Jets value based on promise and potential

Opinion

Hey there, time traveller!
This article was published 20/07/2017 (2471 days ago), so information in it may no longer be current.

If the moribund, money-losing Carolina Hurricanes are worth US$500 million — and there were reports in the past week a sale for that price is being negotiated — then ask yourself this: What are the promising, profitable Winnipeg Jets worth?

It depends, of course, upon who is doing the valuing.

To David Thomson, the billionaire, Toronto-based part owner of True North Sports and Entertainment, the Jets are a tiny but profitable piece in a massive portfolio. To a guy like that, the Jets value would seem to be little more than a pleasant diversion.

To Mark Chipman, the local businessman who was the driving force in bringing the Jets back to Winnipeg in 2011, the club is both the culmination of a dream and a huge source of his personal income. For Chipman, the value of the Jets is almost priceless.

And then there’s the City of Winnipeg and province of Manitoba, for whom the return of the Jets has represented a huge boost to civic pride and a welcome respite from the drudgery of harsh winters. For us, the value of the Jets is measured not in dollars and cents — although we spend plenty of both to support the team — but in the pride and passion the team inspires in us.

And finally, of course, there’s the folks at Forbes Magazine, for whom the value of the Jets can be distilled down to a single number: US$340 million at last count, according to the magazine’s 2016 NHL team valuations released last fall.

That’s precisely double what Thomson and Chipman paid for the franchise when they moved the Atlanta Thrashers to Winnipeg, a very tidy return on their investment in just six years, although less than the $358 million the magazine valued the Jets at a couple years ago.

According to Forbes, the Jets have never not been profitable. In their first five full years in Winnipeg, the club generated an estimated annual operating income ranging from a high of $13.3 million in Year One to a low of $3.3 million in 2014. Last year, the magazine estimated the Jets turned a profit of $11.4 million.

All of which is to say the highest paid player on the Winnipeg Jets isn’t defenceman Dustin Byfuglien — it’s Chipman and Thomson.

Now, for all the attention Forbes garners every year with the annual release of their valuations of pro sports franchises, it’s a bit of a gimmick for a magazine that at this point is known for almost nothing else.

Seriously — when was the last time you heard of Forbes for anything other than their annual rankings of the world’s richest people and sports teams?

All of Forbes numbers must be placed in the category of “best guess.” While everyone knows, to the dollar, exactly how much the Jets spend on their biggest single cost — player salaries — all the club’s other expenses and revenues are a rough estimate because it is a private business with closed books.

And for what it’s worth, I’ve heard from Jets front-office types the club has complained to Forbes for years that the magazine is overestimating both the franchise’s value and profitability.

Which is hilarious, when you think about it: in the age of Trump-ian hyperbole, only in Winnipeg — where profit is still regarded as suspicious and unseemly by much of the population — would a business feel the need to ask a magazine to make them look less profitable.

Call it the continuing hangover of the General Strike of 1919: that’s a nice streetcar you got there — it’d be a shame if it got tipped over in front of your shiny arena.

But for all the pleas of poverty, the news out of Carolina this week would seem to suggest that if Forbes is wrong about what the Jets are worth, it’s more likely they’ve underestimated the team’s worth than overestimated it.

If it’s true that Peter Karmanos Jr. is in the process of selling the Hurricanes for something even remotely resembling $500 million, then how do you explain last fall’s Forbes rankings that Carolina was the lowest-valued team in the entire NHL at just $230 million, posting a loss of $15 million in 2016 alone.

Something doesn’t add up.

Predictably, a Forbes writer dismissed a Bloomberg report last week reporting the impending Hurricanes sale as “fake news.”

While no one disputes former Texas Rangers CEO Chuck Greenberg has made an offer to purchase the Hurricanes from Karmanos, Forbes writer Mark Ozanian says Greenberg’s offer is “nowhere near $500 million” and at this point consists of nothing more than a non-binding letter of intent.

You could argue the most valuable thing about the Jets today isn’t its share of the NHL’s $5.2 billion NHL rights deal with Sportsnet, but rather the seemingly unlimited “potential” this province sees in a talented young Jets team from whom, many are convinced, the best is yet to come.

Still, those Bloomberg guys are the best connected guys in U.S. finance. If some major American company is buying another major American company, there’s an excellent chance you heard about it first from Bloomberg. And they don’t issue a lot of retractions.

It’s not an accident the notoriously secretive Gary Bettman made sure everyone knew exactly how much Bill Foley paid for a new expansion franchise in Las Vegas, just as it’s probably not a coincidence the same number is now coming up as a sale price for Carolina — $500 million.

It is in the best interests of both Bettman and the owners he serves — including, of course, Chipman and Thomson — to create the impression, real or imagined, that the baseline value of an NHL franchise is now a half-billion dollars.

And if Karmanos actually gets anything close to that for the Hurricanes? Well, let the good times roll, or at least let them roll until the bubble created by a massive Canadian TV rights deal that is propping up these bloated NHL valuations pops, just as surely as the same TV bubble will pop in baseball, basketball and football.

People aren’t watching live sports on TV like they used to do, and that’s going to get worse, not better, as the internet continues to fracture the audience. Bell, ESPN, TSN — they’ve all been laying off staff in the last 18 months, in part to help pay for the bloated rights deals they so inadvisedly signed back when everyone believed live sports was going to be salvation, rather than the ruin, of TV.

All of which brings us back to the original question: What are the Jets worth? And is it more today than it ever will be again?

You could argue the most valuable thing about the Jets today isn’t its share of the NHL’s $5.2 billion NHL rights deal with Sportsnet, but rather the seemingly unlimited “potential” this province sees in a talented young Jets team from whom, many are convinced, the best is yet to come.

Globe columnist Cathal Kelly wrote about that idea this week: the notion that “what someone might be is becoming a more valuable sports commodity than whatever they are.”

Kelly was writing mostly in the context of soccer, where the rights to a 17-year-old Brazilian named Vincius Junior — who has yet to play an entire professional game — were purchased two months ago by Real Madrid for US$67 million.

So what’s that idea look like in hockey? Well, the Golden Knights announced in Vegas this week they are already generating as much ticket revenue as the Montreal Canadiens, and they haven’t even played a game yet.

“The amounts have grown so mind-boggling, it veers into an existential question: How much is potential worth?” wrote Kelly.

In Winnipeg, it’s worth everything, actually.

Think about it: the Jets have missed the playoffs in five of six years in Winnipeg, have yet to win a single playoff game and took big steps backwards in the standings in the last two seasons.

If you were valuing the Jets like a regular business, the franchise’s stock would be trading at a big discount right now, and yet the club will almost certainly play before 41 sellouts or near sellouts at Bell MTS Place in 2017-18. Again.

For all their failings, Manitobans seem willing to continue to pay almost any price on the promise — real or imagined — of a brighter future.

What’s that worth? Well, to Chipman and Thomson, it’s a licence to continue printing money, win or lose.

email: paul.wiecek@freepress.mb.ca

Twitter: @PaulWiecek