An analysis of the Edmonton Oilers Ownership and new Jay Z!

Wanye
November 26 2008 07:00AM

By the time Wanye gets around to giving me all of these sections to edit, the economic crisis will be over. Ha ha! No seriously it won’t though -- apparently this is end of days. Hooray. -- Spyn

In sections I & II of this epic series of articles, we talked at length about how the financial health of NHL owners pose the most immediate threat to NHL teams. If these folks can keep jet fuel in their gulf streams, they can subsidize years of losses. If they can’t keep their cash cow businesses afloat the fire sale of assets will begin.

Today we will look at the Mightiest of Mighty Squadrons, the Mighty Oilers of Edmonton. Did we mention their might? Right then. On we go.

It’s difficult to do any sort of in depth analysis of the Edmonton Oilers Hockey Club as a standalone business. As a privately held corporation, their books are not disclosed publicly. It’s also difficult to speculate about the financial health of Rexall Pharmacies, the Katz Group and Rexall Sports for similar reasons. It would be a lot more fun for yours truly if any of these businesses had annual reports we could dig through and find some good stuff to share. Instead what we can do is make some assumptions and some educated guesses.

Like many entertainment-based businesses, the Oilers operations are pretty transparent. Asses in seats mean money in the bank. It isn’t as though the Oilers have a sideline business trading Asian municipal bonds that nets them a few million a year or something. They make money by putting Visnovsky on the ice for $7 million a year and betting that you and I will sit in the stands and watch him for more than that. This is fairly doable given that our beer tab at Rexall was $7.1 million last season alone. Why this one time...

Ah, we’re getting side tracked.

In determining the stability of Kay-Z -- which we say is more important than the finances of the Oilers -- we look at this company and the industry where he makes his loot. Again, this is a poor estimate as we have no “real” information regarding his partnership structure or debt structures but we can make some guesses.

Over the summer, while you were watching So You Think You Can Dance marathons, Daryl Katz was busy buying the Oilers for the record price of $200 million. During the extended purchase drama, it was evident that Katz wanted to buy the Edmonton OilersM -- not as a business that could necessarily sustain its purchase price, not to boost the Rexall Brand, not for personal glory or publicity. He wanted to buy the Oilers for the same reason we buy pay per view games -- because he is a fan.

This is pretty much a dream scenario for the NHL and all Oilers fans. If Daryl Katz didn’t exist, the Oilers would probably have to make him up. Here you have a guy with a rock solid business, tremendous acumen and saavy -- as viewed when he pieced together the deal to buy the Oil -- and a burning desire to own the Edmonton Oilers. He isn’t some thick-headed numbskull like “Dollar” Bill Wirtz, or our beloved Peter Pocklington. By all accounts he is a merger and acquisition wizard with a long term-view of societal demographics.

You: Zuh? Me: Right, we will explain.

Rexall is a nearly a recession-proof business: a chain of drug stores selling in large part a generic brand of Rexall Pharmaceuticals that the company also owns. The baby boomers aren’t getting any younger and years of stress and non-orthopedic shoes are going to catch up to them sooner or later. These trends are non-reversible and they bode very well for Rexall in the next 20 years.

There is an analogy you use when determining the viability of a company to acquire or invest in: “is this company selling vitamins or medicine,” meaning if people don’t purchase their product how affected are they going to be? A company that sells leather jackets for puppies? Vitamin sellers. Who cares if they go out of business? A company that sells condoms at the Playboy Mansion -- that’s medicine. They could raise the price to $100 per unit. If Miss July comes a knockin’ -- there isn’t an amount in the world you wouldn’t be prepared to pay.

You know what’s like selling medicine in this analogy? Actually selling medicine like Kay-Z does! A downturn in the old economy won’t affect Rexall if you buy your heart medication -- it’s sort of a priority. This is one of the last things you would cut back on, particularly in Canada where we are fortunate enough to have the government or some sort of subsidy in most cases.

So assuming all is well internally at the Rexall Corporation and the Katz Group -- and from all accounts they are very conservative and have low debt -- Katz is ensured that he will be balling-ass rich for the foreseeable future. Having said that, rich people don’t get rich by throwing more money after bad investments, and there’s some point where they will no longer subsidize operations of a losing business.

With $200 million recently shelled out to the fine members of the EIG, one can bet Kay-Z is pretty committed to seeing this through. If his finances or desire to continue to spend like an Arab Sheik wanes in the short term, we would be surprised to see it affect the operations of the team. The proposed arena can be taken off the table pretty easily, though, and this could be shelved depending on the nature of the deal put together. This is the most likely scenario if the team hits tough times.

How big of a bite was it for Katz to take $200 million out of the old wallet to buy the team? By all accounts it wasn’t much of a dent in the old fortress of cash in which he resides. In the February issue of Canadian Business Magazine, Katz’s net worth is reported to be C$2.37 billion which makes him the 486th richest person in the world. This was before he signed Tom Gilbert to that contract mind you. But we can still assume he is rich enough that if you took everyone in the world richer than Kay-Z and invited them to Rexall Place you could safely fit them in a single section of the arena. That’s pretty rich.

Assuming he financed the team in some sort of traditional debt load -- in the order of 40–70 per cent of the total price of the team -- Kay-Z can safely make all debt servicing payments on the team regardless of their financial performance. Debt servicing payments are different from payroll and cost of operation, but assuming revenues don’t fall to zero and Katz remains committed to the team, the Oilers ownership finances are as rock solid as they come in the NHL.

Not bad for a team that used to be the poor cousins of pretty much every other team in the league.

WG

Wanye’s note: In the interests of not burning out everyone’s eyes we will split of our analysis of the Oilers actual operations and make this a five part series. You can read the first two parts of this series here:

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Blog so hard motherf**ckers try and find me. Email me at wanyegretz@gmail.com or tweet me @wanyegretz provided it is about Jordan Eberle or babes.
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#1 The Towel Boy
November 26 2008, 08:06AM
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Just a quick question...why does a billionaire like KayZ have to finance a portion of the purchase price of the team?

I mean, I understand that just because you're a billionaire, doesn't necessarily mean you are liquid in terms of stashes of cold hard cash.

But is there some financial book keeping advantage to financing a few hundred million dollars? I assume that's one huge interest cost you can write off at the end of the year...is that the sole huge reason?

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#2 BUCK75
November 26 2008, 08:17AM
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I think you pretty much nailed it Towel Boy. I think a new entity (Rexall Sports) owns the team - KayZ contributed money to start the company, the company is financing the rest of the loan.

I am awaiting Deep Oil's comments on the subject. Who cares if a Pharmaceutical Giant helped built Katz's fortune. It is good business to partner up with a good supplier.

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#3 I Am The Law
November 26 2008, 08:34AM
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I think if Katz is really set on making money off of this team, he would still build the new arena. It would take, say, 2.5 years to build a new arena, likely completing the project when this financial crisis is sorted out (or when we near the end of the Mayan calendar, when all bets are off). So, people would be able to afford the seats, the luxury boxes would be bought, and life would be grand.

Something similar happened in Toronto. In 1931, at the height of the Great Depression, Maple Leaf Gardens was built for $1.5 million, which everyone said was ridiculous. It was built, and stood for almost 70 years (now it's about to become a grocery store, but that's progress for ya!). So, even if this is the next Great Depression, which I doubt but could very well be wrong, it's not like it's the first time an arena's ever been built during tough times.

Create some jobs, build some goodwill, make some money...Just sayin'.

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#4 Chris
November 26 2008, 08:50AM
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I agree with I Am The Law. The best time for large public works projects is during tough economic times. More value for the money; (cheaper land/ wages) keeps people working and gives people hope. P.S. A new arena is bigger than the Oilers: Conventions, concerts etc. Public money is regularly wasted on so many less benificial projects. There is no need for Oiler Fans to be ashamed for believing all levels of government should be stakeholders in this one. I personally would like to see at least a tiny portion of my tax dollar go towards something I actually care about as opposed to another stupid small town museum or diversity festival.

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#5 DJ Spyn Cycle
November 26 2008, 09:01AM
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I'd love to see a new arena built, but unless I'm getting a return on my investment, why should I as a taxpayer shoulder any of the costs of building this monster? It's not like Rexall Place is crumbling to the ground and Kay-Z doesn't possess the means to bankroll the thing himself.

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#6 Chris
November 26 2008, 09:05AM
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Is Katz responsible to pave all the roads to and from his Pharmacies? Just because he's rich doesn't mean he should foot the entire bill. $100 Mil seems pretty generous to me. Oh and Rexall place sucks. It's small and out of date. Oiler fan's pay premium ticket prices and recieve a poor overall experience compared to fans in other markets.

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#7 DJ Spyn Cycle
November 26 2008, 09:12AM
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Again, Chris, where's the return on investment? I don't mean the ethereal economic reprecussions of a new arena in general.

What's the rate of return on the city's proposed $100M investment? If taxpayers get something back for their trouble, it's easier to swallow than just handing $100M over to the Katz Group, I think. Moreover, if Oilers ticket prices are still a massive barrier of entry to the average fan, why should the average taxpayer pay for a facility he or she can't afford to access?

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#8 I Am The Law
November 26 2008, 09:17AM
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I think Chris and DJ Spin Cycle make really good points. Katz does have the money to build it himself, there are arguably better (and worse) uses for tax money, but there is a public benefit. There should be a middle ground between full taxpayer support and putting the entire thing on Katz. If amenities such as public housing, parks, a small business sector, transit, separate concert halls, etc., come out of this, then there should be some sort of public support, whether it is in footing part of the bill, or whether it is in tax breaks on property, streamlining the applications and permits, or simply mandating that Katz's photo be placed at the front of every classroom in Edmonton for the next 25 years.

The nice thing about having the ability to put some taxpayer money or to have some regulatory control is to make sure Katz simply doesn't go and build some monstrosity in the middle of nowhere. If he built it all himself, he could place it in Spruce Grove and surround it with 100 miles of parking for all he cares (see Scotiabank Place in Kanata and how useless that is for the City of Ottawa as a whole). But with some public control, he could be rewarded for building something more than simply a hockey rink.

So, in short: some public money = some public control = hopefully a lot of public benefit.

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#9 The Towel Boy
November 26 2008, 09:18AM
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But if it's got a mall and a casino attached to it, everyone can use it!

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#10 Chris
November 26 2008, 09:24AM
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All I'm saying is an arena is part of urban infastructure. It deserves to be funded as such. The city builds pools not expecting a monetary return on thier investment. It's a quality of life issue.

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#11 DJ Spyn Cycle
November 26 2008, 09:27AM
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Chris, I think you make an excellent point. I don't use city pools either, though I can see how they benefit a large proportion of the city's population.

If I wasn't such a contrarian, I'd probably agree with you. ;) But in the context of other problems the City should be spending money to fix, a new arena in my mind is a low priority. At the same time, I'd probably use its facilities, if it was a cool enough place to hang out. Might even let Wanye out of his cage so he could see it too.

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#12 The Towel Boy
November 26 2008, 09:30AM
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DJ...as long as you keep him muzzled and on a leash.

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#13 I Am The Law
November 26 2008, 09:33AM
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DJ - Is he at least paper-trained, or are we going to need a solid-gold pooper-scooper thrown in?

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#14 DJ Spyn Cycle
November 26 2008, 09:38AM
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It's really touch-and-go with Wanye. It depends on how drunk he is. And I'm not talking about a scale from "not drunk" to "really effin' drunk". I mean "really effin' drunk" to "bed-shittingly drunk."

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#15 Chris
November 26 2008, 09:40AM
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The funding-is-better-used-elsewhere argument is cyclical and pointless. I could argue anyone to a draw that as long as there are starving children in Africa; Edmonton should have gravel streets. A new arena benifits everyone. Period. Fans of hockey, lacrosse, rodeo, concerts etc. People who can't afford to go watch these events on TV. No new arena... eventually no events on TV. (Are the Oilers still going to be here in 2021 playing RX1?) Even if some wierdo somewhere has no interest in any type of event... said person may profit indirectly from the economic spinoff of such events. Gov'ts like to parcel off small portions of our hard earned money to a variety of below the radar projects to garner votes and avoid controversy... It's time for them to step up and do the right thing for Edmonton.

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#16 Greg MC
November 26 2008, 10:13AM
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Thanks, Wanye. Very informative!

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#17 jetfan
November 26 2008, 11:43AM
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When they built the new shack here in wpg the gov't made sure it got it's investment back in < 5 years. that means tax revenues from the man hours of construction and operation of the facility. seems like a good way to rationalize public funding.

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#18 David S
November 26 2008, 01:08PM
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"What’s the rate of return on the city’s proposed $100M investment? If taxpayers get something back for their trouble, it’s easier to swallow than just handing $100M over to the Katz Group, I think."

The tax revenue from the arena itself, and the associated taxes to be collected when the rest of the developers in the wings break ground and create the rest of the planned Quarters development. The arena will be the catalyst for a huge tax influx when the entire project is completed. Long term, a great investment.

"Moreover, if Oilers ticket prices are still a massive barrier of entry to the average fan, why should the average taxpayer pay for a facility he or she can’t afford to access?"

Apparently that's not the case right now as the entire RX1 is sold out every night - with season ticket holders.

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#19 Deep Oil
November 26 2008, 04:02PM
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The following blog is speculation and only opinion - as lawyers love this mistatements of fact othewise known as gossip....page 6 new york post.

Katz runs (allegedy) owns Rexall - this is a private company - translation - KEEP OUT - NO SIGHTSEEING. He has private security at the SUMMIT VALLEY house at all times in a black GMC SUV - limited access - except for President of Hockey Operations - General Manager of the Edmonton Oilers Bob Stauffer (really).

Who really owns Rexall - what markers are held back to McKesson and private funding - possibly the Oilers are actually controlled financially outside of Edmonton by Americans.

Barry Katz possibly from one store in Edmonton used his connections in the jewish financial community - ran the network with McKesson to fund ALL of Rexall - with Batman inherting the toy. Barry is now retired and can be seen at the Royal Mayfair Pitch and Putt Course during the summer - privacy is priceless for the Katz family - noting the private jet onloan from Bombardier this fall (oilers opener)to the other side of the world for yacht holiday (just guessing here - maybe spain or france)....

With $100 million from CIT group in New York - the other $100 million came from Katz et al - possibly a low profile loan from Rexall (McKesson) - we don't know this - but check to see who owns the mansion in the west end - just to be sure - is it the bank and what corp or wife is holding the title.... I bet his neighbors were ticked with the construction crew from PCL being there for such an extended period of time - the homes should of been bought by Rexall Corp (McKesson) for corporate reasons.

Katz is not a merger acquisition wizard - as a lawyer he needed assistance to physically merge two companies - he did not know how to consumate the paper transaction - trust me.

Rexall is based on the HOME DEPOT of drug stores with the PHARMECEUTICAL companies with the backend funding the everyday costs - when you buy a generic from Rexall - the brands be OTC or RX are partners shareholders in the business - hence McKesson and possibly countless others. By having a turnkey distribution network for generics - the ROI is wonderfully high working insyc and possibly having a front man to take all the public spotlight in little old Edmonton, Canada.....

Did the NHL approve Boots Del Bagio - Yes, Bruce McNall - Yes, Len Barrie (Tampa) Yes - all faced or are presently facing cash flow issues prior to the economy crunch this Sept.

Does Katz have cash - YES Is it his - some of it - nobody knows Shareholder Loan comes to mind....

Does Rexall benefit from being associated with EOHC - YES

Where did the money $100mm come from to fund the other 50% - ????? No Answer

Prior to September - the shine was on the copper and blue for a new building - but here is the rub.... tickets are $160 for Golds with average pricing for BAD food and cheap booze (they just added premium spirits last year in the club lounge - idiots) - this will increase in the new building.

WHERE IS THE MONEY FOR A NEW BUILDING GOING TO COME FROM ?

1) KATZ - MCKESSON BANK MACHINE (REXALL CORP)

2) Northlands - Non Profit

3) Government

4) Fans - (PERSONAL SEAT LICENSE)

$100 million seed money from KATZ - REXALL CORP, the city is still BLIND not to IMMEDIATELY start a tourism tax for car rentals, hotel, and restaurants TODAY for 2012 (idiots again).., province with some tucked away oil money, and then the Feds will match it based on VANOC (image) SEA to SKY highway disaster infastructure - bottom line is this is a $600 to $1-2Billion with all the land - rezoning, condos(too many on the market downtown)to which KATZ will control via NORTHLANDS.

Have Northlands in the picture and RX2 works for the community - but when you look at the millions spent on the Royal Museum and Art Gallery - sport fans deserve some tax dollars every 30 years.

Remember - Northlands has access to instant lottery - oil money via the Horsetrack deal (VLT's) and are receiving major coin to expand the Agricom (pig with lipstick) - maybe they will get it right this century...

With the city bakcpeddling on the present tax hike - hows does a new building sound ?

With the $1B Encana Bow Tower TOAST in Calgary due to no current financing - this places RX2 in a PICKLE - think about it.

So now it comes down to the fans - just win baby and Rexall Sports has a monopoly - JUST WIN - this could translate into what few EDMONTONIANS know is called a PERSONAL SEAT LICENSE.

In Toronto - $45k gets you a pair of golds - lets have a half price sale at $25K x 10 000 seats and $50 k for luxury boxes - this nets out at $450 million dollars in EQUITY PSL's - that can be resold. PSL's are like carbon credits - fake economy - benefits the owner and capital building - passed onto the consumer if the market will accept it at the time.

If the Oilers do not make the playoffs for the next 5 years - RX1 is a REAL reality - as the CAKE to build RX2 will not be present.

Northlands runs the money losing Grand Prix - it is socially acceptable for Northlands to lose money for the good of the community - bottom line will public money and PSL's be used in tandem to satisfy ALL parties - this means that KATZ gets a freebie on the purchase of the team, building and land development.

Oiler fans - smoke and mirrors - and steady as she goes - into 9th place the Oilers take one step forward and one step back to 9th place.

If the NHL could approve BOOTS DEL BAGIO and keep Jim Basillie out of the league - does this raise some questions about due diligence ?????

Thanks for reading...... Sundeep

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#20 Deep Oil
November 26 2008, 04:14PM
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Batman is dancing with the competition bureau - cashflow could be curtailed if generics are regulated.... this means that Batman's allowance will be cut.

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#21 David S
November 26 2008, 06:23PM
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So posting a barely readable comment that looks like it was written by the same guys that bring us the 411 African bank deal spams is somehow supposed to prove something?

You really need to change your post name because the last thing you are is deep.

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#22 David S
November 26 2008, 06:32PM
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Sorry. Should read "419 Nigerian bank deal".

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#23 Deep Oil
November 26 2008, 06:55PM
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No Free Ride With Batman hiding under the mask - Sidekick Robin (Oil Fans) have to pay to be boy wonder (cheerleader) - and pay and pay and pay....

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