ShareThis Page
Experts: Time is ripe if Lemieux, Burkle intend to sell Penguins interests |

Experts: Time is ripe if Lemieux, Burkle intend to sell Penguins interests

Chaz Palla | Trib Total Media
Penguins players stand at center ice after introductions Thursday, Oct. 9, 2014, at Consol Energy Center.

Forbes didn’t guess when it affixed a $565 million valuation to the Penguins — the 10th highest of any NHL team — seven months ago.

Determining the value of a professional sports franchise can be complex, but there are a few key guidelines, several sports business experts said.

Intricacies of the process may differ slightly from person to person, but taking the temperature of a team comes down to four basic questions:

• What’s the arena situation?

• How’s interest in the local market?

• Are there long-term, burdensome contracts?

• What’s the strength of the league?

In retaining Morgan Stanley, Penguins co-owners Mario Lemieux and Ron Burkle essentially are seeing how their team will do on a grading scale such as this. As you might imagine, the Penguins pass with flying colors.

“The Penguins are certainly one of the NHL’s most desirable franchises,” said John Clark, a professor of sport management at Robert Morris.

Home in the Hill

The Penguins’ lease at Consol Energy Center, which opened in 2010-11, doesn’t expire for more than 24 years. Such an agreement was designed to keep the Penguins in Pittsburgh.

Mayor Bill Peduto and Allegheny County Executive Rich Fitzgerald sprung into action repeating the they’ll-never-leave refrain after news broke of Burkle and Lemieux’s decision to hire Morgan Stanley.

Having a new building and a steady influx of business through concerts and events is a major plus, said Joe Kettell, managing director of New Jersey-based valuation firm Appraisal Economics.

“Look at some of the baseball teams with new stadiums like the Nationals or the Twins,” Kettell said. “These new stadiums are very lucrative for the team owners and have increased the value of the teams substantially.

“Many times, the venue can be worth the value of the team by itself.”

Clark called the Hill District redevelopment project — a $440 million undertaking across 28 acres on the former Civic Arena site — a “sweetheart” deal.

Along with housing and retail, the plan includes an 18-year lease with U.S. Steel for a building that eventually will become its headquarters.

“Most people don’t understand how good of a deal the Pens received,” he said.

Youth gone wild

The Penguins do not struggle to attract interest.

They have an exclusive regional TV rights deal with Root Sports that runs through 2028-29; a sellout streak that stands at 377 games, not to mention a waiting list for season tickets; and the best TV ratings among U.S.-based NHL franchises for six straight seasons.

“I call it ‘club strength’ on both the performance and business side,” said Stephen Greyser, a Harvard Business School professor who specializes in sports business. “That builds the brand.”

Clark points to the Penguins’ use of social media — their Twitter account has 664,000 followers, fifth most in the NHL and No. 3 among U.S.-based franchises — for their popularity among a younger demographic.

“The Penguins have done well to engage their younger fans through traditional advertising but also social media,” Clark said. “If you crunch some of the numbers on fan avidity by age, younger people like the Pens. That’s their favorite team in the Pittsburgh market.

“Everyone is always going to like the Steelers. That’s more ingrained. And the Pirates have been a great story, but for younger people, it’s the Pens.”

Star power

In trying to determine the value of a franchise, Kettell will examine recent transactions and compare them to teams in similar markets.

Long-term contracts for productive stars are good. Long-term contracts for unproductive veterans obviously are bad.

In announcing Morgan Stanley had been retained, Lemieux cited the fact “our star players are signed to long-term contracts” as a reason to gauge interest.

Sidney Crosby, Evgeni Malkin, Kris Letang and Marc-Andre Fleury are the Penguins’ four core players, and they’re signed through at least 2018-19, three of the four through 2021-22.

That’s a plus, Clark said.

Having star players signed, healthy and productive can help build “tradition,” Greyser said, and “some of the brand comes from tradition.”

“It’s fan support of stars or loyalty,” he added.

That has been, and will continue to be, a benefit to the Penguins.

“The Penguins have some very good traditions,” Greyser said, “especially since Mario Lemieux came to them.”

Unlimited upside?

Clark is a hockey fan but believes there’s still something missing.

“At some point,” he said, “someone’s going to figure out the right formula for putting hockey on television, where there’s not such a dramatic drop-off for live action.”

That would help hockey reach new heights. Clark called the NHL an “undervalued” league and said a buyer could view a selling price of $565 million — though likely higher — as small potatoes compared to the long-term benefit.

The NHL also is working on the longest collective bargaining agreement in the history of the sport, which expires after the 2021-22 season.

“They could also be hedging their bets with franchise values around the rest of the league,” Clark said. “The NHL is an undervalued league. They could say, ‘Here’s one of the stronger franchises in an undervalued league. If we do X, Y and Z, it will enhance the value of our investment. And if the league does some things down the road, we could make a lot of money.’ ”

How much? That’s tough to tell, Greyser said. Sometimes beauty is in the eye of the beholder.

“The real value of a club is what someone will pay for it,” he said. “That sounds stupid. It may sound mundane. But what someone will pay for it is the real value.”

Jason Mackey is a staff writer for Trib Total Media. Reach him at [email protected] or via Twitter @Mackey_Trib.

TribLIVE commenting policy

You are solely responsible for your comments and by using you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.