Sidney Crosby and Evgeni Malkin (Photo by Bruce Bennett/Getty Images)
If rumors of the $750 million asking price for the Pittsburgh Penguins are true, then it's a case of 'caveat emptor,' better known as 'buyer beware.'
Are the Pittsburgh Penguins actually worth $750 million? Well, like most things of this nature, it depends on your perspective.
Suppose you’re a prospective NHL owner in, say, Seattle. The NHL has already set the expansion fee at $500 million and it’s going to cost you probably another $400 million, assuming you don’t get public funding, to build an arena. And what do you get for that? You receive the opportunity to put together a team of has-beens, could-have-beens and youngsters and the privilege of getting your clocked cleaned on a regular basis for a couple of years while you build your brand and your hockey organization into a contender and, hopefully, a money-maker.
You contrast that against buying a perennially contending team that has some of the most dynamic offensive talent in the world on it, playing in a new building that generates revenues and has lots of land around it that’s ripe for developing and suddenly $750 million doesn’t look like such a bad deal.
Actually, both of them are pretty crazy, which is why they have received a rather underwhelming response from prospective investors. When the NHL opened the expansion bidding at $500 million, it invited 16 people to its dinner party and just two people showed up. One of them was Quebec City, which had a completely publicly funded arena behind it.
And now the $750 million price being floated for the Penguins – according to respected TSN business reporter Rick Westhead – has fallen just as flat, according to a person in the industry that has knowledge of such transactions. “I’ve been told they’ve had no takers,” a source said. “They haven’t had a nibble.”
That’s because in reality, it doesn’t make much sense to pay that much for the Penguins. As good as they are, the Penguins are not an enormous money-maker. It’s believed the Penguins made a profit of somewhere between $11 million and $15 million last season. Now that’s a pretty good haul, particularly by NHL standards, but certainly not enough to justify that kind of asking price. Business people generally value enterprises at 10 times their profits. Of course, the Penguins are worth far more than $150 million, but the fact there is such a divide between the bottom line and the asking price indicates it’s too high. In its annual NHL franchise value rankings last season, Forbes magazine pegged the Penguins as the 10th most valuable franchise in the league at $565 million.
But it behooves the NHL to make sure its owners try to extract maximum dollars for their teams. It’s great for the owners, obviously. And the more one teams sells for in the NHL, the more all the other franchises are going to be worth if they ever decide to sell. And that’s where all of this gets dicey, because in reality, it’s pretty difficult to peg the exact price of a franchise.
Take the Tampa Bay Lightning, for instance. When Jeff Vinik bought the team in 2010, the announced selling price was $170 million. In reality, it was somewhere between $90 million and $110 million for the team and the lease to the Amalie Arena. In fact, Vinik actually paid less for the Lightning than he did for the hotel across from the arena. He paid $150 million for that, largely because the hotel had a good cash flow and the Lightning didn't.
And that’s why the $750 million figure is being floated out there. The Penguins owners – primarily Ron Burkle and Mario Lemieux – would love to get that much for the team. There is also speculation that Lemieux still might keep an interest in the team, which will be worth more if the franchise sells for a higher price.
In the end, as it always is, the market will decide how much the Penguins are worth. If the crickets continue at the $750 million figure, it’s going to have to come down. It’s kind of like a home purchase. The seller can put whatever price he wants on it, but in the end it’s worth only what someone is willing to pay for it.