It’s pretty obvious that Thomas Dundon is not a stupid person. Nobody amasses a net worth of $1.1 billion, as was reported by Forbes in 2015, without having off-the-charts business savvy. When Dundon stepped down as CEO of Santander Consumer USA in 2015, he sold his 9.7 percent stake in the company for $928 million – not including a $12.8 million payment of twice his annual salary and bonuses. That’s quite the golden parachute. And when he left, Dundon was lauded for taking a small regional lender and turning it into a national powerhouse that attracted interest from a number of big private equity firms and a Spanish banking giant.
Which begs the question: Why would someone who has so much wealth and business acumen see any worth in buying into the Carolina Hurricanes? Or the Florida Panthers? Or the Arizona Coyotes? As early as today or tomorrow, the NHL’s board of governors could approve the sale of 52 percent of the Hurricanes from Peter Karmanos to Dundon – who will almost certainly have the option to purchase the remainder of Karmanos’ ownership over time – with the caveat that Dundon keeps the franchise in Raleigh, where it has traditionally been a black hole that attracts money. To be fair, the Hurricanes did turn a slight profit last season, thanks to getting their share of revenue-sharing money. On top of that, they also received north of $16 million as their share of the expansion fee proceeds.
But typically, the Hurricanes have been a money-losing proposition and a large part of whatever the announced purchase price for Dundon will include taking on some of the team’s debt. But it makes you wonder why anyone with that kind of money would be willing to invest in a venture with so much potential for losses. What’s important to remember, says MKTG Canada president Brian Cooper, who has helped to put together a number of deals like this one, is that no two purchases are the same. There are usually so many moving parts that not even a Swiss watchmaker could keep up.
Cooper has nothing to do with the Hurricanes sale, but says the way the deal is structured is often key to the purchase. For example, if the payments for a purchase such as this one are stretched over 10 years, that helps buttress a lot of the risk. And as Cooper points out, the value of NHL franchises continues to rise. If it sounds a little like a house of cards, well…
“Some guys buy it because they got favorable terms,” Cooper says. “If the terms are favorable and the payments are over 10 years and you’re going to flip it in 15 and the capital appreciation historically through the league is another 15 percent a year per franchise, that’s a good deal.”
There might be some practical reasons, too. These guys who buy these teams are competitive people and the idea of taking a struggling entity and building it into something with financial might – the way Dundon did with his previous company – is often very, very appealing. Others see ownership as an opportunity to use the property to help other businesses flourish, which is why two communications behemoths share ownership of the Toronto Maple Leafs and why concession companies are so closely related to team ownership.
“Sometimes people think they can run the business better or they have a strategic business that can be tucked in there and they’ll make money off it,” Cooper says. “So the P&L (profits and losses) on operating basis will increase. And if you get a low enough purchase price, because it’s bleeding money now, if you look at the historical capital appreciation of assets like that…and the reason sports properties accelerate so quickly is that must-see television is live sports and those revenues keep going up and the purchase price increases as well.”
It certainly wouldn’t be the case for Dundon, whose age is listed at 45 by one business website, but Cooper says there is also appeal for many of having a very expensive toy.
“It could be a guy who makes zippers for a living and nobody knows him,” Cooper says. “He’s got money to burn, he’s got 25 years left of life and he’ll never spend the money in that time frame and he doesn’t care if he loses $20 million a year and he’s going to get to sit in the front row. Of he’s saying, ‘I’m going to take it for 15 years and I’m going to guarantee, like houses in Toronto, I’m going to make money.’ ”
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