NBA Expansion Update: Commissioner Silver Puts Seattle On The Short List

The undeterred vision for those in Seattle that have pushed relentlessly for years for an NBA basketball franchise to return to the Emerald City received a huge boost last week. The NBA Commissioner, Adam Silver, gave an interview when he was asked about the expansion of the league in the future.

The response to the question, I am paraphrasing here, that the expansion of the NBA due to the huge growth in revenue and popularity of the sport is inevitable. He added that when the league begins to the expansion process that Seattle is on the short list of cities that they will consider.

This should come as no surprise to many basketball fans because the Sonics had a deep history and still have a loyal fan base that long for a return of the franchise to the city. The NBA would be wise to expand to Seattle because the most difficult component for a new expansion team in a new market is to establish loyal fans.

The expansion to Seattle would put a franchise in a market that has very good demographics for television/new media, has a reputation for supporting their teams, and has the nostalgia factor from the first version of the Sonics.

The second most difficult task for a newly minted expansion team is to move merchandise and corporate sponsorships. The placement of an NBA expansion team in Seattle would clearly be a positive for the league because Seattle retained the rights to the name and colors of the Sonics and will sell a ton of merchandise based on the previous support those products enjoyed. The corporate business community will embrace the return of the wildly popular Sonics to the region.

The community and the government are supportive to bringing basketball back to Seattle. The NBA left because the arena was seen to be outdated and a new arena has remained the biggest hurdle to the city gaining a team to return. That hurdle, at times seemingly insurmountable due to a variety of factors, is moving closer to being cleared.

Seattle recently announced that they have reached agreement with a developer to begin a privately financed renovation of the old Key Arena at Seattle Center. The developer will keep the historic roof of the arena and other architectural elements that the public wanted to remain intact.

The renovation project will completely renovate the interior of the building by constructing a new concourse and other elements underground below street level. It will then reconstruct the entire interior of the existing facility as well. The newly renovated arena would be designed to meet all the specifications for the NBA as well as the National Hockey League (NHL) in the hopes of gaining an expansion hockey team for Seattle.

The city is about to enter negotiations on the actual MOU of the development project, so the city council retained the services of a firm that specializes in negotiating terms of these types of development and construction projects for major entertainment and sports venues.

It should come as no surprise that the NBA is interested in a return to Seattle because that city has a captive audience of fans that are nostalgic for the return of the Sonics. The NBA will gain new fans with younger people who have parents who told them about the Sonics, and they can attend games together as a family.

The NBA has a know entity in the Sonics and that is the key to both sides eventually getting this done. The arena renovation will be the last component in what has been a long saga, and then the path should be cleared for Seattle to finally get their basketball team back again.

The Politics of Sports: The Seattle Arena

The politics of sports has been on display fully over the past week with the announced plans for the Seattle arena. The city decided that their best option at this point is to move forward with the proposal from Oak View Group (OVG) which involves a complete renovation of the old Key Arena at Seattle Center.

This option was chosen and recommended by the Mayor and other politicians involved over the proposal from Seattle Partners, which also had a plan to renovate “the Key”. However, their plan contained some elements that concerned some key people in the city government. They officially “withdrew” their proposal ahead of not being chosen just before the announcement was made late last week regarding the arena plan for Seattle to gain either an NBA or NHL franchise.

The other option on the table is the SoDo arena concept pushed by Chris Hansen and his group of investors, which he has spent huge sums of his own money obtaining land in that part of the downtown area with the goal of getting the Sonics NBA team back to the city. The plan involves the vacation of a roadway which is very unpopular with the politicians as well as a location that is close to the Port of Seattle and the major outdoor stadiums for their other professional sports teams.

This location coupled with the change to the roadway grid and the potential for traffic congestion near the Port, all are factors that are stacked against the SoDo arena concept. Those factors outweighed the amended proposal from that investment group that stated that they would develop the site and construct the arena completely with private funds.

The renovation of the Key Arena at Seattle Center will be a public/private partnership arrangement for the financing, which is admittedly unpopular with some Seattle residents. The OVG proposal involves keeping the iconic roof structure of the facility intact while essentially gutting and rebuilding the entire existing interior structure. It will reconstruct the entire seating bowl and their plan for the site involves digging below ground to expand the footprint of the building while maintaining structural integrity. It will also be an environmentally friendly building project, with LEED certification processes involved in the various aspects of the construction of the renovated facility.

NHL Response

The NHL was contacted almost immediately after the news that Seattle was moving forward with the OVG renovation project for an arena that would meet NHL standards. The NHL Commissioner, Gary Bettman, issued a statement that essentially stated that the NHL has had no contact with Seattle and has no plans to expand the league at this point.

The politics of sports on the professional stage was in full effect here as well. It is no secret that the NHL has interest in expanding to Seattle. The demographics of that market make so much sense for the league in several metrics, that they would be foolish not to explore the option. The OVG proposal added two partners that are keen on getting professional hockey to Seattle, which was noted in the press release of the announcement.

Bettman is playing his cards here because he does not want to discourage other markets interested in potential expansion from thinking that Seattle has any sort of inside track to what will probably be the last slot available in the NHL for a very long time. The NHL has a conference alignment issue with 16 teams in the East and 14 teams in the West. The league took one step toward correction of that imbalance with the addition of Las Vegas as an expansion franchise beginning next season.

The assumption is that they will add one more team in the West to balance the two conferences and the league for scheduling and other purposes in the somewhat near future. The OVG group stated that the proposal is still pending approval and they will need at least 2 years probably closer to 3 years to get the entire renovation at Key Arena completed.

Design Concerns

Some area residents are not happy because they did not want another major sports team or teams playing in that neighborhood. This is a very political issue and the design of the building and the mass transit plan for light rail access is part of the proposal from the city level to alleviate traffic concerns.

The design of the building was also a point of concern for residents of that neighborhood. Some concerned parties did not want a monstrous new arena going into that Seattle Center site. The trend in sports arenas is for larger footprint buildings packed with amenities for fans and concert attendees.

The OVG plan for Key Arena accomplished providing more amenities without dramatically increasing the overall footprint of the facility by proposing to dig below ground and implementing those amenities in areas below the current street level. The plan for the renovated facility also calls for improvements to the park area around the Seattle Center, which should be viewed favorably by the residents.

NBA: “Cutting the Pie”
The return of the NBA to Seattle is an entirely different situation. The topic of expansion for hockey has been an active one, with Las Vegas set to join the circuit and with the imbalance of teams alluded to earlier. The NBA is in a different stage in their life cycle as a league. The owners and the league office just agreed recently to a new TV and media rights deal that will reap them significant economic revenue which is divided up among each member franchise.

The NBA owners are currently not eager to “cut the pie” into more pieces by adding more franchises. The amount of the expansion fee would be offset by the amount that the new team gets as their portion of basketball related income. The NBA also has no franchises in a situation where relocation is being discussed.

These factors, when all are taken into account, amount to the fact that the Key Arena renovation, if approved, is going to take approximately three years to complete from the point that permission is given for renovation work to begin. The NBA is not planning to expand any time soon. The NHL has other interested cities in expansion, but they may never expand to Seattle for a variety of reasons.

The politics of sports in this situation leaves the SoDo arena proposal in serious jeopardy. The time, effort, and money spent by that group is going to upset some powerful people in that city if that proposal is rejected by the political groups involved.

Up In Flames

The politics involved in the Seattle arena decision also could become a leverage play for another team: the Calgary Flames. The president of that hockey team, Brian Burke, commented to a group of business leaders at a team function recently that the franchise could move out of Calgary if it does not get a new arena.

He continued his comments reportedly by stating that the Flames had relocation cities under consideration if they were to ultimately decide to move the team out of Calgary. In that scenario, once relocation is brought up, Seattle is not very far behind. It is no secret that Seattle wants an NHL team, and the opportunities for relocating an existing franchise are very unique and infrequent.

The Calgary Flames have presented their vision and plan for a new arena and entertainment district with other real estate development around the new facility that has been deemed “unsustainable” by the political powers that be in that city. This is where the friction between the city and the team began.

The Flames play in the SaddleDome which was built when Calgary hosted the Olympics in 1988. It is among the oldest arenas in the league, a fact that supports the team ownership and their contention that it needs to be replaced. The Mayor and other politicians have stated that they do not support using taxpayer money to fund a new arena. This could get very sticky, and the speculation over the future of the team in that city will follow suit.

It is doubtful that Calgary will leave a city that they have an established fan base within and have over 30 plus years of history. It could be that Seattle is a leverage play, as I mentioned before, or it could become seriously considered for their future. The primary issue is that Seattle lacks a suitable arena for at least three years.

Another option to watch is the Flames using Quebec City as either a chip to secure their own new arena deal, or for a real alternative should the political situation with Calgary become untenable. Quebec is a whole different scenario because they have an NHL ready arena built and fully operational, they just lack a team.

It is all part of the politics of sports and it has played out in two places, Seattle and Calgary, in a week. Those two situations are just a drop in the bucket, wait until next week, and the next potential issue with politics and sports will be right around the next bend.

NHL Expansion Follow Up: The Case for Seattle

The NHL is just returning from their Olympic break where game operations were suspended so that the players could represent their respective countries in Sochi.

 

In a relatively slow news cycle for the NHL at this point, one story did gain some traction, and that is the discussion by NHL executives with the media regarding the potential expansion of the league to Seattle.

 

This is not the first time Seattle has been mentioned relative to the NHL, the city was rumored to be a potential relocation target for the struggling Phoenix Coyotes franchise prior to the start of this season. I have covered the situation surrounding the Coyotes ownership changes and potential relocation to Seattle, so this will serve as a follow up story to a situation that I have a great deal of knowledge about.

 

The NHL has discussed the potential for expansion recently especially after the lockout hurt revenues in 2012-13. The expansion fee for a new franchise to enter the league would represent a significant revenue injection for the other owners in the NHL.

 

The western United States is a target area for the league at this point with the realignment causing the Eastern Conference to have two more teams than the Western Conference. The Pacific Northwest is seen as a having significant growth potential for the NHL, and the key market in the region is Seattle.

 

The potential expansion of the NHL to Seattle would add a large TV market (12th largest) which will provide greater leverage for the league in their next television rights contract negotiations, and greater revenue from TV advertising.

 

The addition of an expansion franchise in Seattle would also bring the NHL into another large population center as Seattle has the 15th largest metropolitan area population in the United States. In fact, between the TV market and the metro area population statistics, Seattle would be a larger market for the NHL than 10 other domestic U.S. markets where the league has current franchises in operation.

 

Heading North

 

A group of business, civic, and political leaders from Seattle recently traveled north of the border to Vancouver to meet with the front office and executives from the Vancouver Canucks to learn how the team conducts the business of professional hockey.

 

This trip is another indication that the expansion of the NHL to Seattle is becoming more serious. The business side of an NHL franchise is very unique, and this meeting was a very good idea, especially when members of the Seattle Sports Commission told the local media that some members of the delegation travelling to Vancouver had never seen a live hockey game before.

 

The rumored ownership team for the prospective expansion franchise in Seattle is Ray Bartoszek and Anthony Lanza. These two businessmen were also the principal people involved when the NHL considered relocating the Phoenix Coyotes to Seattle in the summer of 2013. The qualifications of an ownership group represent a huge hurdle in the decision for a league to award an expansion franchise, it appears that Seattle has a well-financed group in place.

 

The other big issue in the case for Seattle to be awarded an NHL expansion franchise is the arena situation, which is another huge piece to consider in this process. The NHL has stated that if it were to expand the league, the added team or teams would begin play in 2015-16. This time frame may give Seattle enough time to gain final approvals and construct the proposed new arena near the other two sports stadiums downtown.

 

However, that brings a new issue to the table, the funding for the arena is based on an agreement between the City of Seattle, King County, and investor Chris Hansen that calls for an NBA team to be the primary tenant of the new arena. Therefore, the public funding agreements would need to be changed should the city be granted an NHL team before they gain an NBA franchise.

 

 

The time frame for expansion is appropriate because it will take a couple of years to hire personnel to staff the front office and the business operations side of the team, organize a marketing campaign, and sell luxury suites or season ticket plans.

 

The expansion fee is expected to be very large with estimates in the media of close to $250 million. Then factor in approximately $500 million for the new arena, and Seattle is poised to make a huge investment in professional hockey.

 

I have reported on the potential expansion of the NHL before, and the league will most likely expand by two teams in 2015-16. The media speculation is that the NHL will most likely select Seattle and then either Quebec City or Kansas City with the other expansion slot.

 

The result of all of this, in the end, it looks like Seattle is going to have an NHL hockey team to cheer for in the near future.

(Credit to NBC Sports.com and Seattle Times for some background information)

 

 

TV Markets and the Expansion of Sports – Part 4

The demographics of a city or metropolitan area, their media market size, the support of the political leadership in the city and the support of the business community are important aspects in determining the expansion of a professional sports league.

 

In this fourth installment of this series, the focus will be on the National Hockey League (NHL) and the potential expansion opportunities for a league which is rapidly growing in popularity. The NHL has witnessed some outstanding revenue growth in recent years which enabled them to obtain a huge television and media rights deal with Comcast/NBC (www.nbcsports.com).

 

In 2012 and 2013, every playoff game from every series was televised nationally via the Comcast/NBC for the first time in the history of the league (www.nhl.com). The NHL has long been considered the “fourth league” of the “Big 4” professional sports in the United States, but the ratings are growing exponentially.

 

The 2013 Stanley Cup Final between the Chicago Blackhawks and the Boston Bruins was a ratings record breaking series on NBC (www.nbcsports.com). This was in a year where the league had a lockout shortened season over a revenue dispute between the owners and the players union.

 

Realignment

 

The NHL realigned their divisions for the 2013-14 season into two conferences with two divisions in each conference. However, unlike other sports, the conferences are unbalanced.

The Eastern Conference has two divisions of eight teams each for a total of sixteen teams. The Western Conference consists of two divisions of seven teams each for a total of fourteen teams. That brings the total number of teams to 30, but many reports have indicated that this uneven conference split was done with expansion in mind.

 

The most obvious expansion would be by two teams to a total of 32 and have both of those teams be added in the Western Conference to balance the league. Numerous sources close to the league have reported that the increased revenues from two additional future expansion teams via the league entry fee and the entry into two new markets was part of the discussion during the lockout negotiations (www.cbssports.com).

 

The other rumor circulating throughout the media is that the NHL may expand by four franchises in the near future. If those reports are true, that would mean a significant revenue infusion to the league through the expansion franchise entry fees and subsequent introduction into four new marketplaces in North America.

 

The TV market metrics are probably the least important in hockey than in other sports because the average person and the consensus among the casual sports fan is that hockey does not translate well to the medium of television. Now, NBC has tried to enhance the broadcasts to change some of that perception and offers some unique camera angles and outstanding production value to their hockey telecasts.

 

However, the NHL makes their money with the live game experience. Last season, following a protracted labor stoppage, the hockey arenas in the NHL averaged game attendance levels at 95% of capacity (www.nhl.com). The NHL live game experience is, in my opinion, the best sporting event to attend.

 

The NHL executives and franchise owners know that they will get their die-hard fans in the building for the games and they have proven that, in a recession or otherwise, those fans will spend money at the games. So the addition of four potential new franchises could bring in more revenue through in-game expenditures, season ticket sales, luxury suite sales, and merchandise sales.

 

North of the Border

 

It is important to note that unlike the other major sports, Canada is a legitimate expansion area for the NHL, and a likely area of future expansion. The sport of hockey is so well loved and supported in Canada, that the NHL could put a franchise basically almost anywhere in that country and it would be a successful venture.

 

That type of widespread and virtually assured support cannot be found in the U.S. hockey marketplace, but it is surprising how well the NHL has done in cities such as Nashville, Tampa, Dallas, San Jose, and Anaheim.

 

The list below will also demonstrate that the interest for an NHL franchise in some U.S. markets is very high at this point.

 

Potential Expansion Markets

 

The following cities are potential candidates for expansion franchises in the NHL (all TV markets data courtesy of www.stationindex.com – all Fortune 500 company information courtesy of www.money.cnn.com – and all Metro Population data courtesy of www.census.gov ):

 

  • Seattle, WA – Has emerged as a very strong candidate for expansion based on the plans to build a new arena in the downtown area. The location, and population size and demographics make it a good fit for the NHL.

TV Market Rank: 14th

Metro Area Population Rank: 15th

Fortune 500 Company HQ: 4

Synopsis/ Outlook: The Seattle bid gained traction with the league when the Phoenix Coyotes looked as if they may relocate. The NHL quickly lined up Seattle as a potential alternative site to move the franchise. They even had an ownership group lined up. The location is key for this bid because it addresses a region (Pacific Northwest) where the NHL has no current presence other than the Vancouver Canucks. The population and TV Market sizes are very good, and corporate support would be strong. The population is hockey-savvy as they have several youth hockey and minor league hockey teams in the region. The arena situation would be the murkiest part of the bid today. The team may have to play temporarily at the Key Arena, which would be very small for hockey and has a strange configuration for hockey. The new arena being planned (see Part 1 of this series) is primarily for the NBA expansion team. The hockey team is viewed as the second tenant. I do not know if they would build the arena solely for a hockey team with no assurances from the NBA on a future expansion franchise for the city. Overall a very strong bid.

  • Quebec City – The second most widely regarded bid from NHL insiders is the bid from Quebec, which of course, was home to the Nordiques until they moved to Denver in the mid 1990s. A historic city with a rabid base of hockey fans.

Synopsis/Overview – The TV markets and other data does not apply to this Canadian city. The potential for regaining an NHL franchise is of tremendous importance to this city. The Mayor and the city government in Quebec City approved a new arena without a team or the assurances of an expansion team. In a “if we build it they will come” type of move they are currently in the construction phase of the new arena which is next to the old arena where the Nordiques once played. The NHL was so impressed with the confidence of the government and the people there, that the Quebec bid is thought to be a very strong one among league insiders.

  • Houston, TX – A “dark horse” candidate but a place that has shown interest in the past. It was one of two cities (Hartford was the other) that was used as a bargaining chip by the Penguins ownership to get the new arena in Pittsburgh done.

TV Market Rank: 10th

Metro Population Rank: 5th

Fortune 500 Company HQ: 23

Synopsis/Overview: Houston has some very strong positives for a NHL expansion bid including excellent demographics and TV market rankings. The city has a rapidly growing economy and is home to a whopping 23 Fortune 500 companies – so the right ownership group and strong corporate support would not be an issue. Due to the rapid economic growth the city has a changing population with transplanted residents from across the country. The bid would pitch the fact that the changing demographics mean more hockey fans living within the city metro area. The arena is state of the art and hosts the NBA’s Rockets currently. This bid has potential, and hockey has been successful in Dallas, but the league may be resistant if they are unsure of long term fan support with all the other major sports already having a presence in that market.

  • Markham, Ontario (other Toronto area city) – Toronto is the largest hockey market in the world. It currently has one team, the Maple Leafs, and they have struggled for a long period of time to get back to relevancy.

Synopsis/Overview: Since the other metrics do not apply here in a Canadian market, I will summarize this complicated bid. The issue here is that the league office and ownership had great support behind a bid for a second team in the Toronto market. In the past two years, some of that support has waned. The reports I have read indicate now that the Markham bid, or a bid by another Toronto area city, would very likely not get approved if the league expands by two franchises. It would have a better shot of getting in during the next round of expansion by two teams. The rationale behind this is two-fold: 1. The Maple Leafs are not thrilled about sharing the market with another franchise, especially an expansion franchise that will cut into their revenues directly. 2. The front runners for expansion at this point are not two Western cities which the NHL would need to balance the two conferences. Tim Leiweke who is a top executive with AEG (owner of arenas and sports teams) did a presentation last week and during the Q & A session which followed he stated the second Toronto team may not happen at all. He stated that the meetings he was involved with have Seattle and Quebec as the two front-runners and Kansas City and Las Vegas as very strong contenders for the second round of expansion(www.yahoo.com)  This would make sense because Quebec would bring the Eastern Conference to 17 teams, and Seattle would bring the West to 15 teams, and then the potential additions of two more Western teams would balance the league at 17 teams in each conference (total of 34 teams). Markham just approved financing of $350 million for an NHL caliber arena north of Toronto (www.cbc.ca). It could be very interesting what happens here with this bid. The University of Toronto commissioned a study which was reported by the CBC that the country of Canada could easily support 12 NHL teams (they currently have 9 teams in Canada). However the concentration of wealth in Toronto is what makes that market so attractive to the NHL. It is a risk to build an arena, but Markham decided in a slim margin in their city council vote, that the risk was worth taking.

  • Las Vegas, NV – One of the most popular tourist destinations in the world would provide a very robust stage for the NHL to showcase their international star players.

TV Markets Rank: 42nd

Metro Area Population Rank: 31st

Fortune 500 Company HQ: 4

Synopsis/Overview: The Las Vegas bid is considered within many circles close to the NHL to be a very strong potential contender for a franchise. The TV market ranking is a little low (Buffalo has an NHL team and is 51st) and the TV market as I stated earlier is not looked at in hockey as crucially as it is for other sports. The population is low too, but the league has several current franchises in smaller metro areas currently. The three biggest issues with a potential Las Vegas expansion bid are: the selection of a stable ownership group, the ability of the metro area population to support a team for the long term, and the arena. The NHL offices have expressed issues with the arena situation there numerous times in the past through various media reports. The largest arena in the city, The Thomas & Mack Center, does not have an ice sheet. That means that the temporary home for the team would have to be the MGM Grand Garden Arena which seats about 16,000 for hockey which is small (www.cbssports.com). However, MGM and the before mentioned AEG group recently announced a joint partnership on a brand new 20,000 seat arena to be built between the Monte Carlo and the New York, New York Casino Hotels (www.finance.yahoo.com). Just last week, the first renderings of the new Vegas arena went public. It will immediately be able to host an NBA or NHL team. The project is slated to begin in April 2014 and be finished in 2016. This project addresses the key issue the league had with Las Vegas. The NHL has always talked about wanting to be the first professional league to tap the Vegas market, and one final note, Jerry Bruckheimer is very close with the top executives at AEG. He has openly discussed wanting to own an NHL team in Las Vegas. A very strong bid made stronger by the new arena project.

  • Kansas City, MO – An interesting bid it would open up that part of the Midwest to the NHL and create an instant rivalry with the St. Louis Blues.

TV Markets Rank: 31st

Metro Population Rank: 30th

Fortune 500 Company HQ: 2

Synopsis/ Overview: Kansas City was also included in the NBA potential expansion bids. The strength of the bid is still the arena, Sprint Center, which is world class and has no permanent tenant. The taxpayers want a team for the building since they approved tax money to build it. The political goodwill is very strong here, and the corporate base would be supportive of an NHL team, though that support could be better in other cities with less sports teams already (Kansas City has the Chiefs in the NFL, and the Royals of MLB) and the other issue that may or may not be a mitigating one (depends on what reports you read) is that the NHL was already in Kansas City (the Scouts) and it lasted only a couple of years and the team struggled to get attendance and fans, so they moved to Colorado and rebranded as the Rockies. The Rockies eventually moved to New Jersey and became known as the Devils (www.nhl.com). So much has changed economically and demographically since the time of the Scouts that I think it is an unfair comparison to hold against Kansas City at this point. This city has a solid bid and the NHL brass will have to determine if it is worthy of a team when comparing all the variables as compared to the rest of the cities on this list.

 

The Future

 

The unique aspect about the NHL part of this series on sports expansion is that the league intends to expand. The other leagues talk about expansion as an eventual thing if all goes well, other leagues like the NBA only want to expand by one or two teams to avoid splitting revenue dollars further.

 

The NHL is fairly aggressive in their expansion goals. They have talked at media events in the past about expanding within certain time frames. This list is a very viable list of cities that could very well be hosting an NHL team in the next three to five years.

 

In the event that the reports are true and Seattle and Quebec City are the front runners for the two expansion spots, that would probably create a second round of expansion because of the geography and politics involved.

 

The entry of Quebec into the Eastern Conference would still leave the East with more teams, so the NHL would have to add two more teams in the Western Conference to balance the league. The relocation of one of the current teams in the East being sent to the Western Conference would be highly problematic from a political point of view.

The owners of the Detroit Red Wings and Columbus Blue Jackets fought for years to get moved into the Eastern Conference, and now that they have moved East, then the league will be reticent about moving one of them back to balance the conference sizes.

 

If you are a hockey fan, that is exciting news, and if you are not a hockey fan, but you are a sports fan; then it could give you something else to do while on a long weekend in Las Vegas in the future.

 

The final part of my series will be up next and that is the future expansion of MLS (Major League Soccer).

TV markets and the expansion of professional sports – Part 1

A major factor in the decision regarding the expansion of professional sports teams is the size of the television market for the respective city proposing to join one of the major sports leagues.

 

In the changing landscape of the medium of television, live sports event programming is a ratings gold mine for the networks. Due to the advancements in smart phones, tablets, social media, and other devices it has created a scenario where it is very difficult for a fan to not learn the outcome of a given sporting event.

 

These advancements have changed the practices for the viewing of sporting events because many of them are no longer recorded to watch at a later point. The fans of a respective sport want to watch the event live as it happens, which has created a surge in the ratings for sporting events on television, and it also creates added importance for the major sports leagues to be in position to capitalize on those ratings.

 

Each league has their own unique challenges when it comes to expansion and the maximization of television ratings and other revenue streams. This first part in a multi-part series will detail the current status of each of the “Big Four” sports leagues and their future potential expansion prospects.

 

The “Big Four” leagues are each in different positions in their own respective growth cycles with regard to expansion. This is driven by a variety of factors:

  • Size of the league currently
  • Locations of their current franchises
  • Current revenues/revenue projections for the future
  • Stadium/arena situation
  • Dedicated and stable ownership in the respective market
  • Corporate Sponsorship and local/state government support

 

A point of clarification on the revenues and projected revenues item listed above before moving into the individual leagues. Each league divides certain revenues among all of the respective member franchises.

 

Some leagues (NFL, NBA) have ownership boards that like the number of teams they currently have and do not want to “split the pie” too much further with expansion franchises. Particularly because most expansion teams will not be successful in the standings, so they could qualify to receive higher amounts of revenue sharing funds based on the rules for that respective league.

 

The revenues for the National Hockey League (NHL) are expected to rise but the league is at a point where they just came through a labor disruption with the 2012 lockout. The owners and players both have an interest in getting more out of their “piece of the pie”. One way for them to do this quickly is to expand the league because the fees paid by the new owners for entry into the league is an immediate revenue injection.

 

National Basketball Association (NBA)

 

The National Basketball Association (NBA) currently has 30 member franchises split into two conferences of fifteen teams each, within each conference are three divisions consisting of five teams in each division.

 

The NBA could conceivably expand by two teams to 32 at some point in the future. Those who follow the league know that they NBA just went through a roller coaster saga with the Sacramento Kings franchise and their ownership change.

 

The former owners, the NBA, and the city government could not come together on a deal for a new arena, and the current arena in Sacramento is badly outdated compared to other venues in the league.

 

It appeared that the team might be relocating to Seattle, where the league had a presence for years, until they moved the Seattle Supersonics to Oklahoma City in 2008 (www.nba.com). The loyal fans in Seattle have been trying to get their NBA team back and were very upset that it was moved away (also over a failed new arena deal) and the NBA has been trying to correct that public relations nightmare ever since.

 

In the end, the city of Sacramento put together a solid ownership group to bid for the team to keep it in the capital of California. The NBA approved the deal because it did not want to relocate another franchise and have angry fans in Sacramento like they did in Seattle. The new ownership group quickly moved on a new arena deal in a different location of Sacramento than the previously failed sites, and the team did not move out of Northern California (www.nba.com).

 

This last minute change thwarted all of the work that Seattle did up to that point to secure a new team to replace the franchise the city lost. Therefore when you consider the expansion markets for the NBA they are as follows: (all TV markets data courtesy of www.stationindex.com and the demographic info was provided by www.census.gov and the Fortune business info is courtesy of www.money.cnn.com )

 

  • Seattle – they have a history and established fan base from the Supersonics years of being located there.

TV Market: ranked 14th

Metro area population: ranked 15th

Fortune 500 companies: 4

Synopsis/Outlook: The Seattle market is too large from a population and TV market size perspective for the NBA to ignore. They have a dedicated potential ownership group lead by Chris Hansen, who has spent large sums of his own money to secure land near the other 2 stadiums in downtown Seattle to build a state of the art arena. The political climate has changed because the officials there learned from the past mistake of not allocating government
funds to a new arena back in 2007-08. The public there is very dedicated to gaining a new team, and they have a built-in fan base. The outlook is highly likely that they will gain a team, either through expansion or relocation. The latest news here is the Milwaukee Bucks have an arena issue, and the NBA has said they need to solve it or else they would entertain relocating the team elsewhere. Seattle would be the first destination on the list for a relocated franchise, if the Bucks cannot get an arena deal consummated with the State of Wisconsin.

 

  • Tampa/ St. Petersburg – attractive location for the league could join Southeast Division in expansion.

TV Market: 13 (pretty big compared to markets currently in league)

Metro Population: 18th ranked

Fortune 500 companies headquartered: 0  (5 in Fortune 1000)

 

Synopsis/Outlook: The population demographics and the TV market size are strengths for this city. The arena there hosts an NHL team and is state of the art. The issues with a bid from this city are the lack of major corporations which could negatively impact: corporate sponsorships, luxury suite spending, and media air time buys. The other factor to consider was the area was hit hard by the recession and that could have an impact on attendance figures. The two other major detriments are no known committed ownership groups and the NBA has two other teams in Florida including one a couple of hours away in Orlando.

 

  • Pittsburgh – has the other 3 sports and wants to be a “Big 4” city

TV Market: 23rd

Metro Population: 22nd

Fortune 500 company HQ: several- including suburbs estimated 13-15

 

Synopsis/Outlook: The strengths for this city for the NBA bid are numerous including top 25 TV market, a brand new arena built for the NHL Pittsburgh Penguins, and very strong major corporation presence. The Sporting News has named it the “Best Sports City” in the past, and the fans of their current teams are known for their passion. If the right ownership group could put together a strong bid, this could be a very viable option for an NBA expansion franchise.

 

  • Kansas City – an outsider looking in – some good points and some question marks for a potential expansion bid.

TV Market: 31st

Metro population: 30th

Fortune 500 Company HQ: 3 (several other large corporations with offices here)

 

Synopsis/Outlook: This city is a solid contender for NBA expansion bid with the location being between Oklahoma City and Denver, which would create regional rivalries which help expansion teams. The arena, Sprint Center, was built in 2007 and the taxpayers desperately want a full time professional tenant to use it, since they shelled out money to pay for it. The players in exhibition games have raved about the arena being completely state of the art and nicer than some current facilities in the league. The arena is a huge component of an NBA bid and it is a very strong positive for this city. The issues here could be public support long term of the team with the immense popularity of the University of Kansas basketball team in competition directly. The right ownership group could be a challenge as well.

 

  • Louisville – my last entrant for the NBA based on a mention in an interview by NBA Commissioner David Stern regarding potential expansion sites.

TV Market: 50th

Metro population: 42nd

Fortune 500 Company HQ: 3

 

Synopsis/Outlook: Louisville is an interesting contender for an expansion team but might be on the outside looking in. If the NBA expands it will be by one or two teams and I think Seattle will definitely be one of them. The TV market rank looks bad at 50th –  but then the NBA has a current team in New Orleans, the Pelicans, and that TV market is ranked 53rd. Since basketball has very strong local support it generally does a solid rating even if it is a small market. The corporate presence is good here, and the arena is only a few years old. It is very close to Indianapolis (about 90 minute drive time) which could be looked at as a plus or minus by the league with a team currently in Indiana.

 

Europe?

 

The last consideration as far as NBA expansion is concerned is the potential for European teams. Some might feel this is further away than it actually is, it could be a serious consideration in the next 5 years. The NBA and soccer are the only two global sports.

 

The NBA has so much international appeal that David Stern has talked about a potential division of teams in Europe. In my opinion, you are probably looking at London, Paris, Rome, one team in Spain (probably Madrid), and because of the health of the German economy probably two teams there for a total of six. I would think six teams would be the only way it would be worth launching in Europe, and is a solid number without overreaching in the early stages. The players would probably dislike the travel, but it is something that could become viable in the future.

 

The second part of this series will detail Major League Baseball, and the potential for expansion of the game that has defined America for generations.

 

 

 

 

The NHL in Seattle – the Future of the Coyotes Franchise

I have been reading reports all over the internet sports news sites this week regarding the future of the Phoenix Coyotes franchise. In order to fill in any gaps for readers who are not familiar with the saga of the hockey team in Phoenix let me summarize:

  • The NHL took over ownership of the Coyotes in 2009 when the ownership group of the team basically went bankrupt. The league took over the franchise which essentially was on the verge of collapsing into insolvency.
  • The NHL has poured millions of dollars into keeping the team in the desert and is still in financial ownership of the team today
  • The NHL has tried with obviously no success to sell the team to a number of investors, most of them from outside Phoenix who stipulated that they would keep the team in Phoenix as a contingency of the sale.
  • Those deals have all fallen through because the franchise is in such bad financial shape that in order for the operation of the Coyotes from a business perspective to have a chance at “breaking even” the potential future owners need a favorable lease on the arena in Glendale, AZ known as the Jobing.com Arena.
  • The Arena deal essentially consists of the City of Glendale (which owns the arena and used tax money to construct it) to make payments to the future owners of the Coyotes for “arena operational costs”. So the owners of the Coyotes would run all the day to day operations of the arena and manage the upkeep on the arena using payments from the City of Glendale.
  • The NHL had an offer back a couple of years ago from an investment group to buy the team and relocate it to Hamilton, Ontario, Canada. The NHL offices blocked the move because they wanted to keep the team in Phoenix.
  • The NHL has now made it clear that it no longer can afford to dump money into the Coyotes and that they must sell the team as soon as possible. The NHL Commissioner Gary Bettman has stated that if a deal cannot be reached they would even consider the highly unusual step of suspending the operations of the team and putting the Coyotes “on hiatus” for the upcoming NHL season.
  • The current group interested in buying the team has a deal to keep the team in Phoenix for 4 years, if at the end of that time period the team is still losing money, then the group is allowed to relocate the team or to sell the team to a group which will relocate the team to another city.
  • This current potential ownership group has asked the City of Glendale for $15 million per year to operate the Glendale Arena. The City Council has until next Friday, June 28th to decide whether those terms are agreeable.

 

The Current Issue in Glendale

 

The current issue in Glendale, according to media reports, is that the city is broke. Now, they have to decide whether they can afford to pay the new ownership of the Coyotes the money to operate the arena.

 

In the event that they decide that they cannot afford to pay the Coyotes group then they risk losing the main tenant of the arena: the hockey team. The arena was built in Glendale right across the street from where the Arizona Cardinals NFL team plays football.

 

The arena in downtown Phoenix, the US Airways Center, which is home to the NBA’s Phoenix Suns, had an odd configuration for ice hockey, and the fans disliked it because the sight lines were terrible.

 

The arena in Glendale was built specifically for hockey and for the Coyotes to call their home. However, the distance from the downtown center of Phoenix to Glendale made for a brutal trip with traffic patterns in the now bustling and ever expanding Phoenix metro area. So it took fans over an hour in traffic to go a short distance and that turned many people off from going to the games in Glendale.

 

The Coyotes have one of the worst attendance figures in the league. That unfortunate statistic puts greater emphasis on the arena deal than in other sports franchise purchases because the compensation from the city (in this case from Glendale) is needed to offset the loss in attendance revenues.

 

The Coyotes are a good solid playoff caliber team which went deep into the playoffs in 2012 and they still did not sell out the arena in Glendale for those playoff games. The rest of the NHL teams’ average very high in person attendance figures with arenas averaging about 90% of capacity for the season.

 

It has been widely reported that the City of Glendale has some reservations about the potential new ownership group. In particular, the fact that they put down a very low percentage of the actual purchase price to buy the team from the NHL, and are borrowing the rest of the money involved in the transaction. The City Council may think the $15 million per year is too steep a price, and they may risk losing the Coyotes and move forward with a different arena management company to hold other events at the arena.

 

The Backup Plan – Seattle

 

Earlier this week, according to CBS Sports.com who broke the story, the NHL league offices leaked the backup plan in case the Glendale City Council does not agree to the terms of the arena management deal and lease.

 

This same report states that the NHL has been in constant back channel communications with an ownership group that is prepared to pay $220 million for the Coyotes to relocate them to Seattle in time for the upcoming 2013-14 season (www.cbssports.com).  The Mayor of Seattle also confirmed having a conversation with the NHL Commissioner about this relocation of the Coyotes.

 

Seattle is an intriguing market for hockey. In fact this story gained traction when the Vancouver Canucks inquired about relocating their minor league affiliate to Seattle. The Canucks officials were told that the Key Arena in Seattle was already reserved and was not available for the duration of the hockey season.

 

That response prompted media inquiries into what the Key Arena was going to be used for during that time. The Key Arena, as most sports fans know, is a very small venue by today’s professional sports standards. The lack of the city to commit to a new arena was the chief reason that the Supersonics NBA team moved from Seattle to Oklahoma City in 2008.

 

The issue with Key Arena for ice hockey is that the configuration is going to be very odd, and will force some sections of the lower level to be closed off to spectators. The arena in that layout will seat only 10,000 fans, which will be the smallest building in the league.

 

The league sources who leaked the story to CBS Sports.com state that the discussions between Seattle and the NHL office are for the team to be relocated immediately if the Glendale council votes down the arena management deal. The team would play in Key Arena for 3 seasons before moving into a new arena.

 

Now, other people on the sports blogs in Seattle, which I read recently, feel that the NHL is using Seattle and leaked the story to apply pressure to Glendale to approve the deal for the Coyotes to stay in Phoenix because the NHL has spent millions of dollars trying to keep the team in the desert. That could be true, but I think the NHL realizes it is not tenable to continue to own and fund a team which inherently loses money and is ready to “cut bait” on Phoenix.

 

The new arena is of course the project that the other investment group in Seattle has spearheaded to get an NBA team back in the city to be the second version of the Supersonics. They almost had a deal to purchase the Sacramento Kings but the deal fell apart and the team remained in Northern California. The NBA has said it would consider expansion to Seattle once the new TV contracts are negotiated and they have a better idea of the revenue structure moving forward.

 

Seattle and the NHL a good potential fit

 

I think that the move to Seattle would be a good fit for the NHL, it is a big media market they are not yet in, and the people there love sports. The weather there favors indoor activities, so that is a good fit. The team also would have an immediate regional rival with the Vancouver Canucks, which would be great for the NHL.

 

In the case of the Phoenix Coyotes, if the City of Glendale approves the arena deal and the sale moves forward and they remain in the desert, I think the NHL should consider Seattle as an expansion destination in the near future.  The NHL is in need of markets in the West, as I have written about in the past with realignment next year and the unequal balance of the two conferences.

 

In the end, the only component of this messy situation that has any clarity is that the NHL is going to sell the Coyotes franchise to someone in the next two weeks. It will either remain in Phoenix or be relocating to Seattle, either way it will be resolved, and hockey fans will have to stay tuned to see how this unbelievable saga finally concludes.