Extortion

There has been some debate lately about what actually happened last May between the NHL, Atlanta Spirit Group, and True North Sports and Entertainment. I have a personal version of events that I’ve pieced together through private contacts, media reports and my own business experience. It’s conjecture of course but in my mind it seems to ring true. Writing as a blogger and not a reporter leaves me free to speculate as I may.

I’m going to start our tale with a little side bar that I think will help understand the events of late May 2011. Jimmy Patteson is the head of a multibillion dollar conglomerate based in British Columbia and during the 80’s was considered by some to be the most powerful man in western Canada. This was evident as he toured the new prince and princess of whales around Coal Harbour on his multimillion dollar yacht during the opening of Expo 86.

In his biography Jimmy relays a story about how he once challenged what he termed to be “old eastern money”. Now old eastern money refers to a loose fraternity of Ontario wealth that in some cases traces its roots back to the Plains of Abraham. It’s an old power structure that is not so much advertised as felt in Canadian business circles. Jimmy during the eighties decided he wanted to acquire a company we are all familiar with, called Maple Leaf Foods. It was owned by several wealthy eastern families and Jimmy had decided to perform a hostile takeover. Several cease and desist letters crossed Jimmies desk and he of course ignored them all. The final warning came in a personal phone call from one of the share holders who, almost sympathetically, tried to convince Jimmy that buying Maple Leaf Foods would be a huge miscalculation on his part. Jimmy of course wrote it off as posturing.

Then it happened. Jimmy woke up one morning and he had no credit. Not one bank in all of North America, Europe, Asia, or Australia would extend any credit for the daily operations of Jimmy’s multibillion dollar business enterprise. To add insult to injury, many of his current credit lines were also being “called in”. Of course Jimmy knew why this was happening and abandoned his pursuit of Maple Leaf Foods. It was an example of just how powerful old eastern Canadian money could be, and the NHL thirty years later would get a small, albeit brief glimpse of this world first hand.

The Thomson family’s wealth goes back less than 100 years in Canada but they have become entrenched, and are indeed charter members of the old eastern Canadian establishment. This was confirmed when the family patriarch, Ken was granted title and became a member of the British house of lords as the 2^nd Baron of Fleet. This is the pinnacle of symbolic power within the halls of the old Anglo Saxon power structures of Toronto and it has cemented the Thomson family’s position as richest in Canada.

This of course leads us to the current day partnership between the late Ken Thompson’s son David and Mark Chipman, member of another wealthy family that had made its mark in Winnipeg. By all accounts David has a special affinity for Manitoba and Winnipeg because of his time running the Hudson Bay Company, in which he worked and toured through its holdings in Manitoba. Together they have built a profitable sports and entertainment enterprise that found itself in May 2011, in a position to fulfill a long held ambition of the group; to bring NHL hockey back to Winnipeg.

The NHL had long ago given its blessing to Winnipeg after True North Sports and Entertainment (the Thompson/Chipman partnership) had successfully lobbied the NHL board of Governors for a chance to bring the NHL back to a revitalized Winnipeg. In the spring of 2011 a troubled Atlanta Thrashers hockey club became available for purchase and relocation.

Now we have to remember the circumstances of the negotiations. A deal for an asset priced in the hundreds of millions of dollars was being negotiated over a span of less than three months. This is practically unheard of in most business circles, and to complicate matters the ownership group of the Thrashers (ASG) consisted of more than a half a dozen partners, all of whom had to come to terms with their own differences. Fortunately TNSE had many of the logistical items in boilerplate from a previous close call in purchasing the Phoenix Coyotes and most of the work that was left was with terms of sale and due diligence. One curious aspect of the transaction though, was that as part of the total asking price the NHL was demanding a relocation fee of roughly fifty million dollars. This was something that had never been demanded in the past and was seen as a premium for a) revisiting a market that had failed previously and b) penance for the ASG and NHLs poor working relationship.

There were other reasons the NHL demanded a relocation fee, and the most important one was that it desperately needed the money. During the previous two years the NHL had subsidized its team in Phoenix after the previous owner had let the team slip into bankruptcy. Phoenix was a big market to lose when negotiating a national TV deal and the NHL would go to the matt to keep a team in Phoenix. Losses in the vicinity of 30 million dollars a season where mounting and the board of governors by all accounts was tired of writing the cheques. The NHL executive, lead by Garry Bettman was under enormous pressure to repay the monies that had been spent on Phoenix and one way out was seen as the relocation fee levied on ASG and TNSE.

There was also one last factor to consider. As the beginning of May approached, an NHL schedule needed to be finalized by June 1, therefore putting a hard and fast deadline on the sale negotiations. This deadline was the gun that the NHL would hold to the head of TNSE in the days to follow.

The NHL then did something astounding at the beginning of May. They approached both parties who were moving briskly towards completion of the sale deal and told them the NHL wanted more money. The numbers vary depending on who you talk to, but the demand that was put forth was that either TNSE would have to increase the amount they were willing to pay, or ASG would have to take less. With a hard deadline for a sale less than a month away, ASG partners still bickering over who got what from the sale, and a steady stream of leaks building anticipation in Winnipeg,  it was a high pressure, strong arm tactic. It didn’t go by unnoticed in Toronto at Woodbridge Inc (Thomsons holding co.) .

Thomson by certain accounts was furious. The NHL to Winnipeg was a personal pet project for him and even though he had taken a low key, hands off approach, his name was still publicly attached to the deal. David Thomson and his advisors immediately identified the NHL tactic for what it was; Extortion. This is when the NHL awoke the sleeping giant.

On May 19^th Stephen Brunt, sports reporter for a major national Canadian news paper owned by Thomson/Reuters, reported that an agreement to acquire the Atlanta Thrashers had been completed by TNSE and that the team would be relocated to Winnipeg. In his article he speculated that an announcement could come as early as May 24^th. Brunt would only say that his source was from the highest levels and that it had been confirmed by others. Several other sports outlets picked up the story and on the night of May 19^th there was wide spread celebration in the streets of Winnipeg. A visibly angry Gary Bettman was caught on video in the stands of an NHL game getting the news on his Blackberry. Everyone in the sports world was thoroughly convinced that after months of speculation, a team was coming to Winnipeg. There was only one problem, the deal wasn’t done. It was close, but the new NHL demands had thrown a wrench into the process.

Over the next 48 hrs Stephen Brunt did a brief media tour, defended his sources and his story, and was then quickly assigned to cover soccer in Europe. Shortly after something amazing happened, the NHL quietly dropped its demand for more money and began to facilitate the acceleration of the sale.

The NHL had pushed David Thomson and he had pushed back. The Brunt story was a plant that was meant to force the NHL into a position where it could not see the deal fail. A critical mass had been built up around the return of the NHL to Winnipeg and the Brunt story had simply pushed the deal beyond a point of no return. It was also quietly conveyed to the NHL commissioner that the “Full Resources” of Woodbridge Inc. and its “friends” would be applied to seeing the NHL return to Winnipeg for the 2011-21012 season.  This was a statement that had significant meaning that could not be missed. Woodbridge had more than enough cash to go to war with the NHL and its friends where many, global, and powerful. Old eastern Canadian money.

Of course we all know the rest is history. Mark Chipman was able to play good cop to Thomsons bad, and an announcement was made that a deal had been concluded on May 31^st with negotiations going down to the wire. Now you may think that all’s well that ends well, and that the establishment for once had harnessed its power to work for the common good, but there are a few lingering threads to this story.

The NHL is still subsidizing the Phoenix Coyotes and with a long term TV deal on the books, the NHL is now in no mood to hang on there anymore. The governors are still pressuring the NHL executive to recover their money and the list of bonnafide potential owners begins and ends with Quebecor. Quebecor of course wants to emulate the success in Winnipeg and bring an NHL club back to its former glory in Quebec City. Quebecor also wants to cash in on broadcasting revenue its media outlets in La Belle Provence would surely enjoy. Now as winter progresses, we know the NHL needs to have an answer by spring and so they have begun the process of extortion anew with Quebecor.

Media reports of buyers in Portland, Kansas City and Seattle are bouncing around at opportune times conveniently syncing with Bill Daly making barbed statements about how the NHL will not accept a discount for the purchase of the Coyotes. It seems at least some of the pre posturing for the sale of the Coyotes is beginning to happen and the NHL is back to its old tricks.

I would however caution the NHL, and urge them to deal in good faith. Quebecor itself is an old and storied conglomerate and it along with Bombardier form a clique of powerful companies within Quebec that might have a longer reach than the NHL suspects. It would be a shame if the Garry Bettman where to wake up one morning and find that the NHL was having trouble with its banks.