Thursday, March 03, 2005

Why the Bain Deal Makes Sense for NHL Owners

Bain Capital and Game Plan, LLC made news today by presenting a buyout offer of $3.5 billion to owners of all 30 NHL teams.

Bain appears to be striking at a time of potential weakness in the league by capitalizing on the NHL labor dispute which has undoubtedly put a major dent in the finances and subsequent value of the individual league teams.

While bringing all of the teams under one ownership and management structure would seem to make sense, I would guess that many team owners would be loathe to part with these ego-boosting assets.

However, another scenario might be more acceptable to owners: sell a controlling stake in each of the teams to an uber-owner while current ownership maintains a minority stake in each one of the clubs. The required investment from Bain under this scenario would be significantly less. In some cases, current owners may elect to sell the entire franchise rather than have a minority stake.

The benefits that could be gained from the leverage of a single controlling entity are fairly obvious: increasing national sponsorship revenue, negotiating power for television rights or a possible formation of an NHL network, and perhaps an easier resolution to the league's labor problems. It is also conceivable that this type of deal would enable Bain to shut down some of the teams for financial reasons to optimize the financial performance of the portfolio. The league would have difficulty pulling this off right now because it would need to buy back each team and does not have the funds required.

The complexities of any potential deal include the fact that many of the teams also own their local arena and/or sports network. I would venture to guess that these are businesses that Bain would rather not deal with, but I suppose each team's situation would need to be reviewed on a financial basis to see if alternative arrangements could be made.

Regardless, the offer from Bain represents and interesting turn of events that could potentially lead to other private equity firms competing for the big prize. If it is ever successful, look for the acquiring company to spend a few years optimizing the cash flow of the entire league then either selling it through an IPO or to a major investor like Comcast, Anschutz, or Fox as an exit strategy.

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