In 1990, Bruce Firestone won Ottawa an NHL franchise with an audacious bid built on financial thin ice. But 25 rocky years later, massive changes in the media and sports worlds have put the small-market Senators on solid ground. Andrew Duffy reveals the team’s unlikely success story.
Only when Montreal Canadiens general manager Serge Savard winked at him in the bathroom of a Palm Beach hotel did Cyril Leeder realize that Ottawa — against all odds — was about to be awarded an NHL franchise.
It was the early afternoon of Dec. 6, 1990 and Leeder was taking a washroom break before entering a Breakers Hotel ballroom to learn the fate of Ottawa’s bid. Six other cities, including Hamilton, were in the running.
“Serge is standing next to me and he winks at me and says, ‘Way to go,’” remembers Leeder. “That’s the first I knew. Standing at a urinal.”
Moments later, NHL President John Ziegler Jr. confirmed in front of a crowded ballroom that Ottawa and Tampa Bay would be joining the world’s pre-eminent hockey league.
The mastermind of Ottawa’s audacious bid, real estate developer Bruce Firestone, was incredulous. “It was a very magical moment,” he remembers.
In 1989, original Senators player Frank Finnigan and Bruce Firestone fire up interest with a new Senators logo.
Firestone had good reason to marvel at his own accomplishment. The Ottawa bid depended heavily on a land development scheme to create the wealth Firestone needed to pay the NHL’s $50 million entry fee.
His plan was built on paper and chutzpah: Firestone had neither an arena secured, nor stacks of money when the NHL handed him the keys to a new franchise. His firm, Terrace Investments, had about $22 million in cash and equivalents. Hamilton, by contrast, had a 17,500-seat arena already built and the financial backing of Ron Joyce, the deep-pocketed co-founder of Tim Horton’s.
Twenty-five years later, Ottawa’s improbable franchise is solidifying its place in the nation’s capital.
The club’s shaky foundations, rebuilt during a 2003 bankruptcy proceeding, have settled into place. And today, the franchise is evolving into a different kind of enterprise — one that might offer the Senators unprecedented stability.
The Senators Sports and Entertainment Group now operates like a media conglomerate, building new revenue streams based on the hockey team’s ability to reach millions of fans through TV broadcasts, websites, social media feeds and charitable events.
“We are, I think, as well off economically as we’ve ever been right now,” says Senators president Cyril Leeder.
That the Senators have found that kind of success in a small market may be just as improbable a story as the one that launched the franchise in the first place.
The bid for a franchise
December 1, 1989: Bruce Firestone, centre, and Cyril Leeder, second from right.
Cyril Leeder has been part of every minute of the team’s roller coaster existence from the elation of winning the NHL bid to the collapse of the real estate deal that the franchise was built upon; from the opening of the Palladium in January 1996 to Alexei Yashin’s maddening holdout; from its 2003 descent into bankruptcy to its 2007 Stanley Cup run; from Daniel Alfredsson’s sad departure to last year’s inking of a landmark TV deal.
The Brockville-born Leeder is one of six employees who have been with the team from its inception. It’s not the career he had envisioned for himself.
“My dad was an accountant so I wanted to be an accountant,” he says. “I thought I would be a public accountant my whole life.”
Leeder began his Senators career thanks to his association with Bruce Firestone; it was a partnership founded with the help of the Citizen.
In 1984, Leeder was looking for a job in real estate development when he noticed a small advertisement deep in the newspaper’s classified section: Terrace Investments was looking for an assistant comptroller. Firestone liked employees who scoured the newspaper for opportunities.
Leeder quickly established himself as a key member of the Terrace team. “He was a very quiet guy, but he was shrewd and a good judge of character,” remembers Firestone. “So I hired Cyril and Cyril hired everyone else.”
Terrace Investments had 14 employees when it launched a bid for an NHL franchise.
Advertisement to bring back the Ottawa Senators
Firestone, Leeder and Randy Sexton, another Brockville-born business executive, put together the key components of the bid. They bought 600 acres of land, collected deposits on 15,000 season’s tickets, lined up 500 corporate sponsors, negotiated with politicians for support, and lobbied each and every member of the NHL Board of Governors.
Leeder wrote the business case for the franchise — a case that relied on building a large commercial and residential development, West Terrace, on farmland owned by the firm. Terrace had paid $7.2 million for the Kanata property that it wanted to rezone.
Explains Leeder: “If we could take a piece of land and make it worth five or 10 or 15 times the value, then that might be the way for a small company to be able to pay for an arena and a franchise.”
The Ontario Municipal Board heard the rezoning application, which was opposed by some politicians and farmers. The club’s existence hung in the balance.
The Senators might never have hit the ice had the Carp River been a bit deeper — federal legislation to protect navigable waterways would have applied — or had Firestone thrown up his hands and sold out to investors from Anaheim, who offered him $20 million to relocate the team.
“I didn’t bring back the Ottawa Senators to play in Anaheim,” Firestone told their representative.
Ultimately, the OMB granted Terrace Investments the right to build a hockey arena on 100 acres of farmland, but it put an end to the land development scheme north of Highway 417. It also saddled Terrace with the $30 million cost of building a highway interchange.
The decision left Terrace Investments struggling to meet the NHL entry fee payment schedule, which required $5 million in January of 1991, another $22.5 million six months later, and the final instalment in December. It also spelled the end of Firestone’s control of the Senators.
Rod Bryden, a high-tech entrepreneur known for his complex deal making, was brought in to find investors who could keep the team afloat and finance a new arena in the midst of a recession. Bryden somehow patched together an investment syndicate — it included Ottawa-born crooner Paul Anka and frozen food magnate Harrison McCain — to launch the team: the Senators played their first game on Oct. 8, 1992 in the Ottawa Civic Centre.
Oct 8, 1992: Ottawa Senators beat the Montreal Canadiens 5-3 in their debut at the Civic Centre
Bryden bought a majority stake in Terrace and took full control of the Senators the following year, but the team still needed an NHL-worthy arena.
Once again, the odds seemed stacked against the fledgling club. Four times Bryden had deals collapse as he sought to secure a financing package for the Palladium. Canadian banks, pension funds and insurance companies all deemed the $188 million arena construction project too risky.
A large U.S. conglomerate, Ogden Corporation, came to the rescue. Ogden operated airports and airline services, water and waste-management plants, and had recently moved into the management of sports facilities.
Eager to expand its stable of NHL clients, Ogden raised money from U.S. investors and guaranteed loans in exchange for a 30-year contract to manage arena operations in Ottawa.
Ogden ensured Ottawa would get an NHL arena — the Senators played their first game in the Palladium in January 1996 — but it was built on financial quicksand.
Loans incurred by the franchise meant that it would have to pay about $20 million in interest charges every year. Faced with a falling Canadian dollar — it hit a record low of 61.98 cents in January 2002 — and rising NHL salaries, the club sank further into the debt each year.
A crisis was finally triggered when Ogden, buffeted by the collapse of Enron Corp., sold its sports management business. But the firm, renamed Covanta, couldn’t dump the Senators management contract and a similarly disastrous one in Anaheim, and it sought bankruptcy protection in April 2002.
Bryden tried desperately to arrange new financing for the team to stay above water, but without Covanta as a partner, the deals collapsed. The club missed payroll in early January 2003 and sought bankruptcy protection one week later.
Bryden lost control of the team, and with it, millions of dollars in personal investments and deferred shares.
MONEY MAN: First as a shareholder, then owner, Rod Bryden raised the millions needed to secure the franchise and build an arena
But the bankruptcy afforded the Senators franchise a critical opportunity to restructure.
The bankruptcy process gave the team’s new owner, Biovail CEO Eugene Melnyk, the right to accept or reject any of the club’s commercial contracts. He used the opportunity to strike better deals with parking and food concession operators, and ended the club’s association with Ticketmaster.
The club launched its own ticket distribution firm, Capital Tickets, beginning what would become a relentless pursuit of new revenue streams.
“We knew at the time — and this is still very much the case today — that Ottawa is a small NHL market,” Senators owner Eugene Melynk said in an email exchange. “I needed to find every possible means of helping the business of hockey in Ottawa.”
Melnyk, who bought the franchise and arena for $127 million, has benefited from new league policies — the player salary cap and revenue sharing — designed to bolster small market teams, and a growing audience for the NHL’s on-ice product. He has also faced new business challenges, including two players’ strikes, the collapse of Ottawa’s high tech industry, and a 75-cent Canadian dollar.
But, under Melynk, the team has never again faced the existential peril that marked its first 13 years.
Seismic shifts in the business of sports
Ottawa Senators’ president Cyril Leeder — seen in the arena’s latest money-making venture, Club Bell — has been with the team from the beginning.
The evolution of the Ottawa Senators as a business is best illustrated by the relative decline in the importance of ticket sales to the club’s bottom line.
Ticket sales once represented half of the team’s annual revenues, but they now make up only 30 per cent.
The club’s growth has come from its other business lines, which leverage the Senators brand, the team’s TV viewership and its 19,153-seat arena.
Key to the club’s improved fortunes is television. The league signed a $5.2 billion TV deal with Rogers in 2013 that awarded English national broadcast rights to Sportsnet, a move that displaced both the CBC and TSN.
The price of TV broadcast rights for all major sports has soared in recent years because advertisers are willing to pay a premium to air commercials during live events that frustrate personal video recorders (PVRs).
The Senators capitalized on the heated competition for sports content in striking their own TV deal. Early last year, the club signed a regional broadcast contract with TSN, still smarting from the loss of its national hockey broadcasts, that could reportedly be worth up to $400 million over the life of the 12-year agreement.
It means the franchise now pulls in an estimated $30 million a year from local and national TV rights, with increased revenues forecast in the years to come. “TV rights are worth a lot more than they were even five years ago,” says Leeder, who would not confirm the actual figures.
The NHL has also handed the Senators a large broadcast region — it includes Eastern and Northern Ontario, much of Quebec, and Atlantic Canada — in an effort to help the small market franchise compete with hockey behemoths in Montreal and Toronto. The team’s large, exclusive broadcast area — other teams are not allowed to distribute games in the Senators market without a reciprocal deal — makes its regional TV rights more valuable.
The resulting viewership also makes it easier for the Senators to sign partnership deals with companies that want complex advertising packages.
“Our corporate partners no longer simply want their logo on a rinkboard,” says Melnyk.
The Senators are like a media company now, selling ads in the arena, on TV and online.
The club can offer corporations a suite of opportunities that take advantage of the team’s platforms: its regional broadcast, its social media footprint, its popular website, Sens TV, and its widely publicized charitable events. The club has more than 300,000 Facebook followers, an equal number on Twitter, and 125,000 Instagram followers.
“Today, our fans interact with the team in a completely differently way than they did 10 years ago,” says Melnyk, “and our business relationship with corporate partners reflects this new reality.”
The evolution of the franchise — its transformation into an advertising platform — means club executives regularly use phrases like “online impressions,” “targeted activations,” and “passion points.”
The reach of the club now extends well beyond Ottawa city limits: the Senators have a partnership deal with Turkish Airlines and recently signed another with Chinese telecom giant, Huawei. The latter deal includes rink board and TV advertising along with in-game promotions featuring the company’s new smartphone; the company will also take part in the Sens@School program operated by the club’s charitable arm, the Ottawa Senators Foundation.
Other business lines have grown alongside the Senators’ expanding roster of corporate partners.
Leeder says the food and beverage business has doubled in five years — the addition of a Farm Boy kiosk has been a major hit — while the concert business has also experienced substantial growth.
The overall growth in the business lines has allowed the to lessen the longstanding $10 million gap between the franchise’s annual revenues and its costs. Melnyk has added about $150 million in debt during his ownership tenure to cover that persistent shortfall.
“We’re definitely closing the gap, for sure,” says Leeder.
Forbes magazine recently estimated the value of the Senators at $370 million, a healthy premium on what Melnyk paid for the bankrupt franchise in 2003.
An arena at LeBreton?
1996: The Palladium on the eve of its opening. At 20 years of age, the arena is getting old.
As the Senators mark a quarter century in business, one pressing question remains unanswered: Where will the team be playing for the next 25 years?
The Canadian Tire Centre — it began life as the Palladium — will soon turn 20 years old, which is advanced middle age for an NHL hockey arena. (Only six NHL teams have rinks built before the 1990s.)
The Senators spend more than $3 million a year to maintain the building and add upgrades, such as the popular Club Bell seating area. But it will need expensive repairs in the next decade, including a new roof, window and doors.
The Senators covet a downtown arena site, and they’ve made a detailed proposal to build a sports and entertainment facility on Lebreton Flats. That proposal is expected to be unveiled in January by the National Capital Commission, which must decide how the land will be used.
Four groups, including the Senators, have submitted proposals and the NCC is expected to select one of them after public consultations.
“It’s no secret that we believe a downtown arena will be a game changer for the city, the new LRT line and for the Senators,” says Melnyk.
A downtown arena, the Senators believe, would open up a significant part of the Ottawa market by bringing them closer to where most people work. Fan research conducted by the team shows that the majority of its fans come from the city’s west end and the Ottawa Valley. The team does not draw heavily from Gatineau, Orleans or the south end of the city.
“We’ve been doing all right here with one arm tied behind our backs: we’re only accessing about 40 per cent of the market,” says Leeder.
While it waits for a decision on a new arena, the club’s leadership team is focused on winning — not least because it’s good business for a team with a decidedly young fan demographic. “From the business side, we think that solidifies a generation of your fan base by winning the Stanley Cup,” says Leeder.
Melnyk believes the team still needs another revenue source “to thrive” — he has had proposals for a soccer team and a casino rejected — but adds: “(General Manager) Bryan Murray and our hockey operations group know they will continue to have the resources available to them to build and grow a team that can go deep in the playoffs and win a Stanley Cup.”