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Volume 23 No. 29
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NHL sees value in Las Vegas

League expects boost from new franchise

By generating more than 15,000 season-ticket deposits for a team that will play in a new arena, incoming Las Vegas NHL team owners Bill Foley and the Maloof family proved to the NHL’s board of governors that the Nevada city can financially support an expansion team.

But perhaps just as important, the league’s board determined that adding a franchise for the first time in more than 15 years will bolster revenue leaguewide, a critical variable given the NHL’s internal growth projections and the impact the lagging Canadian-U.S. dollar exchange rate has had on those estimates in recent years.

New Las Vegas franchise owner Bill Foley and NHL Commissioner Gary Bettman attend last week’s announcement of the Las Vegas expansion.
Photo by: Enter Name Here
“With the visibility that Las Vegas has, the way that entertainment and stars are highlighted here, I think it will only further enhance the league, the league’s image and the branding,” said NHL Commissioner Gary Bettman, speaking last week in Las Vegas after the league board voted unanimously to add Las Vegas as its 31st franchise. Asked to quantify that impact, Bettman declined, saying only that “time will tell, but we envision a very positive impact.”

The new Las Vegas team will begin play in fall 2017 in T-Mobile Arena. Foley, chairman of Fidelity National Financial, will be the club’s principal owner. The Maloofs, former owners of the Sacramento Kings but with deep business roots in Las Vegas, will be minority stakeholders.

The $500 million expansion fee to be paid by the new ownership group is more than six times the $80 million paid by ownership groups in Minnesota and Columbus in the league’s last expansion cycle (see chart below). The amount represents a payout of roughly $16.7 million for each of the league’s 30 owners.

But the Las Vegas addition also creates an additional ownership group with which the NHL’s national revenue will have to be shared, starting next year.

The expectation is that the new franchise will help drive new overall league revenue to a degree such that for each of the league’s 30 current owners, those new dollars (combined with the expansion fee money each team will get) will counter having an additional slice carved out of the overall NHL revenue pie.

The NHL is expected to post revenue nearing $4 billion for its fiscal year that ends on Thursday, a league record and up from approximately $3.7 billion in the previous year. It has projected a sum in excess of $4.5 billion by the 2017-18 season.

Driving the increases in recent years are a six-year, $1.2 billion deal with MLB Advanced Media and a 12-year, $5.2 billion (Canadian) deal with Rogers Communications. But in the case of that latter deal, the league may lose upward of $200 million this year, because the deal pays out in Canadian dollars and is not hedged by the league.

Per the league’s collective-bargaining agreement, hockey-related revenue is split with the players before being divided equally among the clubs. The expansion-fee money is not considered hockey-related revenue and will be split solely among the owners. Beyond that, however, league and team officials believe that the Las Vegas franchise will perform comparably to what other teams secure for the dollars that are shared with the players — such as ticketing, media and sponsorship deals. League officials also believe the Las Vegas team will help the league with future national opportunities.

“I think our owners approached this process differently than the way they’ve approached the past expansion processes, in that I think they felt like the ultimate equation for them was, ‘Is this going to enhance the league and increase the overall value of the league?’” said NHL Deputy Commissioner Bill Daly last week.

Daly said while it would be hard to estimate that specific instant impact and would require the team to begin play before it could be properly measured, he agreed with the premise that the board shared. He did note that to his knowledge, no existing media rights or sponsorship deal under contract had any sort of clause that would increase the money paid to the NHL as the result of adding another team or market to the league. However, it would be expected that the league’s revenue gained from digital efforts around content and advertising, merchandising, and ticket sales would see an increase as the team was introduced, among other revenue streams.

“The decision made by the board was a decision on the basis that we felt adding Las Vegas was going to enhance the overall value of the league,” Daly said. “If it was a situation where it would have been bringing a team that could just survive or just make money but really didn’t add value to the league as a whole, I’m quite confident that the board wouldn’t have embraced it.”