Tuesday, 14 June 2016

Doubling Down On Vegas

It finally happened. The NHL Executive Committee unanimously recommended expansion into Las Vegas, Nevada for the 2017-18 season, making the NHL the first of the "big four" sports leagues to take a gamble on Sin City. Granted, it's not an official declaration yet as the Las Vegas group still needs to come up with the $500 million expansion fee, but the chances of this happening are better than it not happening. It will be the first expansion team since 2000 when both Columbus and Minnesota jumped into the league at a bargain $80 million apiece, but it seems the Pacific Division will grow by one team by the time the puck drops in September of 2017.

The Las Vegas group, led by businessman Bill Foley, has reportedly secured more than 13,200 season ticket deposits for the new team. The Las Vegas team will play in T-Mobile Arena, which seats 17,500 for hockey, found at the south end of the Las Vegas strip. The problem is that the 13,200 number isn't exactly truthful. As Scott Stinson writes in the National Post, "Included in that number are commitments to buy half- and even quarter-season packages; even today you can go to the website, put down a $75 deposit on 10 games in the upper bowl, and be counted as having pledged to buy a 'season ticket.'"

According to the terms on the website, Section 4 would worry me. It reads,
"If the NHL does not award us a Team to play starting with the 2016-17 NHL season I have a choice of receiving my deposit back or having us hold it if the NHL awards is a Team to play starting with the 2017-18 NHL season. I will not earn any interest on my deposit. I am not entitled to any damages if the team is not awarded for any reason. Also, we have no obligation to attempt to secure a team although we are working very hard to do so."
Because the NHL reportedly will award the franchise to Las Vegas for the 2017-18 season, some of those 13,200 deposits can be returned to the fans who made the deposit, resulting in less-than-13,200 seats being "sold". In other words, that number may be nowhere close to its actual value stated.

We've heard about the importance that TV markets play in the NHL, but the numbers don't match up there either. The only NHL city with a lower US media market ranking than Las Vegas is Buffalo, New York. Las Vegas is 42nd on that list, placing the city behind non-NHL markets such as Milwaukee, Cincinnati, Kansas City, Baltimore, and Indianapolis. Houston, who is tenth on the list, is a giant metropolis that never once is mentioned for hockey despite its successes in the WHA, IHL, and AHL with the various Aeros teams. Yet Las Vegas is getting a team.

Nate Silver of fivethirtyeight.com noted the size of metro Las Vegas compared to other cities. He wrote, "Our 2013 analysis estimated that there are just 91,000 NHL fans in metro Las Vegas. That's tiny even by comparison to the six smallest NHL markets that I mentioned before, which have between 146,000 (Nashville) and 279,000 (Tampa) hockey fans. And it's well below Seattle's 241,000 or Quebec City's 530,000 fans." If a city built on service jobs and nightlife is looking for fans, they will find them mostly at work during home games. There may very well be empty seats at T-Mobile Arena every night where those season ticket holders would sit because they'll be at work, making the money needed to pay off those season tickets.

Of course, this all may be worrying for nothing. After all, the catch is that big-ticket price tag of $500 million that will be divided among the 30 NHL owners who suddenly find their pockets and wallets flush with money. The NHL has never been one to turn down a free lunch, and this price tag ensures that the struggling franchises - Nashville, Florida, Carolina - get a lump sum to aid their slumping ticket sales. Sure, it's not going to solve every problem, but you sleep a little easier on a free deposit of $16.5 million into your bank account. Come to Las Vegas, the NHL was told, and we'll comp you a pile of chips for your pleasure!

However, the free money upfront never ensures long-term support from the city and fans. Support from the local fans for pro sports in Las Vegas has always been sketchy at best and would never be considered model franchises. The CFL founded a team there, and the Posse folded. The XFL founded a team there as the Outlaws who were fifth of eight teams in attendance (22,619 fans in a stadium that held 75,412 seats), but the league folded due to poor turnout for games. The PCL has the Las Vegas 51s and they're in the middle for attendance this season, but it has followed seasons where they were fourth-lowest, dead-last, third-lowest, and the second-lowest attendance in the Pacific Coast League, respectively.

Closer to home, the ECHL had the Gamblers in Vegas who often ran ridiculous promotions that brought in fans, but the lack of a true hockey arena and a median average attendance saw the team's operations suspended two seasons ago, and it appears they're going to fold now that the NHL has indicated they want to move into Las Vegas.

In 2013-14, Las Vegas averaged 4581 fans in its 36 home games - 13th-best in the ECHL. Looking back over the five years previous to that, they averaged 4561 (13th), 4339 (11th), 3940 (12th), 4350 (12th), and 4621 fans (11th), respectively, while cities like Ontario, Stockton, and Bakersfield - former ECHL cities that are now AHL cities - ranked ahead of them every year. If the people of Vegas won't support the minor-league "AA" hockey team in their city like those fans in the California-based cities listed above, will they turn out for more expensive NHL tickets?

That's the gamble, though. Does the fanbase in Las Vegas care enough about sports to support a franchise that requires $100 million per season to operate? How long are Bill Foley and the Maloof brothers willing to take losses like their desert brethren in Glendale before they convince the city of Las Vegas that they're an entertaining team worthy of $150 tickets per night?

CBC's Peter Armstrong reached out to Peter Pocklington, former owner of the Edmonton Oilers, in 2015 and asked him for his thoughts on the $500 million expansion fee. Pocklington spoke candidly about the business in hockey and why no team is worth that much.
"It's crazy," said the former owner of the Edmonton Oilers, Peter Pocklington. When asked if a team is worth $500 million, he laughed. "No. Not even close."

Pocklington, who is probably best known as the man who traded Wayne Gretzky to the L.A. Kings, says the margins in the business of hockey are just too thin.

"A lot of teams lose money. If you paid $100 million you're losing your backside, and I know a few of them who big time are."

So, why did he buy a team? At that question, the man they called Peter Puck softens a bit.

"I must admit, I got in for reasons of ego. I wanted to be the biggest nut on the block. It was a lot of fun. It was very exciting to be an NHL owner. Obviously now, with a price tag of $500 million you look at it differently."
If the price tag for a brand-new franchise is $500 million, the valuation of that franchise is already more than 19 of the current 30 NHL teams. How can a team with no identity, no players, no logo, no jerseys, and no history be worth more than the Anaheim Ducks, New York Islanders, and Tampa Bay Lightning who all have won Stanley Cups, all have marketable stars, all play in or near major TV markets, and are all Stanley Cup favorites each and every year? It doesn't make sense, right? What's worse is that only two of the top-eight teams valued by Forbes are expansion teams since 1967 meaning that cost for an expansion team is entirely bloated and overvalued.

If the house always wins in Las Vegas, there's a good chance that the free chips to the tune of $500 million that the NHL is receiving won't be nearly worth their weight in a decade's time if the fans in the Nevada desert city don't immediately jump onboard when it comes to the product being iced by Foley and the Maloofs. Of the 25 expansion teams since 1967, eight have failed outright and moved with a number of other teams sinking into bankruptcy and being on the verge of being sold or folding. Expansion into the NHL comes with a rocky start with the startup costs being astronomical, so new owners need to be willing to absorb heavy losses for the team's first decade at least.

There's the true gamble. How many billionaires risk that kind of money without ensuring some sort of return? Not many. That's why they're billionaires! If every NHL team was responsible for the losses incurred in that opening decade of an expansion team, I'm quite certain they'd be far more cautious about the locations to which they expand. After all, there's a hockey-mad city with an NHL arena ready to roll in Quebec, and they would have immediate fan and business support. Just sayin'.

Roll the dice, NHL, but don't be disappointed if you lose. As demonstrated numerous times before you got there, Vegas always wins.

Until next time, keep your sticks on the ice!

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