Hurricanes struggle to regain their place in Triangle’s sports scene

The celebration may have been the high water mark for hockey fans in the Triangle.

Under a blazing sun in June 2006, an estimated 30,000 rabid Carolina Hurricanes fans gathered in West Raleigh to celebrate the team’s Stanley Cup victory. Caniac Nation had become a phenomenon.

These days finding a Caniac, let alone a nation of them, can be difficult.

The Canes are last in attendance in the NHL, averaging just 11,516 fans a game through 26 home games this season. The number of season-ticket holders has fallen for six straight years and is now 7,000, down from a peak of 11,000 the year after the team won the title. Even this weekend’s 10th anniversary celebration of winning the Cup wasn’t enough to fill the PNC Arena. Friday night’s game had about 2,900 empty seats.

The team’s struggles are giving new life to questions about the viability of professional hockey in the Triangle, one of the NHL’s smallest markets.

“I think everybody believes that there is a market here for an NHL team,” said Don Waddell, the Canes’ team president since 2014. “We’ve got to do our job. It’s just not on the ice, it’s off the ice. We have to make ourselves part of this community again. I think there’s been a little separation the last few years.”

The Canes are trying to reconnect with the community even as owner Peter Karmanos Jr., seeks to sell all or part of the team. It’s been 16 months since Karmanos, 72, made his intentions public, but no buyer has come forward.

The future of the team isn’t just a concern for area hockey fans. Gale Force Holdings, the parent company that owns the Canes, operates and schedules events in PNC Arena, which the team shares with N.C. State.

Raleigh, Wake County and the state invested a total of $40 million in the construction of the arena. Another $62 million in construction bonds were issued, debt that is being paid for by Wake County hotel and meal taxes.

Losing a bundle

The Canes lost $11.7 million last season and have lost $74.2 million over the past nine years, according to Forbes. Asked about the team’s cash flow situation, and whether Karmanos is having to put in money to cover operational expenses, Waddell said such infusions are rare and small compared to previous years.

“If anything right now, it would be small amounts,” he said.

The Canes have the ability to borrow as much as $100 million from the NHL’s low-interest credit line. The team declined to disclose whether it has taken out such a loan.

Much of their financial problems can be attributed to the team’s poor play on the ice. The Canes have reached the Stanley Cup playoffs just once since winning it all in 2006.

That has deprived the team of much needed revenue, both in terms of season-ticket holders and additional home playoff games. Gale Force reported its two highest revenue-producing seasonsin 2005-06 and 2008-09, when the Hurricanes won two rounds and advanced to the Eastern Conference Finals.

“The key to survival in the NHL is gate revenue and the most valuable tickets are sold to corporate clients and season ticket buyers,” said John Vrooman, a sports economist with Vanderbilt University, in an email.

Vrooman notes that in traditional hockey markets corporate accounts make up as much as 80 percent of the season ticket holder base, where as for the Canes they account for just 40 percent.

Corporations are much less likely to cancel their season tickets when the team doesn’t perform, unlike fans who are more influenced by wins and losses. In markets such as the Triangle, where professional hockey is relatively new, attendance is directly tied to the team’s performance “and the bottom line grows in the playoffs,” Vrooman said.

And while the Triangle economy is booming, the Canes have not been able to translate the region’s success into more advertising revenue. The team reported $6.9 million in advertising revenue last year, a 20 percent decline from the previous year.

Waddell said part of the team’s challenge is tailoring its corporate offerings to appeal to the types of companies that call the Triangle home. The region has just one Fortune 500 company, Quintiles, and many of its largest employers are in industries that do little or no traditional advertising.

“We don’t have the major consumer brands, we have a lot of pharmaceutical, a lot of technology, a lot of nontraditional companies that don’t advertise,” Waddell said.

New marketing strategy

Waddell attributes much of the recent decline in attendance to the team’s strategy, adopted last season, of reducing the number of complimentary and discounted tickets. The move is an attempt to place more of a premium on season tickets.

Vrooman said such a strategy makes good marketing sense, because season-ticket holders are a more reliable source of revenue. But he said slashing complimentary and discounted tickets has its downsides – revenue from concessions and parking declines, and perhaps more importantly, the smaller crowds diminish the fan experience in PNC Arena.

That has clearly become a problem for the Canes. PNC Arena, once considered the loudest building in the league, has become eerily quiet on some nights with the arena often about half full.

“The side effect of that is you get a lot more of the opposing team’s fans in the arena, it really changes it,” said Norm Storwick, who has been a Canes fan since the 2006 Cup run. “You feel like you’re on contested ground or something.”

Storwick, 47, used to purchase a partial season-ticket package that gave him two tickets to 13 home games a year. He stopped buying the package several seasons ago, and now shares a package with a friend and goes to about half as many games.

“They definitely have been accentuating the full season-ticket packages over all of the others,” he said. “You don’t get all of the goodies with the partial that you do with the full-season.”

This year, he said, the team stopped guaranteeing that partial season-ticket holders would be able to sit in the same seats for each of their games.

“To me that was always part of the fun; being able to get a little sense of community by seeing the same people around you when you would go,” Storwick said. “It made me even less interested in buying a partial season-ticket package.”

Waddell, acknowledging that the team’s in-game promotions had grown stale, said the Canes implemented a number of changes at the beginning of the season to improve the atmosphere.

Those changes included different music, having the team’s Storm Squad cheerleaders interact more with fans and sending T-shirt-laden parachutes down from the rafters.

“We’re just trying to create a little more energy in the building,” Waddell said.

Improving the atmosphere in PNC Arena won’t remove the uncertainty that will surround the team until a new owner is found.

The sale of a professional sports franchise is often preceded by cost cutting as the owner attempts to improve the team’s balance sheet and franchise value. Waddell insists that isn’t the case with the Canes and Karmanos.

“This isn’t a fire sale,” he said, noting that the Hurricanes have added 48 new employees since he was hired July 2014, most of them in sales and advertising. “He is a very passionate hockey man and doesn’t want to get out. … We’re trying to do everything possible to make this a better situation financially.”

Winning helps

Waddell is also adamant that the Canes are not in danger of being bought and relocated. NHL Commissioner Gary Bettman expressed similar sentiments in November.

The most frequently cited reason for why the Canes won’t leave is Gale Force’s agreement with Centennial Authority, the public entity that oversees PNC Arena.

Gale Force pays annual rent payments of $2.45 million under a lease that runs until 2024. The company receives all parking and concession revenue from non-N.C. State events and shares revenue from the building’s naming rights with N.C State and the Centennial Authority, which is responsible for maintaining and making improvements to the arena.

“The one thing that is very appealing to any potential investors is this property,” Waddell said. “The building is a very positive part of this transaction.”

PNC Arena will be 20 years old in 2019, and Centennial Authority has begun drawing up plans for a multimillion-dollar renovation to the building. Jeff Merritt, the authority’s executive director, said the decision on whether to go forward with some or all those improvements will likely depend on the ownership situation.

“Before we go to the city and county and other partners I think the ownership thing is one of the things we’d like to have wrapped up,” he said.

When that will be wrapped up is anyone’s guess.

Waddell said he always expected it would be a two-year process to find a buyer. One major hurdle to doing so is that Karmanos is seeking to sell the team but retain control for a period. Waddell said the approach is designed to increase the pool of potential buyers.

“The whole idea was to try and sell it in tranches,” he said. “… It goes to how many people or companies are out there and willing to take the whole thing on. This is probably more appealing to investors if we can continue down this path.”

Jim Cain, a Raleigh lawyer and a former Canes president, said he expects fan and corporate support will return once the ownership issue is settled.

“We know we’re going to have to have an out-of-town owner and people are afraid of that,” he said. “The fans are nervous about that. But it can work.”

Cain cited the Tampa Bay Lightning’s owner, Jeff Vinik, as an example of how a new owner can turn around a struggling franchise.

“We need an owner like that who’s got the resources to bring the organization back, to invest in the players and the facilities,” he said. “I’m confident eventually we’ll find one.”

When Karmanos announced his intention to sell, he speculated that the Canes could be worth about $400 million, or near what the New York Islanders sold for in 2014. Forbes recently valued the franchise at $225 million.

The sales price of NHL teams typically benefits from the scarcity of franchises on the market. But with the Pittsburgh Penguins also up for sale, and rumors that the NHL could be preparing to expand by two teams, the situation has shifted to more of a buyers market, said Vrooman, the sports economist.

As for this season, Waddell said average home attendance at Hurricanes games is up nearly 2,000 since just before Christmas, a bump that has coincided with the team playing its way back into playoff contention.

Vrooman said the long-term survival of hockey teams in nontraditional hockey markets depends on winning and the quality of the product on the ice. The Florida Panthers, who finished dead last in home attendance a year ago, have seen a 31 percent increase this season. The Panthers are leading the Eastern Conference.

“The hockey business is not rocket science,” Vrooman said. “… Build a winning team and they will come.”

David Bracken: 919-829-4548, @brackendavid

How Raleigh got the Canes

Peter Karmanos Jr. bought the franchise, then known as the Hartford Whalers, for $47.5 million in 1994.

Karmanos moved the team from Connecticut to North Carolina in 1997 and renamed it the Hurricanes. The team played its first two seasons in Greensboro, before moving to its current home in West Raleigh.

Related stories from Raleigh News & Observer