Number crunching with the Canadiens
Andrew Willis, today at 9:36 AM EDT
As the Montreal Canadiens begin what promises to be a tumultuous off season, let's take a moment to pay tribute to what owner George Gillett has accomplished off the ice.
The 100-year-old hockey team is likely to change hands in coming months, and Mr. Gillett will provide something of a case study in how to make a great deal of money on the right pro sports franchise. (There are far more examples of how to lose money in this space, and through his Nascar and English football exposure, Mr. Gillett is not unfamiliar with this experience.)
Mr. Gillett bought 80 per cent of the Bell Centre and the Canadiens in 2001 for $185-million (U.S.) Rival Quebec bidders - and there were several local entrepreneurs in the running - must kick themselves at missing this opportunity. Sources say the 70-year-old Wisconsin native put down just $50-million of his own money to fund the purchase, and borrowed the rest. Given Mr. Gillett's known love of leverage, this seems a reasonable, even liberal, assumption.
On Mr. Gillett's watch, the team and the Bell Centre have flourished; this week's sweep by the Bruins aside. The owner has put strong management in place, and the arena is one of the busiest entertainment venues on the planet.
Over the past nine years, sources say Mr. Gillett has been able to pull a fair amount of cash off the table. For example, he's said to have monetized the name rights on the Bell Centre – taken cash now against future marketing fees due from BCE. With consistent sell-outs for the Canadiens, along with concerts and other events, the property generates a consistent annual profit: Conservative estimates are in the $30-million to $50-million range. So that $50-million up-front investment has likely long since been recouped.
The Bell Centre and the team now carry $265-million (Canadian) in debt. BMO Nesbitt Burns is running an auction for Mr. Gillett that's expected to see his control stake in the team fetch $400-million to $450-million. (The Molson family owns the remaining 20 per cent.)
So once debt is retired, it's not hard to build a case of Mr. Gillett making $150-million to $200-million, or three to four times his original investment, over eight years of ownership in Montreal. That's a stellar return off an asset that's a whole lot more fun to own than T-bills.
Now, here's where things get interesting, but more than a little murky.
As mentioned, Mr. Gillett has no problem with shouldering debt to build companies – he has interests in auto dealerships, a transport company, ski hills and meat packing, along with the sports properties. There is speculation in banking circles that he's personally on the hook for something in the $200-million (U.S.) range, with Wachovia originally making that loan.
Wachovia has a new parent – Wells Fargo – and like most banks, a rediscovered zeal for prudent lending. Mr. Gillett's is said to be under pressure to pay down personal debt, at a time when auto dealerships and ski hills aren't exactly commanding premium valustions.
One concept Mr. Gillett floated, but couldn't sell, was a minority stake in all his sports properties – the Habs, the Nascar team and Liverpool F.C. The asking price was $400-million, but no one was willing to ante up this kind of cash for junior positions in a hodge-podge of holdings.
That brings us back to the what's playing out in Montreal right now – the possible sale of a storied NHL team that Mr. Gillett and colleagues have tried to downplay as “estate planning.” The potential windfall on the Canadiens sale might be just what Mr. Gillett needs to put his financial house in order.
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