The Biggest Play in Hockey | The Canadian Encyclopedia


The Biggest Play in Hockey

Before the tentative phone calls, the fevered courtship and the awkward consummation of a blockbuster deal, there were breakfasts between Ted and Larry. They lived across the street from each other in ritzy Forest Hill, home to Toronto's ultra-well-monied.

This article was originally published in Maclean's Magazine on January 9, 2012

The Biggest Play in Hockey

Before the tentative phone calls, the fevered courtship and the awkward consummation of a blockbuster deal, there were breakfasts between Ted and Larry. They lived across the street from each other in ritzy Forest Hill, home to Toronto's ultra-well-monied. They talked about sports franchises in the way car buffs talk about their favourite set of wheels.

Ted ROGERS had bought baseball's TORONTO BLUE JAYS in 2000 with the idea of boosting his company's profile in southern Ontario. Larry Tanenbaum was chair of Maple Leaf Sports & Entertainment Ltd., the company that owned the coveted Toronto Maple Leafs and basketball's TORONTO RAPTORS. So once or twice a year, they noshed beside the Rogers family pool, talking pucks, bats and player salaries over scrambled eggs and orange juice. "Ted couldn't tell you the latest scores," recalls Tanenbaum. "He was more interested in the concept of sport as something that brought people together. But for as long as I knew him, he and I talked about the idea of one day hooking up and becoming partners in the Toronto Maple Leafs."

Chances to buy into the crown jewel of Canadian sports and broadcasting don't come around very often. For 16 years, the Ontario Teachers' Pension Plan had watched the value of its interest in MLSE skyrocket, and was in no mood to sell. Moreover, any ROGERS bid would surely meet a competing offer by BELL CANADA INC. (BCE), Rogers' great rival in the cable, phone and wireless business (Rogers also owns Maclean's). So when Teachers put its 79 per cent stake up for sale last year, the inheritors of Rogers' corporate mantle quickly signalled their interest. Reports of a pending deal soon surfaced, and the coronation of Rogers Communications Inc. as winner of the MLSE sweepstakes seemed a matter of time.

Few could have predicted the chain of events that followed: not only did Rogers balk at Teachers' $1.32-billion asking price, but so did Bell. Then, faced with the spectre of U.S. interests snapping up a gold mine of broadcast content, the two corporate foes agreed to share the company, culminating in last week's eye-rubber of a news conference at the Air Canada Centre. Seated elbow to elbow, needling each other like rival siblings, Rogers CEO Nadir Mohamed and Bell CEO George Cope announced that the two companies would each take a 37.5 per cent stake in MLSE, while Tanenbaum would raise his 20 per cent share to 25. The deal put a total value on MLSE of $2.1 billion--an unheard of sum in the world of hockey franchises (and a figure trumpeted by Teachers in its official press release that day).

For Cope and Mohamed, the deal reflects their belief of a coming paradigm shift in the way people watch televised sports--indeed all TV. No longer will Leafs games be limited to just television sets, they say, but will be beamed onto as many iPads and smartphones as possible. "The best way to optimize the value of a media property is to have that content available to as many people as you can," Mohamed told Maclean's a few hours after announcing the deal. It's a gamble, to be sure, with no shortage of critics questioning whether owning top-flight sports teams will actually help companies like Rogers and Bell sell more television packages or smartphones.

But for now, the bosses appear to be operating on a principle that long-suffering Toronto hockey fans--who have watched ticket prices soar even as their team floundered--know too well. In Canadian sport, there are teams, prize teams and "legacy" teams, whose very names confer a measure of power and prestige. And then there's the Toronto Maple Leafs, a club whose mysterious hold over its dauntless fans is surpassed only by its astonishing capacity to extract dollars from their wallets.

Without question, the deal was Mohamed's most high-profile move since taking over the reins at Rogers following the death of the company's legendary founder, Ted Rogers, three years ago. In addition to the Leafs and Raptors, the deal also includes the Air Canada Centre and a downtown condo development called Maple Leaf Square, the Toronto FC soccer team, the Marlies of the American Hockey League and three sports specialty channels.

But while Mohamed, described by his peers as cool and calculating (and a soccer, cricket and tennis fan), finally managed to bag a prize that had eluded his predecessor for years, the transaction was decidedly his own. The late Rogers might have been inclined to devour MLSE whole and worry about finding a way to digest it later. Splitting the property with Bell meant neither company would emerge a clear victor, while neither risked being on the losing end--the ultimate Canadian compromise.

In fact, the biggest winner in the deal might be Tanenbaum, the construction magnate who built a powerful stake (including a right-of-first-refusal in any sale) in MLSE over the years. His involvement began in 1996 when he purchased 12.5 per cent of the Leafs from Steve Stavro, who had won a messy battle for the team after Harold Ballard's death. Tanenbaum, who is often spotted sitting courtside for the Raptors and visiting the Leafs dressing room to press the flesh with players, spent $90 million two years ago to increase his position in MLSE to 20 per cent, and, as a result of last week's deal, has effectively increased the value of his holdings by another $80 million--apparently without any money changing hands. (It is reported that Rogers and Bell are topping up his stake as part of their new long-term agreement securing the Leafs' regional TV rights at the "discount" rate of around $1 million a game.) Perhaps most importantly, the 66-year-old retains the role he so clearly relishes--the public face of ownership--as MLSE chairman and league governor for the Leafs, Raptors and Toronto FC. "I'll stay in the job as long as God gives me the strength to do it," he told Maclean's this week.

Tanenbaum also appears to have been among the transaction's biggest stumbling blocks, at least early on. Under his direction, MLSE was initially looking to nearly double the value of rights for regional Leafs telecasts--already the priciest in the NHL at $750,000 a game--when current deals with Sportsnet and TSN expire in 2014 and 2015, respectively. Otherwise, the sports conglomerate was threatening to start its own Real Sports Network, packaging together the Leafs, Raptors, TFC and Marlies, and charging consumers a hefty monthly subscription fee.

Bell and Rogers didn't think the economics would work--the proposed pricing for the channel was more than the current carriage fees for TSN and Sportsnet combined--but felt the plan was a serious one. Especially after MLSE hired Ed Desser, a TV consultant who is currently helping launch a Lakers-centred sports network in Los Angeles.

Then, in September, the ground shifted. A policy decision handed down by the CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION required broadcasters to offer all their content--on fair terms--to competitors who want to put it on mobile networks, tablet computers and the Internet. (That shift was further underlined by a CRTC decision, released this week, that orders Bell to rip up its existing exclusive deals with the NFL and NHL and make the content available to all mobile carriers.) Rogers and BCE argued that the ruling made MLSE's asking price for TV and digital rights far too rich--and its plans for a stand-alone network less feasible. Negotiations broke down in late November and Teachers announced that it was taking its stake off the market. But Tanenbaum soon brought everyone back to the table by scaling down his demands. The sale was concluded in a matter of days.

At its heart is a 10-year extension of regional broadcast rights that will see TSN and Sportsnet pay around $1 million a game, and split 52 contests right down the middle. (The remaining 30 games are part of the national TV package, currently split between the CBC and TSN.) The two networks will hold a "draft" each summer when the NHL schedule is released, alternating picks until all the games are divvied up. (A similar arrangement is in place for Raptors, TFC and Marlies games, but that process won't be nearly so contentious.) Leafs TV, an in-house MLSE channel that currently carries all the pre-season and 12 regular-season games, will be shuttered. The future of the company's other digital channels, NBA TV Canada and Gol TV, remains to be determined.

For both Bell and Rogers, the deal is the latest piece in an evolving content strategy. Rogers took control of five Citytv stations across the country in 2007 and Bell purchased the rest of CTV that it didn't already own last year. But MLSE puts them both in a whole new league. In an age of iPhones, iPads and on-demand Internet-based TV providers like Netflix, both sides are keen to lock up access to TV content that's still capable of delivering mass audiences and the advertising dollars that go with it. And in this arena, live sports remains the undisputed king. While today's TV viewer might be inclined to go to bed early and watch an episode of the Daily Show on the computer the next day, anyone who has tried to PVR an NHL playoff game and watch it later can attest that it's an underwhelming experience. Sports, says Rogers vice-chairman Phil Lind, "is practically about the only thing live on TV anymore that really matters."

What's not clear is whether it's necessary to actually own premium sports content in order to benefit from its must-see status--even if it's the mighty Maple Leafs. Dvai Ghose, an analyst at Canaccord Genuity, says that securing affordable access to Leafs and Raptors games makes sense for Sportsnet and TSN but stresses that both Bell's and Rogers' core businesses are selling TV, wireless and Internet connections. There's scant evidence that consumers decide which wireless company to do business with based on TV sitcoms or sports teams--particularly if the CRTC requires that the content be made available widely, he adds. The buyers maintain the content reinforces and helps build the value of their brands.

It's a similar argument to the one that the late Rogers once used to justify ownership of the Blue Jays, which he estimated to have lost some $300 million between 2000 and 2008. "Don't get me wrong: $300 million is a lot money," he wrote in his book Relentless. "But I take a broader view. We would have paid the same money just for an equivalent branding opportunity." Both Mohamed and Cope also believe they can find ways to use Leafs and Raptors content to differentiate their online and mobile services, attracting new customers. That could include things like extra camera angles and in-depth player information. "We could do some unique digital platforms that could be available to Bell customers, but I can't dream up what they are today," Cope says.

And for fans dreaming of championship parades down Yonge Street? Well, this deal probably won't change much. The day it was announced, snide remarks abounded about the Blue Jays' tepid performance under Rogers' ownership. "Why should fans be encouraged that Rogers now owns part of MLSE?" one reporter asked Mohamed. It was an apple-and-orange comparison, given that baseball has no salary cap, and the Jays do not have the budget to match the $200-million payrolls of divisional rivals like the New York Yankees and Boston Red Sox. MLSE, by contrast, has no trouble meeting the caps in the NHL, the NBA and the MLS, meaning the fortunes of the Leafs, Raptors and Toronto FC hang on the acumen of their managers.

And it's not like things could get much worse. Leafs fans remain badly scarred from the Ballard era of the 1970s and '80s--a period reprised sickeningly over the last six years as the team failed to make the playoffs. The Raptors have finished with losing records in all but five of their 15 seasons, while Toronto FC has not made the post-season since its debut in 2006.

Cope and Mohamed both say that's about to change--though they're careful not to repeat the fan refrain that Teachers cared less about winning than the value of its shares. Success drives fan interest, they point out, and their business models are driven by audience numbers. "If MLSE is doing well, Bell will do well," says Cope. "People will be watching TSN more, advertising revenue will increase and if there's a Leafs or Raptors playoff game in Toronto and everyone's on their device ... We all know how we make our money."

Tanenbaum, meanwhile, bridles at suggestions that MLSE was content with losing teams, even under the majority ownership of Teachers. "Winning was our No. 1 priority," he says. "The passion for it was absolute." Yet he's not exactly bemoaning the departure of a pension fund whose functionaries spent more than eight years looking over his shoulder. That's enough, one supposes, to make a man cross the road in hopes of engaging the interest of a trusted friend, who happened to be waiting for the MLSE door to swing open. "Right now," says Tanenbaum, "I think Ted is smiling from up above."

Maclean's January 9, 2012