What Would a Reasonable Transfer Fee Be?

Over the past couple of days I have heard all kinds of numbers thrown out on what a reasonable transfer would be, most of these numbers just picked out of the air and given little thought from the people tossing them out there. I have heard numbers like a $300 million transfer fee plus additional fees for entering into the Maple Leafs and Sabres territory. I heard one media member suggesting that Balsillie’s end cost could be upwards of $600 million or more.

The number tossed around in the court room on Tuesday was $100 million. Supposedly this number came out of sealed court filings but we don’t know exactly where that number comes from. Other media members have been tossing out a number of $300 million stating that that number came from unspecified owners and governors that they contacted.

But if the Hamilton franchise is worth $300 million, does that mean that the relocation fee is $300 million? And if the relocation fee is $300 million, do indemnification fees need to be paid to the Leafs and Sabres on top of that?

The answer to the first question is no. At best the relocation fee should be the difference between the value of a franchise in Phoenix and the value of a franchise in Hamilton. So, what is the value of the franchise in Phoenix? Well, if you listen to Balsillie, the answer is zero because there is no one interested in buying and keeping the team in Phoenix. If you listen to Bettman and the league, the answer is somewhere around $130 million because supposedly he has 4 potential owners interested and rumours are that one of them (Jerry Reinsdorf) might be interested in paying $130 million. So, that might set the cost of the Hamilton market at $170 million. If you use the value that Forbes places on franchises they estimate the value of the Phoenix franchise at $142 million, the lowest in the NHL. At the other end of the scale, the Leafs are worth the most at $448 million followed by the Rangers ($411 million), Canadiens ($334 million), Red Wings ($303 million) and Flyers ($275 million). Would a new Hamilton franchise worth as much as Montreal or Detroit? Not likely considering they don’t have any history where as the Canadiens and Wings have nearly a century of hockey behind them and the local Hamilton market is at least half the size of Montreal or Detroit. Using these numbers one could easily argue that a Hamilton franchise is worth less than $300 million making the difference between the value of a Hamilton franchise and the Phoenix franchise somewhere probably closer to $150 million.

So, if the cost of using the Hamilton market is $150-170 million, will Balsillie have to pay additional fees to the Leafs and Sabres for entering their territory? The NHL would probably argue yes, but recent precedent says no. From 1991-92 to 1993-94 the NHL expanded by 5 teams (Sharks, Senators, Lightning, Ducks and Panthers). Each of those teams paid $50 million in expansion fees, except that, supposedly, $25 million of the Ducks expansion fee went straight to the kings in indemnification fees. So recent precedent is that the NHL takes indemnification fees out of the ‘location’ fees and are not assessed on top of the location fees. The NHL would argue that the New Jersey Devils, when they moved to New Jersey from Colorado, paid indemnification fees directly to the Rangers, Islanders and Flyers but to the best of my knowledge I am not aware that they also paid the NHL location fees (please correct me if I am wrong). As far as I can tell, there is zero precedent in charging location and indemnification fees in a transfer of a franchise. In fact, when the Minnesota North Stars moved to Dallas, Quebec Nordiques moved to Colorado, Winnipeg Jets moved to Phoenix and the Hartford Whalers moved to Carolina no relocation fees were charged at all. Has the NHL ever charged a relocation fee?

To me, a relocation fee of around $150 million seems reasonable with no additional indemnification fees to be paid to the Leafs and Sabres being placed on top of that (the NHL would have to pay these fees, should they decide to, out of the $150 million). Is that too steep for Balsillie? Probably not, but he may decide to lower his offer to purchase the Coyotes from $212.5 million to offset some of the added cost. For example, he could change his initial offer to $170 million for the Coyotes (instead of $212.5 million) plus the $150 million relocation fee making the total cost $320 million. From there he would only have to up his offer to purchase the Coyotes should another bidder step in and bid against him. But would he really balk at owning a team in Hamilton if the total cost were $262.5 million? I suspect not.

So long as the judge rules that the franchise is relocatable, which he seems inclined to do, I believe that the Phoenix Coyotes will be playing hockey in Hamilton next season. We may find out today.

This article has 4 Comments

  1. Once again, I agree with you Dave.
    I suspect we would see a transfer fee in the neighborhood of $100 to $150 million, most of which will by necessity be argued to go to the Leafs and Sabres. It sounds like Judge Baum would prevent the NHL from asking for anything too outrageous. If they asked for something ridiculous (say $300 million) the judge would undoubtably throw it out and set his own rate, making it much smarter for them to set a more sensible number that they can argue. The easy argument is X dollars in lost revenue for the Leafs and Sabres in any given year. (For the Sabres they could argue about $5 million a year, not sure what they could for the Leafs – as the affect on revenue for them is more likely in merchandise than in Tickets.) Multiply that by Y # of years (10 to 20), and that sets your fee.

    I really question how much affect, if any, the Maple Leafs see from this. If you are a die-hard Leafs fan, you are not suddenly going to switch allegences, are you? The Mets have been in NYC for 40+ years, and it is STILL primarily a Yankees town. I think you could argue that 10 years from now the Leafs may see an negative impact, but immediate impact will be negligble. One issue not discussed though is TV revenue. Again, probably not a Sabres issue, as there is no OTA broadcast of Sabres games available in Canada…but for Toronto to now have to share HNIC with Hamilton…uh..oh…maybe that $300 million isn’t so unreasonable after all?

  2. I have lived in Ottawa for nearly 9 years, and I am still a Leaf fan. As you point out, has the Mets harmed the Yankees? Has the Islanders and Devils harmed the Rangers? Hardly. You could in fact argue that while the Leafs may lose some fans, particular in the Hamilton area (but not likely within the much larger GTA), the rivalry generated with a Hamilton franchise will only make for more passionate and dedicated Leaf fans. Rivalries are what make sports thrive. They are a major part what makes sports fans become passionate sports fans. Being in Ottawa I can tell you that Senators fans passion was developed through the early part of the 2000’s not just as a love of their team, but as a hatred of the Leafs. The four playoff losses to the Leafs were hard to take for Sens fans, but those losses probably did more for building a dedicated and passionate fan base than had they played other teams and won half the four series. I don’t think the Leafs would be harmed one bit by a Hamilton franchise and in my opinion they should be pulling for Balsillie because a Hamilton franchise means a much less likely change of having a second Toronto franchise which would certainly be more of a threat.

    The Buffalo Sabres on the other hand do have some to worry about, but they probably should be worried regardless of a Hamilton franchise or not. Buffalo is a shrinking city with negative population growth and that isn’t good for the teams long term future regardless of a Hamilton franchise. They do have great fan support when they are winning, but support wanes when they aren’t winning.

  3. I’m not sure the damage isnt already done when Senators and lawmakers prevent us from having our own team in Hamilton.

    I’m a Sabres fan yes, But I wouldnt cross the border nowadays because of pure hassle involved, altohough I would pay LARGE$$$$ to see Hamilton play in Buffalo !!!!!!!

    Whats up with your political base? Not very well informed are they?

  4. I’m not sure the damage isnt already done when Senators and lawmakers prevent us from having our own team in Hamilton.

    I would pay LARGE$$$$ to see Hamilton play in Buffalo !!!!!!!

    Whats up with your political base? Not very well informed are they?

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