Monday, October 03, 2005

How Cal Nichols Saved the NHL

There was one heck of a profile on Cal Nichols, chair of the “Edmonton Investors Group” that owns the Oilers, in yesterday’s Edmonton Journal (kudos to David Staples). We’re dying to bestow a mantle of hockey heroism on somebody, anybody in this town – and with the article ending by making a case for inducting Nichols in the Hockey Hall of Fame, our latest hero may be the most unlikely, yet the most quintessentially Edmontonian. The boy from small-town Saskatchewan who built Gasland, a rinky-dink chain of 50 gas stations at its peak, took his love for the Oilers to the point of saving them, and in the process contributed a great deal to saving the NHL as a whole. Hear me out on this.

For Nichols it all started out with answering Peter Pocklington’s call to the business community to double season ticket sales in order to qualify for the NHL’s “Canadian Currency Assistance Plan” in 1996. Volunteering for the “Friends of the Oilers” group, Nichols called up everyone he did business with and persuaded them to buy seats. Anyone who remembers the decrepitude of the Oilers in the mid-nineties will know that those who answered Nichols’ call with an affirmative were truly being charitable. Nichols sold the idea on the basis of making a contribution back to the community, recognizing that losing the Oilers would be an incredible blow to Edmonton.

Pocklington, for all of his incidental contributions to the city, could have liquidated the team to American interests were it not for a shotgun clause negotiated into the ’94 upgrade of Northlands Coliseum that gave local buyers the first right to buy the team if they could raise $100 million Cdn. Peter Puck was forced to give the Oilers up to receivership in 1997 when the Alberta Treasury Branch came knocking on his door for the millions in loans he owed them. Nichols was a part of an early attempt to put a local group of buyers together, but found that Edmonton’s elite was more interested in making donations to the arts and hospitals, while Glen Sather’s claims that the Oilers could never be profitable scared others away. The shotgun was ultimately triggered by Yankee tycoon Les Alexander (now owner of the NBA’s Houston Rockets) in 1998 – not after a highly forgettable episode in which an imposter investor fooled the entire city with a false bid. Push having come to shove, Nichols upped his stake from $1 million to $3 million, and recruited several other “blue-collar millionaires” – many from the Lloydminster oil-patch – to join the group. In the end they raised $60 million, enough to secure a $50 million loan to make up the difference.

Nichols took a prominent role in the board, along with Bruce Saville (having the most shares at $7 million) and Jim Hole. The early years involved battles with Sather, Saville and Hole over control of the team. Nichols and Sather in particular butted heads over Sather’s unwillingness to participate in public events and his taking a cut of the sale of the Oilers to the ATB – in addition to his annual $2.5 million salary. Sather was more than the GM – under Pocklington he was more of a minority owner (rumored to have taken a cut on the Gretzky trade as well). Nichols had no interest in allowing Sather to keep acting like an owner, nor in continuing to pay him exorbitantly for his past laurels, especially when the team was hemorrhaging money. He pulled a shotgun maneuver of his own, directed at the Hole, Saville and Sather clique. Either stick to cost controls and accountability, or he’d pull his share. The investors not only backed Nichols - pushing Sather out the door in 2000 – but Nichols replaced Saville as board chair.

Fresh on the NHL Board of Governors, Nichols could do nothing to prevent the extension of the Collective Bargaining Agreement that was killing the Oilers and the league. He brought in Lowe as GM and kept the investors out of hockey operations while keeping the team competitive with a $14 million ownership cash-call in 2003, in which he upped his overall stake to $5 million. While none of the owners had recouped any of their investment, the team made an annual profit that went towards paying off their original loan, which according to Forbes magazine stood at around $20 million by 2004. Nichols knew that the long-term survival of the Oilers – and any return on his investment – depended upon a new CBA that included a salary cap and revenue sharing, ending salary escalation that threatened the bottom line while killing the on-ice product and community support. So when it came to the lock-out he dug in his heels, and was prepared to go another full season without hockey if that’s what it would take to fix the league.

The simple fact is that in 2004, the Oilers were 4th from the bottom in terms of value among NHL teams. Despite Edmonton’s rabid fan base and sold out arena almost every game, the Oilers struggled to attract revenue, mainly because of a low corporate sponsorship base and small TV market. Maintaining the status quo would have represented a death-knell for the NHL in Edmonton, as there is no one either rich or frivolous enough in this burg to lose boatloads of money on the Oilers for their personal amusement, as was the case in St. Louis and Washington. The “blue-collar millionaires” of the Edmonton Investors Group, like Cal Nichols, needed to recoup their original investments, at minimum. Including their remaining debt, this was an $80 million mountain to climb. Without a dramatic change to the CBA, it would never happen.

The NHL faced a turning point. It could continue on a path towards an oligarchic, rich ruling the roost free market reality, akin to the top flight of European club football or Major League Baseball, relegating small markets to a lower-tier league or perennial also-ran status. The owners decided to move towards a level-playing field that ensured small-market teams could survive. It so happens much of the greatest fervor anchoring hockey’s viability lay in small markets like Edmonton and Calgary. Gary Bettman’s claim that he could not envision an NHL without hockey in Edmonton drove the bargaining position subscribed to by all of the owners, in which large market teams like the Rangers, Leafs, Flyers, Stars, Red Wings and Avalanche have seen their payrolls and talent pool slashed. The Flyers are the only team among this elite group to be cited among this year’s contenders, while the rest of them recover from high-priced, older player induced hangovers.

Suddenly the future is looking bright for the Oilers, from both an ownership and an on-ice perspective. And just as nature abhors a vacuum, it would seem that Cal Nichols abhors complacency, turning his attention towards a new goal now that the Oilers’ future is secure – building a new arena. Suddenly Rexall Place is the third oldest building in the NHL. Knowing full well that the community will be unlikely to fully fund such a venture out of its tax base, breaking even is no longer good enough – the Oilers need to turn a profit to partially defray the cost of a new rink.

I don’t know as much about the Flames ownership situation but Harley Hotchkiss is mentioned in the same breath as Cal Nichols and the Hall of Fame. One thing is clear – Cal Nichols stands out among those who mobilized Edmonton’s business community to save the Oilers, while keeping teams like the Oilers in Edmonton and the Flames in Calgary drove the philosophy underlying the new CBA. If we had lost the Oilers and Flames, the economics of the league would be that much different, enabling a continuance of the same product that failed to capture the imagination of North America's sporting public, and ultimately shrinking the NHL. Instead, we should see a new product in which good management, not market size, is rewarded with success, hopefully spreading the opportunity to capture the imagination of the fans throughout the league. By keeping the Oilers intact, Cal Nichols saved the NHL.


At 4:08 PM, Blogger Andy Grabia said...

You spent a whole article talking about how Nichols saved the Oilers, but I fail to see how this is automatically transfers into saving the NHL. I also don't see how this makes Nichols an obvious choice for the HofF.

It is too bad the Sunday Reader article is behind the subscriber wall. It is a very interesting read. For those who can get past it, Part 1 is here, and Part 2 is here.

It is interesting to note that the Edmonton Journal is one of the owners of the team. I did not know this before today.


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