Monday, February 16, 2015

Is the NHL heading to Vegas?

A friend of mine recently asked me if I had heard about the Las Vegas ticket drive that opened on February 10, and what I knew about the NHL planning to place a team in there. To be honest, at the time, I didn't know that much. I knew about the rumors and about the ticket drive, but I was not sure how this would really all come together. However, I have since dug deep to give you everything I could find.

The Owners
Those of you who keep tabs on NHL rumblings via hockey news or the Twitterverse know that Las Vegas has been mentioned as a possible site since the whole Phoenix Arizona Coyotes debacle was being settled. Although Las Vegas was not the frontrunner in that race, things have definitely taken a turn since then. William Foley, a Florida millionaire businessman who owns an insurance and mortgage company, has stepped forward with the Maloof family, brothers Joe and Gavin are former owners of the NBA team the Sacramento Kings and currently are minority owners who run the Palms Resort Casino in Las Vegas, as the owners for the proposed Las Vegas NHL team. 

Foley fondly recalled how he had played pond hockey in Ottawa as a youth when his father, who was in the US Air Force, was stationed there to Kevin Allen of USA Today. This is where Foley developed his love for the game and his desire to own an NHL team. And Foley is extremely serious in this endeavor as he has already acquired Wayne Gretzky as an unofficial advisor. The two have been friends and business partners, but there have been no firm details as to exactly what role The Great One has played in all of this and will play if things do progress the way Foley and the Maloofs want. Moreover, Foley has already been talking like an owner. According to Ed Graney of the Las Vegas Review-Journal, Foley promised, "We are going to bring a winner here. I'm going to make it easy on people to support this team, because we're going to win." He does not even has a team yet, and he is already promising wins! Maybe that's easier to do when you don't have a roster?

The Arena
MGM Resorts International and Anschutz Entertainment Group (AEG) have teamed to build an arena that began construction in May 2014 and is projected to be completed in April 2016. It will seat 20,000 and sits behind the New York-New York and Monte Carlo hotels.

What Is Happening Now
Foley and his group opened a ticket drive on February 10th with the goal to sell 10,000 season tickets ranging from $150-$900. This was an effort to demonstrate that Las Vegas could indeed support a fanbase, which will be discussed in a later section. Foley's group has reported that they reached half their goal in the first two days of the drive. If you are interested in purchasing season tickets, you can click the link here. You will receive a refund if a team never comes to fruition.

The official NHL stance is that they are NOT looking at expansion or making any promises about bringing a team to Las Vegas. However, they are keeping a very close eye on what is happening with the ticket drive. In fact, NHL Commissioner Gary Bettman not only attended the ticket drive, but he also spoke. He did reiterate the company line about no guarantees, but it is hard not to draw any conclusions from his presence at the event. Although, he might have been there to get some new shoes after being spotted at the White House sporting some truly awful ones earlier this month.

ESPN's Scott Burnside did report Bettman's observation, "There was a big turnout and a high level of enthusiasm." This would indeed add more fuel to that fire that although the NHL continues to tow the company line of no action being taken, there is obviously a great interest from the head office to really take a team coming to Las Vegas seriously. Considering that Bettman views the ticket drive as having "a big turnout" and that there is "a high level of enthusiasm," I believe that he is very keen on the idea and definitely sees that the worries about the fan base may not be as great as once believed. There will not be any more ticket drives because the NHL feels that they already have a pretty good idea of what the market is like in other potential cities.

So What Does All This Mean?
In Kevin Allen's article on the ticket drive, Bettman is quoted as saying, "You need a good market, stadium or arena and ownership. All three better be good." So far Las Vegas has the ownership with an arena underway, and they are trying to prove a good market. Again, the NHL is not actively seeking to expand or relocate, but Foley and his group are definitely making it difficult to ignore what is happening in Las Vegas. The issues at hand are: who the fan base really is; expansion vs. relocation; a decision whether to enter a smaller media market; and other cities that might make more sense.

The Fan Base
Because of the nature of Las Vegas, there are questions as to whether the city can support a professional sport, especially a hockey team. This was the whole point of the ticket drive, after all. If you look around the NHL and see what teams are doing well financially over which teams are struggling to turn a profit, you will find that those teams that can sellout games on a nightly basis are the ones that are making money. Teams that cannot sellout the majority of their games continue to bleed out money every year. The league is a gate-dependent economy, meaning that teams need fans to pack a house on a regular basis in order to survive financially. The city of Las Vegas has a population of just over 600,000 but draws from a population of approximately 2.2 million. Las Vegas also receives over forty million visitors every year. Is it realistic to expect to sell 10,000 or more season tickets? And who are you selling them to?

Upon hearing of the idea of expansion in Las Vegas, ESPN's Scott Burnside wrote an article in which he pondered, "With so many people working so many different shifts, would the ability of fans to attend games be affected?" Although he doesn't specify, I'm guessing Burnside is talking about casino workers and taxi drivers. This is true. The city is bustling mostly at nights and on weekends, which would be key work hours for these types of workers, and would most definitely interfere with their ability to attend games.

And more than just availability, there is a question of whether or not Las Vegas natives have disposable income for season tickets. In Kevin Allen's article from USA Today, he interviewed John Vrooman, a sports economy professor at Vanderbilt University, who stated, "The underlying financial structure of Vegas is fragile. Almost one-half of the home mortgages are still under water." Vrooman points out that there are a lot of people who may not have the means to purchase tickets. This definitely goes against any optimism for a fan base.

In that same article mentioned above, Burnside also dismisses the possibility that Las Vegas could support a team because of "the notion that Vegas casinos would buy large blocks of tickets to give away to fans runs against casino practice, which is to keep patrons in your own building rather than send them elsewhere." Casinos may wish to keep you on their premises, and they may be hesitant to send you away from their premises instead of mindlessly giving away all your hard-earned money in the slot machines and table games. However, I don't completely buy into this casino angle because casinos focus heavily on customer service. There are so many options when it comes to dining, shows, and clubs, and everyone wants to go to the newest and/or most popular places. Casinos know that they may not have exactly what their clientele want at that moment, and they do try to keep patrons within the properties associated within the ownership. However, it is not unheard of for the Bellagio to accommodate a guest who wants to get tickets to the Blue Man Group, which is at the Venetian, a hotel not within the Bellagio's network. They do it because that is the only place to see that show and know that giving patrons what they want is how to keep them coming back. Burnside does hit on an important note though. Any team that comes to Las Vegas, not just a hockey team, is going to need full casino support in order to make the endeavor work.

In Kevin Allen's article, he also talked to Bob Strumm, a former NHL team executive and former manager of the minor league hockey team the Las Vegas Thunder. Strumm indicated that the casinos are going to be key because sellouts are going to be crucial to success. "People here in Vegas only want to go if you can't get a ticket," he said. "You want to go where you have to know someone to get a ticket. That's the identity of Vegas when it comes to tickets." Perhaps casinos buying blocks of tickets for packages and the like will be exactly what needs to be done.

It also may become exclusive with the launch of the Maloofs' Las Vegas Founding 50. Allen reports that this those who join the group and are able to sell sixty season tickets will be on the team's advisory board. In fact, this proved so popular that it has expanded to become the Founding 75 and includes celebrities such as Daniel Negreanu, a poker legend, and boxing champion Floyd Mayweather, Jr. With this type of star power, the hockey game may be a hot ticket in town.

The casinos are also a resource that Foley and his group should fully utilize to their advantage as well. TSN's Rick Westhead interviewed Don Logan, president and chief operating officer of the Las Vegas 51s, a minor league baseball team, who reiterated the idea that success for any sports team will depend heavily on casino involvement. "These are properties with deep-rooted, sophisticated networks," Logan said. "They know who the fans are, who has the disposable income and the ability to come to Las Vegas. It's the most well-equipped marketing industry in the world." This is incredibly true. Do you often wonder why those deals the casinos mail you just seem so perfectly tailored for you? That's because the casinos know exactly how much you spend and what types of things you like to do. The casinos would be able to tap into their resources to distinguish the hockey fans and direct them towards Foley and his group.

But enough about the casinos. What Foley and his group are banking on are businesses in the area and the new residents that Las Vegas is drawing. Foley told Kevin Allen that "his group's marketing research shows there are 130,000 hockey fans, making $55,000 or more, living within 35 miles of downtown Las Vegas." He also revealed that he plans to use Las Vegas's image as a a gambler's mecca to his advantage. "It could bring an identity to Las Vegas, " he said. "Vegas is identified as a gambling city, and if it has an NHL team, the local residents will identify with that team. That's why I think we will have so much support." Foley is hoping with the fact that there is no major professional sports team in town, the locals will begin to identify with this team, especially in a place like Vegas. Here you would be able to put your money on your own team then go watch the game and, hopefully, collect your winnings later.

However, Foley is aware that there is more to Vegas than just the gambling. In an article that ran in the Las Vegas Sun, Foley stated that "A number of software companies, development companies have located in Las Vegas...Those companies and those people who work for those companies, that's our target. Those are the people that we want come to these games." Las Vegas is constantly changing its identity, and it is evolving as more than just a gaming city. There are some new business in town that are starting to plant its roots in Vegas. Foley is also banking on the fact that some of these new transplants are hockey fans and would have an interest in buying tickets. And here is where those concerns about odd works shifts begin to vanish because these people would have more normal business hours. They are employed and have the availability to go to the games.

What's more is that Vegas is evolving to becoming a world city. Dr. Robert E. Lang is a professor of sociology at UNLV and also a leading urban analyst wrote an article about how Las Vegas is beginning to make its mark on the furniture and home design world. Vegas is famous for hosting numerous conventions throughout the year, but one of its biggest showcases is the World Market Center. This is the largest furniture convention in the world. Along with this, there are year round trade shows, and if Vegas continues to grow this type of convention, it would not be long before design centers start to flourish in the city, which could lead to architectural and design firms establishing bases there as well. In theory, Vegas could become the next Milan.

And Lang notes that it is not just in the furniture market that Vegas can make its mark. The fact that there are so many conventions can be a part of Vegas's identity. It can become a convening city. When you get down to it, conventions are all about making deals. In fact, there are more face-to-face interactions at a Las Vegas convention than on the floors of the New York or London stock exchanges. In fact, Lang suggests that "Las Vegas is a place where you can, and maybe even should, mix business with pleasure." This is a city in which you can not just work hard but play hard too. You always hear how so many business transactions are not always made in the office but on a golf course. Well, Las Vegas hotels are now equipped with those as well. Perhaps you meet a potential business partner or client on the convention floor, you could take him or her over to the hotel for drinks and talk business or play a round of golf. If Lang is right about the potential of Las Vegas becoming a world city, Foley has a new fan base ripe for the taking.

While it may be difficult to establish a loyal fan base in Las Vegas, it is by no means impossible. Foley will need full cooperation from the casinos, at least to begin this venture. If Foley's market research is correct, he could have his fan base of 130,000 which could grow if Las Vegas continues to grow as a city and evolve into a world city.

Expansion vs. Relocation
Even if Foley and his group can prove a viable fan base that can support a team in Las Vegas, there is still a huge question as to how this will be incorporated into the current structure of the NHL. Commissioner Bettman and the owners will need to decide whether to expand the league or to relocate a struggling team. There will need to be a two-thirds majority vote in order to decide upon the fate of incorporating a new team.

After the 2013 lockout, the NHL restructured with fourteen teams in the Western Conference and sixteen teams in the Eastern Conference. The commissioner and the owners clearly allowed room for expansion in the Western Conference. Despite what can be said about Gary Bettman and his stewardship, he has expanded the league and placed teams in very non-traditional hockey cities. Yes, not all of those ventures have been a smashing success, but he made it happen. Clearly, Bettman is gunning for expansion because it will add to his legacy of his being an expansionist. His era will be remembered for being able to grow the game in unlikely cities, and yes, lockouts as well. This is why he was so adamant about keeping the Coyotes in Arizona. I believe this is also why Bettman has a personal reason to have a team in Vegas and/or another West Coast city.

Another reason the NHL would push for expansion is that it will collect the expansion fee. Since Charles Wang sold the New York Islanders for $485 million, the expansion fee for a new team to enter the league will run in the ballpark of $450 to $500 million. Rick Westhead reports that many owners expect the expansion fee for Las Vegas to land at roughly $475 million. When the league last expanded in 2000, the Columbus Blue Jackets and the Minnesota Wild each paid an expansion fee of just $80 million. This is a considerable increase in the last fifteen years. Because this fee is not counted toward hockey-related revenue (HRR), the NHL will get the entire fee and not have to share any of it with the players. And if the league does lean towards expansion, they will be collecting this fee not just once, but twice. That's a lot of money on the table that has to be really tempting.

However, that expansion fee could possibly work against the league. That is a lot of money for any potential ownership to acquire and that is only to enter the NHL. This does not account for paying a lease agreement, payroll, etc. If Las Vegas does get into the league and that expansion fee does land at $475 million, this now sets the bar for the second team. The price could even increase if that second team is Quebec City or one in the greater Toronto area (GTA) because it would infringe upon the territorial rights of the Montreal Canadiens or Toronto Maple Leafs. The high expansion fee may set the bar too high for a second team to be able to enter the league, and there will need to be a second team to enter if Las Vegas is to do so.

Gary Bettman has already stated many times that relocation is a last resort, but it may be the more logical option. There are already teams in the NHL that are struggling financially, so if there is going to be a Las Vegas team, it may make more sense to relocate one of those teams rather than expand the league. According to Rick Westhead, an owner divulged, "I think the Panthers and Coyotes are going to have to move. I just don't see it working out long-term in either market." Although the Panthers have a long-term lease agreement, the owner pointed out that it would make sound business sense to break the lease and move the team to a more profitable market than to keep a team that is will be going deeper into debt just because there is a lease agreement. Speaking of the Florida Panthers, Greg Wyshynski of Yahoo!'s Puck Daddy reported, "A theory I've heard from more than one connected individual: The Panthers are eventually bought out of their lease by the Quebec ownership and relocated, with the Quebec group getting a smaller relocation fee from the League in exchange for making the Panthers' problem go away for Bettman."Based on this information, if the Panthers are on the move, it would seem that they would continue to stay in the Eastern Conference, and Las Vegas would not figure into the equation at all. This would make more sense because if the Panthers moved to Vegas, that would then squarely put them in the Western Conference which would then create an imbalance between the conferences. A Western Conference team would then have to go to the Eastern Conference, and this would probably be a lot of work rather than simply relocate the Panthers to Quebec, if there is an ownership group in place.

Another team that is struggling financially that is flying a bit under the radar is the Ottawa Senators. Eugene Melnyk is the owner of the Senators and is a pharmaceutical businessman. When Melynk purchased the team in 2003, the team carried significant debt, and currently his business is having some financial struggles. The NHL does have a line of credit based in the US that is extended to all owners at a low interest rate. However, Canadian teams do not currently have access to that line of credit. David Shoalts reported that the NHL's legal team failed to comply with Canadian government regulations when it opened its line of credit last October. It seems that "the Canadian Revenue Agency ruled that the line of credit is offside, perhaps because of how interest payments to a U.S. entity are handled." In the meantime, Melnyk is believed to have a credit interest of more than ten percent, while the line of credit open to the Arizona Coyotes is at least less than eight percent of that. Television deals may keep the Senators afloat, but if the debt continues to mount, especially at the high interest rates, they may be going the way of the Coyotes and Panthers. As of now, the financial struggles are reflected in the player payroll as the Senators rank the third lowest in the NHL. It is possible that this is another team that may be on the move, but again this is an Eastern Conference team, so Quebec City may be the most logical option, barring lots of restructuring within the league. However, it is is within reason to believe that Ottawa could be relocated to Las Vegas because it would then have access to a low interest credit line.

Small Media Market
Another issue that the NHL will have to consider is that Las Vegas is a small media market. It is most comparable to that in Buffalo, New York. When the Atlanta Thrashers had to relocate to Winnipeg, the team moved to another small media market. The league will have to decide whether they want to do this again. If another city with a larger market emerges, it may be more enticing than Las Vegas.

Other Cities That Make More Sense
As discussed above, it is not as simple as there will be a team in Las Vegas. There are a lot of factors to consider between expansion and relocation. And at that, there may be other cities that would be a more logical place to be added or relocated to than Las Vegas. For example, Quebec City as mentioned above. There is a new arena being built, the Quebecor Arena, but there is no ownership currently in place. Quebec City once was home to the Quebec Nordiques, who were forced to move because the Canadian dollar in the mid-1990s had weakened substantially in comparison to the American dollar and not because of lack of interest. (The problem here is that while customers would pay the Nordiques in Canadian money, all payroll and expenses were paid out in American dollars.) Quebec City does infringe on Montreal Canadiens territory, but there are enough fans within the area to support two teams. If Quebec City can put forth an ownership group, they would most likely be a top contender in expansion or relocation.

The Greater Toronto Area (GTA) is another place that would be a viable place for hockey to thrive even with the presence of the Toronto Maple Leafs. According to a study by Neil Paine, Toronto has the largest avid hockey fan base of just over five million. In fact, "[e]ven if the new Toronto franchise lures just 20 percent of the area's hockey enthusiasts away from the franchise, the expansion club would instantly have about as many devotees as the Chicago Blackhawks, Los Angeles Kings or Calgary Flames." This would make Canadian cities like Kingston, Halifax, Moncton, Sherbrooke, or Sudbury more viable than Las Vegas in terms of fan bases. However, from what I've heard on Toronto sports radio, the problem is that they are at a cross roads in terms of building an arena and obtaining an ownership group. There have been many city meetings to discuss raising taxes to pay for a new arena in an effort to lure a new NHL team, but this will require hundreds of millions of dollars with no guarantee of obtaining a team. While there is definite interest, citizens are hesitant to make such a huge commitment without some sort of promise from the NHL of a team. Of course, the league would never make any such overtures. Those who want to build an arena argue that they have to take the risk because there is no way the NHL would seriously consider the GTA if you promise that a new arena can be built in five years time. Proponents believe that it would be far easier to persuade Bettman and the owners if there is already an empty arena ready to welcome a new team. In any case, they remain at a stand still, but the potential of a successful franchise in the GTA is undeniable.

What Would It Be Like if There Were a Las Vegas Team?
Given the glitz and glamour of Las Vegas, I am pretty sure that this would be one of the best places to watch a game. In Kevin Allen's article, Brett Hauer, a former Las Vegas Thunder player, recalls, "You skated out through a big slot machine. And the AC/DC (Thunderstruck) was playing." How cool is that? And this was for a minor league team, so you can only imagine what it would be like for a professional hockey team. With all the advances in technology and showmanship, I'm sure that Las Vegas would definitely make every game a big event. Not to mention, they might even be able to swing some high-profile celebrities to sing the anthems every now and again.

Players might enjoy a very nice home-ice advantage as well. Bob Strumm who had managed the Thunder in the 1990s recalled to Allen, "We only lost two home games one year. The good thing about the NHL is that you have to fly in the night before. I like the chances of an NHL team having a good home record if it comes to Las Vegas."  William Foley has already promised to bring a winner, and he may be right. If Foley's team can achieve what the Thunder did and lose one of the possible forty-one home games, he could very well be bringing in a winning team. Not to mention, there is nothing better to bring in new fans than to have a team that has a strong home record.

Another factor for having a Las Vegas team would be that Foley could possibly lure higher-profile players because Nevada has no state income tax. A lot of players are willing to go to even a losing Florida Panthers precisely because of the fact that there is no state income tax. If Las Vegas were to enter the league, there may be high-profile players who may be interested in the financial aspect of the contract.

Bonus Section
Since this is a much longer blog than usual, I am rewarding you with a little extra information that I was able to find. According to Elliotte Friedman who interviewed William Foley on Hockey Night in Canada, Foley has a proposed name for the team. Although the team will be in Las Vegas, he is more partial to naming the team Nevada. He also would like to name the team The Black Knights. He told Friedman, "I love the name Black Knights because I was a West Point guy, went to Army, it's close to my heart... And the black knight, many people don't know this, is actually the good knight. And I think that Black Knights would be a good name." However, Foley does plan to hold a Name the Team contest if he is awarded a team. Although he is partial to the Black Knights, he is planning on allowing the fans to weigh in on a name. This is probably a smart idea in order to drum up interest in the team.

Now, you probably know much more than you want to about whether or not Las Vegas will or will not be hosting an NHL team. Although there is a very serious push to bring a team there, it is going to take some time to really hammer out what is going to happen in terms of how to make it happen. I have a feeling that if the league can gain another city to also put forth a team, this will happen because there is far too much money on the table for Bettman to walk away from. We'll just have to continue to wait and see what happens.

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