Jun 122009

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.