KATZ GROUP: BLUFFING WITH 2/7 OFFSUIT

Jason Gregor
September 25 2012 11:40AM

Eight years ago, during the first NHL lockout (how pathetic is it that there is a 1st and 2nd lockout, ugh) poker was on every sports channel. At first fans complained about it, but within month many started watching and playing online. Poker was the new "sport" of choice, but even the most uneducated poker fan realized quickly that you folded 2-7 offsuit, unless you were the big blind and could check to see the flop.

Right now the Katz Group and the City are playing heads up, and the Katz Group lost a big hand yesterday. Their appearance in Seattle followed by a head-scratching press release was akin to going all in with a 2-7 offsuit.

I'm perplexed as to why the Katz Group thought they could use relocating to Seattle as a bargaining chip. The blatant facts are that relocation is NOT an option, even when their current lease expires at the end of the 2014 season.

Here is why relocation won't happen.

  • Gary Bettman admitted he made a mistake allowing Winnipeg and Quebec to relocate, and since then Bettman has proven he'd rather have the league own a team and have them lose $20 million a year than relocate. He won't let one of his profitable teams up and leave.
     
  • The Oilers aren't losing money. They are profitable, despite being the only team in the NHL that doesn't get non game-night revenue.
     
  • Florida, Columbus, Phoenix, NYI and many other teams have been losing money for years. There is zero chance Bettman allows the Oilers to jump the queue and relocate before those other money-losing franchises. A source within the NHL, who didn't want to be named for obvious reasons, told me this morning, "There is no way the league would let them move. They will try to help facilitate a deal to get a new arena, but relocation is not an option at this point."
     
  • The rink in Seattle won't be ready for at least three years, likely four. So the Oilers would play at Key Arena for two years, before becoming a tenant in the new rink in Seattle. The WHL team vacated Key Arena because it's a terrible hockey venue, but the Oilers will play there for two years? No chance.
     
  • The Oilers are the #1 team in Edmonton, but in Seattle they'd be #5 behind the Seahawks, Mariners, Sounders (soccer) and the new NBA team. Seattle will be a viable option for a team that is losing money, but it would be a backwards move for the Katz Group to relocate there.
     
  • The Oilers are amongst the top-five most expensive ticket prices in the league, but that won't be the case in Seattle. The San Jose Sharks sell out every game, but they lost money last year because they can't charge premium prices. Below is the Sharks seating chart.




You can get a ticket in the 2nd deck for $46/game in San Jose. If you want a pair of individual seats in Edmonton in the same section it will cost you $135.50 each (based on LA Kings game on October 16th from Oilers website). It is basic supply and demand. There are more rabid fans in Canada, thus higher ticket prices. Everyone knows that ticket prices in Seattle will not be as expensive as Edmonton.

OTHER OPTIONS

(This is the inside of the Sprint Center in Kansas City. Looks great, but not good enough to attract an NHL team.)

The Katz Group sent out this statement yesterday. It came from Executive Vice President, Bob Black: 

"I can confirm that Daryl Katz, Patrick LaForge, Kevin Lowe and others from the Oilers leadership group are in Seattle for meetings and to attend the Seahawks game. 

We remain committed to working with City Administration to achieve a deal commensurate with what Winnipeg and Pittsburgh have done to sustain the NHL in those small markets. If we can achieve such a deal, the Oilers will remain in Edmonton and we can get on with the important work of developing the new arena and investing in the continued revitalization of Edmonton's downtown core.

Nonetheless, and as the City of Edmonton is aware, the Katz Group has been listening to proposals from a number of potential NHL markets for some time. After more than four years of trying to secure an arena deal and with less than 24 months remaining on the Oilers' lease at Rexall Place, this is only prudent and should come as no surprise.

We are extremely grateful to Oilers' fans for their patience and loyalty as we work through this process towards what we sincerely hope will be a long and successful future for the Oilers in Edmonton. We have no further comment on the status of our discussions with other markets at this time."


Who are these potential NHL markets? Let's assume they are talking about Kansas City, Seattle and Quebec City.

I've already broken down why they won't go to Seattle, but if Kansas City was such a great market how come Atlanta moved to Winnipeg? Moving the Oilers to KC is as likely as the NHL lockout ending this week.

The 2011 census had Edmonton (metropolitan) population 6th highest in Canada at 1.5 million. Quebec City was ranked 7th with 765,700. Will fans in Quebec who average $22/hour pay the same as fans in Alberta who average $27/hour? I doubt it.

At this point relocation should not even be discussed, because it isn't going to happen. Any fan, blogger or media person who suggests it is a realistic possibility isn't paying attention.

The League won't allow it to happen, and the Oilers don't want to move.

The major problem I see now is that the Katz Group hasn't made it clear what they want. Instead of wasting everyone's time, and creating more disdain from their fans, the Katz Group needs to realize that unsubstantiated threats of a possible move won't help them at the negotiating table.

We know the league won't let them move, and we know that deep down the Oilers don't want to move.

It was a bad bluff and you lost the hand, but the Katz Group still has lots of chips on the table. When you get caught bluffing in poker you take your lumps and move on.

There is nothing wrong with bluffing, it's part of poker. Unfortunately it has also become a staple in most arena negotiations, and usually it only serves to hinder and delay the process. Remember when Mario Lemieux was flying to Vegas, Kansas City, Houston and Oklahoma City, well months later at the groundbreaking ceremony for their new rink he admitted what most already knew.

"It (relocating) wasn't an option. We had to do a few things to put pressure on the city and the state, but our goal was to remain here in Pittsburgh all the way. Those trips to Kansas City and Vegas and other cities was just to go and have a nice dinner, and come back."

During those negotiations some fans despised Lemieux, but once a deal was completed Lemieux was labeled the saviour of the franchise.

The Oilers aren't moving. It is a non-issue, regardless of trips to Seattle, Kansas City or Quebec.

WHAT NOW

Just because relocation isn't a serious option, doesn't mean the city should just sit back and do nothing. According to councillor Bryan Anderson, "There has been no forward progress since last October."

This project needs to get done. There has to be an equal amount of motivation from both sides to accomplish this. The city needs a new facility and the Oilers want one, and we all recognize this. Neither wants to pay for all of it, so find a middle ground by looking at the intricacies of deals in Pittsburgh and Winnipeg and find out what worked and what didn't work.

The Katz Group's "tell" was easy to spot because we've seen it before during previous arena negotiations, but now it's time to deal a new hand and get back in the game.

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One of Canada's most versatile sports personalities. Jason hosts The Jason Gregor Show, weekdays from 2 to 6 p.m., on TSN 1260, and he writes a column every Monday in the Edmonton Journal. You can follow him on Twitter at twitter.com/JasonGregor
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#51 Tim s
September 25 2012, 05:20PM
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The fact is the oilers have 2 years left on their lease and the new rink deal looks to be falling apart, Katz would be an idiot not to investigate other options. They likely heard the pitch, had a tour and came to the same conclusion everyone else had that Seattle is not a fit.

But if the rink is not built and Katz wants out, is there local interest in buying the team and building their own rink?

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#52 Katz is fool
September 25 2012, 05:49PM
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They aren't moving its a scare tactic...

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#53 DonDon
September 25 2012, 05:51PM
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Woodguy wrote:

Who says it has to be local?

Calgary guy looking at buying NJD

Vancouver guy bought VAN.

Doesn't need to be local.

You are correct, it doesn't have to be a local buyer. A Vancouver guy bought the Dallas Stars, Tom Gaglardi of the Sandman Hotels. If the NHL decided that Katz couldn't transfer the Oilers to another city, perhaps another rich owner would step forward. See attached about the new Dallas Stars' owner:

http://stars.nhl.com/club/page.htm?id=83147. Sounds like a good owner. Have we heard anything similar from Katz?

I believe the City of Edmonton Council requires some outside expertise in the business affairs of the NHL to determine what is the right business deal for the City and the fans. Paula Simmonds made some very good points, even though some posters may disagree. Maybe the City should take over the responsibility to design and build the arena, rather than Katz. Katz isn't prepared to put his purported $100 million up front, wants a casino licence (which won't contribute similar dollars per the Pittsburgh model), wants an adjoining Oiler hockey training facility on expensive City land. Wants, wants, wants.

Time for the City to pause and rethink the deal. 30 years is a long time for the City to live with a bad arrangement.

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#54 The Real Scuba Steve
September 25 2012, 06:44PM
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Katz is starting to look like a bigger baby than Pocklington. I supported this guy since he bought the team, and this is how acts?

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#55 Seasonticket
September 25 2012, 06:48PM
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I am not sure about your price comparison ... in section 202 row 37 and I pay 46.00 per ticket . Seems pretty comparable. The Oilers game day tickets are much higher.

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#56 Mark-LW
September 25 2012, 07:03PM
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mikezanier wrote:

I know. We should just stick to anecdotal stories and what people think might happen when they have no idea or done any actual research.

Just create evidence in your head that matches your narrative... #sarcasm

You're right.

The Oilers have always been hugely successful financially. Remember in the 90's when we built our playoff teams by stocking up on high end unrestricted free agents?

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Seasonticket wrote:

I am not sure about your price comparison ... in section 202 row 37 and I pay 46.00 per ticket . Seems pretty comparable. The Oilers game day tickets are much higher.

Not a chance! My season tickets in the nosebleeds, row 50, have a face value of $55 at the box office.

Edit: Jason was comparing box office prices. Their prices are even lower with season tickets.

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#58 DSF
September 25 2012, 07:18PM
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Woodguy wrote:

1) Katz also owns the Edmonton Oil Kings and you can be damn sure they won't be playing at Northlands if Katz is operating a new arena. so your estimation of non-HRR dates is inaccurate.

My estimate of non-HRR is inaccurate how?

WHL games are non-HRR and KG gets the revenues.

2) You are assuming Katz would be nothing more than a tenant in Seattle when you have no basis to make that assumption. Chris Hansen is paying $275 million as his share of the arena but he is not doing it alone. Steve Ballmer of Microsoft and the Nordstrom department store family are part of his investment group. Katz could easily brought in as a partner and own a portion of the arena, the NBA franchise and, of course, an NHL team.

Sooo Katz buys in for how much? He is getting the Edmonton arena for $0 down, so SEA is a worse deal.

Katz gets 92% of the dates at the new rink.

No way on gods green earth does he get anywhere near that in SEA.

Hansen is investing real $ and would want the commensurate non-NBA dates to service his debt.

3) The funding being provided by the City of Seattle and the county is $200 million only if Hansen lands BOTH an NBA team and an NHL team. That funding is reduced by $80 million if an NHL team is not part of the equation.

Relevance?

Hey look, a municipality that knows how to put conditions on its investment! Wish they were here.

4) $80 million dollars is a substantial motivator for Hansen to land an NHL team sooner rather than later and he could use any portion of it to lure an NHL team to Seattle.

Still doesn't give Katz more non-HRR dates than he gets here. Its not close.

5) I have no doubt that Edmonton WITH a new arena is a better deal for Katz but assuming Katz will be nothing more than a tenant in Seattle and will have to forego all non-HRR is not knowable at this time since there are many ways he could structure a deal in Seattle.

Its true that things are not knowable, and I'm glad you admitted that WITH an arena its not close.

That being said, Hansen has to service his debt and given that he's the lead investor he will take most of the non-NHL/NBA dates.

Its just common sense.

The deal that Katz refused is far, far superior than any tenancy agreement that can come from any rink.

Seattle is a bluff, and not a very good one.

1) You said "290 dates of non-HRR revenue". That is wrong.

2) You have no idea what a Hansen-Katz deal would look like.

3) $80 million has lots of relevance. If you can't see that, I can't help you.

4) You're just focused on event nights because that's all Edmonton has to offer. Seattle has a much larger and wealthier corporate community and that's where the real revenue is. The Pacific Northwest is also a much larger television market than northern Alberta and that's where a lot more money is.

5) What debt is Hansen servicing? We have no idea what the terms of his partnership are. He is a hedge fund owner and early investor in Facebook and his partners are a Microsoft principal and the family behind the Nordstrom department store chain which is BTW now moving into Canada with a flagship store on Robson Street. These are very serious players who could stroke a cheque for the entire amount if they choose to. Your favourite son Garry Gregg is a peon next to these guys.

Since you have no idea what Katz might work out with the Seattle group, your conclusions are based on smoke...and a whole lot of silly assumptions.

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#59 Gkpoil
September 25 2012, 07:48PM
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Captain Obvious wrote:

The Seattle comparison really is funny, since the city of Seattle put up so much less of the money for that arena than Edmonton has already agreed to.

The fact is that the city of Edmonton made a horrible deal in comparison to what other cities have done. How can they give up even more than the worse deal ever?

I also find the notion that casino revenues would be devoted to the project offensive. That would represent a direct transfer of funding from community leagues (and hence rinks), preschools, kids sports, etc. to subsidize an already profitable industry. It would literally be stealing from children.

Only a person who lives in a vacuum would think this is a good idea.

I also am offended by the cretins on this board who think this is about capitalism or the free market. There is nothing "free" about government subsidizing profitable industries. I have no problem with Katz making money but he should do it on the basis of a free exchange of goods and services for money. By achieving government subsidies through extortion he's no better than a gangster and he should be treated as such.

Casino revenues would still go to charity... The owner of the casino only gets a percentage. For slots it's like 15% charity, 15% owner and 70% government. Table games are a little different though. Unless you're a native owner then you are the charity and you get both halves (eg. enoch)

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#60 Woodguy
September 25 2012, 08:20PM
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@DSF

1) You said "290 dates of non-HRR revenue". That is wrong.

Show me why.

My math is 365 days a year - 45 NHL dates - 30 dates for city use = 290 dates.

Oil Kings are non-HRR, they are not NHL revenue

2) You have no idea what a Hansen-Katz deal would look like.

Yes, but to suggest that Hansen gives up anything near what CoE is giving up is beyond the pale.

3) $80 million has lots of relevance. If you can't see that, I can't help you.

Over 35 years its $2.28MM/yr and you know that isn't earmarked all for the NHL team. *yawn*

4) You're just focused on event nights because that's all Edmonton has to offer. Seattle has a much larger and wealthier corporate community and that's where the real revenue is. The Pacific Northwest is also a much larger television market than northern Alberta and that's where a lot more money is.

Edmonton has the 6th highest average ticket price in the NHL and the new Edmonton rink will seat close to what the Seattle rink will..

There will be more boxes as well.

While Seattle has a much larger corporate base, the hockey team is still fighting with NFL, MLB, NCAA Football, NCAA Basketball and Soccer for their share.

In Edmonton the Oilers are the only game in town.

Every talking head from Toronto to LA agrees that the sponsorship + ticket revenue streams are greater in Edmonton.

5) What debt is Hansen servicing? We have no idea what the terms of his partnership are. He is a hedge fund owner and early investor in Facebook and his partners are a Microsoft principal and the family behind the Nordstrom department store chain which is BTW now moving into Canada with a flagship store on Robson Street. These are very serious players who could stroke a cheque for the entire amount if they choose to. Your favourite son Garry Gregg is a peon next to these guys.

So Hansen pulled the cash out of his couch?

By your statement I can see you don't understand large $ deals, but they are rarely done in cash, even by people who have cash. Interest expense is tax deductible and there are a myriad of other advantages as well.

Since you have no idea what Katz might work out with the Seattle group, your conclusions are based on smoke...and a whole lot of silly assumptions.

No.

You are arguing that Katz can get a similar deal in Seattle.

That is simply untrue by any deal that you can cook up in your head (well...maybe not your head)

Hansen isn't giving Katz all the non-NBA nights.

That is the only deal that could come close to the deal he is being offered by the city.

You can try to cloud it over, but common sense tells us its not even close.

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#61 Seasonticket
September 25 2012, 08:58PM
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Bicepus Maximus - Peter, The Great. Potter, the Goat. wrote:

Not a chance! My season tickets in the nosebleeds, row 50, have a face value of $55 at the box office.

Edit: Jason was comparing box office prices. Their prices are even lower with season tickets.

Yes you are correct. Thanks

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#62 book¡e
September 25 2012, 09:02PM
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@DSF

1) You said "290 dates of non-HRR revenue". That is wrong.

Correct, if you take away the assumption of addressing this question in single years or, alternatively, if you assume infinitesimally temporally short events, you could literally have an infinite number of non-HRR revenue events.

2) You have no idea what a Hansen-Katz deal would look like.

True, it might be worth Trillions to Katz, truly Trillions!!!

3) $80 million has lots of relevance. If you can't see that, I can't help you.

False, it's basically meaningless if you consider the trillions of $$'s in the deal discussed above.

4) You're just focused on event nights because that's all Edmonton has to offer. Seattle has a much larger and wealthier corporate community and that's where the real revenue is. The Pacific Northwest is also a much larger television market than northern Alberta and that's where a lot more money is.

True - in fact, it is ridiculous to even be discussing Seattle when London, England is clearly a better fit with their 80 million + British market and the worlds largest number of head offices. Also, they have that big stadium that seats like 100,000 people or something.

5) What debt is Hansen servicing? ...

I still can't believe that Hansen played the Wayne Gretzky retirement night. Maybe that's why Gretzky hates Edmonton soo much and wants the Oilers to move to Seattle and join the NFL.... Wait, what do you mean that was the Moffits? What the hell is a Moffit?

Since you have no idea what Katz might work out with the Seattle group, your conclusions are based on smoke...and a whole lot of silly assumptions.

Silly assumptions like opportunity cost and logic - for all you know Seattle might be willing to hire the Moffits for Trillions of dollars to hire Daryl Katz' kid as part of the deal. You just don't know - its all just smoke and mirrors - speaking of smoke, do I smell toast burning???

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#63 Al
September 25 2012, 09:26PM
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Is there a FAQ regarding the deal as of october last year? I.e., im looking for a quick breakdown of the deal... what was the agreement. Did Katz put up 100 million or didnt he?

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#64 DSF
September 25 2012, 09:37PM
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Woodguy wrote:

1) You said "290 dates of non-HRR revenue". That is wrong.

Show me why.

My math is 365 days a year - 45 NHL dates - 30 dates for city use = 290 dates.

Oil Kings are non-HRR, they are not NHL revenue

2) You have no idea what a Hansen-Katz deal would look like.

Yes, but to suggest that Hansen gives up anything near what CoE is giving up is beyond the pale.

3) $80 million has lots of relevance. If you can't see that, I can't help you.

Over 35 years its $2.28MM/yr and you know that isn't earmarked all for the NHL team. *yawn*

4) You're just focused on event nights because that's all Edmonton has to offer. Seattle has a much larger and wealthier corporate community and that's where the real revenue is. The Pacific Northwest is also a much larger television market than northern Alberta and that's where a lot more money is.

Edmonton has the 6th highest average ticket price in the NHL and the new Edmonton rink will seat close to what the Seattle rink will..

There will be more boxes as well.

While Seattle has a much larger corporate base, the hockey team is still fighting with NFL, MLB, NCAA Football, NCAA Basketball and Soccer for their share.

In Edmonton the Oilers are the only game in town.

Every talking head from Toronto to LA agrees that the sponsorship + ticket revenue streams are greater in Edmonton.

5) What debt is Hansen servicing? We have no idea what the terms of his partnership are. He is a hedge fund owner and early investor in Facebook and his partners are a Microsoft principal and the family behind the Nordstrom department store chain which is BTW now moving into Canada with a flagship store on Robson Street. These are very serious players who could stroke a cheque for the entire amount if they choose to. Your favourite son Garry Gregg is a peon next to these guys.

So Hansen pulled the cash out of his couch?

By your statement I can see you don't understand large $ deals, but they are rarely done in cash, even by people who have cash. Interest expense is tax deductible and there are a myriad of other advantages as well.

Since you have no idea what Katz might work out with the Seattle group, your conclusions are based on smoke...and a whole lot of silly assumptions.

No.

You are arguing that Katz can get a similar deal in Seattle.

That is simply untrue by any deal that you can cook up in your head (well...maybe not your head)

Hansen isn't giving Katz all the non-NBA nights.

That is the only deal that could come close to the deal he is being offered by the city.

You can try to cloud it over, but common sense tells us its not even close.

You keep bleating about whether or not Katz could get a better deal in Seattle with a new arena or in Edmonton with a new arena.

Ive said repeatedly that I agree.

The point you keep ignoring is that Edmonton does NOT have a deal for a new arena.

If it did, Katz would not have been in Seattle and you wouldn't have your knickers in a twist.

Suggesting Katz can't find a better deal than the one he has in the current arena is the issue at the moment since no other option currently exists.

Just because Edmonton has great hockey fans doesn't mean the status quo can't easily be topped.

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#65 LoDog
September 25 2012, 09:48PM
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@woodguy

It causes me great pain to back up anything dsf posts but the one thing he has been consistent about is comparing Seattle to Edmonton without a new rink.

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#66 The Soup Fascist
September 25 2012, 09:51PM
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I think there is a bigger question. How did the "To Catch a Predator" guy get enough scratch to build a spiffy rink in Seattle and buy an NBA team?

EDIT: Wow. Turns out it isn't the Predator dude. Actually Chris Hanson was a journeyman NFL punter. I could have looked silly. Sure glad I sidestepped that landmine. Wow, what are they paying punters nowadays?

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#67 Butters
September 25 2012, 09:52PM
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I think both Katz and the city have alredy sunk too much coin into this to let it fail. At least that is my hope. A new arena will be built. The best option is to build it while the ciy has a partner and an NHL team.

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#68 Woodguy
September 25 2012, 11:08PM
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LoDog wrote:

@woodguy

It causes me great pain to back up anything dsf posts but the one thing he has been consistent about is comparing Seattle to Edmonton without a new rink.

I'm referring to the deal that the city has in front of KG now.

KG is trying to change the terms of that deal, and will probably succeed to some extent, but the current deal has to trump anything they can offer in Seattle by the sheer number of dates KG can get revenue from the arena, coupled with the almost non-existent lease cost. ($3.5MM/yr for the first 10 years + maintenance costs)

Listening to a couple of CoE councilors today, that's one big stumbling block in the negotiations.

KG says non-HRR will be one number and council, using some numbers based on the new rink getting x% of Northlands revenues, says its much larger.

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#69 FMS
September 26 2012, 12:26AM
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This is just another move that shows Katz is out of his element in dealing with the public sector.

I'm sure this kind of tactic might be very effective in private business: find an element which gives you perceived leverage, bully your competition (particularly if they're small businesses) into meeting your demands.

But when you deal with municipalities, secrecy and threats are nothing more than a PR nightmare. I think Katz is in for the harsh realization that this relocation threat has done far more harm than good.

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#71 Seasonticket
September 26 2012, 08:29AM
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I think that fan fatigue has set in. Build it or don't but make a decision is the view.

My own opinion is that Rexall fails as a hockey venue because the seating is not steep enough, the ice machine needs replacing and the concourse is brutal. The only benefit being it is easy for me to drive to.

If I were on council I would be in favour of Edmonton building a new rink to be owned by the city, to be operated by Northlands (or similar) and the Oilers get the same rental deal that they have now in Rexall. Katz would get more hockey revenue because of more boxes, seats and concessions.

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