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The Business of Hockey Discuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, NHL revenues, relocation and expansion.

Questions about Expansion Fees

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Old
03-05-2011, 09:34 AM
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MoreOrr
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Questions about Expansion Fees

Really, my first question was about what Expansions Fees do you think would be expected if Expansion teams were to go to Winnipeg and Quebec City. The talk is generally about those cities getting re-located teams, but if it's by way of Expansion, roughly what amount of Expansion Fee would be expected for each one?

Really, would either of those cities warrant a large Expansion Fee? And would the League really prefer that those two Canadian cities join the NHL by Expansion or by re-location if such was deemed necessary?

How does the League work out how much of an Expansion Fee to demand for this or that Expansion location?


Went to bed last night with a few questions in mind... I'm sure I'm forgetting one of them.

By all means, if anyone else has Expansion Fee type questions, add them in.

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03-05-2011, 10:17 AM
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Quote:
Originally Posted by MoreOrr View Post
Really, my first question was about what Expansions Fees do you think would be expected if Expansion teams were to go to Winnipeg and Quebec City. The talk is generally about those cities getting re-located teams, but if it's by way of Expansion, roughly what amount of Expansion Fee would be expected for each one?
Simple answer: a lot. It's not just pipedreamers on NHL message boards who want the NHL back in these markets. They're highly sought-after, and people have been waiting for the right combination of economic and political climate to try to jump in and get teams back there.

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Originally Posted by MoreOrr View Post
And would the League really prefer that those two Canadian cities join the NHL by Expansion or by re-location if such was deemed necessary?
This is a tough question. No professional sports league, at this stage, can expand beyind 32 teams without losing some of its integrity. In fact, even 32 is a stretch - the only reason the NFL got away with it is because it's so universally popular that they can have that many teams without diluting the on-field product or the off-field prestige. I think the NBA and MLB have the right idea in staying at 30.

The only solid reason for the NHL to go to 32 teams is because of the necessary commitments to US "staple" markets, as well as the necessary Canadian presence, which is a dynamic the other leagues don't concern themselves with.

That said, the league only has two "slots" remaining for expansion, and you can bet they're going to think long and hard about where they go.

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How does the League work out how much of an Expansion Fee to demand for this or that Expansion location?

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03-05-2011, 10:21 AM
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Originally Posted by Haymaker View Post
This is a tough question. No professional sports league, at this stage, can expand beyind 32 teams without losing some of its integrity. In fact, even 32 is a stretch - the only reason the NFL got away with it is because it's so universally popular that they can have that many teams without diluting the on-field product or the off-field prestige. I think the NBA and MLB have the right idea in staying at 30.

The only solid reason for the NHL to go to 32 teams is because of the necessary commitments to US "staple" markets, as well as the necessary Canadian presence, which is a dynamic the other leagues don't concern themselves with.

That said, the league only has two "slots" remaining for expansion, and you can bet they're going to think long and hard about where they go.
My question was in regard to what the NHL would specifically prefer to do with those cities (aside from whether the currently has 30 teams or 20 teams)... have them be Expansion locations, or reserve them for re-location destinations if needed?

But on a separate note, I can see the reasoning of what you're saying, but are you getting that from somewhere or is that simply your personal perspective, with regards to "no professional sports league, at this stage, being able to expand beyond 32 teams without losing some of its integrity". How is it established that 32 teams is the cut off point? I don't know if simply because no League currently has more than 32 teams is a good enough explanation on its own.

And why would the same cut of point apply for all professional leagues?


Last edited by MoreOrr: 03-05-2011 at 10:28 AM.
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03-05-2011, 10:34 AM
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I would expect something on the order of $300-400M for QCY, $400-500M for WPG, and $750M-$1B for HAM.

I would also expect that if PHX leaves, they'll get an expansion team pretty quickly (like the Browns in the NFL), probably on the order of $150-200M.

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03-05-2011, 10:34 AM
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Quote:
Originally Posted by MoreOrr View Post
My question was in regard to what the NHL would specifically prefer to do with those cities (aside from whether the currently has 30 teams or 20 teams)... have them be Expansion locations, or reserve them for re-location destinations if needed?

But on a separate note, I can see the reasoning of what you're saying, but are you getting that from somewhere or is that simply your personal perspective, with regards to "no professional sports league, at this stage, being able to expand beyond 32 teams without losing some of its integrity". How is it established that 32 teams is the cut off point? I don't know if simply because no League currently has more than 32 teams is a good enough explanation on its own.

And why would the same cut of point apply for all professional leagues?
32 is more symmetrical for the league as a whole. 8 divisions, 4 per. Anything above that & you start with significant scheduling issues. We go back to times when teams don't play every other team in the league. Not to mention, talent dillution. Personally, I think it was a mistake to expand beyond 24 teams. Can you imagine the league's product level if you had today's rules with only 24 teams?

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03-05-2011, 10:37 AM
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32 is more symmetrical for the league as a whole. 8 divisions, 4 per. Anything above that & you start with significant scheduling issues. We go back to times when teams don't play every other team in the league. Not to mention, talent dillution. Personally, I think it was a mistake to expand beyond 24 teams. Can you imagine the league's product level if you had today's rules with only 24 teams?
24 teams is not enough to generate interest from TV people, especially if 6 or 7 of them are great big 0 for American networks.

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03-05-2011, 10:38 AM
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33, 34, and 35 are all ugly numbers of teams for scheduling purposes, though, so I agree with people that say 32 is an effective cap unless you have the chance to go to 36 immediately, which would take a special situation.

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03-05-2011, 10:52 AM
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Quote:
Originally Posted by Haymaker View Post
This is a tough question. No professional sports league, at this stage, can expand beyind 32 teams without losing some of its integrity. In fact, even 32 is a stretch - the only reason the NFL got away with it is because it's so universally popular that they can have that many teams without diluting the on-field product or the off-field prestige. I think the NBA and MLB have the right idea in staying at 30.

The only solid reason for the NHL to go to 32 teams is because of the necessary commitments to US "staple" markets, as well as the necessary Canadian presence, which is a dynamic the other leagues don't concern themselves with.

That said, the league only has two "slots" remaining for expansion, and you can bet they're going to think long and hard about where they go.
I disagree. The NFL is likely maxed out at 32 teams, and the NBA would be as well. However, I personally believe both the NHL and MLB can EVENTUALLY expand up to 36 teams. MLB because of its 162 game schedule, split-league setup and multiple two team markets. The NHL could handle the extra teams because it has a much larger presence in Canada.

There is some danger in setting caps on league size. After all, 50 years ago 16 teams seemed like a natural limit. By the eighties, 24 teams seemed to be the max. Growing, and more importantly, spreading populations mean that the number of qualifying markets keeps growing.

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03-05-2011, 11:18 AM
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The talk is generally about those cities getting re-located teams, but if it's by way of Expansion, roughly what amount of Expansion Fee would be expected for each one?....Really, would either of those cities warrant a large Expansion Fee? How does the League work out how much of an Expansion Fee to demand for this or that Expansion location?.
Good questions & premise for a thread. Really it boils down to Supply&Demand. What criteria is used to establish that?. If a fee is too high, no one will pay it, HOWEVER, if someone is WILLING to pay it then whose to say its too much?. Recent fee's, namely Columbus & Minnesota in 2000 paid $80M each. In 2010, according to ESPN & Forbes, avg. franchise value in the NHL was app. $150M. Some are arguably undervalued (Toronto, Montreal, NYR, Chicago, Boston etc) while others are over-valued (Columbus, NYI, NJ, Florida etc). When a team enters through Expansion they are immediately eligible for their share of league revenues. The Expansion Fee designed to soften the blow for the existing teams as their piece of the pie short-term shrinks but long-term will or should grow as the new teams revenues increase & their contributions catch up to the rest of their partners in the NHL. Realistically, the Expansion Fee for a Winnipeg or QC should be the current average value, app. $150M, which is a nearly 100% increase over a decade ago & something the league should be & is quite proud of.

Southern Ontario is an entirely different kettle of fish due to indemnification that would simply have to be paid to both Buffalo & Toronto that would follow on top of the Expansion Fee. You also have to revisit the Supply&Demand quotients as Southern Ontario is clearly one of the keepers of the Gold, and ya, as much as I hate the term, "underserved". Probably the best way to address that market would be to quite literally hold an auction of sorts, whereby indemnification fee's are established, the baseline of $150M tacked on to those; bidders vetted by the NHL in advance including their respective arena & development plans; let the games begin. Though I disagree with MountainHawks Wpg/QC numbers, he's likely in range for S.O. and that doesnt include the building. A disaster waiting to happen IMO for the first owner of any new franchise; a boon for the 2nd who could come in & pick up the pieces after the 1st's blown his brains out.

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03-05-2011, 11:20 AM
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Good questions & premise for a thread. Really it boils down to Supply&Demand.
What criteria is used to establish that?. If a fee is too high, no one will pay it, HOWEVER, if someone is WILLING to pay it then whose to say its too much?. Recent fee's, namely Columbus & Minnesota in 2000 paid $80M each. In 2010, according to ESPN & Forbes, avg. franchise value in the NHL was app. $150M. Some are arguably undervalued (Toronto, Montreal, NYR, Chicago, Boston etc) while others are over-valued (Columbus, NYI, NJ, Florida etc). When a team enters through Expansion they are immediately eligible for their share of league revenues. The Expansion Fee designed to soften the blow for the existing teams as their piece of the pie short-term shrinks but long-term will or should grow as the new teams revenues increase & their contributions catch up to the rest of their partners in the NHL. Realistically, the Expansion Fee for a Winnipeg or QC should be the current average value, app. $150M, which is a nearly 100% increase over a decade ago & something the league should be & is quite proud of.

Southern Ontario is an entirely different kettle of fish due to indemnification that would simply have to be paid to both Buffalo & Toronto that would follow on top of the Expansion Fee. You also have to revisit the Supply&Demand quotients as Southern Ontario is clearly one of the keepers of the Gold, and ya, as much as I hate the term, "underserved". Probably the best way to address that market would be to quite literally hold an auction of sorts, whereby indemnification fee's are established, the baseline of $150M tacked on to those; bidders vetted including arena & development plans; let the games begin. Though I disagree with MountainHawks guesstimates for Wpg/QC, he's likely in range for S.O. and that doesnt include the building. A disaster waiting to happen IMO for the first owner of any new franchise; a boon for the 2nd who could come in & pick up the pieces after the 1st's blown his brains out.
Do you think I'm too high? The NFL got close to $1B for the Houston market, so I was trying to guess at what percentage of NFL in a large market the NHL was worth in each market.

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03-05-2011, 11:32 AM
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I would expect something on the order of $300-400M for QCY, $400-500M for WPG, and $750M-$1B for HAM.

I would also expect that if PHX leaves, they'll get an expansion team pretty quickly (like the Browns in the NFL), probably on the order of $150-200M.
First point, you're expansion values are at least twice what they should be. No way a franchisee would pay double the value of a franchise. I'm thinking 150-200 million, as thats the range of an average NHL valuation. Hamilton would be more because of territorial fees, so perhaps the 150-200 + an additional 100 million in territorial fees.

If Phoenix leaves, its because no one is willing to buy the team at a reasonable rate, so no they will not get an expansion team any time soon. The NHL will not sell them an expansion team for 70 million, which appears to be highest anyone is willing to pay for the franchise (if the city is willing to cover losses for 5 years).

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03-05-2011, 11:39 AM
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First point, you're expansion values are at least twice what they should be. No way a franchisee would pay double the value of a franchise. I'm thinking 150-200 million, as thats the range of an average NHL valuation. Hamilton would be more because of territorial fees, so perhaps the 150-200 + an additional 100 million in territorial fees.

If Phoenix leaves, its because no one is willing to buy the team at a reasonable rate, so no they will not get an expansion team any time soon. The NHL will not sell them an expansion team for 70 million, which appears to be highest anyone is willing to pay for the franchise (if the city is willing to cover losses for 5 years).
To think the NHL is going to abandon a market that is clearly a key part of their strategy and injure a city that has fought so hard for them is just naivety. If the Coyotes leave, Glendale will have a team within 24 months.

If the NHL abandons them, it puts a serious chilling effect on the 'cities building arenas for teams' thing the NHL has going on, and they aren't going to risk that.

I acknowledge that the WPG and QCY might be high. However, those markets are assets of the 30 NHL owners, and pretty valuable ones that you can only cash in once. They aren't going to underprice them. Now, the fact that their might be only one viable ownership group in WPG could make it worth less, we'd have to see.

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03-05-2011, 11:50 AM
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Do you think I'm too high? The NFL got close to $1B for the Houston market, so I was trying to guess at what percentage of NFL in a large market the NHL was worth in each market.
For Winnipeg & QC ya, I think your way too high at $300-$400M. That kind of a fee, if someone was ever crazy enough to pay it for a smallish' albeit Canadian market would be an anchor that'd sink their boats. Both would be close shaves in terms of profitabilty as numerous studies have shown. Maxed out, they might turn $180M in revenues on expences of app. $150-$160M. Imagine the debt load on top of that in servicing the debts to finance the Expansion Fee's (who pays cash these days?).....

Wpg has an arena so they could likely handle as much as $170M-$225M, as could QC provided the financing for the new arena up there is indeed covered by at minimum 2 levels of government & private contributions. Southern Ontario is a completely different breed of animal as you noted, so who knows what the maximum might be?. You just have to figure though that the smallish cadre' of the real powerbrokers within the BOG's drool over that one no?. MLSE & Peddie feeling like a prime steak in the butchers shop window on a payday everytime they get together for a meeting with the likes of Jacobs & Snider, deciding whether they want them cooked rare, medium or carbonized.

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03-05-2011, 11:52 AM
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For Winnipeg & QC ya, I think your way too high at $300-$400M. That kind of a fee, if someone was ever crazy enough to pay it for a smallish' albeit Canadian market would be an anchor that'd sink their boats. Both would be close shaves in terms of profitabilty as numerous studies have shown. Maxed out, they might turn $180M in revenues on expences of app. $150-$160M. Imagine the debt load on top of that in servicing the debts to finance the Expansion Fee's (who pays cash these days?).....

Wpg has an arena so they could likely handle as much as $170M-$225M, as could QC provided the financing for the new arena up there is indeed covered by at minimum 2 levels of government & private contributions. Southern Ontario is a completely different breed of animal as you noted, so who knows what the maximum might be?. You just have to figure though that the smallish cadre' of the real powerbrokers within the BOG's drool over that one no?. MLSE & Peddie feeling like a prime steak in the butchers shop window on a payday everytime they get together for a meeting with the likes of Jacobs & Snider deciding whether they want them cooked rare, medium rare or carbonized.
OK, I can buy that. The only question then is if the NHL sees it as worth 'cashing in the chip' for $200M. Having WPG and QCY vacant gives them leverage when arena issues come up in other cities, so maybe they don't want to give that up for $200M.

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03-05-2011, 12:07 PM
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To think the NHL is going to abandon a market that is clearly a key part of their strategy and injure a city that has fought so hard for them is just naivety. If the Coyotes leave, Glendale will have a team within 24 months.

If the NHL abandons them, it puts a serious chilling effect on the 'cities building arenas for teams' thing the NHL has going on, and they aren't going to risk that.
So after 2 years of searching for a buyer in Phoenix, their best offer is one willing to pay 70 million for the franchise if he can get his losses covered for 5 years. Do you honestly think the NHL is gonna turn around and sell them an expansion franchise for that price within a couple years? After INSISTING that the sale price has to be 170 million to cover their investment. Doesn't make sense to me.

Perhaps the NHL would consider them for expansion, but they'd need someone willing to pay the expansion fee first.

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03-05-2011, 12:20 PM
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OK, I can buy that. The only question then is if the NHL sees it as worth 'cashing in the chip' for $200M. Having WPG and QCY vacant gives them leverage when arena issues come up in other cities, so maybe they don't want to give that up for $200M.
Well, what I dont quite "get" is why would they just leave that money on the table?. If we assume that a couple of relo's are in the off'ing, a QC or Wpg would be paying for an existing team & covering hard costs with their money, whereas if they are granted expansion franchises, the money's split 30 ways & everyone gets a piece of the action. The league could easily handle another 2 or even 3 teams so the argument of "optimum size" at this juncture is rendered impotent. Could it be that the league is wide awake to this reality & as such is but one of another of the reasons they are fighting tooth & nail to keep it all together in places like Phoenix, Miami & Atlanta?.

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Perhaps the NHL would consider them for expansion, but they'd need someone willing to pay the expansion fee first.
If the Coyotes are moved, Id' Bet my Bippy that should expansion be considered within the next few years, absolutely they'd return to Glendale. Reallly simple case of Show me the Money.

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03-05-2011, 12:34 PM
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So after 2 years of searching for a buyer in Phoenix, their best offer is one willing to pay 70 million for the franchise if he can get his losses covered for 5 years. Do you honestly think the NHL is gonna turn around and sell them an expansion franchise for that price within a couple years? After INSISTING that the sale price has to be 170 million to cover their investment. Doesn't make sense to me.

Perhaps the NHL would consider them for expansion, but they'd need someone willing to pay the expansion fee first.
Inheriting the Coyotes debts surely has negative value, which an expansion team wouldn't have to worry about.

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03-05-2011, 12:48 PM
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Inheriting the Coyotes debts surely has negative value, which an expansion team wouldn't have to worry about.
Very true, and most unfortunate that circumstances have created a situation whereby both QC & Wpg are likely to inherit teams as opposed to coming through the front door with a clean slate. The money laid down going to pay off creditors in market A or B as opposed to benefiting the other 28 teams. I do however feel the NHL itself bears some responsibility for this, as clearly they have either been blind to and or possibly procrastinated when early warnings were fired & they did little to try & assist the troubled franchises beyond writing cheques. He who procrastinates misses opportunities & will have decisions made for him.

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03-05-2011, 01:02 PM
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The Sunbelt expansion, while I agree with the premise entirely, was ill-timed in the sense that it happened during an era of incredibly easy credit, and people that should not have been seen as viable 'builders of a market' were able to get funding.

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03-05-2011, 01:48 PM
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Here's a thought: on Monday, the league could announce it's expanding to Winnipeg and Quebec. The expansion fee per team is 175 million, which breaks down to 35 million per team. They then use Phoenix's share to drop the selling price to MH from 170 to 135 million. Glendale is then able to reduce its bond offering to 65 million, leading to less risk and a lower interest rate, and the amount better passes the gift clause since most of the studies did value the parking rights around 70 million or so...

Everybody wins!

PS: I came up with 175 million based on the reports the TNSE was prepared to pay 170 million for the Coyotes last year.

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03-05-2011, 01:59 PM
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Here's a thought: on Monday, the league could announce it's expanding to Winnipeg and Quebec. The expansion fee per team is 175 million, which breaks down to 35 million per team. They then use Phoenix's share to drop the selling price to MH from 170 to 135 million. Glendale is then able to reduce its bond offering to 65 million, leading to less risk and a lower interest rate, and the amount better passes the gift clause since most of the studies did value the parking rights around 70 million or so...

Everybody wins!

PS: I came up with 175 million based on the reports the TNSE was prepared to pay 170 million for the Coyotes last year.
Please excuse me, Mike in MN, because perhaps I'm just dense, but I don't understand the part in bold?

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03-05-2011, 02:10 PM
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So, those figures that some of you are tossing around, somewhere between $150m and $200m, would it be about the same for both Canadian markets, Winnipeg and Quebec City? And second question, would markets in the US fetch more or less than that, for instance: Houston, Kansas City... or Seattle or Portland if those cities came available?

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03-05-2011, 02:17 PM
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Please excuse me, Mike in MN, because perhaps I'm just dense, but I don't understand the part in bold?
Sorry 'bout that, I skipped the math equation.

175,000,000 x 2 =350,000,000

350,000,000 / 30 (existing teams' shares)= my math in my head is way off!

It's actually 11.66 million per team. Well, it was a good theory while it lasted. I think I need a nap

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03-05-2011, 02:22 PM
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Sorry 'bout that, I skipped the math equation.

175,000,000 x 2 =350,000,000

350,000,000 / 30 (existing teams' shares)= my math in my head is way off!

It's actually 11.66 million per team. Well, it was a good theory while it lasted. I think I need a nap
Thanks! Though it appears that it was good that I asked the question because in having to explain it to me you realized your error. I had no idea there was an error, because I had no idea what it meant.

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03-05-2011, 02:23 PM
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So, those figures that some of you are tossing around, somewhere between $150m and $200m, would it be about the same for both Canadian markets, Winnipeg and Quebec City? And second question, would markets in the US fetch more or less than that, for instance: Houston, Kansas City... or Seattle or Portland if those cities came available?
I think they'd be about the same. Only Southern Ontario jumps out as being more expensive, mostly due to the two other teams claiming the market.

Hamilton/SO =bidding war, all others ≈ 150-200 million (unless they also encroach on an existing team's territory)

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