Thursday, April 16, 2009

Sale Of Canadiens Is Bad News For Fans

Question: How does a buyer justify paying top dollar for a business that is already at the top end of it's revenue arc?

The Montreal Canadiens are generating about as much profit as they can, under the present circumstances and there's a distinct possibility that team revenues will stabilize or diminish, given the team's on-ice performance and the sluggish economy.

How much more than $4.50 can you expect fans to pay for a bottle of water?

Corporate boxes are threatened by shareholder demands for frugality and the government's own agencies (Hydro Quebec, Loto Quebec.) have recently come under fire for owning these elitist loges, used mostly by senior management and their families.
While ticket prices can rise nominally, any large increase (which would still be paid by loyal fans) would lead to a sullying of the stellar reputation of the team, a key ingredient in the Canadiens financial success. The advertising world and it's revenues are also on a downward track.

So if a new owner pays Gillett top dollar for the team, where will he find revenues to make the deal profitable?

If the selling price is as high as is rumoured, the new owner will make no more than by putting his money into a bank certificate of deposit.

Today's Globe And Mail had a story that hints at the ominous possibility that the team, in a bid to raise revenues, might create a private cable network to telecast Canadiens games, one that would charge users a fee.
The private network route hasn't been largely successful in other markets, (it almost ruined the Chicago Blackhawks) but just might work in Quebec.

If the team could sell subscriptions to private residences and compliment it by selling more expensive subscriptions to bars and restaurants, it's conceivable that the team could raise revenues by an incredible $100-$150 million dollars!

Let's do the math;
Start with a reasonable subscription fee of a $100 a year. Divided into 12 monthly payments, it'd be less that 10 bucks a month and works out to about $1.15 a game, a bargain to any real hockey fan and well within the budget of most Quebeckers.
It isn't inconceivable that the team could sell a million subscriptions to a hockey-mad province, likely more. There's also a large and loyal Canadiens fan base across North America, people who'd also be willing to pay.
This could bring in at least 100 million dollars.

Because of the disappearance of public broadcast, bars and restaurants would jump to carry the Canadiens games. They'd be charged much higher fees, perhaps up to $10,000 a year, which may seem high, but not unreasonable. It works out to about $100 a game, which is a real bargain, if it successfully fills empty restaurant and bar seats. Failing to buy a subscription would put a these business' in a very dis-favourable competitive position.
With just 5,000 bars across the province participating, it could bring in an additional 50 million dollars to the club.
Games could also be offered on a pay-per-view basis to hotels and private homes and at say, $7.95 a pop.

Of course the team would have to let the RDS contract expire and lose the related revenue, but would more than make up the money by continuing to sell TV ads on it's own broadcast. By having it's own network the Canadiens could also fill the air with Canadiens related programming twelve months a year and that would serve to strengthen the brand and increase revenues.

It's hard to figure out the effect of running a private network (aside from the subscription fee,) not knowing the value of the RDS contract, the production costs and the related ad revenue, but it must be positive otherwise RDS wouldn't pay for the rights.

The Canadiens could also set up a ticket reselling site, a la Ticketmaster's "TicketsNow" which is basically a scalping site. They could demand fees for transferring season tickets or impose annual seat license fees on season tickets.

All in all, the sale of the Canadiens doesn't auger well for fans.

The very best scenario is that the team be purchased by the Province of Quebec's pension arm, the Caisse de Depot, which would be satisfied with making a 10% return on it's investment, something no entrepreneur would accept.

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