Bain's Dogged Pursuit Of The NHL

From the Bloomberg wire:

Bain Capital LLC, the buyout firm whose managing director owns a stake in basketball's Boston Celtics, increased its bid for the National Hockey League by at least $500 million to more than $4 billion, people familiar with the proposal said.

Bain and Game Plan LLC, a Boston-based firm that arranges the sale of professional sports teams, in March made a $3.5 billion offer for the league, which still hasn't resolved a labor dispute with players that forced it to cancel its season. The new offer, which topped $4 billion, was made yesterday, said the people, who asked not to be identified.

``We haven't given up, that's for sure,'' Bob Caporale, Game Plan's chairman, said in a telephone interview. He declined to confirm that a revised offer was submitted to the league.

Back in March, I said I thought that the Bain story was just another negotiating tactic in Gary Bettman's bag of tricks, and it may still turn out to be that way. Then again, it's been three months, and these guys are still hanging around -- which lends some credence to Chris Lynch's view that Bain is simply tryng to peel off a majority of the owners in a hostile takeover of the NHL.

For more from Lynch, click here.

Interestingly enough, it was only a few days ago that Strategy Today, a blog run by a group of business students at the University of Chicago, wrote a detailed analysis of just how advantageous a Bain takeover of the NHL could be:

While the NHL’s current lockout strategy could eventually force the players into accepting a salary cap that favors the owners, in the long-run it would not change the balance of power between the two groups. The next time the CBA expires, owners would be back in the same position -- as powerless, small buyers of a good (talent) that is in limited supply. Conversely, with single entity ownership, the league will have turned the table on its players. The NHL needs only to look to the retail sector to see how effective this strategy can be, as consolidation in the retail sector (led by the emergence of Wal-Mart) has turned the table on previously powerful suppliers like Procter & Gamble. In this scenario, a salary cap could very well be the means through which salaries are kept reasonable, however its presence would merely be a symptom of a more important result – an increase in the league’s leverage with its players as a result of consolidation.

In essence, the Bain offer is a torpedo headed straight for the NHLPA and their argument against the salary cap. NB: if you dive into Tom Benjamin's archives you'll find the most cogent arguments in favor of the NHLPA position and against the salary cap. One of the best arguments the players make is that while salaries might be capped, revenues still won't be shared between teams in a meaningful way.

The bottom line: small market teams get cost control, large market teams enjoy increaed profits, and the mega-contracts many of the top flight players now enjoy would go the way of the Oakland Seals.

Here's Stanford economist Roger Noll:

The notion that the NHL can solve its problems with a salary cap is ludicrous. It will increase profits for the best teams, but it doesn't make the small-market teams viable. The disparity of revenues across the league is greater than in any other sport, and there's no salary solution to that problem. Some teams have 25 times (the local TV revenue) of other teams. The only solution is to get rid of the small-market teams or subsidize them.

And if you have a league that is owned by a single entity, you'll essentially get the latter option. Instead of revenue disparity, revenue from all of those massive local television contracts in Boston, New York, Chicago, Detroit, Philly and Toronto will get spread around, and serve as the basis for the same sort of combined revenue pot that fuels the NFL growth engine.

One immediate advantage: Bain, as a single owner, would now control the advertising inventory of all 30 teams, as well as the national television contract with NBC and ESPN. Everyone knows that the ratings for the national telecasts are anemic, and that the real oomph in the NHL is in the local television money. Just what sort of economies of scale would the league be able to enjoy when they could offer access to that entire ad inventory through just one avenue, rather than 30?

Just recently, the idea has been floated that the players have the leverage again, owing to the fact that the league has been warned by its sponsors that if it doesn't do a deal soon, they'll be going elsewhere with their advertising dollars.

Let's say that deadline is coming up fast -- could I see Gary Bettman going to the 30 owners and telling them to take the deal from Bain and get out?

Maybe.

Isn't it strange that this idea got floated again just now? It seems too convenient to me.

Then again, I could be very wrong. When I first heard this idea, I gave it about a 1 percent chance of happening. I may have to adjust that upward to between 5 and 10 percent. Stay tuned.

UPDATE: Lynch just posted again on the possible deal:

Publicly Bain is saying it is an bid for the entire NHL (thus the $4 billion plus figure being bandied about) but I wouldn't be surprised if this is cover for Bain's true mode of attack. Bain is probably approaching individual owners and working from a list that has some who would definitely sell for the right price, some who might sell at the right price and those who are not selling no matter what. The less you hear about this bid in the press - the more that is probably going on behind the scenes.

For more reconstruction options, see Pop Matters and New World Man. More later.

Eric 12:46 AM

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