MLSE TOO BIG TO WIN?
There's no disputing Maple Leaf Sports and Entertainment is one hugely successful ownership conglomerate. Look at the books: an estimated $500-million in annual revenue. But on the ice, court and field, it's a different story. Much different. Its teams haven't won a championship in the last 61 combined seasons. Even making the playoffs is becoming a dream for the fans who fill the seats. Story by Michael Grange and David Shoalts
Upon entering Real Sports, the sports bar adjacent to Air Canada Centre, one of the first things you see is the icon of Canadian sporting greatness.
Your eyes having adjusted to the glare of massive television screens and accounted for the little black dresses on the wait staff, what next holds them is a life-sized replica of the Stanley Cup, backlit and shining, hockey's Holy Grail. And you think ... seriously? A sculpture of the trophy that has remained comically out of reach of the Toronto Maple Leafs for 43 years and counting? Unabashedly displayed in the entrance of the restaurant opened recently by the owners of the Maple Leafs?
It's the corporate equivalent of a tattoo that says, "Kick me."
Maple Leaf Sports and Entertainment Ltd. is the cash-churning colossus that owns the Toronto Maple Leafs, Toronto Raptors, Toronto FC, Air Canada Centre, Toronto Marlies, a pair of condominium towers, Real Sports and, soon, a gourmet restaurant. What MLSE touches usually turns to gold. Real Sports, for example, was recently recognized by ESPN as North America's best sports bar, a remarkable feat considering that it opened just two months ago.
"I didn't even know there was a contest," says Richard Peddie, MLSE's chief executive officer.
The company, owned by Ontario Teachers' Pension Plan (66 per cent), Larry Tanenbaum (20.5 per cent) and TD Capital Group (13.5 per cent), is a sports and entertainment success story that can only be measured in global terms. No other such Canadian enterprise approaches it, and just a handful of North American companies can match MLSE's brand reach and profitability - think the New York Yankees, Dallas Cowboys, Los Angeles Lakers.
"I'm a huge fan of theirs; I think they are fantastic," says Tim Leiweke, president and CEO of Anschutz Entertainment Group, the largest sports and entertainment company on the planet and owners of the Lakers, Los Angeles Kings, Major League Soccer franchises, and other teams, arenas and stadiums.
Since Teachers backed former owner Steve Stavro in a 1994 court fight to gain control of MLG Holdings, the valuation of the company has grown to an estimated $1.7-billion from $180-million in spite of the fact that on the fields of play, MLSE's teams are persistent, inveterate losers. The company that Peddie runs on behalf of Teachers' produces rivers of revenue - about $500-million annually, according to a source close to the company.
The contrast between the team's obvious business acumen and its failure at the business of winning is so vivid that it begs the question: Does one flow from the next? Does the objective of maximizing profit - certainly one goal of a professional sports franchise - compromise what fans would like to think is the other: winning games, making the playoffs and even bringing home the odd championship?
The rebuilding Maple Leafs, coming off a 29th-place finish in the 30-team NHL, look to be headed for a club-record sixth consecutive season out of the playoffs. Still, attendance averaged 19,260 last season, and to sit in platinum seats along the glass, people paid $1,317 a game for a pair. Forbes magazine estimated the value of the franchise at $470-million (U.S.) last year.
The Raptors of the NBA lost franchise player Chris Bosh to the Miami Heat this summer, forcing the team into yet another rebuilding phase. In 15 seasons the Raptors have advanced to the second round of the playoffs just once, and this season the team is commonly predicted to dwell close to the NBA cellar. The team drew 17,897 a game; to sit courtside in the front row, people paid $2,240 for a pair. Forbes valued the franchise at $386-million (U.S.).
Toronto FC of Major League Soccer has yet to make the playoffs in four seasons and just fired the general manager and fourth coach. Still, the soccer franchise, bought for $10-million (U.S.), is worth about $100-million now. BMO Field is sold out for nearly every home game, and MLSE just hiked season-ticket prices for 2011. To watch the team compete in a middling league, fans will pay more ($90.78, for a top ticket) than they would to see international superstars play for Manchester United in the English Premier League ($79).
Peddie is seated in a booth in Real Sports, having just given a tour of its countless amenities to a pair of visitors. And if a server seems not to recognize that she's bringing a plate of chicken wings - dipped in a buttermilk-based batter on the premises that morning - to her boss, he doesn't mind. But does he mind the losing?
"When the team is not winning I hurt on the business side and I hurt as a fan," Peddie says. "I don't like sitting through a game when we're getting blown out, I don't like sitting through games in April that mean nothing."
Why would he like it?
Each losing April means no home playoff dates that would generate about $3-million each in revenue, most of it profit. Winning generally translates to richer broadcasting deals, more lucrative luxury-suite contracts and more merchandise sales - and outside of cashing in on the playoffs, MLSE doesn't miss many opportunities. Consider that the Zamboni slush from the final game at Maple Leaf Gardens was put into clear plastic pucks and sold for $50 each.
"This notion MLSE doesn't want to win is bull," says Brian Burke, the president and general manager of the Leafs. Burke is 22 months into a six-year, $19.5-million (U.S.) contract, awarded with the expectation that he'll deliver a Stanley Cup to Toronto as he did with the Anaheim Ducks in 2007.
"They gave me complete support and independence and have given me the resources to fix it," Burke says. "If we can't turn this thing around, you can blame me. It's the best-run company I've ever worked for. I'm proud to work for MLSE, I'm proud to work for Richard Peddie."
Fans have no choice but to take Burke's word for it, but the problems on the ice, floor and field seem to drown out his defiance.
What price losing? Have Greater Toronto Area sports fans finally had enough?
There are small cracks in MLSE's financial façade: For the first time since the Air Canada Centre opened in 1999, it's had to advertise aggressively to sell luxury boxes to a corporate clientele finding it harder to justify the expense. Ticket revenue has largely flat-lined as even MLSE finds it difficult to keep raising prices that already are the NHL's most expensive and among the priciest in the NBA. Even Toronto FC, known for its rabid following, has had some empty seats this season, as fans have balked at paying premium prices for a team that struggles to put the ball in the net.
"Obviously [the owners] still think there is some upside, that there's some value to be generated otherwise [they] wouldn't be holding it," says Erol Uzumeri, who was the primary representative for Teachers on the MLSE board for three years before leaving the pension fund and MLSE to co-found Searchlight Capital Partners, a private-equity firm that has raised $250-million since May.
The most telling recent example is Maple Leaf Square, the office tower and condominium project slated for completion this fall and five years in the making. It was a risky, $500-million project and seeing it through is one of the reasons Peddie, 63, has not yet taken up residence in his recently built retreat in Amherstburg, Ont., on the shores of Lake Erie.
Real Sports - there is a sports-clothing boutique of the same name adjacent to the bar - is the cherry on top of the sundae, and if the fake Stanley Cup offends the sensibilities of some, it doesn't seem to be a problem for the clientele that have flocked there since June, pushing revenues 25 per cent above budget. The building cost for the 25,000-square-foot venue approached $18-million according to a restaurant source, and revenue potential ranges up to $1-million a month.
The 1,000 seats available represent an instant 5-per-cent increase in capacity for the ACC on game nights, when fans who can't get into the arena take the next best thing, a booth at Real Sports.
The irony is that now, with condos built, a sports bar opened and plans for a gourmet restaurant under way (called Eleven, for the 11 points on the Maple Leafs logo), the most obvious source of new revenues for the company may be deep playoff runs. Who knows? They may occur just in time for MLSE to launch its own sports network (working title: Real Sports) for which the company has secured a licence.
"Imagine a channel that had Leafs, Raptors, TFC and Marlies games on it," Peddie muses. "Imagine what you could charge for that."
The question remains, as obvious as the fake Stanley Cup in the bar: MLSE can build things, sure, but can it build a winner?
"I'm not sure there is anyone any better than us [at business]," Peddie says. "But we're not winning and that's a big part of the equation."
THE MLSE SERIES
The spending: The Maple Leafs passed on a chance to spend like the Yankees in pursuit of a Stanley Cup. Now caught in the salary cap system, the club refutes a strategy that favours a team bottoming out in order to get better.
The plan: Former Teachers representative on the MLSE board, Erol Uzumeri opens up for the first time
about the failure to formulate the "secret sauce" characteristic of winning sports franchises.
WHO OWNS MSLE
Larry Tanenbaum / 20.5%
TD Capital Group / 13.5%
Ontario Teachers Pension Plan / 66%
VALUATION / COMPANY'S VALUE WORTH ALMOST $2 BILLION
1994 / Final cost for Steve Stavro, Teachers and other partners for MLG Holdings after court fight ended in 1994.
1998 / Company went private with merger of Leafs and Raptors
2002 / Value according to an internal audit. Stavro bought out, Teachers now majority owner
2006 / Estimate by an investment source
2010 / Estimate by MLSE president Richard Peddie