Shades of the past
There are similarities to the bad old days, but the Senators are much better off now
A contract dispute with a superstar captain. An exchange of accusations between the team and the player’s agent. An owner concerned about mounting losses, negotiating highstakes, eleventh-hour deals to refinance the team. The familiar storylines must be unsettling to Senators fans.
Weren’t we supposed to have left behind all of that messy business of disgruntled team leaders and escalating debt when dependable Daniel Alfredsson was named captain and deeppocketed Eugene Melnyk purchased the team?
But this is not the era of Alexei Yashin and Rod Bryden. It’s a shock to see Alfredsson go and it’s never pretty when the relationship between a team and its most recognizable player fractures so publicly. But Alfie has meant much more to the team and the community than Yashin ever did and it won’t take too long before the wounds are at least partially healed. If Patrick Roy and the Canadiens can mend fences, this is nothing.
And while the financial revelations about the team cause concern, they paint a picture that is still remarkably different when compared to the Bryden years. For one thing, the operating environment is dramatically better. The Canadian dollar is much higher, the league has a stronger financial structure and the Senators have established Ottawa as a permanent market in the league, something that was still in question a decade ago.
The details about the Senators’ losses and debts are interesting but not surprising. It’s not a bombshell that Melnyk used debt to finance his purchase of the Senators and the arena in 2003.
Just because someone is worth $1.5 billion on paper doesn’t mean he has liquidity. And even if he did, he might not want to use it on a purchase if financing was available.
And since Melnyk bought the team at a fire-sale price, there was a good chance it would grow in value in the years ahead. Why tie up your capital in an appreciating asset when you can use the bank’s money instead?
Further, although Melnyk appears to have lost $94 million over 10 years, much of that consists of interest payments on the debt. So it doesn’t suggest the team isn’t viable. And the combined value of the franchise and the arena has more than doubled over that time period, to an estimated $300 million.
It’s a bit concerning that the team’s debt is now more than Melynk’s original purchase price. But given the current value of the Senators, it’s not alarming.
The team was much more highly leveraged in the past. Imagine if you bought a house in an up-and-coming neighbourhood for $127,000 and 10 years later you had a $150,000 mortgage, but the house was worth $300,000. You still have a lot of equity there. Just add some zeros to those numbers and you have the Senators’ situation.
It’s true that Melnyk’s pockets aren’t as deep as when he purchased the team, near the height of the value of his Biovail shares.
But his capacity is still significant. Indeed, he has had enough cash and credit to finance the team’s losses for a decade and has shown a willingness to divest other assets to do so. Senators fans should be thankful for the stability he’s provided over the past 10 years.
His resources are not unlimited. But if he chose or was forced to stop bankrolling the team on his own, he’d find others willing to invest to own part or all of the Senators. If there is someone willing to buy the Phoenix Coyotes, there should be no shortage of buyers interested in a Canadian franchise in the modern NHL.
The Senators are a private business that does not have to disclose their financial results publicly. The fact that they’ve chosen to provide an unprecedented level of detail suggests they see benefit in demonstrating to the public that a professional hockey team is more of a community asset than a hugely profitable venture.
There could be any number of reasons why the Senators feel it’s in their interests to present this financial picture. Perhaps it’s related to Melnyk’s argument that he needs another source of revenue, namely a casino, to make the team more sustainable. Maybe it’s about helping fans understand why the team didn’t splurge to meet Alfredsson’s demands and won’t be near the salary cap this year.
Maybe it’s about setting the stage for future negotiations with the city about property taxes or even a new arena in 10 or 15 years.
Regardless of the reason, the future of the franchise is not in jeopardy. And Melnyk is right that the team can be competitive without hitting the salary cap every year.
If we’ve learned one thing this summer, it’s that the Senators are bigger than just one person.
Just as Alfredsson deserves credit for rescuing the team from Yashin’s failed leadership, Melnyk warrants recognition for saving the franchise from perennial financial crises. And Senators fans should hope he remains owner for many years to come.
But they can also take comfort in the fact that, because of his contributions, if he decides he can’t afford to stay with the Senators — as Alfredsson did — the team is strong enough to carry on without him.