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Kanada Kev

By Kanada Kev
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Blane Newbie

Blane

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Winning Isn't Everything

Nathan Vardi 11.26.07, 12:00 AM ET

The Toronto Maple Leafs haven't had the Stanley Cup in 40 years. So how can they be the most lucrative hockey team on the planet?

To the most rabid hockey fans in toronto, Richard Peddie, chief executive of Maple Leaf Sports & Entertainment, is a bum. The Toronto Maple Leafs, the company's biggest asset, are off to another mediocre start this season, with a 5-5 won-lost record. The team hasn't won the Stanley Cup since 1967; in the four decades since the last Cup, the Maple Leafs have won 1,298 regular season games and lost 1,378.

But in the eyes of the owners, Peddie is a hero. In nine years running the parent corporation of the Maple Leafs, Peddie, 60, has created quite a silk purse, tripling the enterprise value of the privately held company to $1.5 billion through clever marketing and shrewd dealmaking. (Enterprise value is the market value of a business' equity, plus its interest-bearing debt, minus its cash equivalents.) Of this sum the hockey team accounts for $413 million of value, according to FORBES' estimate. We figure the next most valuable hockey franchise is the New York Rangers, worth $365 million.

How can one of the National Hockey League's sad sacks be the most valuable franchise in the sport? The answer lies in the fact that sports valuations are founded on more than championships; they are also a function of player costs, stadium real estate and the population of the home market. Peddie, of course, is acutely aware that the fans don't put much stock in economics. "My fear," he says, "is that people will say, 'Sure you increased enterprise value, but you never won anything.'"

Unlike most sports teams, the Maple Leafs are not a plaything of the rich nor an excuse to fill airtime by a media conglomerate; it's controlled by 271,000 teachers, principals and administrators, active and retired. The Ontario Teachers' Pension Plan owns 58% of Maple Leaf Sports & Entertainment, and it's thrilled with Peddie's management.

FORBES estimates that the operating profit of the hockey team increased 24% last season to $53 million, with help from a surging Canadian dollar (the team collects revenues mostly in Canadian currency but pays player salaries in greenbacks). Perhaps more than any other sports team the Maple Leafs are run to maximize returns. "The sportswriters tried to get me fired," says Peddie. "But now they figure I make so much money for the owners I am bulletproof."

The owners aren't doing too shabbily, either. One of Canada's largest institutional investors, Ontario Teachers' manages $112 billion of assets. Its private equity group, responsible for the hockey investment, has pulled in annual returns of 26% since 1991.

While other pension funds pay Wall Street steep fees to place bets on their behalf, Ontario Teachers' relies on itself--it's run by Jim W. Leech and his staff of 65--for nearly all of its $19.5 billion in private equity investments. Its equity portfolio includes mattressmaker Serta, General Nutrition Centers and Shoppers Drug Mart, Canada's largest pharmacy chain. No 2-and-20 rule for Ontario Teachers': Leech says his operations cost the unit just 0.5% of assets yearly. He figures he would be paying roughly 8% annually--amounting to 30,000 pensions--if he farmed out the work to a buyout shop like Cerberus or KKR. In fact those private equity firms are rivals: Ontario Teachers' outmaneuvered them both recently and is set to close the biggest LBO in history, the $37 billion buyout of Canadian telecommunications company BCE. Leech, who is slated to take over the entire pension fund in December, pays for his own season tickets to the Leafs. "It's a great brand that people love," he says.

It wasn't always a money manager's dream. Some wishful thinking went along with the Ontario Teachers' initial $50 million investment for a 49% stake in the hockey team and its dilapidated Maple Leaf Gardens arena, back in 1994. A deal was put together and led by the late Steve A. Stavro, a grocery chain magnate who needed backing in order to take over the company. At the time, the Leafs were a publicly traded company controlled by the estate of Harold Ballard, a longtime owner who ran the team on the skimpiest budget. Stavro, it turned out, was on both sides of the buyout: He was also executor of Ballard's estate--a clear conflict. The buyout got the attention of Ontario securities regulators, who claimed Stavro misrepresented to shareholders the value of the team's broadcast revenues, and Maple Leaf Sports & Entertainment wound up paying $1 million to settle the civil charges.

More troubles surfaced in 1997 when Martin Kruze, then 34, emerged to tell a horrific account of sexual abuse he suffered as a teenager at the hands of Maple Leaf Gardens employees. Other victims came forward with stories of being lured with gifts of autographs and hockey sticks by arena employees in the 1970s and 1980s. Kruze committed suicide in 1997. Maple Leaf Sports & Entertainment has since spent millions of dollars in settlements; claims continue to trickle in.

Ontario Teachers' still found something to build on. The pension put in another $50 million in the form of a convertible note in 1998 as part of a $250 million private financing to buy the Toronto Raptors basketball team--another so-so franchise that nevertheless pulls in the fans and big bucks--and to finish building a new arena. In 2003 Ontario Teachers' converted the note into equity, boosting its stake to 58% as part of an agreement in which Stavro finally exited the ownership group. "The Maple Leafs work like every other business we own," says Leech. Very successfully: The original $100 million investment is today worth $700 million, after accounting for the company's debt. The fund has three representatives on the company's eight-person board but could easily override any decision it doesn't like by simply calling a shareholders meeting. The owners cede operational control to Peddie and his managers.

A graduate in business from the University of Windsor, Peddie spent 19 years in the packaged goods industry managing products like Pillsbury's Green Giant line and Hostess Potato Chips. He became chief of newly organized Maple Leaf Sports & Entertainment in 1998 and oversaw the development of a $200 million arena (not a cent of that from taxpayers) that opened a year later. Peddie sold the naming rights to the nation's biggest airline--it's the Air Canada Centre--and fitted it with the kind of amenities that have since become commonplace in big-time sports, from a restaurant with a view of the ice to an on-site microbrewery. The Maple Leafs sell out every home game, and with the basketball team playing out of the same arena, Peddie easily keeps the place in business 300 days a year by adding concerts and other events.

He has also deftly managed the team's television rights, exploiting the fact that the Leafs are the NHL's most valuable media property. The league shares some, but not all, broadcast revenue, and the Leafs, in order to help maximize the overall pot, give up 30 of their 82 regular season games to the Canadian Broadcasting Corp., which pulls in as many as 1.4 million hockey fans. Peddie makes the most of the games he can sell regionally--money he doesn't have to divvy up. The regional business is a little tricky. Because Canadian regulators wouldn't let him start an analog station, Peddie launched a regional digital television broadcaster, Leafs TV, in 2001. Though the channel is still a moneyloser, airing 20 games, it serves a valuable function, sparking demand from rival broadcasters to carry the games on terms very favorable to the Leafs. Rogers Sportsnet, for example, recently agreed to a rich deal, reportedly worth $115 million over eight years, for regional rights of up to 22 games a year. As part of the deal Peddie persuaded Rogers Sportsnet's parent, cable company Rogers Communications, to move Leafs TV into a basic digital tier from its premium slot, more than doubling the number of households it reaches to 850,000.

Maple Leaf Sports & Entertainment (annual sales: $375 million) is branching out. It has a 38% stake in Maple Leaf Square, a $525 million sprawl of condominiums, stores, a luxury hotel and office space next to the arena. When the complex opens in 2009 Peddie expects that tourists will spend weekends at Le Germain, eat at one of his restaurants, buy a Maple Leafs jersey at his store and catch a hockey game. Peddie's real estate partner? Cadillac Fairview Corp., a developer also owned by Ontario Teachers'. The 872 condos sold out in six months.

This year Maple Leaf Sports & Entertainment introduced the Toronto FC, one of 13 teams among Major League Soccer. It also put up $18 million for a new 20,000-seat soccer arena; the rest of the $62 million tab was covered by taxpayers. Soccer has failed twice before in Toronto, and the expansion team is, unsurprisingly, the worst in the league. But the arena has sold out every game, thanks to Peddie's promotional wizardry. Example: introducing coach Maurice (Jo) Johnston and team members at meet-and-greet nights throughout Toronto's diverse ethnic neighborhoods.

Winning still counts for something. The appointment four years ago of John Ferguson Jr. as general manager of the Maple Leafs was perplexing. The then 36-year-old lawyer had next to no experience running a hockey team. He proceeded to sign mediocre talent, such as defensemen Pavel Kubina and Bryan McCabe, to long-term deals and traded important draft picks for little in return. Any fan will tell you that this explains why the Maple Leafs haven't even made the playoffs for the last two seasons. The team recently tried to hire a mentor for Ferguson, who met with a candidate, veteran hockey general manager John Muckler, but nothing came of the idea.

Ontario Teachers' is feeling the heat, too. The disclaimer on its Web site ("It is management--not the owners or the board--who decide how much to spend on a player in order to attract him to Toronto") can't provide that much cover. Nor can the league's new salary cap, the result of the bitter lockout that canceled the 2004--05 season. The Maple Leafs will spend the upper limit, $50 million this year, on players for the foreseeable future. "Winning is good business," concedes Ontario Teachers' Leech, who figures each Maple Leafs playoff game brings in $2 million in extra revenue. "Unfortunately the results speak for themselves, and until we win the Stanley Cup, nobody will be satisfied." With the exception, perhaps, of all those Canadian teachers.

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Kanada Kev Newbie

Kanada Kev

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Brilliant business. I still don't see why the Ontario Teachers Pension Fund is often cited for the state of the team. If anything, they have provided everything in need to make a winner. I have yet to hear of a deal that has gone sour because they have vetoed it or were not willing to cough up the cash. If there is anyone to blame, it's the management. JFJ is a complete fuckup. The management team should have fired him ages ago. Blame the OTPF for not using their muscle to get rid of him faster, or the management team. Peddie needs to initiate the changes before they are forced upon him. HE is the one who looks like the greedy bastard.

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Kanada Kev Newbie

Kanada Kev

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Booche,

Sorry, I wrote that kinda late, kinda drunk, kinda pissed off. I knew it wouldn't come out quite right ;) Here's what I meant to say (even though these words were written by somebody else:

Teachers owns 58% of MLSE, BellGlobeMedia (15%), TD Capital (14%) and Kilmer Investments (13%) share the remaining ownership stakes. Teachers has been an investor in MLSE since 1994. The Teachers Pension Plan does not receive dividends from its investment - all money stays with the company. It is management - not the owners or the board - who decide how much to spend on a player in order to attract him to Toronto. As an owner, Teachers does not get involved in the day to day operations of the Toronto Maple Leafs and the Toronto Raptors. The Toronto Maple Leafs have made the playoffs more times since 1994, when Teachers bought its stake, than during any other 12 year period since 1978-90. There are eight members on the MLSE board of directors, Teachers has three representatives. The board of MLSE does not micro-manage the acquisition of players, trades or salaries. Player personnel decisions are the responsibility of each teams respective management. So I guess after saying all that.......JFJ has got to go.

So will the Leaf Jekyll or Leaf Hyde show up for the game on Tuesday?!?! I'll be seeing Neil Young and won't even CARE what's going on, but will be eager to see the highlights afterwards. I hope it's a good game at least.

Cheers.

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Blane Newbie

Blane

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Death-Watch is ON for today. ALL the radio stations are reporting that it's very likely that SOMETHING is going to happen today with JFJ, and maybe Maurice too.

Tick Tick Tick Tick Tick Tick ...

Don't hold your breath...

Players take responsibility for slump, absolving coachTIM WHARNSBY

November 25, 2007 at 10:37 PM EST

PHOENIX — The consensus among the Toronto Maple Leafs' ownership group, management and the players is that the struggling NHL team has time to turn around the season.

So there likely won't be any drastic shakeups before the Leafs' next game, against the Montreal Canadiens at the Air Canada Centre tomorrow, even though Toronto, 8-11-5, has lost six of its past seven games and has fallen to 14th place in the Eastern Conference standings and 27th overall in the 30-team league.

“Who likes losing? We're in a winning business,†Leafs forward Mats Sundin said after Toronto was dumped 5-1 by the Phoenix Coyotes on Saturday. “As I've said, we have plenty of time to turn this around. But we better start doing it soon.

“If you look around our dressing room, with the exception of Ottawa [senators], we have just as much talent as the rest of the teams. You can find all the excuses you want about why we're not winning, but the bottom line is the players in here are responsible and we have to do better.â€

There has been a clamouring among the Leafs' faithful for changes, such as getting rid of general manager John Ferguson, firing head coach Paul Maurice or making a major trade.

Sundin, however, backed his coach and said the players are responsible for the team's woes.

“I think Paul Maurice has done a great job since he got here,†the captain said. “I have all the respect for him and the job he's done. The performance on the ice is because of the players in this dressing room. Paul Maurice has done everything he can to prepare this team as good as he can and there is nothing to blame him for right now.â€

The talk throughout the league is that Ferguson has been trying feverishly to make a trade, but he has yet to find a willing partner. One of the obstacles he faces is the no-trade contracts he dished out to several players.

Sundin and defenceman Bryan McCabe have no-movement clauses. Blueliner Tomas Kaberle has a straight no-trade contract. Forwards Darcy Tucker and Jason Blake, as well as defenceman Pavel Kubina, have no-movement periods in their respective contracts, which means there is a window after the season when they can be dealt.

Ferguson admitted he is trying to address the Leafs' shortcomings on the roster.

“It's not any given day that [trades] happen,†he said. “But those are discussions that are ongoing on different levels.â€

The big problem with the Leafs has been scoring goals since they changed their focus to a defence-first game plan this month. The Leafs have scored only 14 goals in the past seven games, and five of them have been on the power play.

But the Leafs' play with the man advantage went awry in their losses on the two-game trip against the Dallas Stars and the Coyotes. They were 0-for-10 on the power play.

After Saturday's dreadful effort, the players held a players-only meeting and Ferguson and his staff had an hour-long session with Maurice and his assistants.

“There is no question that dropping two games in a row on the road is a setback and you go back to our last seven games we need to be better,†Ferguson said.

“We understand what we have and we have to get more out of the group. … But we look around this league and it is evident there is parity in the first quarter of the season. There were teams that were two, three, four or five games below .500 that are now above .500. You have teams that started out 7-0 and now dropping to two games over .500. We know what have to do and we're going to do it.â€

The only strings the Leafs have been able to put together this season have been on the losing side. Ferguson said he is not worried about tenuous employment and he hasn't been frustrated at the way this season has developed.

“It's too early for me to use that word,†Ferguson said. “This is an 82-game schedule where we need to get to where we want to get to at Game No.82. We have to be better next month, but we're still looking for ways [to win].â€

What I love about the leafs right now is the entire team's ability to suck shit and pretend that everything's ok. Ensures that no curative measures will be taking place. I guess they're ok with the status quo.

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Blane Newbie

Blane

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and think of it from the potential GM's position, "hey, wanna come manage a cellar-dweller team under incredible media scrutiny, with 1/2 the players tied to inflated contracts that have no-movement clauses, no draft picks, and a maxed-out salary cap?"

What the hell is the incoming GM supposed to do in that situation other than get ready to eat shit for the next 3 years?

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badams Newbie

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Trust me, i don't think that it's a solution, just an excuse to get McCabe a beating ;)

They could have had Scotty Bowman, but supposedly they wouldn't accept his terms on how he wanted to do his job (control). IDIOTS. They should be begging him now.

I agree 100% with both of these statements.

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Kanada Kev Newbie

Kanada Kev

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Buddy here at work just walked by holding 2 tickets in the corporate box for tomorrow night's game against the Habs. Guess who's picture is larger than life on the oversized ticket?

Yup.

McBagopucks!

I laughed hard. Showed him my two tix for Neil tonight and told him there's no way in hell i'd ever trade them for his :D

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Kanada Kev Newbie

Kanada Kev

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Let's not be "hasty" ... gimme a fucking break :P Peddie is such a fuckwad:

http://www.sportsnet.ca/hockey/2007/11/26/peddie_leafs/

peddie_richard_getty_260.jpg

Peddie: Leafs won't make hasty decisions

Monday, November 26, 2007

THE CANADIAN PRESS

TORONTO -- The struggling Toronto Maple Leafs aren't going to make any kneejerk decisions on the future of GM John Ferguson and head coach Paul Maurice, according to the president of Maple Leafs Sports and Entertainment.

As local media speculated on the job security of Ferguson and Maurice, Richard Peddie told The Canadian Press the team is keeping a close eye on the situation but doesn't want to make any hasty decisions.

"We're trying not to be reactionary in this tough time," Peddie said after the Leafs posted a pair of losses over the weekend.

"The fact is John is under contract and we want him and Paul focused on winning hockey games and turning around this situation," added Peddie.

That's not to say MLSE is happy with sitting 14th in the Eastern Conference at 8-11-5.

"We're clearly disappointed in our start to the season," said Peddie. "It's not what we had envisioned. But we're monitoring the situation."

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ollie Newbie

ollie

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Peddie: Leafs won't make hasty decisions

Monday, November 26, 2007

THE CANADIAN PRESS

"We're clearly disappointed in our start to the season," said Peddie. "It's not what we had envisioned. But we're monitoring the situation."

This makes me feel much better.

I got a Sens jersey with your name on it Hal! ;)

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