There’s a fascinating story floating around today about the New Jersey Devils’ owners looking to securitize their future revenue streams from television. The gist of it would seem to be this:
His New Jersey Devils hockey team is months late on an $80 million debt payment to lenders and is looking for a balance-sheet miracle — that is, the securitization of its long-term TV deal with the MSG Network, a move that Vanderbeek hopes will raise exactly that much cash.
But two sources close to the situation say it appears the money-losing franchise, which has been shopping the deal with the help of Goldman Sachs since at least November, is having trouble getting the deal done.
The Devils’ TV deal runs until 2023-24. I’ve asked around and was told that the Isles are pulling in around $20MM a year, with a small escalator, while the Devils are probably close to that number, although somewhat lower, as the company that bought the Isles’ TV rights was desperate for content. Really desperate. Say, for the sake of discussion, that the Devils’ TV deal is worth $15MM a year, with an annual escalator of like 3% or so. I’ve fiddled around with some NPV calculations, although I’m not a finance guy at all, and that doesn’t seem entirely crazy to me.
According to that story, Vanderbeek apparently has all sorts of problems with debt associated with the Devils, who are supposedly on the brink of bankruptcy. It’s widely reporting that he’s capitalizing interest on the debt he took on to buy the team.
I’m somewhat troubled by the sale of future revenue streams, which is what securitizing the TV contract amounts to. Say that Vanderbeek succeeds in doing this. The Devils will then have, for the next eleven years, effectively $0 in TV revenue – they’d just be signing the cheques over. How do you make up for that if you’re Vanderbeek? He either has to find new revenue streams – difficult to do when he’s already had a rink built for him – or figure out a way to significantly reduce the cash needed to fund an elite team. That second option would probably look pretty attractive. How do you do that? You drive down the players’ share of hockey related revenue in the next CBA. If the players aren’t interested, you lock them out. No hockey for hockey fans.
I am generally pretty pro-capitalism. I think it produces good results, better results than the available alternatives. The form of capitalism that exists in North American professional sport doesn’t really appeal to me though. It starts with teams banding together and refusing to play against teams that aren’t members of a given league, with entry into that league being entirely within the control of the owners of the league. This immediately permits sort of structural monopolies to develop.
Toronto, to pick one obvious example, could probably support a world class team along with the Maple Leafs. In the absence of a credible league though, which realistically probably means another 15 or 20 teams capable of paying NHL level wages, Toronto isn’t going to have another high level hockey team unless the NHL agrees to provide one. In refusing to play against teams that aren’t part of the cartel and controlling admission into that cartel, the consumers of hockey in places like Toronto get fleeced.
The next stage in this is obtaining public money for arenas, which further entrenches the NHL’s position. Starting a hockey league to compete with the NHL is basically impossible without massive public subsidies now. Imagine you wanted to put a team in Edmonton that would compete with the Oilers as part of WHA2. How can you compete with a team that has received hundreds of millions of dollars in public money? It’s impossible. You’re going to be stuck with a lesser facility, generating lesser revenues and unable to afford to pay the kind of salaries that NHL teams can. The position of NHL owners becomes even more unassailable.
The third stage, the one we’re in right now, involves the billionaires who own these teams using the monopoly that they both created and extorted from municipalities creaming off all of the excess money that’s in the game. When I say “excess money” here, I’m talking about the money that’s over and above the money necessary to maintain their position as the best league in the world. This is perhaps best illustrated by asking how much money a competing hockey league in North America could afford to pay the players. This imaginary league (as well as European leagues) is the real floor on what the NHL has to pay the players. There’s no reason that 57% of HRR is the right number. There’s no reason that 50% of HRR is the right number. Everything above whatever that right number is can be sucked out of the game by the guys who buy the teams.
And so, if you’re Jeff Vanderbeek, maybe you look at how much you’re spending on players and figure that that number could be cut in half or something and so you can sell your TV revenue to pay off the debt you incurred in paying a price for the team that the cash flows it generates would appear unable to support under the current setup. I’m not carrying water for the Players’ Association here – as between them and the owners, I don’t really care who gets the money, I care about my interests as a fan – but it seems to me that what you have is a group of people who, through controlling the supply of elite professional hockey and the stupidity of your average voter (or Edmonton writer) who demands that they be handed subsidies, are reaping rewards that are wholly disproportionate to the value that they’re providing. We get less hockey than we might otherwise have and pay prices higher than that which we might otherwise pay.
I’ve had it put to me in the past that “NHL Hockey” is a branded product and that there’s nothing stopping additional professional hockey teams from being created. See me getting my ass kicked in the comments here. I found the comments from Canuckland and Hockeyfan in that thread to be particularly compelling.
Maybe if anyone anywhere could open up any NHL team, and force other teams to play against him, maybe the NHL would be swimming in NFL-like revenues. Maybe there should be 3 teams in Toronto, 2 in Edmonton, and 1 in each of Saskatoon, Winnipeg, and North Bay. But you don’t get to force NHL owners to do that, just because you personally guess they’d make more money. They get to decide how many franchises there are, and where.
Because they’re risking their own goddamn money, that’s why.
Sure it’s a pain in the ass. Sure they’re acting like a cartel–in fact, I’d happily defer to your legal expertise, and stipulate (for the sake of argument) that they’re all breaking some bullshit “competition” law. But those of us who AREN’T lawyers shouldn’t be as concerned as you by what’s LEGAL. We ought to be more interested in what’s RIGHT.
And despite its absence in the Canadian constitution, I maintain that Canadians have a right to their property–which includes NHL owners having a right to theirs.
I suppose that, with this post, I’m basically rejecting his reasoning. The difference in how we see it, I think, is that he sees the NHL as a single entity and I don’t. I see it as thirty businesses, working together to ensure that everyone makes as much and to limit some of the countervailing features of capitalism that might act as a check on their excesses, with the result being that they can reap immense rewards that are wholly disproportionate to the value that they’re creating. While, again, I’m pro-capitalism and pro-property rights, I don’t know that the Canadian tradition has ever favoured letting those who own property work in combination to prevent the normal forces in the market from operating. I also think (and I feel on much more solid footing here) that those who suckle at the public teat have no moral complaint if the owner of said teat decides to start getting involved in their affairs.