For the past two weeks there has been a movement behind the scenes in Nashville to put together a local group to purchase the team. I can certainly understand why Predators' fans would be optimistic regarding this development, but this group has a ways to go before this can be considered a viable option.
According to a TDS source, here is how the proposed deal would be structured as well as the breakdown of investors needed.
$195 million Purchase Price
$125 million equity
$70 million debt
1 x $50 million investor
1 x $15 million investor
6 x $10 million investors
At this point the group has between $75-85 million committed among the three or four individuals.
$50 million - David S. Freeman
$15 million - Herb Fritch
$10 million - TBD, also at HealthSpring (name not confirmed)
$TBD - Chase Cole (name confirmed, investment commitment speculated)
The Tennessean reported this weekend that the group is attempting to raise between $110-125 million in equity and that Mr. Fritch was committed to invest between $5-10 million.
As of late last week my source believed that the group's progress had stalled somewhat. It seems that at this point the group is looking at finding 10 - $1 million owners to fill the remaining blocks of ownership. They have others who have signed a 'non-binding agreement for $1 million+, but not nearly enough'. This could explain why the information was leaked to the local newspapers, in order to try and drum up further support.
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Here's a little information on the three confirmed names involved with this deal:
David Freeman was the CEO and owner of Commodore Medical Services until last month when he sold the company for between $25 and $50 million. He is still listed as the Company CEO on their website.
Here is Mr. Fritch's bio from the HealthSpring website:
"Herbert A. Fritch, has served as the Chairman of the Board of Directors, President, and Chief Executive Officer of the company and its predecessor, NewQuest, LLC, since the commencement of operations in September 2000. Beginning his career in 1973 as an actuary, Mr. Fritch has over 30 years of experience in the managed healthcare business. Prior to founding NewQuest, LLC, Mr. Fritch founded and served as president of North American Medical Management, Inc., or NAMM, an independent physician association management company, from 1991 to 1999. NAMM was acquired by PhyCor, Inc., a physician practice management company, in 1995. Mr. Fritch served as vice president of managed care for PhyCor following PhyCor's acquisition of NAMM. Prior to NAMM, Mr. Fritch served as a regional vice president for Partners National Healthplans from 1988 to 1991, where he was responsible for the oversight of seven HMOs in the southern region. Mr. Fritch holds a B.A. in Mathematics from Carleton College. Mr. Fritch is a fellow of the Society of Actuaries and a member of the Academy of Actuaries."
Here are a few segments taken from Mr. Cole's bio from the Waller Lansden website:
"Chase Cole is a partner at Waller Lansden. He has extensive experience in the areas of corporate law and governance, securities law, public offerings, mergers and acquisitions and venture capital financing. He also serves as chairman of the firm's corporate governance task force and chairman of the firm's Opinions Committee.
...Mr. Cole was recently named one of the "Best 101 Lawyers" in the State of Tennessee by Business Tennessee and as one of the "Best Lawyers in Nashville" by the Nashville Post. He is listed in The Best Lawyers in America and Chambers USA's America's Leading Lawyers for Business. Mr. Cole was also recognized in the Nashville Business Journal's "Best of the Bar" for 2006 and in the Lawdragon 3000 Leading Lawyers in America."
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Mr. Fritch was the individual who Craig Leipold mentioned during his press conference that had shown an interest in purchasing a small minority of the team when he was looking for local ownership:
"First of all, how close was I at getting local owners, which to me was the most important thing. And on a scale of one to ten it would be zero. Well it would be one. Actually we had one person interested in a 5% interest but we hadn't even worked out the due diligence and he just kind of said the number that he would be interested in and I can tell you it wasn't at the value of even $200 million. It was like $150 or $175. He would've had one heck of an investment if he'd bought the 5% at that time."
He was introduced to Mr. Freeman because of 'their interest in the team and making something happen'.
This group was also working with lawyers to write up legislation regarding the income tax of professional athletes. The state currently has no state income tax. They felt that with this money being made available for Tennessee sports teams that operate at a deficit, the team would come close to breaking even on an annual basis.
The state legislature ended this past Tuesday without word of this proposed legislation which leads me to believe that this part of their plan has stalled, possibly due to language in the Collective Bargaining Agreement, although my source felt that this legislation would still work because it was regarding income taxes and not a payroll tax:
Section 26.16
"If a governmental entity imposes a payroll tax on Player income, which tax proceeds are transferred, by statutory mandate, directly to the employing Club, the amounts so directly transferred to the Club shall be returned by the Club to the taxed players."
Here's a quote from Mr. Cole from the Tennessean:
"This group consists of local businessmen who want to save the team, and we would need additional financial support and corporate and public support to make that happen."
Mr. Leipold has been made aware of this group's plan from the beginning and has been kept updated on their progress - even though they cannot formally present their bid while Mr. Balsillie's agreement is on the table. They have also spoken to the Mayor and Governor in addition to other parties close to the situation.
My source has said that Mr. Leipold would not remain on with this deal, and that he was 'burned out'. Originally when I was shown a breakdown of the proposed ownership structure it was a possibility that Mr. Leipold would be the $50 million majority owner, at least for the first year(s) of the deal. Now it appears that this will no longer be the case. It is my opinion that this deal would have a much better chance with Mr. Leipold's involvement. During his press conference he spoke about his goal of ensuring the team remained in Nashville and his willingness in keeping an interest in the team:
"I was trying to find people who would buy.. I wanted to keep it here in Nashville. That's really what I wanted to do. I was looking for somebody not to buy 100%, but 40%. Help me network the community, share in the pain. I'm willing to invest $70 million in losses over the 10 year period, actually 9 seasons - and I live in Wisconsin. I can't get a local person interested in even 40%."
"Without any question I would have liked to have found somebody who would keep it here and long-term you know from day one, absolutely is committed to keeping it here."
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I believe that Nashville is not the weakest team in the league looking at the overall state of the franchise and that if given time the market could grow and be successful. But Hamilton is a sure thing. To compare the appetite for hockey on a very basic level:
It's been reported that the Predators have just under 9,000 season tickets but I believe (correct me if I'm wrong please) that is actually their number of FSTE, which are full season ticket equivalents. This would include half-season ticket-holders plus Ice/Rival Packs and Flex Plans. So two half-season ticket holders equal one FSTE. And upper level seats last year were as low as $12 a game for season tickets.
Furthermore, the Preds' fans have had a petition online since the sale was originally announced. The petition has been mentioned on this site, on the team's message board, in local newspapers, on tv, etc, etc.
After over three weeks, that petition now has 6,554 signatures.
By comparison, in about 48 hours the non-existant Hamilton franchise received deposits on almost 10,000 seats, plus 64 of the 70 proposed luxury suites. That's between $500 and $1000 per seat and $5000 for a suite to watch a team that may never arrive. Sure it's refundable but if that's not a legit commitment, I'm not sure what is.
But the simple fact surrounding the Predators' situation is that without ownership willing to keep the team in Nashville, the team is not viable.
I understand why the Preds' fans have taken out their frustrations against Mr. Balsillie on the message boards but that anger is misplaced. The only other offer on the table was from William Del Biaggio, who reportedly bid $183 million with the intention to move the Predators into the brand new Sprint Center in Kansas City.
If the numbers reported in this weekend's National Post by Theresa Tedesco are accurate, Mr. Balsillie's offer was $55 million MORE than Mr. Del Biaggio's.
I still have a hard time believing that the league will reject an application from Mr. Balsillie to purchase (and move) the team when his offer was 30% more than an offer that had similar intentions - albeit to a destination that really interests the league.
If Mr. Leipold has lost $70 million since 1997 (and until somebody can produce evidence that he wasn't losing nearly as much money as reported, due to profits received from Powers Management, I'm not buying it) and is not interested in staying on in some ownership capacity, his primary objective has to be getting as much money for the team as possible.
And even if the local ownership group can get enough investors and obtain financing to put together a $195 million bid, that is still $43 million less than Balsillie's offer.
At this point it sure seems like the chances of that group being successful is a long-shot at best. There are at least four reasons why the league will accept this deal that don't have anything to do with Mr. Balsillie as an owner or Hamilton as a hockey market:
1) Franchise values will be helped across the board.
2) Expansion fees can be significantly increased.
3) The Predators receive the most funding in profit sharing in the league.
4) There are other owners with franchises who have struggled and those owners may want to sell to the highest bidder one day as well.
Thus it is in the best interest of the Board of Governors to approve this deal once they have done their due diligence and considered all the options - Unless a local group can put together a competitive offer that is willing to absorb losses and keep the team in Nashville. This opinion is consistent with League By-Law 36.5(e) where one of the considerations as to whether a team should be allowed to move is:
"Whether there is any prospective purchaser of the club and franchise who is prepared to continue operating the club in its present location and, if so, whether any such prospective purchaser is willing and able, if necessary, to sustain losses during at least the initial years of its operation there."
At this point that seems pretty unlikely, although who knows what twists this fascinating story will take next...
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This week I'll go through the relevant League By-Laws and discuss how these would affect the potential sale/move.
Hope all the fathers out there (especially mine) had a great Father's Day. Also a special mention for my wife on our first wedding anniversary. If you don't see me online Monday and I don't respond to your e-mails it's because I've sworn that I would keep away from the laptop and BlackBerry for a full 24-hours. It's the least that I could do to thank her for putting up with my hockey obsession and for an amazing year.
Have a great Monday,
Danny -
[email protected] 
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