If this is your first time reading our Bold Predictions series, this week we’re going over predictions that are probably not going to come true, but would make us look smart if it ends up happening. While it’d be nice to see Logan Brown score 60 points, Josh Norris to make the opening night roster, or Erik Brannstrom take on a full-time NHL role, I feel comfortable in saying my bold prediction is the biggest wish for almost any Sens fan: a team sale.
It’s not often that a team owner becomes a household name around North America, and Eugene Melnyk is no Mark Cuban. He’s become a local villain to Sens fans, sparring a long history of unethical business practices, disastrous PR campaigns, and financial frugality. My main focus will be on the last point, as my bold prediction is that Eugene Melnyk will sell the Ottawa Senators within the next year.
First, it’s worth examining the state of Melnyk’s finances. Buying the Senators in 2003, the road hasn’t been completely rough. He entered during a time when the team was competitive, going as far as the Stanley Cup Finals in 2007. The NHL started to grow faster, however, and with the Senators being Melnyk’s only major business asset, he couldn’t keep up with the deeper pockets of other owners.
Money troubles started surfacing to the public in 2013, when Travis Yost reported that the Sens’ financial state was becoming a growing concern to both Melnyk and the NHL. In the years since, Melnyk has admitted to cutting his staff to the bone, and the lack of cash flow has played into almost every roster move made by the front office. Despite the floor of the NHL salary cap sitting at $60.2 million, the team is projected to spend only $43.6 million on their roster over the course of the 2019-20 season. The cuts only continue to get deeper.
With Melnyk promising to spend to the cap starting in 2021, one wonders how he’ll be able to make it happen. The team has been on an internal budget for years, and with attendance at its lowest point of the decade, there’s no apparent avenues for Melnyk to get even close to the salary cap. Will he even be able to hold on for much longer?
That brings us to a potential sale. There are two parties who hold the power to force him to sell.
1: Melnyk’s Financial Creditors
Refinancing is a common strategy for business owners to secure better loans, and Melnyk found himself one with a syndicate of large banks lending him $165 million. That’s still an incredible amount of debt that he has very little means to repay given the current state of the franchise.
The fall of the LeBreton Flats negotiations may have been a huge stepping stone towards a sale, in that it would’ve provided Melnyk with an incredible financial boost upon its completion. Removing that opportunity means less assurance of repaid debt, which surely didn’t go over well with his creditors. He’s also now facing a $1 billion counterclaim because of it, which is still in progress.
2: The NHL Board of Governors
They’re the group of people who would ultimately have to approve a new owner, although they also hold the power to revoke any of their members if the situation becomes tricky (Melnyk is one of the Senators’ two representatives).
The NHL’s by-laws, revealed in 2009 during the Phoenix Coyotes’ bankruptcy and sale, outline some of the situations which could force this to happen in section 3.9 (Involuntary Termination). You can click the previous link if you want to read the legal speak, but some notable deal-breakers include:
- If their creditors say so, out of avoiding bankruptcy
- If they fail to repay debts to the league within 15 days
- If they try to move the club without permission
- If they fail to comply with any of the NHL’s other by-laws
Nothing can be said with any certainty at this point as it pertains to Melnyk’s compliance with these rules.
From the NHL’s perspective, however, their relationship with Melnyk must be getting shaky. Gary Bettman’s goal is to increase the value of NHL franchises, and with the LeBreton Flats situation in particular, Melnyk actively devalued the franchise by passing on the opportunity. He’s been holding back the Senators from growing as a franchise for the better part of the last decade, which is the complete opposite of where the NHL is trying to go.
With all that said, I still haven’t really backed up my bold prediction. A sale has felt imminent forever, so why will it happen in the next year?
There’s a couple reasons. First: this is bold predictions, not mild predictions! I had to add the spice somewhere.
My main reason, however, is that there’s already another ownership group, waiting in the wings for the perfect moment to swoop up the Sens.
DCDLS is a large group of business partners from Québec, including Jean-Pierre Poulin (Devcore), André Desmarais (Power Corporation), Bill Sinclair (JDSU) and Guy Laliberté (Cirque du Soleil). They originally grouped together for their LeBreton Flats bid which they eventually lost to Melnyk’s group, although they’ve since stuck together in their goal to build on the site.
It was reported by the Ottawa Citizen in January that Melnyk turned down an offer of $430 million to buy the team. It wasn’t confirmed to be from DCDLS, although that’s the wide belief. Graeme Nichols also noted that there had been “rumblings” of a second offer made of over $600 million. With the Senators currently valued at $435 million, how come Melnyk wouldn’t accept one worth significantly more than their actual value?
There seems to be a few sticking points, with the main one being that the sale would have to cover the $165+ million in debt. The Senators are also slated to receive their $21.7 million share in expansion fees from the new Seattle franchise, which Melnyk could be eyeing as some extra financial alleviation.
Speaking of Seattle, their $650 million expansion fee could be used as a benchmark for a potential sale, as it’d be embarrassing to sell a franchise for less than one that doesn’t even exist yet. Although I imagine this point will have much less of an effect than the previous two.
Wrapping everything together, it seems like the perfect storm is brewing for a sale to happen within the next year. The finances are falling, the relationships are rescinding, and the purchasers are perching.
It’s reached the point where Melnyk is only creating a larger trail of debris to be left for the next owner. Let’s hope that like Biovail stock, the Senators will grow back post-Melnyk.