Maple Leaf Sports & Entertainment Ltd.

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Maple Leaf Sports & Entertainment Ltd.

Air Canada Centre, 40 Bay St., Ste. 400
Toronto, Ontario M5J 2X2
Canada
Telephone: (416) 815-5500
Fax: (416) 359-9330
Web site: http://www.theaircanadacentre.com

Private Company
Incorporated: 1998
Employees: 500
Total Assets: $1 billion (2003 est.)
NAIC: 711211 Sports Teams and Clubs; 711310 Promoters of Performing Arts, Sports, and Similar Events with Facilities

Maple Leaf Sports & Entertainment Ltd. (MLSE) owns the National Hockey League's Toronto Maple Leafs, the National Basketball Association's Toronto Raptors, and the $265 million Air Canada Centre, as well as Leafs TV and Raptors NBA TV. MLSE, which brought the two professional sports teams under one new roof, has established a reputation as one of the best-run sports franchises in North America. Fans pack the arena paying the highest ticket prices in Canada.

Conflict on and off the Ice: 1927–91

The Maple Leaf hockey tradition dates back to 1927. The founder, Conn Smythe, created a public company to finance an arena for the team. Maple Leaf Gardens—erected in six months—was completed in 1931. Workers on the project received company shares as part of their pay.

The Maple Leafs won their first Stanley Cup during the 1931–32 season. Then in the 1940s, despite the loss of players to combat in World War II, the team won five more. The 1950s produced only one championship. However, the 1960s was another stellar decade. The Leafs put their name on the Cup four more times.

In 1961, Smythe had passed on leadership of the team to his son Stafford, Harold Ballard—a friend of Stafford's—and John Bassett, the owner of the Toronto Telegraph. A conflict among the partners resulted when Bassett tried to gain control. Ballard aligned with Smythe. In September 1971, Bassett sold out to the pair. Smythe died a month later, giving Ballard access to his shares. Maple Leaf Gardens, Limited, a public company owned by the Ballard family holding company, held majority interest in the hockey team and arena for the next two decades.

Although ownership was established, things remained unsettled for the Leafs. In 1972 Ballard was sent to prison for defrauding Maple Leaf Gardens (MLG). His son Bill stepped in to fill the gap but was pushed aside when his father returned. The younger Ballard moved into concert promotion and made him a name for himself in that venue, booking rock concerts and other entertainment at the Gardens and elsewhere in Toronto. On the ice the Leafs languished. Salaries were kept low and Ballard pulled out a lion's share of dividends.

During the 1980s, though, Ballard was in financial trouble. He had received funding from Toronto Dominion Bank (TD) to buy out his partners in the early 1970s. A combination of high inflation, rising interest rates, and inadequate dividend income left him in danger of losing the Gardens. Beer company Molson bailed him out on the TD loan and received an option to buy 19.9 percent of the outstanding shares. As the 1980s progressed, a battle heated up among Ballard and his children—particularly Bill—over control of the enterprise.

Ballard owned more than 80 percent of MLG when he died in 1990, but the estate was weighed down by millions in debt and familial lawsuits. Gardens Director and Secretary-Treasurer Donald Crump, Gardens Chairman and CEO Donald Giffin, and Steve Stavro, Harold Ballard's longtime friend and president of Knob Hill Farms Ltd. grocery chain, were named executors of the troubled estate. Over the years, Giffin had tried and failed to gain more of a toehold in the Gardens, and when Stavro and Crump formed an alliance he again was thwarted.

Stavro wanted control. He bailed out the estate when the loan from Molson came due and received a five-year option to buy 60.3 percent of the Gardens from the estate and the interest held by Molson Cos. Ltd.

1992–97: Reviving the Leafs

Stavro took over as chair and CEO of the Gardens in 1991. Over the next few years, he pumped $2 million into arena renovations, double the annual salary budget, and bring the team back into contention. In 1994, Stavro exercised the Molson option. Harold Ballard's son Bill continued to try to check Stavro's moves, but Stavro had powerful backers. The Ontario Teachers' Pension Plan (OTPP), a $34.7 billion fund, supported Stavro to a tune of $44.4 million. Toronto Dominion Bank chipped in another $12.5 million in an indirect investment. The acquiring company, MLG Ventures, made a bid of $34 per share according to the Financial Post. Since Ballard's death the stock price had been volatile, fluctuating between $22.75 and $44.25 a share. The deal ended the Leafs history of public ownership, which included hockey fans who passed stock down from one generation to the next.

Under Stavro, revenue for the club increased from $37.5 million in 1991 to $56.2 million in 1993. Profits, though, declined between the two years, from $7.5 million to $5.3 million, because of the increase in player salaries. Likely means to boost revenues included increases in promotion, events, and broadcasting.

Persistent legal battles stemming from Harold Ballard's dealings, prevented Stavro from bringing on construction executive Larry Tanenbaum as an investor until 1996. Tanenbaum's failed bid for an NBA franchise in 1993 had included a joint use facility with the Leafs.

Tanenbaum's $21 million gave him a 25 percent share in MLG Holdings. Toronto Dominion held 20 percent and Stavro 55 percent. In turn, MLG Holdings held 51 percent of MLG Ventures, which owned 100 percent of Maple Leaf Gardens. OTPP held the remaining 49 percent of MLG Ventures. The ownership structure gave Stavro a majority position even though he was not the largest shareholder.

Tanenbaum, in addition to bringing in an infusion of fresh money, was viewed as a possible conduit between Stavro and the owners of the NBA franchise the Toronto Raptors in negotiations for a possible joint use facility.

Son of a leading Canadian foodservice family, John I. Bitove and Allan Slaight, head of Standard Broadcasting Ltd., had led the successful bid to bring professional basketball to Toronto. The arena plan they put forth helped them beat out the two other contenders, including Tanenbaum's group. The league's 28th team went for a record franchise expansion fee of $125 million.

Once the franchise was awarded, the work to start building the team began. In 1994, former Detroit Pistons star Isiah Thomas was introduced as the team's vice-president of basketball operations. The arena site was switched to a larger location to accommodate a hockey rink. By year's end, 50 percent of the seats for the first season were held by deposits.

The franchise became official in 1995, with the SkyDome serving as home court. Pro basketball had been absent from Toronto since the mid-1940s, when the Toronto Huskies operated as a charter member of the forerunner to the NBA, the Basketball Association of America. The team hosted the league's inaugural game in 1946 but folded after its first season.

Bitove sold out to Slaight in 1996. Construction on the new arena would begin without Leaf involvement, and later than anticipated. In addition to delays caused by negotiations with the Leafs, economic and political conditions slowed the progress toward construction of the arena, which would take the name of its primary corporate sponsor.

Slaight looked to a former competitor to fulfill his vision for the team. Richard Peddie had been among the players in Tanenbaum's losing bid for the franchise. "Richard, you're the only guy in the country who has general manager, packaged goods and facility and broadcast experience. Come run the Raptors for me," Canadian Business recounted.

A New Venue in Toronto: 1998–2001

A few years down the road, Slaight was ready to part with the team, and MLG Ltd. bought the Toronto Raptors in 1998. The Raptors were bleeding red ink, and the Leafs, who needed a new building, were unlikely to get outside financing. Furthermore, the OTPP was dissatisfied with the return on its Leafs investment.

The total price tag for Stavro, OTPP, TD, and Tanenbaum for their combined venture was estimated by the Financial Post to be $600 million: $175 million for the Leafs; $400 million for the Raptors and Air Canada Centre (ACC); and $25 million for additional luxury boxes at the ACC.

Peddie was named CEO and president of the combined operations and continued as president of the Raptors. Air Canada Centre opened its doors in February 1999.

After four losing season, the NBA team finally turned around and made it to the playoffs in 2000 and 2001. Thanks to Peddie's marketing savvy, the team's economic outlook improved. Corporate sponsors, for example, seeking a tie-in with the ever popular Leafs, had to sign on with the Raptors as well. To build connections with fans Peddie relaunched web sites and obtained licenses to operate two digital TV specialty stations.

Meanwhile, Stavro's fortunes took a slide when his Knob Hill Farms chain faltered in 2000. Woodbridge Co., controlled by the Thomson family—Canada's wealthiest—stepped in to help. Stavro's real estate properties would be redeveloped and the ten Knob Hill outlets would be closed.

On the ice, Stavro's beloved Leafs' three-decade drought continued. The last Stanley Cup was brought home in 1967. However, fans remained loyal and filled the ACC to over-flowing each home game.

Company Perspectives:

Air Canada Centre is Toronto's theatre of sport and entertainment. Our challenge is to deliver the very best in these two mediums by holding fast our corporate vision and values that support this stated intention.

In order to deliver championship service, we first cultivate "champions" within our organization, and the sense of civic pride that accompanies this as its natural extension. This determination comes with a view to exciting our fans, inspiring our employees and by bringing pride to our community When we deliver, our fans believe it.

Ticket sales, the main source of revenue for MLSE, matched player salaries nearly one-to-one for both clubs. Profits came from secondary sources: advertising sponsorships, corporate partnerships, broadcast rights, merchandise, concessions, and event rental.

Valuable Commodity: 2002–03

The Leafs marked their 75th anniversary in 2002 as part of Canada's largest sports and entertainment enterprise. MLSE's estimated value was about $1 billion. Battles on the ice and on the court, however, paled in comparison to the action in the boardroom. Stavro's debt to Woodbridge was coming due and his only significant asset was his controlling interest in MLSE, to which he also had financial obligations. Moreover, Stavro had alienated fellow investors in MLSE through his dealings with Woodbridge that conflicted with his previous agreements. Additionally, Stavro's management style was frustrating, especially to OTPP, which was known for its strong stance on good corporate governance.

"Apparently, there are no proper procedures at the executive level; no committee structures; informal agendas that allow items to be added without any notification; and Mr. Stavro is said to make decisions on behalf of directors and management, often without their prior consent," the National Post reported.

The issues were resolved in 2003 when Stavro sold his shares and a new ownership structure was formed. The private equity arm of OTPP, Ontario Merchant Bank, acquired a majority holding of 58 percent. Bell Globemedia—a BCE Inc. and Thomson family business concern—came aboard with a 15 percent stake. TD Capital Group and Tanenbaum's Kilmer Sports Inc. held 14 percent and 13 percent, respectively. Three seats on the board would go to the pension fund, which would leave the handling of the teams to the sports management team. The addition of Bell Globemedia, owner of print and broadcast concerns, provided a variety of media opportunities for MLSE.

No one disputed the value of the franchise: profitability was another matter. "According to Forbes, the Leafs alone bring in $24.2 million in profits," wrote Andy Holloway for Canadian Business. "MLSE president Richard Peddie vehemently disputes that figure, saying it doesn't include taxes or the interest and amortization costs of carrying the $265-million ACC. Peddie does say MLSE is 'very modestly profitable' and has been almost every year, even in its previous life as publicly traded Maple Leaf Gardens Ltd. 'Sports is a very sexy business, but it's a business,' says Peddie. 'You have to run it like a Fortune 500 Company.'"

As 2004 began, the ACC had seen over 15 million guests. The longtime home of the Maple Leafs was still looking for a new owner. The Toronto Maple Leafs ranked as the top hockey brand in the world. Moreover, the Raptors were better at getting season seat renewals than any one else in the NBA. Yet, Toronto's sports fans were still waiting for their teams to bring home championships.

Key Dates:

1994:: Ontario Teachers' Pension Plan (OTPP) buys into NHL team the Toronto Maple Leafs.
1995:: Toronto Raptors take the court as NBA team.
1998:: Maple Leafs buy the Raptors.
1999:: Air Canada Centre opens.
2002:: Maple Leafs mark their 75th anniversary.
2003:: OTPP becomes majority owner of Maple Leaf Sports & Entertainment.