BCE-Rogers Biggest Losers From Hockey Lockout
BCE Inc. (BCE) and Rogers Communications Inc. (RCI/B) have the most to lose from the National Hockey League lockout as revenue dries up from their newly acquired Toronto Maple Leafs franchise, the most profitable among 30 teams.
The two companies completed the C$1.32 billion ($1.35 billion) purchase of Maple Leaf Sports & Entertainment Ltd. last month and may lose a whole season from the disruption. While the team hasn’t won the championship Stanley Cup trophy since 1967, the franchise had revenue of $193 million and operating profit of $82 million last year, tops in the league and almost double its closest competitor, the New York Rangers.
“If all teams were like the Leafs, making stinking amounts of money, we wouldn’t have this problem, so certainly Rogers’ and BCE’s pain is greater than those owners whose teams are marginal,” said Iain Grant, president of The SeaBoard Group, a Toronto-based telecommunications research firm.
Rogers and BCE, Canada’s No. 1 and No. 2 wireless carriers, respectively, face lost ticket, merchandising and television advertising revenue if the season doesn’t begin on Oct. 11 as planned. The league has already scrapped exhibition games that were scheduled for September.
Both Montreal-based BCE and Rogers, headquarted in Toronto, have been adding sports teams and specialty broadcasters to provide content for smartphones, iPad tablets, computers and digital televisions. BCE Chief Executive Officer George Cope spent almost C$8 billion in cash and debt over the past two years buying media companies including CTV, owner of the TSN network and Maple Leaf Sports, to feed his so-called four-screen strategy.
Cope’s plan is designed to capitalize on the sport’s iconic position in hockey-obsessed Canada. TV viewership of Sidney Crosby’s gold-medal winning goal in overtime against the U.S. at the 2010 Winter Olympics was the biggest TV audience in Canadian history, peaking at 22 million in a country of 34.5 million people. Cope has said the surge in Canadian wireless data traffic after the Crosby goal convinced him the four- screen plan was the right approach.
The lockout may cost BCE and Rogers C$25 million to C$50 million a quarter each, said Graydon Ebert, who specializes in corporate and commercial law at Barriston Law LLP in Barrie, Ontario. “Because they are the teams that draw a lot of the revenue, I’m sure the companies would rather have them playing,” he said.
BCE and Rogers each acquired a 37.5 percent stake in Maple Leaf Sports on Aug. 22 and together control the company, which also owns the Toronto FC soccer team. BCE owns a minority stake in the Montreal Canadiens, which has won more Stanley Cups than any other team and is third in the league in profit and revenue.
NHL owners locked out their players on Sept. 16 for the second time in seven seasons in a dispute over revenue sharing. In the previous lockout, the 2004-05 season was completely lost. The owners want to cut players’ share of the league’s revenue to 47 percent from 57 percent because only 12 of the 30 NHL teams made money last year, according to a Forbes study.
The league’s total revenue, buoyed by a 10-year, $2 billion television contract with Comcast Corp. (CMCSA)’s NBC, swelled to an estimated record $3.2 billion last season from $2.2 billion in 2006, according to the NHL.
To be sure, a lockout means owners don’t have to pay player salaries or the costs of broadcasting games, which can run as much as C$60,000 a match, Vancouver-based Tom Mayenknecht, a sports business commentator at the Sport Market radio show, said in a phone interview.
After the 2004-2005 season was canceled, former BCE CEO Michael Sabia told analysts the lockout cost the company pay- per-view revenues while helping “a little bit on the operating costs side” at its GlobeMedia unit.
A month earlier, Rogers founder and then CEO Ted Rogers said its Sportsnet unit saw “significant production cost reductions” because of the NHL lockout.
Advertising sales would decline about C$30 million at BCE this fiscal year based on the C$12.7 million, or 16 percent drop at TSN and the C$14.8 million, or 16 percent drop at French- language RDS during the last lockout, said Adam Shine, an analyst at National Bank Financial, in a note yesterday. Sportsnet, owned by Rogers, saw ad sales contract C$11.8 million, or 29 percent, in fiscal 2005.
However, BCE’s conventional networks and other speciality services could see “at least” $30 million in shifted ad dollars from the Canadian Broadcasting Corp., which airs Hockey Night in Canada and experienced a 22 percent decline in revenue in 2005, Shine said.
BCE had net income of C$2.57 billion on revenue of C$19.5 billion while Rogers made C$1.56 billion from sales of C$12.4 billion in 2011. BCE has risen 13 percent and Rogers 7 percent in the past 12 months, compared with a 2.1 percent rise for the Standard & Poor’s/TSX composite index. BCE was little changed at C$43.07 at 9:38 a.m. in Toronto, while Rogers rose 8 cents to C$39.66.
“Long term, the lockout will only make their investment a better deal as it will surely reduce owner operating costs,” said Neal Pilson, president of Pilson Communications and the former president of CBS Sports.
A canceled NHL season would force BCE and Rogers to rely on filling their 20,000-seat Air Canada (AC/B) Centre with concerts and the National Basketball Association’s Toronto Raptors, which they also own.
BCE’s Mark Langton declined to comment on the potential impact of a long-term NHL work stoppage. Rogers doesn’t have any comment on the impact of the lockout, said spokeswoman Patricia Trott.
“Like fans everywhere, we hope that players and the league can come to a speedy resolution,” she added.
Pat Park, a spokesman for the Toronto Maple Leafs, said season ticket holders can choose to be refunded monthly should games be canceled and receive 1 percent interest, or they can leave their money in an account and earn 5 percent interest.
The impact of a prolonged lockout on BCE and Rogers may ultimately be more symbolic than financial, said SeaBoard Group’s Grant. Vancouver-based Telus Corp. (T), Bell and Rogers’ biggest wireless competitor, has been the best performer of the three stocks over the past 12 months with a 20 percent rise, and has made a point of saying it doesn’t need to own content to make money for its shareholders.
“They had the chance of doing some really interesting things this season and flexing their muscles to Telus,” said Grant. “It’s a lost opportunity.”
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