Locals Concerned About Senators

January 27, 2003
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GRAND RAPIDS — For at least two members of the local business community, the story carries the weight of hearing that an old friend has taken seriously ill.

The Ottawa Senators of the National Hockey League are in a life-and-death financial tussle, one that the franchise may not survive. Grand Rapids Griffins General Manager Bob McNamara called it a disheartening situation. SMG General Manager Rich MacKeigan said the uncertain state of affairs was very disappointing.

“It’s obviously disheartening because I think the way they operate makes them a model franchise in terms of exercising fiscal restraint. They don’t have a huge payroll and yet they have arguably the best team in the NHL right now,” said McNamara.

“From a hockey operations standpoint, they’ve done a tremendous job in finding players who can play,” he added. “From a business standpoint, I think they’ve done a great job as well. But they’re not filling their building, which obviously hurts.”

MacKeigan, who runs the Van Andel Arena and Grand Center, echoed the comments McNamara made about the job Senators management has done, and expressed concern for friends who work for the franchise and the Corel Centre, the team’s home.

“The uncertainty is usually when times are most difficult. From what I can understand, although I’m not directly involved with the situation whatsoever, I think there is a certain amount of uncertainty in the whole situation,” he said. “And I don’t see that changing in the immediate future. It’s disappointing.”

McNamara worked closely with Senators management for three years when the Griffins were Ottawa’s primary affiliate from 1999 until the current season, when the local franchise began a five-year affiliation with the Detroit Red Wings.

MacKeigan also worked closely with Senators management for three years, but at the Corel Centre. He started there in 1996, the year the building opened.

This season Ottawa has averaged 16,355 customers for home games, putting the club 16th in the 30-team league for attendance and filling the 18,500-seat Corel Centre to 88.4 percent of capacity. The Ottawa Sun reported the Senators had ticket revenue totaling $33.5 million so far this season.

The Ottawa payroll is $30.3 million this season, ranking it 25th in the NHL while holding down the top spot in the league. The Senators’ payroll is up $3.3 million from last season, but far below the league average of $42.6 million. But Ottawa has to meet payroll in U.S. dollars, while its income arrives in Canadian currency.

Forbes magazine listed the Senators as being worth $95 million, making it the 27th most valuable NHL franchise. The magazine reported Ottawa had $57 million in revenue last season and net income of $2 million. Forbes said Ottawa was one of only 14 franchises that finished in the black last season.

The Senators, however, owe $160 million to creditors. Covanta Energy is owed $50.7 million. The Canadian Imperial Bank of Commerce (CIBC) is owed $40 million, and the FleetBoston Financial Corp. is owed $20 million. But the biggest hurt of all is another $210 million the franchise owns Covanta for the Corel Centre. All figures are Canadian dollars.

So, on Jan. 9 the Senators filed for bankruptcy protection in New York and in Ottawa. The franchise missed a payroll, but got $13.7 million in emergency funds, while it continues to restructure its debt. That money amounts to roughly $8.8 million in U.S. dollars came from FleetBoston and the CIBC. A court date has been set for Feb. 1.

McNamara pointed out that a league-wide rise in salaries has contributed to the Senators’ financial woes, and the numbers back his claim. Ten years ago, in the 1992-93 season, the Ottawa payroll was $4.5 million while the average league payroll was $10 million.

“I know that NHL team revenues have increased, but I think that the salaries have increased 300 percent more than the revenues. And those numbers don’t work,” he said, while adding that Canadian franchises pay more taxes than those in the United States.

NHL Commissioner Gary Bettman recently said league revenue would be $1.9 billion this season. But he also said that player salaries would total $1.3 billion, putting the league’s cost of labor this year at 68 percent of its total revenue.

Part of that revenue, a very small part, comes from television networks like ESPN and the CBC. The NHL will receive $171 million this season for broadcast rights, or $5.7 million per franchise. For comparison, each National Football League club is getting $77.3 million this year from the networks.

The exchange rate, high Canadian taxes, minimal TV money, not selling out the Corel Centre for every game, and rising player salaries have put the Senators on thin financial ice. But the main reason why Ottawa is in such a deep and dire fiscal hole hasn’t anything to do with everyday business operations.

“I think when they purchased the team and built the Corel Centre, they were a bit under-financed in the beginning. They’re still carrying a lot of that debt, which obviously straps their hands a little bit,” said McNamara.

Covanta is owed that $210 million from helping to finance construction of the arena. Covanta, based in Fairfield, N.J., filed for bankruptcy last April. Now the debt load has the Senators drowning in red ink, which could spill over into the local economy.

According to a report in the Ottawa Business Journal last week, the city stands to lose up to $1 billion across the board if the Senators leave Ottawa. Ottawa Mayor Bob Chiarelli has organized a group of local leaders whose job is to convince anyone who buys the franchise to keep it in Ottawa. Two years ago, the city was hit hard by the telecom crash.

“I know the mayor is a very strong advocate for the team, and it appears that he will continue to be so. Ottawa only has one major professional franchise,” said MacKeigan.

What happens next is anyone’s guess. Senators majority owner Rod Bryden submitted yet another offer to buy the team and arena, a deal believed to be backed by American billionaire Nelson Peltz. Bryden’s previous bid fell through on New Year’s Eve when a bank refused to finance it.

If creditors don’t accept the Senators’ restructuring plan, Bryden may have to sell the franchise, possibly to a group in Portland, Ore. Bryden should know by as soon as today whether creditors are willing to go along with his plan.

“I haven’t had a chance to talk with anybody up there. I guess they have 30 days to find someone to rescue them and keep them in Ottawa and be viable,” said McNamara. “I think it’s a shame that you have the best team in the NHL in such a precarious position.”

MacKeigan was born in Montreal, but attended high school in Ottawa and has family there. McNamara is a Toronto native who joined the Griffins in 1996 after two years as assistant GM in Cleveland.

Neither was certain whether the Senators would stay in Ottawa. But both felt a large chunk of national pride would be lost if Ottawa loses the Senators.

“I couldn’t tell you for sure. But my gut tells me they will remain in Ottawa,” McNamara said. “Ottawa is the capital of Canada. Canada is arguably the biggest hockey country in the world. So to have your nation’s capital team pull out of there to go somewhere else would be a pretty big blow, and I hope we don’t see it.”

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