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Jun
07

Hurricanes Tracking To Another City?

caniacsOutside of the Stanley Cup Finals, the big topic in the world of Hockey in the last 24 hours is the future of the Carolina Hurricanes. Recent reports show some very strange business activity with owner Peter Karmanos coinciding with the league’s potential expansion to Las Vegas and Quebec City, Canada.

What we know is that the Carolina Hurricanes are a troubled franchise. The Canes are only worth $225 million, third-lowest in the NHL and less than half of the league-average $505 million. Forbes reports that the team is losing $12 million per year. We also know that Karmanos has been trying to find a buyer for the team for a few years. He would take $400 million for the team, and feels the team is worth $420 million.

We also know that Karmanos fired one of his three sons, Jason, from his job as Assistant General Manager just before the 2013-2014 season. “This is a family matter”, was the company line. At the end of that season General Manager Jim Rutherford was fired, and headed to take the same job with the Pittsburgh Penguins. Soon after he hired Jason Karmanos as Pittsburgh’s V.P. of Hockey Operations. The Pittsburgh Penguins are currently one game away from winning the 2016 Stanley Cup.

The team has missed the playoffs for seven straight seasons. As a result, average attendance this season was a league-worst 12,203; the worst by over 1,000 per game. I conveyed my concern for the talent level on this team on Twitter during the season, but was assured by die-hards that a great foundation is in place. The Hurricanes have 4 draft picks in the first two rounds of the June 24 draft. While the team may get some great seed talent, it is still likely a few seasons away from being a solid playoff team that can rebuild attendance.

It was certainly concerning, with the franchise in poor health, to see last week that Karmanos is being sued by his three sons for failing to meet repayment terms on a loan from their trust accounts. Apparently the elder Karmanos created the fund in 1996 and borrowed $353 million “to support the Hurricanes”. He now owes the sons’ trust accounts $105.7 million.

To further complicate matters, The Sporting News’ Gary Lawless claimed yesterday that Karmanos borrowed $300 million from the NHL’s emergency fund, and it will result in the sale of the team and relocation because “the NHL wants its money back”.

What we also know is that the team is in an extremely tight long term agreement with the Centennial Authority. According to one of the guests on the Hockeybuzz podcast today, the purchase of the Carolina Hurricanes would have to come at a price of about twice its market value to release the team from the building contract. So, the local powers-that-be did their homework when they committed to building the PNC Arena in the 1990s.

Finally, the big matter at the NHL’s table is league expansion. Currently there are 16 teams in the Eastern Conference and 14 teams in the Western Conference. Prevailing thought is that the league will expand by 2 for balance. The top two markets with financing and ownership organizations in place are Las Vegas and Quebec City.

Following the report of the $300 million emergency loan rumors swirled that the Canes would move to Las Vegas and end expansion talks. However late last night one reporter posted on Twitter that his source said this may not happen; it may be more appropriate to move the Hurricanes to Quebec City and offer Las Vegas, the stronger financial package and owner, the expansion team.

Update 6/7: Hockeybuzz’s Ecklund reports that sources say the team will not move for now. Says “a very solid local person who owns a prominent local business who would buy the team and keep them in Raleigh.”

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What’s going on here? Where there is smoke, there is fire…and there is a lot of smoke. I don’t trust what anyone close to the organization is saying on this matter because they don’t want to lose fans should the deal fall through, and/or they simply have no idea what Peter Karmanos’ actual plans are. The best way to destroy the sale price of a business is have employees jumping ship.

(note: unlike Star Jones, I am not a lawyer). While the law suit by the Karmanos brothers could be based on family-centered acrimony, there is too much going on here to believe it is just a simple squabble. Assuming everything I posted in the first section is, indeed, true, I can imagine a couple of scenarios:

  • The Karmanos lawsuit was created to entangle the NHL’s proceedings in forcing an ownership change. The NHL will meet in 3 weeks to decide about expansion, and such complications might destroy the NHL’s timing and the red tape could push the league to find a new plan for including the two previously mentioned cities, or
  • The Karmanos lawsuit was created to place a lien on the the team sale so that distribution of the proceeds would repay the Karmanos trust funds before satisfying the terms of the Centennial Authority’s lease or paying any debt to the NHL’s fund.

One twist that the Hurricanes’ building lease introduces is the enormously high cost to buy the team and move it. I don’t know the details of the contracts involved, but one scenario being pushed around is for the NHL to buy the team and dissolve it or for the team to declare bankruptcy in order to get out of the Centennial Authority’s lease. To break the lease it appears the team would have to be totally dissolved, and this could end up being cheaper than paying 2X for the team. It also may be the more attractive route for buyers because a team contrived through lottery is likely to not be worse than what the Canes have put on the ice the last 5 years. The role of the Karmanos lawsuit in this scenario isn’t so clear, unless it would put the trust accounts ahead of the NHL in a liquidation setting.

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If any of these scenarios that remove the team from Raleigh occur, the important thing to understand is that it is just business and doesn’t reflect on the quality of life for families and normal businesses in Raleigh and North Carolina. We were warned in the ‘90s that Felix Sabates and Peter Karmanos were fairly ruthless businessmen. We went with Karmanos and while I’m sure he would like to be regarded highly in this market, he is likely not emotionally connected.

The move of the team to the Triangle has absolutely been a fun addition to the area, and I hope to see them stay. However it is important to remember that the success of major sports franchises has much more to do with the expense accounts of corporations than it has to do with the regular community. Raleigh residents be fine in the long run either way.

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  • DougInNc Said:

    Good post. This is potentially a bad ending for our team, and a hit to the area’s reputatation should they leave or, worse, disolve by bankruptcy or other means. Lack of corporate support has indeed been a negative influence on the Hurricanes. IBM should have stepped up. Lenovo did better. Chevrolet was involved, then pulled money from local markets. RBC and PNC support was helpful. But corporate ticket sales are the elixir of pro sports; RTP underachieved the average franchise as well as the potential in this area.

    I’m going to watch my DVD recording of the 2006 Stanley Cup Final championship game 7 this month and relive one of the great experiences any sports fan can ever hope will come his way. It might be the last fleeting feeling I’ll have of hockey nights in NC after 18 seasons as a Season Ticket Holder.

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