios will emerge: Either the Goldwater Institute will file a lawsuit to block payment to the NHL, claiming the move is illegal under state law – an argument that doesn’t need to be won but just needs to take months to resolve – or the city will refuse to pay outright, once it realizes that the team’s relocation is inevitable.

Let’s do a little situation analysis. Let’s say that, before the start of next season, Reinsdorf agrees to buy the team and keep it in Phoenix. Under such a situation, activation of the $25 million insurance policy wouldn’t be requested by the NHL. It’s only if a buyer isn’t found by then that the NHL would want council to pay. But if council knows there aren’t any buyers, it also knows that the team won’t stay in Phoenix, so why would it pay the NHL and commit political suicide – particularly if the Goldwater Institute’s argument provides an easy way out?

I find it hard to believe that a business person like Gary Bettman hasn’t thought this through and realized there is no probable outcome under which the insurance policy could be practically put into play. I find it equally sad that Hockey Night in Canada – or any sports show for that matter – can’t find the right business people to see three or four moves ahead and give viewers a more thorough understanding of what is going on behind closed doors. Far from guaranteeing the Coyotes presence in Phoenix next season, all the insurance policy does is buy the NHL more time to discuss relocation plans with Thomson for the Winnipeg option and, potentially, have the same discussion with other business moguls representing the Kansas City and Las Vegas markets (uggh!). But make no mistake - the NHL isn't interested in paper contracts - it wants its money. So if Reinsdorf doesn’t buy the team, Phoenix can kiss the Coyotes goodbye – at least that’s my “guarantee”.

THIS WEEKEND’S GAMES:
Tonight
Flyers at Bruins – Game 7, 7 p.m. (TSN)/(RDS)
Saturday
No game scheduled
Sunday
Blackhawks at Sharks – Game 1, 3 p.m. (NBC)/(TSN)/(RDS)
Canadiens at Flyers/Bruins – Game 1, 7 p.m. (CBC)/(RDS)