Friday, November 07, 2008

Team Ownership

For Sale Or Not, And Who To Believe

In the build up to the season, through training camp and since, hockey has provided a nice distraction to all the bad news coming out of fund management firms, banks and finance ministers the world round.

And while Canadiens fans have been treated to more good news than most on the ice, behind the scenes in the NHL owners circuit I was starting to get a sneaky feeling that something may be brewing.

So when I awoke this morning and saw this story from RDS about Jim Balsillie and the Montreal Canadiens, I can’t say I was blown away. George Gillett has come out and flatly denied the statements of devious Jim (of Nashville saviour fame). The story is so sensitive in Montreal that RDS has already changed the headline three times in a few hours and have settled on George Gillett’s denial. So, those waking up later will have to rely on my word that this all happened.

So now we have one leaked comment, probably out of context from La Presse. And we have a statement from the guy who should know best, the guy who owns and would have to sell the Canadiens. Most would give the benefit of the doubt to the defender here – the owner.

However, the question about this statement is whether we can take it at face value. George Gillett, for all his likable qualities (and recent PR about them in the North American press) has been speaking out of both sides of his mouth a bit recently. You wouldn’t have to tour the terraces at Anfield (Liverpool FC’s home ground) for very long to find someone with something negative to say about our Georgie Boy. He's admitted his embarrassment at the situation himself, in fact.

The reason: fans feel they have been lied to. George and his partner Tom Hicks (also owner of the Dallas Stars) made three pivotal promises when they took over the club:

1) They would increase the funds available for transfers
2) They would build a new stadium
3) They would not burden the club with their own personal debts

A year and a bit later, it seems they have mostly defaulted on all three promises. The transfer kitty initially jumped but was topped up almost immediately through the sale of players – bringing them back to the starting point and no extra cash layout. The stadium is on hold. And, the Americans have borrowed heavily while using the club profits to pay down the interest – exactly as they promised they wouldn’t. From the Gazette:
"Liverpool has been saddled with big debt after the takeover by Tom Hicks and George Gillett Jr., owner of the Canadiens. But that duo has been hit hard by the credit crunch and plans to build a new stadium have been put off because they haven't been able to raise the money."

Incidentally, Gillett and Hicks also flatly denied claims of selling the club, which juxtaposes with the engagement of Merrill Lynch by the two men. From the Times:
“The American businessman has been at the centre of the turmoil that has engulfed the Anfield club since he and Hicks took control. Plans to build a new stadium in Stanley Park have been shelved while the pair attempt to ride out the global economic crisis although as reported in The Times last month, they have signalled that they are ready to sell their stake at Anfield after engaging Merrill Lynch, the investment bank, to find a buyer for the club.”

There is obvious concern over broken promises; but, that to me is actually very reasonable given that no one at all, banker, businessman or doomsday merchant, predicted the global banking system to fall down.

No, the biggest concern is the third point – that Gillett operates his companies while carrying a great load of debt. Liverpool FC is in debt. The Canadiens too, are in a massive hole of debt ($240 million, in fact, as per Forbes). Rough calculations of the Habs finances show that although it is some team’s plans to pay down debt (Red Wings anyone), Gillett’s plan is to service the interest and no more.

I don’t want to be alarmist, it is common business practice to run enterprises in this way. The problem is, October showed us that what is known about business is all up in the air now. If banks can go out of business overnight, can’t venture capitalists too? Can people like Gillett continue to operate businesses as they always did without any consequences?

Is it not conceivable that sports leagues will suffer eventually from the credit crunch as well? Wouldn’t it be feasible that individuals who rely on credit to finance upwards of 50% of their empires might also have to re-adjust?

Put those two together and you have George Gillett's predicament, nice guy and brilliant owner that he has been for Montreal

So, in light of all that, should we really be surprised that rumours of selling the Habs should crop up just now?

I, for one, am not surprised. News like this was to be expected, whether true or not. I would be no more surprised if it were true than if it were a fabrication – both scenarios make sense to me.

Nor am I worried. For all the credit we give George Gillett, it is Bob Gainey who takes care of us fans. He will still be as intelligent, calculating and frugal as he is now even under the RIM tycoon. I don’t see the change of ownership as a threat to the viability of the Canadiens over the long term or to their play on the ice.

If as a fellow fan, this interests you as much as it does me, though. I suggest you keep your eyes on the British press in January of next year, as it will be very interested to see how Gillett does in refinancing his massive debt in the UK (due to come up with RBS late January) – a debt that makes the Canadiens $240 million debt looks like a pittance; and one that probably has the potential to knock two pretty big business men down if the bankers are hard on them.

If only for the good of the Canadiens, I hope that January brings good news, whether it be for Gillett or Balsillie…

As a closing thought, I will reflect on the naive days of my youth, when Molson owned the team. At that time, I was a fan who dreamt of being a club owner. I imagined club ownership to be an extension of fandom, with more decision making power. For people who spend form their own pockets to push their team over the top – for pride, for pleasure, for us.

As time has gone by, it has become increasingly clear to me that owners are not in these ventures to make a loss, or even to break even. They are in the business of owning sports franchises for one reason – making money. I don’t hold it against them. Nor will I cry for them when they don’t.

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