Friday night, the Carolina Hurricanes open their season at PNC Arena against the New York Islanders. Incidentally, the visitors represent a possible future for the Hurricanes, who are now up for sale.
Despite years of mediocrity, the Islanders found a buyer who paid upward of $400 million. The Islanders also will play in a new home in 2015, departing creaky Nassau Coliseum for the bright lights of Brooklyn’s Barclays Center.
Owner Peter Karmanos believes his Hurricanes are worth a lot of money – Islanders money, even.
How could this be possible? Raleigh is one of the smallest markets in the NHL, and the Canes have struggled to fill seats. Last year, they were 23rd in attendance and PNC Arena was filled on average to 82.9 percent of its capacity, 27th in the league. What billionaire would pay a fortune for this business?
Clearly, some will, and Karmanos’ estimation of his club’s value may be more than just wishful thinking. Valuing franchises is an obscure art because owners guard their finances. As sports economist Victor Matheson notes, the LA Clippers were thought worth $1 billion, but Steve Ballmer paid double that.
“Carolina is one of the cheapest teams in the league. It should be roughly in the bottom five,” says Matheson, who teaches at College of the Holy Cross in Massachusetts. “But a rich guy could come along that really, really wants a team. Forbes (magazine) thought the Islanders were worth $200 million, and they sold for twice that.”
Sports leagues are closed shops, with an artificial scarcity of teams. Thus an ever-swelling tide of shared league revenue lifts the same few boats. “You make these items rare, so not everyone can have one,” Matheson says.
So Karmanos is likely to see a substantial return on the $48 million he spent on the team formerly known as the Hartford Whalers. But any Hurricanes buyer will want a chance to realize similar returns.
Will he or she be satisfied with this small market and its middle-aged arena? After all, tech baron-saturated Seattle longs to fill the void left by the Supersonics. And there’s Kansas City, where a publicly financed arena was built in 2007 to attract an NHL or NBA team.
Karmanos, who relocated the Whalers in 1997, insists the Hurricanes will not move, but taxpayers subsidizing his profitable sale should be wary. Local leaders may come under pressure to make expensive upgrades to PNC Arena or sweeten the lease.
Meanwhile, this year Wake County will pay $5.2 million in debt service, and it will distribute an additional $3.4 million to the Centennial Authority from its major facilities fund. The Centennial Authority collects a minimum of $3 million in annual rent from the Hurricanes and passes along about $2 million to Raleigh and Wake County in annual payments-in-lieu-of-taxes. In short, a scant return on a public investment of approximately $100 million. Claims of indirect benefits – jobs, sales taxes – have been attacked by economists such as Matheson, who argue that money not spent on entertainment at sporting events will be spent elsewhere in the community.
Economists agree that community-owned teams are desirable, but North American leagues are a step ahead, banning such arrangements in their bylaws (the Packers are a grandfathered exception). “As soon as you create a public entity, you have to release your books to the public,” says Matheson. “And these leagues don’t want to do that.”
Matheson says the next best thing is to secure better deals. PNC Arena is typical of bad deals, with the public paying for 50 percent or more of the costs and getting only marginal returns. For a better deal, Matheson points to Santa Clara, Calif., whose taxpayers are on the hook for only about 10 percent of Levi’s Stadium, the new home of the San Francisco 49ers, while the stadium authority will earn football revenue directly.
If and when a Hurricanes buyer demands concessions, taxpayers may have to decide whether to pay up or risk losing the team. When Nassau County voters were asked to approve a $400 million bond issue to build a new home for the Islanders, they rejected it decisively. As a result, the Islanders will move to Brooklyn. “We tried very hard to keep the Islanders in their original home,” said then-owner Charles Wang.
They tried everything, that is, except building an arena themselves.
David Fellerath is a freelance writer in Durham.