Has Watson Driven The Sens From Ottawa?


Some of the good work the Ottawa Senators do in the community.

 Ottawa Senators owner Eugene Melnyk is a pretty angry guy right now.

And well he should be.

His organization is in the toughest Canadian NHL market. What not Winnipeg, you say? No.

That’s because while the Jets might have a smaller population from which to draw customers, that city has a larger private sector than Ottawa that will buy tickets, advertise and sponsor the team. Government can’t do that.

Yes, the Senators are the most economically precarious Canadian franchise. It is a credit to local fans that they fill the Canadian Tire Centre without the benefit of huge purchases of corporate season tickets. It’s a mom and pop and the kids crowd. This really is hockey country.

So based on my experience of covering the Senators at the Citizen when the club was a hair away from moving to Hamilton during the Rod Bryden years (saved ironically by the Toronto Maple Leafs invoking their “territory”) and covering Bryden’s CCAA, I’d say that Melnyk’s claim of losing $10 million a year out in Kanata are pretty accurate.

Years ago, Melnyk goes to the city with a Major League Soccer franchise in his back pocket and proposes building a new outdoor stadium in Kanata. The city instead opts for the Canadian Football League at Lansdowne and a huge core redevelopment. The process was faulty but that’s the way it goes.

Accordingly, Melnyk continues to be an exemplary corporate citizen and the Laurier Avenue politicians try to associate with the good publicity generated by the Senators as often as possible. Right, Mr. Watson?

Then Melnyk tries to bridge the $10-million gap with a casino out in the Kanata farm fields. He gets together a RFP bid only to find the city has sole-sourced the casino to Rideau Carleton Raceway. Now he’s angry. Not only does he not get the casino despite generating untold goodwill and business through the city, Melnyk can’t even get a chance to bid on the gaming parlour. Good grief.

So he pulls his Senator head honcho Cyril Leeder off four high-profile boards in the city. Those boards generate much good PR and connections within the close-knit business community in Ottawa. That’s not the kind of thing you do if you plan to keep your team in Ottawa over the long haul.

Melnyk tells councillors there is no Plan C (though he moderated that stance on Toronto’s Fan 590 recently … saying he’s looking for a Plan C but doesn’t have one right now). Essentially he was saying I need the casino or I will continue to lose $10 million each year into eternity, having already lost about $100 million on the team already.

Nobody will do that forever.

Remember that it is believed that Melnyk is not as rich as he once was in the great days of Biovail when it was thought he had more than a billion dollars. Even billionaires don’t like losing $100 million. Remember too that he has sold off some of his horse-racing interests, his junior hockey team and that he is holding firm on a Senator salary cap below the NHL ceiling. Remember Melnyk didn’t pony up more money for Senator legend Daniel Alfredsson, much to the dismay of fandom. Remember the team lost half a season last year to a labour-management dispute.

All this points to a team that is approaching a turning point about staying here. Highway 417 is right next door to the rink.

You have to know that Melnyk has talked to NHL commissioner Gary Bettman about the situation in a league where the Sens owner has been a good soldier. Melnyk knows all the talk of a possible NHL rink in Markham, just outside his Toronto digs. That’s a licence to print money if the indemnification to the Leafs is not too high. Another advantage is that Melnyk is a long way from his nemesis Jim Watson, though Rob Ford is no picnic.

Melnyk understands that some in Seattle would like a NHL team. No doubt the Senators would bring a hefty price with their good young club and outstanding management. And there is probably no one locally who will buy the Senators in good times let alone now. As well, now that the U.S. dollar is at 96 cents, that’s an extra cost in his U.S.-currency player salaries.

Here’s something Mayor Jim Watson has to know. Melnyk will not continue to operate a team losing $10 million a year. He just won’t. So Watson is likely pushing the Senators to the end of their relationship in Ottawa.

To put this in terms Watson will understand, that would be the end of his political career in Ottawa. Few will vote for the person who drove the beloved Senators from town. He would be dogged by that until the end of his days.

In fighting with Eugene Melnyk and the Senators, Jim Watson is looking at the political precipice.

Never has Watson’s policy weakness been so evident.

 

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19 Responses to Has Watson Driven The Sens From Ottawa?

  1. Ken Gray says:

    @asdf

    We’re going to have to agree to disagree on this one. I covered the Bryden potential move of the team and Bryden’s CCAA for the Citizen and I can tell you that at best this is a marginal market and at worst a sinkhole.

    I believe Melnyk when he says he’s losing $10 million, particularly when the loonie is at 96 cents.

    He won’t keep losing that money without doing something about it.

    thx for the comment and cheers

    kgray

  2. asdf says:

    Hi Ken,

    I don’t disagree about the debt load, though I think it should be easily managed given the big profits that operations presumably generate.

    My larger point is that this hockey club in all likelihood currently makes money, and that frankly this is shaping up to be a great business deal for him. You can question the Forbes estimates, but they’re the best we’re got – it’s up to Melnyk et al to account for how he’s losing money given we know he is bringing in between 95M and 120M in revenues.

    Melnyk bought this team on a debt basis, and has rolled the lean years into that debt. That debt is serviceable by the yearly operating income, and all the while the value of the franchise has doubled. By a normal business standard this is going extremely well for him.

    Now, don’t take this for my defending Watson….I think his actions on this were awful. But I’m not worrying about Mr. Melnyk, and without specific proof of how Ottawa is anything less than an upper-middle-class hockey franchise, we should cool it with the moving talk.

  3. Alex says:

    2 things here that I don’t believe. I do think there could be possible buyers for this team in Ottawa considering the attendance and organizational talent. And I can’t imagine Gary Bettman just letting a fairly successful Canadian franchise to move.

  4. Ken Gray says:

    Sheridan:

    You’re right. The Canadian Tire Centre was the biggest privately funded construction project in eastern Ontario in the 1990s. Imagine how much money it will cost to replace in 20 years. Don’t be surprised if taxpayers are on the hook for some of that then.

    cheers and thx for the comment

    kgray

  5. Sheridan says:

    David,
    I do not think attendance is a big problem. If he were to relocate centrally, would any extra attendance really make up for his $10 million shortfall? But more to the point: how could Melnyk possibly get an arena in a more central location? We are talking, at minimum, $300 million for a new arena. If this were to happen, how much of that do you think will be public money? (See Edmonton and Quebec city for recent examples.) The alternative is to allow Melnyk to try another revenue stream at his Kanata location. Melnyk’s $500 million casino (hotel, condo, etc.) enterprise would not burden the taxpayer. Indeed, Melnyk would be taking the risk, and I do not think he would do such a thing without a careful business analysis, i.e. I do not think Melnyk grasps at straws.

  6. Ken Gray says:

    @asdf:

    All these Forbes and the like pro-sports valuations are highly hypothetical. The real price of the team for example is determined in the marketplace, not on a spreadsheet.

    And as for the losses, they are real. The debt-load is real, not something you can wish away.

    cheers and thx for the comment

    kgray

  7. Bruce Webster says:

    MELNYK or O’Brien for MAYOR either would be better than what we have now!

  8. asdf says:

    Hi there,

    The 10M figure is very messy. It isn’t wrong but it can be misleading. Forbes estimates the annual operating income as 14M or so, so most years the team makes (or at least ought to) a lot of money – this is a firmly upper middle class team, and about as financially secure as Winnipeg, Calgary, and Edmonton.

    The team doesn’t need anything to plug the 10m dollar hole. All it needs is for the league not to go into lockouts, and for the team to get out from under its debt load – which is easier said than done perhaps, but the fact remains this is a fundamentally profitable business. That’s why the franchise’s valuation has skyrocketed during Melnyk’s ownership.

  9. canophone says:

    Maybe it’s his plan to turn Ottawa away from a hockey city, and into a baseball/football city…

  10. Steve says:

    Is it owned by the Penguins?

  11. Ken Gray says:

    @Steve:

    A Bulldog Ottawa recently noted that a casino is near the Pittsburgh rink.

    cheers and thx for the comment

    kgray

  12. Steve says:

    Would the NHL even permit a Casino to be attached, associated, connected, etc. to a team? This would not be an arms-length thing that Melnyk wants, this would be basically part of the Hockey Operations and the revenues would be used to offset team losses. If you were running the NHL, how in the world could you even let this be talked about, let alone proposed? Of course we are talking about the NHL, a League that holds their awards ceremony in Las Vegas.

  13. Ken Gray says:

    @Ed

    You’re right.

    cheers

    kgray

  14. Ed says:

    Quebec City would salivate to get this team.

  15. Ken Gray says:

    @Doug:

    The arena and NHL team were the thin edge of the wedge for a giant real-estate scheme which the NDP government disallowed accept for the rink.

    cheers

    kgray

  16. Doug says:

    I was not in Ottawa at the time but I suspect that all parties knew at the outset that Kanata was not where the arena should have been built. How did that happen?

    Melnyk, as part of his presentation to council, bleated about how Edmonton and even a bankrupt Detroit have ponied up $400 million and $500 million respectively for their NHL teams in the form of new arenas. In my view, those two cities are nuts! Money like that must go to infrastructure that benefits all citizens and not just millionaire owners and players. That would be a vote deciding issue for me.

    And if Melnyk thinks that he can find a better market for the Senators than this one, good luck to him.

  17. Doug says:

    Boo Hoo.

    Melnyk bought the team for a discount price from Bryden for all of the same reasons that the article lists. Further, his purchase agreement did not come with a promissory note to cede him a little money making machine like a casino.

    His claims as to how much he is losing should also be looked upon with some skepticism. He has stated that he would be happy to prove his assertions but I seem to recall that the NHL owners were reluctant to do the same for the NHL Players Association during the recent lockout (initiated by the poor owners). I suspect that the money he makes from the arena hosting concerts etc. are to be found in a separate pot. Nothing illegitimate, just the normal shell game that we would all play if we were as successful as the Senators owner.

    Lastly, if Melnyk was able to openly bid for the casino then the process would be opened to all bidders. This would have brought into play the possibility that the OLG would have selected a location in an unacceptable location such as next to the Convention Center (Why the mayor initially favoured this location has always escaped me). Any location other than RCR would have spelled the end of that location. Even though the Bulldog sees horse racing as a remnant of an ancient agrarian society, the end the RCR would have had a negative economic impact on the rural areas surrounding Ottawa. Melnyk legitimately does not give two hoots about those consequences but the democratically elected members of council must pay heed to those likely outcomes. An certain irony here is that Melynk is a big time thoroughbred horse owner and he is to be respected for that.

    City council was in a tough spot and made the best decision they could under the circumstances. There is a definite downside to the decision that was taken but council felt that it was the lesser of two poor choices. As for Melnyk, he’ll continue to run his empire from the comfort of Barbados while the rest of us parade out to his arena in the cold to watch his team ply its trade.

  18. Ken Gray says:

    @David

    Wonderful to see you back commenting and a good one, too.

    cheers and thx

    kgray

  19. David says:

    Perhaps the problem is that the Senators are, as you have so frequently put it in this very post, “out in Kanata”.

    How often have we heard of stories of families – who as you say are the bread and butter of the Senators due to the lack of corporate support – from Orleans or Gatineau who opt not to go to games due to the arena location? How often does this happen with respect to concerts and other events? How much revenue does Melnyk and the Senators forego every year due to the arena being “out in Kanata” rather than somewhere more central and accessible to the whole Ottawa-Gatineau metropolitan region?

    Attempts by Melnyk to address their immediate revenue shortfall problem by proposing – really grabbing at straws – to put an MLS team or a casino next to the arena could be seen as attempts to support the economically unsupportable. This really is grasping at straws on Melnyk’s part: 5 years ago there was absolutely no reason for anyone to think that Ottawa might get a casino – it was something that just came largely out of the blue. So if the OLG hadn’t come along with its province-wide casino-building spree, what would Melnyk be doing instead to support the Senators? And an MLS team in Kanata is even more laughable than an NHL team: it’s more likely the Senators would be subsidizing the MLS team than the other way around.

    It’s about time that someone over at the Senators acknowledge what has been said about the location of the Senators’ arena by many all along: it’s in the wrong place. It’s not Melnyk’s fault that the arena is in the wrong place, but he is at fault for pretending that the location can be supported if only some sort of deliverance comes its way. Getting a casino would just kick the problem down the road by a few years or maybe a decade. Melnyk needs to start working on an actual strategy to get an arena in a more central and accessible location, not hoping for deliverance.

    Of course we could also say much the same thing about the RCR as well: it has needed slots to stay afloat and now apparently needs a casino too. The Ottawa-Eastern Ontario region generally isn’t horse-racing territory anyway so putting the raceway miles into the country far from the city just makes it all the more difficult to attract people, so they grasp at other gambling draws like slots and a casino.

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