Saturday, 15 November 2014

Fear And Loathing?

If you missed the announcement, news broke this week that the NHL had decided on potential new owners of a Las Vegas-based NHL franchise. The NHL has said nothing on the validity of the report, but the New York Post reported that the NHL had settled on billionaire businessman William Foley and the Maloof family, formerly of the Vegas-based Palms casino and former owners of the NBA's Sacramento Kings, as the new ownership group to plunk a team in Sin City.

I'm going to comment on this news below, but regular correspondent and writer Neal L. has some thoughts on this announcement. I've spoken about Las Vegas before as an NHL destination, but I always want kore perspectives. Neal provides one today, and I'll do a little commenting at the end. Here's Neal's thoughts on the new owners and potential NHL team in Las Vegas!
There was a shocking leak in the New York Post that Las Vegas had been approved as an expansion franchise and an ownership group was in place. The rumor has that the franchise will begin play in 2017-18. This is something that normally I would be in favor of. In fact, I love the idea of having a franchise in Las Vegas, but I'm hedging my bets against this move.

First, I'm going to go into details of why I support a franchise in sin city. I feel like this is long overdue for a professional franchise to be located here. The idea that gambling somehow makes this franchise a bad look is simply poppycock. Gambling is prevalent in all major sports - if anything it will likely be less existent given the fact the industry is regulated the most there. What isn't often mentioned besides the obvious examples in Europe where the two coexist is that currently the sports book in Delaware in nicely centrally located between pro franchises in Philadelphia, Baltimore, and Washington, DC. While the Delaware sports betting is only involving the NFL and must take place as a lottery with at least three teams selected, it shows that the structure is already in place. People aren't giving a second look when the Eagles allow a garbage-time touchdown that may change the spread, so I just don't see this becoming a long-time issue. The casinos wouldn't even allow bets on the Vegas games, so those games actually should be perceived as the most legitimate. While having a team in Vegas may fuel New Jersey's case for sports betting, that's none of the NHL's immediate concern.

In addition, there are vast spaces in the west that are underserved by sports franchises. On the east coast, you may only have to drive fifty miles in either direction to find the next sports team. If you have to drive more than a couple hours to see your team, it is considered really far and a burden. For someone living in the west those few hours might represent their local team, or just to the point where another few hours gets them there. This isn't just an argument I use in favor of Vegas - this is also why I feel like places like Seattle, Portland, and Salt Lake City have for getting a team. There are hockey fans in many places out west and there is simply not a close venue for many of them to go to games and root for their team. In essence, the NHL has tons of money to which they have little access.

For example, fans in Carson City, Nevada aren't putting up money to buy season tickets to watch the Sharks play. For them, it just isn't feasible due to the great distance. Vegas is a lot like Florida where there are a lot of transplanted people. You know people who may have come from a hockey-crazy city. If you put out a good competitive product, a fan base is already in place. If anything else, fans who have moved will want to buy tickets to when their teams play in Vegas or use the team as a reason to go on vacation in Vegas. Don't forget that Vegas is a nice place to go during hockey season when mostly everywhere in the NHL is cold, so it can be beneficial to everyone.

Finally, it gives something the NHL should covet: exclusivity in a fairly large market. Until the other leagues start coming in, the NHL would be the only game in town. While maybe the population numbers for Vegas doesn’t compare to some other expansion options, let's not fool ourselves here: Vegas is big time. People who have a lot of money often reside or visit Vegas, and may be fans who can afford obscene prices for season tickets. Las Vegas can truly can make their events an "entertainment extravaganza".

Not only that, but it truly would be Vegas' team. There is no NFL team to steal customers for a Sunday night game and no baseball games to affect playoff crowds, making hockey literally the only game in town.

Hockey traditionalists will say that teams shouldn't need gimmicks to get fans to show up to games. After all, Toronto wouldn't do it. I would say EXACTLY. While an Original Six city doesn't conduct itself like that, let Vegas be Vegas. I have always felt franchises should sort of be reflections of the city. Teams in New Orleans have always somewhat reflected a party attitude. I that vein, a Vegas team should reflect what Vegas is. If it truly can capture the Vegas spirit, it might even help it make it a popular destination for UFAs. I wouldn't expect a place like Boston to promote glitz and glamour like Vegas because it just wouldn’t fit in there. It does, however, fit in Vegas. Honestly, I could see Vegas becoming one of the top-grossing teams quicker than most people think.

After all these reasons, why I am still lukewarm on this announcement? The reasoning is the ownership group involving the Maloof family. For those readers of HBIC that aren't familiar with basketball, the Maloof family owned the Sacramento Kings for a period in the late 1990s up until last year.

Initially, Sacramento had a renaissance that saw them rise towards the top of the basketball world. However, the past decade has not been memorable to the Kings. They often tried to pass on the burden of building a new arena to the fans through tax hikes. They often tried to use relocation as extortion to get it done, using Anaheim, Seattle, and, conincidentally, Las Vegas as landing spots for the NBA franchise. The city, though, played hardball and won, essentially forcing the Maloofs to sell last year.

Another huge blow is in the ESPN franchise satisfaction index in 2012. Under the Maloof’s ownership the team fell from #4 to #121 (out of 122) involving sports from all the major leagues. No one is going to argue that Sacramento threw a party when the Maloofs left town.

Let's simply face reality: the league only has one shot to make this work. If this franchise fails, then it just becomes another one of Bettman’s failed expansion/relocation cities that aren't traditional hockey markets. It may hurt the chances of Houston or Kansas City who one day may desire NHL teams. What's worse for the city of Vegas is that an NHL failure very well might discourage other leagues from establishing franchises there. It will be known as a town that just couldn't cut it.

That's why the ownership group has to be an exceptional one. Selecting a group that includes individuals who have a history of angering their customers is not good business. Sports owners really should have a one-strike-you're-out rule. There are so many millions, and now billions, of dollars at stakes in pro sports, individual leagues can't afford bad owners.

It's one thing is a new owner arrives on the scene and just can't hack it, but it's completely different if one buys a team that already has a track history of being bad. The league, I believe, would be setting itself up for failure. This ownership group should simply be rejected by Bettman based on past results. It would be much better for the league to reject this group even if it kills expansion to Vegas. If it takes until 2020 to find a successful ownership group, wouldn't that be worth it? Vegas is a tourism mecca where customer service and customer experience rules. You truly need a fan friendly ownership group in Vegas more than perhaps any other city.

So while the New York Post gave some potentially exciting news today, I'm still not sold. With this ownership group in place, it's like hitting on sixteen when the dealer has an ace. Sure, it could work out for you, but the odds are stacked against it. Hopefully, the NHL waits until a solid ownership group can step forward.
Neal makes a number of good points in his writing, and he's certainly sold on Las Vegas as a hockey locale, but not on the reported ownership group as identified by the New York Post. Personally, I'm going to leave the stuff about Las Vegas as a hockey destination alone as I talked a lot about that in my linked article above, but I do want to focus on the ownership group as this is the crux of the report.

William Foley, for his part, is not actually a billionaire. At least, not yet. Forbes estimated his net worth at $600 million dollars and identified him as a "billionaire up and comer". Foley is the chairman of Fidelity National Financial, and the company's bottom line appears to be growing steadily at this point. He was given $50 million in compensation by Fidelity in 2013 in his role as chairman, so it seems like his finances are, from the surface, stable and sound.

As Neal identified, the Maloofs are the wild cards in this ownership group. They developed the Palms Hotel and Casino in 2000 into a destination in Las Vegas, so that's a plus on their record. However, a $600 million expansion was partly responsible for the sale of the 98% of their stake in the Palms to creditors in 2010. There's the tarnish to cancel out that achievement.

As Neal pointed out above, the Sacramento Kings were a burgeoning NBA championship favorite during the 1990s as the Maloofs brought in players such as Chris Webber, Vlade Divac, and Mike Bibby to compete with the Lakers and Bulls. If it weren't for Shaquille O'Neal, Kobe Bryant, and the Lakers, the Kings may have been NBA champions at least once in their history.

However, players began to retire or move on, and the Maloofs started having trouble attracting high-profile free agents like thy once did. In 2006 - nearly the same time the expansion at the Palms began - the Maloofs were pushing for a publicly-funded new arena in the Sacramento. As Neal stated, the push failed as the city decided against the idea of having taxpayers fund a Maloof-controlled arena.

With no new arena and their known financial situation starting to crumble, the Maloofs began threats to move the Sacramento Kings to more modern facilities in Anaheim in 2011, going as far as filing trademarks on the name "Anaheim Royals". Former NBA player and mayor of Sacramento Kevin Johnson, however, intervened and asked the Maloofs to reconsider an arena idea in Sacramento that involved less public funding. The Maloofs backed off their relocation idea, and began work in looking at a new Sacramento facility again.

The Maloofs and the city of Sacramento came to an agreement on a brand-new Sacramento arena in late 2011, but the Maloofs got cold feet in April 2012 and backed out of the $391 million arena. The popularity of the Maloofs in Sacramento plummeted with the news and a struggling team. It took a further hit when the Maloofs organized a deal with a Seattle-based group to move the Kings to Seattle with the construction of a new arena there contingent on the sale, but the NBA Board of Governors blocked that move. Fans revolted against the Maloofs, and the cracks in the Maloofs' NBA bottom line began to show.

In May 2013, the team was sold for $535 million and remains in Sacramento despite the Maloofs' best efforts to destroy any fan support the team once had. The Maloof family had a half a billion dollars in their bank account, and they got out of Dodge as fast as they could. And now, they come looking for an NHL team that can be put where they amassed their wealth.

I think there should be some trepidation that goes along with any conversation about the Maloofs. We've been able to watch and document the struggles that Phoenix - a much larger city than Las Vegas - went through with the Coyotes, so the problems of Phoenix could very well be present in Las Vegas compounded with a smaller market. The Maloofs ran the Sacramento Kings into the ground in a small NBA market in Sacramento, so this should be a bright red warning flag on their file.

The second issue I see is that the net worth of the two parties - Foley and the Maloofs - right now has just over a billion dollars in their portfolio, but the Maloofs have no way of sustaining their net worth unlike Foley. While they are involved in some entertainment ideas, they don't have a defined income source that will continue to build their net worth to offset potential losses by an expansion team. And let's be honest here: expansion teams lose money for a number of years before gaining a hold in a southern locale. Ask Florida, Tampa Bay, Atlanta, and Nashville about their early years.

The idea of having a solid backer and a less-rich front man has worked in other small markets. Winnipeg, for example, has an uber-rich partner in David Thomson while Mark Chipman is the rich front man who is the face of the franchise when it comes to ownership. It works for Winnipeg and the team is on steady financial ground, so there's an example where an uber-rich, self-sustaining partner funds the team and arena while the less rich partner funds parts of the franchise in his own right.

However, the differences are vast between the Winnipeg ownership group and the Las Vegas ownership group. Foley is nowhere near as rich as David Thomson, and the Maloofs' track record is a stark contrast to how Mark Chipman ran his franchises. Like Neal, my fear goes back to the Maloofs in this equation as they have exhibited none of the traits you'd expect from a potential owner. That alone should be the sole reason this Las Vegas ownership group is put on the back burner.

These reports on Vegas are certainly interesting as a hockey fan, but the reality is that this potential expansion team has to start laying the groundwork now for it to have a strong local season ticket base so it doesn't have to rely on tourists to fill the arena. Yahoo's Puck Daddy blog spoke with Bill Johnson, COO and president of the ECHL's currently-suspended Las Vegas Wranglers, who stated, "Bottom line: Any professional team that is relying on the strength of the visiting team schedule and/or tourists to make up for any lack of critical mass of hockey-oriented locals is probably leaving a lot to fall outside their control. It's naïve and a rationalization. And it will be doomed."

As an aside, I highly recommend reading all of Billy Johnson's comments on the Puck Daddy blog. Excellent work by Greg Wyshynski on that piece, and it speaks to the heart of the problems an NHL franchise will face in Sin City.

Right now, that should be the top priority for any ownership group because Las Vegas still markets itself as a tourist destination. Without the support of the local fan base, talking about Las Vegas as an NHL city is nothing more than an academic exercise with or without the questionable ownership of the Maloofs.

Until next time, keep your sticks on the ice!

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