Wednesday, December 14, 2011

Rogers/Bell Deal: Is Second Team in Toronto Likely?

by Graydon Ebert

This has been a hot button topic in the days following the deal, with many wondering if Rogers and Bell would strongly oppose a new team in Toronto to protect their new investment. Others have suggested that given the large expansion fee that a second team in Toronto would generate for the NHL, the league might require Rogers and Bell to allow the possibility of a second team or it would not approve the sale. 

It is highly unlikely that the NHL will not approve this deal, regardless of Rogers’ and Bell’s position on a second NHL team in Toronto. Rogers and Bell are influential in the sports business and business generally in Canada and the NHL will not want to negatively impact its relationship with these companies, even for the sizable expansion fee it could get for a second team.

As for whether the acquisition of MLSE by Rogers and Bell makes a second team more or less likely it is not yet clear. 

Rogers and Bell may be protective of their new investment and try to prevent any competition in the Toronto market. However, when you think about the reason MLSE is valuable to Rogers and Bell, there is a strong argument to be made that they would be receptive to a second team in Toronto under the right circumstances. 

Recall that Rogers and Bell valued MLSE so highly because of its premium sports broadcasting content that they could distribute on their media platforms. A second team in Toronto would similarly have a block of premium sports content up for grabs, which undoubtedly would be of interest to both Rogers and Bell. So, it may actually make sense for Rogers and Bell to allow the possibility of a second NHL team in Toronto. They could extract a sizable territorial rights fee from the NHL to allow the team and could also ensure the broadcasting rights to the new team at a price less than what they might have to pay on the open market.

There is precedent for this sort of action. When the Montreal Expos were going to be moved to Washington to become the Nationals, they were within the territorial area of the Baltimore Orioles. At first, the Orioles and owner Peter Angelos were against a team moving to Washington. However, they allowed the move to happen. Why? In return for allowing the Nationals to move to Washington, they earned the right to broadcast Nationals games on their Mid-Atlantic Sports Network (MASN) and on the radio. The Orioles own 90% of MASN and when it was set up, Major League Baseball paid the Orioles $75 million for 10% of the network. This stake is now owned by the Nationals, who also receive a below market value fee for their broadcast rights.

Why wouldn’t Rogers and Bell do something like this? If the value is in the content, then adding the content of an additional team to their inventory at a reasonable price should be more attractive to Rogers and Bell. The concern that a second team would hurt the value of the Leafs brand is probably unwarranted. Prestigious sports brands do not seem to be negatively impacted by the introduction of new teams in their market. The Lakers aren’t hurt by the Clippers. The Knicks aren’t hurt by the Nets. The Rangers aren’t hurt by the Devils or Islanders. The Yankees aren’t hurt by the Mets. The advantage that a prestigious team in terms of fan interest has over the new team in its market is significant. This would undoubtedly be the case should a second team join the Leafs in Toronto.

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