“For the most part, and with the possible exception of me, I don’t think anybody goes out to try and hurt somebody”           Jeremy Roenick,  former NHL forward

With all of the wailing and howls of protest regarding increased regulation, salary caps and bonus eliminations coming out of certain sectors of the North American economy, it is (perhaps to some) refreshing to see corporate executives in at least one industry marching in total lock step with the US Government’s attempts to fight economic reality. The current debacle in Phoenix regarding the fate of the Coyotes hockey franchise there has opened the window wide on the leadership approach and decision-making style that holds sway in the NHL today.

The mindset appears to be not too dissimilar to the mentality that holds that debt problems can be fixed with more debt, that the Fed can expand credit without limit or ill effect, and the requirement that the consumer sector retrench and shore up its finances can be successfully challenged with “Cash for Clunkers”, outright handouts and other blandishments that will theoretically be paid for not by today’s beneficiaries but by tomorrow’s taxpayers.

Faced with a soft economy, a significant proportion of  NHL clubs (not only Phoenix) are in distress; if it is looking ahead at all, the NHL is probably seeing lower attendance figures, lower corporate marketing spend and lower revenues generally. Some of the owners may be looking “over the next rise” in this fashion. Unfortunately and more to the point, the Phoenix debacle however shows that the current NHL leadership has chosen to divert attention from more pressing commercial concerns, to spurn the injection of fresh outside investment capital into its business, and to effectively act in defense of toxic investment decisions that it itself promoted to itself.

That the NHL leadership has chosen to allow this situation to deterorate to the point where it must participate in a courtroom display centering on the efficacy of its business plans has to be counted as a “first” in business history.

But there are Principles at stake.!!

Yes Petunia, there are principles, and there are principles that you don’t want to risk losing. When they didn’t have to, Mr Bettman and the NHL leadership decided to bet the house on defending the principle that the NHL should have the right to determine where its franchises are located. Instead of principles Mr Bettman should possibly have focused his attention on “cats and how to skin them”. Mr. Balsillie’s support of the NHL is arguably the best thing to potentially have happened to the league since Walter Gretzky decided to flood his backyard in the 1960’s. “How to do a deal” should have been the priority, not “how to stop a deal”. Mr Balsillie is real, he is interested, he is successful, he is connected and he has some good ideas that promise to enrich the game for all the participants – fans, players and owners.

 We do not know of any points of agreement that may have emerged from the recent mediation that was imposed on the Chapter 11 process by Judge Baum last week.

What we do know is that NHL has had negative control of this situation and over the course of the discussions with the Phoenix ownership and latterly with Mr Balsillie for several years now. Given that this process has become very expensive, and given that Mr. Bettman has chosen to lead the League into a fight, which in the context of the negative control position, referred to above is unnecessary, it must be asked of the Commissioner why a solution still hangs up in the air on the cusp of the new Hockey Season? Why has Mr Balsillie’s interest not been turned into the huge positive that it could be for the league?

Mr Bettman has chosen to defend opacity, arbitrariness of decision-making and confused governance in rejecting Mr Balsillie and in not working hard to come to an accommodation with him.

Is the league more profitable since the Southern expansion started? Is the game more popular in the Southwestern US States? Are the endorsement and marketing contracts bigger? Surely by referring to these simple metrics and a few others a normal businessman would be able to determine that a particular expansion strategy was sound and should continue to be pursued.

Clearly, the foregoing considerations dictate that, at a minimum,  the NHL should consider its position on these matters. However, the Phoenix bankruptcy saga is but a symptom of the problem that is afflicting the NHL, it is not the “The Problem”. Whether or not the Bettman – Balsillie fight drags out, the NHL is already encumbered with  reputational and financial challenges. Aside from this aspect, “The Problem” has many dimensions, among them are: 

• Almost one-third of the NHL Clubs are in financial difficulty and/or on the block. The economy and the Coyotes saga are making them less valuable.
• The NHL is Missing Opportunities, for example, the various TV deals, when measured against a team roster show that TV revenues “per player-per game-per team” in the NFL are 26 times higher in that league than in the NHL.
• The NHL does not have a Coherent Marketing Strategy. It has fallen short in embracing internationalization, and the marketing of and investing in opportunities in hockey-mad countries, choosing instead to waste resources on folks that would rather be watching NASCAR and playing golf year-round.
• The NHL Governance Model is out-moded and is exceedingly non-transparent, which provides an open invitation to hucksters of many stripes – Del Biaggio, Samueli and McNall to name a few.
• As evidenced by Mr Moyes’ de facto indenture which has so far cost him almost $300 MM and other situations of this nature, the NHL has continually fallen back on the “somebody else must pay” revenue model.
• Mr Bettman’s tenure has been punctuated by various missteps, gaffes andoutright  mistakes, the like of which any one or two would have been sufficient to cause a normal CEO-type to be led straightaway to the Gibbet. Somehow he has survived all of this value destruction despite also being an obvious impediment to positive change.

At a time when the league is in difficulty, serious questions must be asked of someone who chooses to marshal scarce financial and professional resources to fight this fight and “bid” for the Coyotes when other more pressing items (see above) should precede it on the agenda – especially since Mr Balsillie promises to bring fresh capital to the table.

Mr Balsillie’s expression of confidence in the NHL should not be undervalued in any way, shape or form since the current financial debacle has dried up sources of capital for numerous industries. Banks are stingy with lending cash. This is not a credit-friendly environment.

Enema Now…Rah ….. Enema Now… Rah Rah!!!

If the NHL continues on this path, our prediction is that within a short period of time, within say twelve to twenty four months, it could find itself in serious financial difficulty – maybe even Chapter 11. It does not to us seem sensible that in this economy, any enterprise could withstand the various incompetencies and goofs that are piling up in increasing amounts on the NHL’s doorstep. Therefore our message to the Fans, Governors and the Players Association is that the NHL needs a “Corporate Enema” now. Consider the following:

• Your business is valuable, but it is a long, long distance from being as valuable as it could be. Your revenue model is in fact now under threat.
• Your Leadership must change. Mr Bettman seems to have surrounded himself with like-minded individuals who are not commercially orientated and who view matters through a narrow, legalistic lens. The League Front Office has ossified, yet seems to have the Board of Governors in its back pocket. The NHL needs Vision, Ingenuity and Execution; not Cronyism, Legalism and Confrontation. Investigating the processes for removing the Commissioner must proceed without delay. (Is he a Stalin or an Italian Prime Minister?) The findings here will determine in large measure how high the Mountain is that needs to be scaled. However, if Judge Baum makes a ruling detrimental to the League, even modestly so, this could simplify matters greatly in this area.
• Your Opaque Governance Structures must change. The recent vote, for example, by 26 NHL Governors against Mr Balsillie, accompanied by some abstentions (most notably from the Leafs) AND the contemporaneous NHL bid proposal for the Coyotes, smacks of thinly-veiled self-dealing and does not pass the smell test.
• You must understand that these changes are not going to be palatable to everyone. Some Clubs will need to be put down or reorganized. Players might lose jobs.
• You must seek Trusted Advisors Now to help you make those changes

The Puck Stops Here

For his part Mr Balsillie must answer for his confrontational behavior. He has chosen to crash the net repeatedly and this has raised the ire of the NHL leadership. This behavior has clearly risked having him lose the “prize”. We will all have to wait and see on that one. However, if he is to claim the prize, a prerequisite step will likely be that he rapidly and personally repair bruised relationships and  establish sufficiently collegial relations with the ownership groups and at the Board of Governors level. An accommodation must obviously be reached with affected Clubs if he is to move the team.

As for the Glendale City Leadership and their Jobing.com albatross – Too Bad!! This is a bankruptcy and you need to carry the can for your lousy decisions. Under any conceivable outcome to this process, their $500 MM claim will be shredded by what is, by definition, a bankruptcy estate limited to far below that fantasy number and accompanied by a defined waterfall as relates to the distribution of valid outgoings. Sorry, but you might not get re-elected.

Whatever Mr Bettman, Mr Melnyk or the other owners might think of Mr Balsillie, in our opinion he has  done a great service to Professional Hockey. He is knowledgeable and passionate about the Game, and seems to have an instinct as to where this league needs to go in order to maximize the experience for the Fans, Players and Owners. His quest has cost him significant sums of money and his personal reputation to a degree, but assuming that the NHL’s problems meet solutions as discussed above, we all stand to benefit from the sacrifice he has made in exposing the serious weaknesses in the current stewardship of the Game.

For his efforts and perseverance,  Jim Balsillie merits appreciation and high regard whatever the outcome of the Coyotes saga. Here at Recovery Partners we wish him all good fortune in his quest to turn around the Coyotes and exert a positive influence in the NHL.

This entry was posted on Tuesday, September 29th, 2009 at 7:18 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.