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The National Hockey League and Private Equity

For the second time in seven years, there is a real possibility that an ongoing labor dispute will prevent the puck from ever being dropped on the National Hockey League season. Hockey has become an afterthought, a professional sport that is lucky to receive a minute of airtime on the nightly Sportscenter broadcast. While reports have estimated that the NHL has lost as much as $240 million in the last two seasons,1 diehard hockey fans do still exist. And while they would probably rather spend their time smuggling octopi into Joe Louis Arena, they may find hope in reading a recently published piece by Bloomberg Businessweek that asks, “Could Private Equity Solve Pro Hockey’s Problems?”

The article lays out a number of qualities that would make the NHL attractive to private equity firms. Among the qualities listed are:

• “Weak management
• Underachieving revenue
• Opportunities to expand while taking on debt
• Problems that are driving down value, but could be solved by a fresh set of outside managers.”2

These undesirable characteristics have plagued the NHL for years, and PE firms have taken notice. In 2005, Bain Capital surprised many with an offer to buy the entire league for $3.5 billion.3 Bain’s proposal reflected the classic PE business-model: by combining all 30 teams into a single business entity, it would be possible to streamline operations, boost TV revenue, and slash player salary from a position of absolute leverage.4 This single ownership strategy is the model that Major League Soccer, a league that started as an afterthought in the crowded American sports market, has employed (to at least limited success).5

As a dispassionate third party, Bain would focus solely on making money—it would not be blindsided by the emotions that undoubtedly come with owning a pro sports team. Yet those emotions are what ultimately doomed the deal, as Bain failed to muster the required majority approval from team owners.6 Given that most of these owners are independently wealthy and are not in the business for the money, it is unlikely that this type of transaction would ever be agreed upon.

Even if a firm like Bain were somehow able to overcome this hurdle, they would still be faced with an even larger issue: the players themselves. During a PE takeover, labor is often one of the first areas in which costs are cut. Technological improvements or cheaper workers typically replace longtime employees. However, sports are unique in that the laborers are the products. The NHL could recruit inexpensive, second-rate talent, but it certainly would not improve economic conditions considering that the league currently employs the top players in the world and still struggles to make a profit. The alternative—convincing the current players to take a significant pay cut—is extremely unrealistic given the lucrative contracts that foreign franchises would assuredly offer the NHL’s stars.

At first glance, the NHL and PE may seem like a perfect match. However, a closer look reveals that some major issues would have to be resolved in order for the relationship to be profitable. But still, if an entire season is lost and teams continue to operate in the red, the league would be wise to at least reconsider a PE model that has helped save so many similarly distressed companies in the past.

1 Dirk Hoag, NHL CBA 2012: How can the league, as a whole, be losing money?, ON THE FORECHECK (Sept. 4, 2012, 4:55 PM),
2 Nick Summers, Could Private Equity Solve Pro Hockey’s Problems?, BLOOMBERG BUSINESSWEEK (Sept. 11, 2012),
3 Id.
4 Id.
5 See; see also, Fraser v. Major League Soccer, 284 F.3d 47 (1st Cir. 2002) (MLS central-ownership structure not an anti-trust violation).
6 Id.

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