From Kevin McGran, Toronto Star:
The NHL is threatening an indemnity fee on top of a relocation fee – pushing the price tag for the Phoenix Coyotes to perhaps more than $400 million – if bankruptcy court judge Redfield Baum allows the team to move to Hamilton.
“Relocation is separate from indemnity,” said NHL deputy commissioner Bill Daly. “There may be indemnity fees owing if a franchise were ever located in Hamilton.”
Daly is, I think, relying on the NHL constitution when he makes this statement - it provides for both of these fees. From an economic perspective, I don’t think that Bill Daly can be right about this. As I understand things, the judge has basically spelled out the formula here by which a fair price is determined: Value of the Hamilton Opportunity - Value of the Phoenix Opportunity.
As I see it though, the value of the Hamilton opportunity has to either include the indemnity that would be payable to the Leafs and Sabres, or allow for it; in my view, you can’t calculate the value of Hamilton without knowing the indemnity payout that has to be made to the Leafs and Sabres.
This could result in a situation in which the value of Hamilton to the league is nothing. Say, for example, that the league determines the fair price of a hockey team in Hamilton (in terms of the value of the revenues) to be $350MM but that it also concludes that the damage done to the revenue streams of the Leafs and Sabres equals $375MM. In those circumstances, the value of Hamilton to the league is zero - the rights that it owns in Hamilton are worth less than the damage that would be done to the rights that the NHL has already sold in Buffalo and Toronto.
I don’t know that it’s all that crazy to think that the value of the opportunity to the NHL may, in fact, not be worth that much, and that most of the value would consist of taking away rights from Buffalo and Toronto. When you buy an NHL team, you’re essentially buying revenue streams. In this case, the 1/30th share of centrally generated revenue has already been purchased from the NHL by someone. The rights to sell local games on TV in Southern Ontario belong to the Maple Leafs. The territorial rights belong to either Buffalo or Toronto; I’m a bit fuzzy on this point. It’s not at all clear to me what, exactly, the NHL has to sell here that wasn’t already purchased when the Jets, Maple Leafs and Sabres came into the league. Arguably, whatever additional payment Balsillie has to make should be divided between them.
If anything, you could argue that NHL owners are probably getting a windfall here - collectively, they would be getting the rights to the Phoenix market back if Balsillie were allowed to move the team. Even if they (other than Buffalo and Toronto) got $0 for Hamilton, it’s hard to see that they’re not ahead, as they’ve already sold the rights to play and televise games in Hamilton and the right to receive a 1/30th share of centrally generated revenues. Where’s the loss?