Saturday, July 30, 2011

The Hamilton Oilers? I highly doubt it!

The biggest thing that irks me about the Edmonton arena debate is how the Katz group is using Oiler fandom to separate reasonable consideration from the debate over public funding. Typically, the arguments are based on one big fallacy – that the Oilers will leave Edmonton if public funds are not spent on a new downtown arena.

The fallacy was created when Katz delivered a veiled threat by stating that the Oilers would not play in the Northlands Coliseum (a name I will use for Rexall Place in order to separate the building from the Rexall brand of companies, which owns the naming rights) after 2014. I wrote twice earlier on this issue. Ultimately the argument is based on the misconception that professional hockey in Edmonton is not viable in the long term.

First, I find it hard to believe that the Oilers franchise is not profitable year-over-year. They currently have a sweetheart $1 per year lease on the Coliseum. All of the rinkboard and ice advertising is consistently sold out. All luxury boxes and season ticket seats are sold out with waiting lists for any vacancies. Nearly all of the individual seats for every home game is sold by game time. The team also owns a WHL team and an NAL baseball team, used to help market the Oilers brand. Merchandise sales are strong and lucrative broadcast deals are in place. Furthermore, the much desired salary cap is in place and the Oilers are operating well underneath it. If NHL is not profitable in Oil Country then I do not know where it would be profitable.

But, we won’t know much about the profitability of the Oilers because the Katz group is not willing to share their financial information – even though they want taxpayer money to subsidize the future operation. And really, profitability doesn’t matter so much. Just ask the Edmonton Investors Group. The EIG owned the Oilers from 1998 – 2008 and while the team consistently lost money over the years, it didn’t bother the members of the EIG too much. You see, they bought the team for $70 million in 1998 and sold it to Katz for $200 million in 2008. What matters more than profitability for businesspeople is Return on Investment (ROI). The ROI for EIG's investment was 285% for a very generous growth of 11% per year – a number that would make every Dragon in the den sign on.

The final piece of the moneymaking puzzle for Katz comes back to his intricate understanding of how to leverage sports fandom and loyalty to make money. The business case for the Rexall group of companies is very strong. Tie the brand to the Edmonton Oilers and to hockey in every way possible, including using Blue and Orange as your brand colours, ensure that the brand owner is reinforced consistently as a true Edmontonian and watch as the brand overtakes market share in Northern Alberta. There is nothing wrong with this strategy, by the way, but it needs to be reiterated that building the Oilers brand also creates revenue for the Rexall companies, which I’m sure are much larger and more profitable then the Oilers brand.

Now, add together these three models of moneymaking for the Katz group and ask yourself the following questions. Why would Darryl Katz even consider moving the Oilers out of Edmonton? Why should any money that rightfully belongs to all taxpayers be going to subsidize the lucrative business operations of a billionaire? Should taxpayer money be more appropriately spent to hire more police officers, paramedics, doctors, nurses or teachers? And, is there a better way to spend $225 million of taxpayer money to revitalize downtown?