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Florida sports business: Hockey power play

A National Hockey League arena is, by necessity, a chilly place. The building encloses a 200-foot-long, 85-foot-wide sheet of ice that radiates cold air; the temperature in the stands can drop as low as 50 degrees. Controlling the climate is obviously an important task.

And yet: “When we walked in here, the thermostat didn’t work,” says Tampa Bay Lightning President Steve Griggs, who joined the team in 2010, after Jeff Vinik, who ran Fidelity’s Magellan Fund before starting his own hedge fund, bought the hockey club. 

The Lightning still face a number of challenges. Executives Say the team is still losing money.

Today, the heating and air-conditioning and most everything else appear to be working much better for the 22-year-old franchise, which is in the midst of a renaissance. Four years after Vinik rescued a team that appeared to be careening toward insolvency, the Lightning have become one of the most stable organizations in hockey, particularly among teams playing in the league’s non-traditional markets across the southern United States.

Season ticket sales have more than tripled, from 3,000 to more than 10,000 today. Attendance has risen 20%, to nearly 19,000 per game. Television ratings have doubled, and the Lightning has a new, 10-year regional TV deal with Fox Sports that pays the club about $16 million per year.

Meanwhile, Vinik has assembled more than 20 acres of prime real estate around the Lightning’s arena in downtown Tampa, including the Channelside retail complex, and the team is now working on plans to redevelop the area into a new residential, retail, entertainment and commercial district.

On the ice, the Lightning feature one of the most marketable stars in the league in 24-year-old Steven Stamkos. Once devoid of young talent, the team now has one of the strongest farm systems in the NHL — it produced two of the three finalists for the league’s rookie-ofthe- year-award last year, and is expected this year to add a 19-yearold regarded as one of the top prospects in professional hockey. The Lightning could challenge for the Stanley Cup this season.

“From day one, I cited my desire to make this organization into a world-class organization, on and off the ice. I think we’ve made great progress toward achieving it,” says Vinik, 55. “We’re not there yet. But I believe we’ll get there.” 

A number of challenges still loom. Executives say that the team is still losing money, though they say the losses have narrowed significantly. The 2003-04 season, when the Lightning won their only Stanley Cup, remains the only year in which the team turned a profit, according to people familiar with team finances. And Lightning management must negotiate a new contract with Stamkos within the next two years — a deal that could require a commitment of $100 million or more — or risk losing him to unrestricted free agency and wealthier clubs.

Those problems are still preferable to the kind of issues the team faced when Vinik bought it.

“The turnaround has been dramatic,” says Steve Bartlett, an NHL player agent whose clients include Ryan Callahan, who this summer signed a six-year, $34.8-million contract with the Lightning. “As someone who looks at the stability of a franchise and management and ownership when I advise a player, I think they’ve gone from pretty low on the totem pole to very near the top.” 

It’s difficult to overstate just how much of a mess the Lightning were four years ago. The team was owned by OK Hockey — a group led by former film producer Oren Koules and former NHL player Len Barrie — who had bought it in 2008 from longtime owners Palace Sports. But the new ownership essentially ran out of money. The NHL was forced to step in just so the Lightning could make payroll while the team cut outlays on things like arena maintenance and marketing.

Meanwhile, Koules and Barrie feuded over control of the team. One player agent recalls receiving different offers from each owner for the same player. “It was a gong show,” the agent says.

The Lightning was never in any real danger of being relocated to another market because Palace Sports, in its zeal to unload the team, had agreed to self-finance the sale to OK Hockey and to backstop excessive losses. But the losses reached as much as $30 million annually, says Tampa Mayor Bob Buckhorn, who describes the team as having been “on the emergency room table.”

Credit for the Lightning’s recovery, people around the team and league say, rests squarely with Vinik, who has a reported net worth of around $500 million. Unlike the previous regime, Vinik has reinvested in the Lightning and the broader Tampa Bay community. In fact, he has spent more on and around the team over the last four years than the $110 million he paid to buy it. Among some of the bigticket expenditures: 

About $60 million to renovate the county-owned Amalie Arena (formerly known as the Tampa Bay Times Forum). The upgrades included one of the largest indoor scoreboards in North America, expanded common areas for fans, an outdoor patio overlooking downtown Tampa, an organ and a Tesla coils that shoot lightning bolts whenever the home team scores. In addition, there were with about $8 million worth of heating and air-conditioning improvements.

More than $10 million in charitable donations, much of it doled out in $50,000 installments at each Lightning home game through a program known as “Lightning Community Heroes.” The civic spending has also included funding for the University of South Florida to establish a graduate level program in sports and entertainment management and grants to organizations ranging from the United Way to the Florida Aquarium.

$35 million to buy a pair of players out of their contracts, including $33 million alone for former team captain Vincent Lecavalier. The buyouts gave the team freedom under the NHL’s salary cap to spend even more on player salaries: The Lightning’s payroll has grown more than 40% under Vinik, from about $46 million in 2009-10 (about 20% below the salary cap) to about $66 million last year (right at the cap).

About $30 million to buy the 20-plus acres around the arena, including $7.1 million for Channelside, which Vinik bought in a bankruptcy auction. Tentative plans include a hotel, office space and a pedestrian-friendly entertainment district. Vinik, who has enlisted an investment firm controlled by Microsoft founder Bill Gates as a partner in the redevelopment, just completed his biggest deal yet: The $150-million purchase of the 719- room Tampa Marriott Waterside hotel near the arena.

Hockey-business experts say the arena upgrades, in particular, have had a powerful impact on the Lightning. Because the Lightning play in a warm-weather market, where there is more competition for entertainment spending and a long history of hockey loyalty isn’t ingrained in the community, maximizing the fan experience during games is crucial.

“When you don’t grow up with hockey, there’s just not that loyalty. When you win, you attract a lot of people. But there’s 30 teams trying to do the same thing, so if you’re only counting on winning, you’re not going to have success,” says Don Waddell, president of the Carolina Hurricanes, an NHL team in Raleigh, N.C., and the former president of the now-defunct Atlanta Thrashers hockey team.

“You’ve got to entertain people. When they walk out of the building, regardless of whether you win or lose, they want to feel like they got value,” says Waddell.

Aside from Vinik’s check-cutting, hockey experts also credit the owner for assembling what is regarded as a strong management team. The team includes CEO Tod Leiweke, whom Vinik hired away from the National Football League’s Seattle Seahawks, and President Steve Griggs, who joined the team from the NBA’s Orlando Magic.

To run the hockey operations, Vinik recruited General Manager Steve Yzerman, a Hall of Fame hockey player for the Detroit Red Wings before retiring and joining that team’s front office.

Other key hires have included Jim Shimberg, the former Tampa city attorney who is now the Lightning’s general counsel, and Julien BriseBois, a University of Montreal- educated attorney who serves as assistant general manager and oversees the Lightning’s farm team in Syracuse, N.Y. 

“My philosophy is you try to hire the best, you give them full, 100% authority to do their jobs,” Vinik says. “And then you hold them accountable afterward.” 

The group oversaw a total rebranding of the franchise, spending an estimated $1 million to design more classically styled logos and uniforms and to manufacture microchip-embedded jerseys that were given to all season-ticket holders, entitling them to discounts on arena food and merchandise.

Once forced to discount to compensate for a poor team and arena, the Lightning now employ a fourperson analytics team to maximize pricing yields. The team has begun using dynamic pricing, adjusting prices based on demand right up until game day. The result: The Lightning’s average ticket prices rose 9% between 2011-12 and 2013- 14 — from $47.55 to $51.81. 

“The value of a game on Thursday versus Montreal in February is higher than a game against Anaheim on a Tuesday in October,” Griggs says, though he says the Lightning are still “significantly below” league average prices.

More television revenue has certainly helped. In addition to the team’s new regional TV deal with Fox’s Sun Sports network, which kicked in last season and runs for another nine years, every NHL club is receiving more money in national TV money following lucrative new deals between the NHL and Comcast in the U.S. and Rogers Communications in Canada.

One person familiar with league finances said national TV fees have jumped from a few million dollars per team per season to more than $10 million per team annually.

Player development 

On the hockey operations side of the franchise, the Lightning haveinvested heavily in scouting and player development. Allan Walsh, a player agent whose clients include prized Lightning rookie Jonathan Drouin, said a member of the Lightning staff made contact with Drouin three or four times a week last year while he played for a junior team in Halifax, Nova Scotia, providing guidance for everything from training to nutrition to education.

“From the moment a player is drafted into the organization, there is a commitment to their continued development that is probably at the top of the league,” Walsh says.

Prioritizing internal development is smart for off-the-ice reasons, too. Under the terms of the league’s collective bargaining agreement, rookie salaries are strictly capped for the first few years and players usually aren’t eligible for unrestricted free agency — when they can market themselves to all 30 teams, driving salaries higher — until they are 27 or have played seven seasons.

Those cost savings will be important because the team will have to spend an enormous sum within two years if it is to keep Stamkos, the team’s captain and by far its biggest star. Stamkos will be an unrestricted free agent when his current contract, which pays him $37.5 million over five years, expires in two years. The two sides can sign a new deal as early as July 1.

Yzerman said at the start of the Lightning’s training camp this year that the team had yet to begin negotiations with Stamkos’ agents but that the team hopes to get a deal done by July 1 or soon after. “Obviously, it’s a priority and it’s our hope that we get him signed to an extension,” he says.

One challenge for the Lightning will be ensuring it doesn’t handcuff itself too much with a new deal for Stamkos — who will almost certainly receive an eight-year contract, the maximum allowed in the NHL’s collective-bargaining agreement for a player re-signing with his team — so it can still adequately fill out the roster around him. Negotiating with a franchise player like Stamkos is “quite complex,” says Stamkos’ agent, Don Meehan. “It involves a great deal of strategic planning, a great deal of sessions, all kind of information and understanding of the CBA.” 

An eye to the future 

With the team’s finances stabilizing and its on-ice performance trending up, the Lightning are now turning their attention to other projects. That includes developing the land around the Amalie Arena, which might ultimately prove to be the most lucrative opportunity that Vinik has with the Lightning, says Ron Campbell, who was the Lightning’s president for a decade under Palace Sports.

“Whether or not he’ll ever make money on a day-to-day basis with the team, it does allow him to make other investments,” says Campbell, who now works for Seminole Financial Services near St. Petersburg. “It gives him fronts to other business opportunities, and that’s maybe where he’ll get rewarded.” 

The team has also begun trying to address one of its longestterm challenges. This summer, the Lightning hired Jay Feaster, who was the general manager of the team for its Stanley Cup run but had been out of the organization since 2008, to fill a newly created position of executive director for community hockey development. Feaster’s responsibilities include managing outreach to youth and high school hockey programs in hopes of increasing participation.

“One thing that’s near and dear to all of our hearts that we’re not as good at as we should be is community outreach, especially with respect to schools and hockey rinks,” Vinik says. “Jay’s mandate is to make us as good as anybody in the NHL in terms of community outreach and, frankly, to get a stick in the hands of every kid who wants one in this area.” 

Getting more Florida children interested in hockey at a young age is vital to fully stabilize the franchise in a market where kids don’t grow up playing on homemade rinks in their back yards.

“They’ve still got a lot of work ahead. They know that. It’ll never stop,” says Waddell, the Carolina Hurricanes president. “But I think now, especially when you look at the Southern markets,” Tampa is becoming more of a hockey market.

THIN ICE 

The Florida Panthers are hoping a casino could be a lifeline for the perpetually cash-strapped franchise — but it may turn out to be a losing wager.

A little over two years ago, the parent company of the Florida Panthers NHL franchise, Sunrise Sports & Entertainment, signed an agreement with Las Vegas-based Boyd Gaming to develop a casino resort on land next to the BB&T Center, where the Panthers play.

Executives with the two companies have said they envision a midsize resort with a few hundred hotel rooms, about 50,000 square feet of meeting space and slot machines and table games.

The two companies have since joined a horde of other gambling interests urging state lawmakers to legalize casino gaming in Florida. The Panthers — a team that loses $100,000 a day, according to its owners — wrote a $100,000 check to the Republican Party of Florida just a few months before the start of the 2014 legislative session. A joint venture set up by Boyd Gaming and Sunrise Sports, dubbed “BYDSSE Gaming LLC,” has paid a lobbyist about $60,000 to work the Legislature over the last 12 months.

But the Legislature has not acted, and time may be running out. The Panthers’ contract with Boyd is set to expire soon after the 2015 legislative session ends in May, according to two people who have been briefed on the deal, and it’s unclear whether they’ll renew it if the Legislature hasn’t acted by then. Representatives for the Panthers and Boyd Gaming both declined to comment.

It’s clear that the Panthers must do something. While the Tampa Bay Lightning have stabilized under owner Jeff Vinik, the state’s other NHL team remains one of the most unsteady franchises in the league. The most recent turmoil includes the departure of CEO Michael Yormark, who resigned in March after 11 years with the team to join rapper Jay Z’s Roc Nation Sports agency. In June, the team laid off about 25 employees, according to a report in the South Florida Sun-Sentinel.

The Panthers franchise, sometimes mentioned as a candidate for relocation to Quebec City, was sold last fall for a reported $250 million to Vincent Viola, the founder of high-frequency trader Virtu Financial, and Douglas Cifu, Virtu’s CEO. The new owners are hoping to land arena-lease concessions and other public help worth about $80 million from Broward County.

“Vinnie and I have both publicly said that we are here to make this franchise work in Florida,” Cifu said in an August interview with Fox Sports Florida. “That being said ... the arena and the team have lost a significant amount of money year over year for the last 10-plus years, and the current business model is not sustainable.”

Jeff Vinik bought the Tampa Bay Lightning in 2010 for $110 million. League and team executives say Vinik deserves credit for turning the team around. The former hedge fund founder has invested millions in the team and assembled more than 20 acres of prime real estate around the Lightning arena in downtown Tampa.