Bain Takes Long Shot at Hockey

NEW YORK (HedgeWorld.com)--Bain Capital Partners and sports advisory company Game Plan International have made an estimated US$3.5 billion offer to buy all 30 of the National Hockey League's teams, according to published reports

The Toronto Star reported that the two firms made a pitch to NHL owners Tuesday in New York.

The NHL recently became the first major North American sports league to cancel an entire season after the league and the union representing players failed to agree on a new contract. The league owners had demanded imposition of a per-team salary cap and other concessions from the players.

While reports said it was unclear whether many of the owners gave the Bain Capital-Game Plan proposal serious consideration, the two Boston-based firms undoubtedly suspect that some team owners would be motivated sellers.

Going into the 2004-2005 season, the NHL had been nearing the point of meltdown, with teams in smaller markets unable to pay the soaring salaries commanded by the best players. The unlevel financial skating rink made it impossible for most of the small-market teams to compete on the ice against the wealthy teams in hockey hotbeds, with many of the franchises incurring mounting financial losses.

The NHL probably has a handful of teams that are financially strong--the New York Rangers, Philadelphia Flyers, Toronto Maple Leafs, Detroit Red Wings and a few others--with the rest in varying degrees of profitability and a number of the franchises losing large sums.

Before the lockout, Forbes magazine estimated the total value of the 30 franchises at US$4.9 billion, including the arenas, some of which stand on downtown real estate. The Detroit Red Wings had the highest value, at US$266 million, while the Edmonton Oilers, at the bottom, were valued at US$86 million. Last week Walt Disney Co. sold the Anaheim Mighty Ducks for US$75 million in a deal that included a US$15 million training facility.

According to the published reports, Bain and Game Plan officials said they had a formula to compensate each owner based on revenue and assets and size of each team's market. One owner who attended the meeting was quoted by the Star as noting that since it was an all-or-nothing offer, all 30 owners would have to agree in some way.

That's rather inconceivable in a number of ways. Some of the franchises are quite profitable and the prized possessions of individuals, such as Mike Illich of the Red Wings. Others, such as the Pittsburgh Penguins, owned by star player Mario Lemiux and partners, may be struggling but have ownership that believes a labor deal that restored fiscal order to the salary structure would allow them to compete against the big-market giants and make money. Those owners may prefer to hold out with the hope that the players will buckle to the owners' terms.

It's doubtful that such a disparate group could reach an agreement to hand over their properties in unison.

"I don't think it's realistic, and I don't think there's much interest, and I know there's no interest on the part of the Bruins," Boston Bruins owner Jeremy M. Jacobs was quoted by the Associated Press as saying.

Bain managing partner Steven Pagliuca is co-owner of the National Basketball Association's Boston Celtics. Game plan recently acted as an adviser on the sale of the Ottawa Senators hockey club.

Bain has at least one degree of affiliation with hockey. In 1999 it teamed up with the Ontario Teachers' Pension Plan to buy Shoppers Drug Mart, a large Canadian Chain. The pension fund is majority owner of the Toronto Maple Leafs.

Bain Capital Partners has about US$48 billion under management. Its Brookside Capital Partners hedge fund has about US$4.4 billion in assets, according to Bain's website.

In August 2004, Bain Capital, along with the Carlyle Group and Spectrum Equity Investors bought Loews Cineplex Entertainment Corp. for US$1.52 billion (see ).

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com">.

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