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Send in the economists!

One of the frustrating aspects of this whole scenario with Jim Balsillie buying the Nashville Predators is that fundamentally this is a business story, and when sports columnists get involved, they quickly wade out of their depth and start spinning nonsense as if it were informed analysis.

Perhaps the most egregious example of that is the oft-repeated saying that by offering a purchase price far in excess of what Forbes magazine stated for the value of the team ($134 million almost a year ago), Balsillie must have some super-savvy motivation for doing so, specifically that by overspending for the Preds he somehow instantly inflates the franchise valuation for all the other owners in the league.

Having majored in Economics at Michigan, there is a specific term we scholars use for that line of reasoning:


NHL franchises aren't commodities that can be freely substituted for one another. Each is a unique business, subject to local market conditions, an arena lease, a cost structure (based largely on current player contracts), etc. Balsillie paying $X for the Predators doesn't have any direct impact on the value of the Chicago Blackhawks, for example. In Nashville you have a unique collection of circumstances that make this team a juicier prospect than the guys on the sports desk realize.

This morning, the Tennessean posted an informative piece by a noted sports economist (John Vrooman of Vanderbilt University), delineating some of the reasons why the Preds may well be worth what Balsillie is offering - the major factors being the sweetheart lease (one of the most favorable in the NHL), and the option value of relocating to another market. If an owner were to move the Preds, that opportunity would be vastly greater than getting a simple expansion team. Rather than starting from scratch, you get to bring in one of the best young teams in the NHL (sound familiar, Quebec Nordiques/Colorado Avalanche fans).

This of course, explains why Balsillie is tying his purchase agreement to the relocation request with the NHL's Board of Governors. Part of the value he's paying for is in the right to relocate the team, and if he can't get that, the price he's willing to pay will drop somewhat.

This drama is sure to drag out for several more weeks and months, and while we wait to see what happens, be sure to question some of the "facts" of the case being tossed around within the sports pages. It's too bad the guys at CNBC like Darren Rovell haven't dug into this story yet...

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