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Post by Doc Holliday on Dec 10, 2002 10:39:01 GMT -5
La Presse reports today that the HABS are about to conclude a financial deal with a US bank that would give them 70mil (45US) of immediate cash in exchange of Bell's naming right contract of 100mil. In essence HABS are in a hurry to pay off a load of their depth and are ready to lose 30mil on 20 years to do so.
Apparently it's the first time a pro sports franchise tries something like that, IE exchange guranteed future revenu for immediate cash. You obviously don't do that if you aren't in a very tight situation...
Seventeen could give us an idea if that transaction makes sense or not but I get a very bad feeling that nobody at any level has their eyes on anything further then the next few months and that this 48mil edition of overpaid mediocre vets assembled by Savard is taking a bite out of future.
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Post by wade on Dec 10, 2002 10:54:42 GMT -5
its not the 1st time a sport franchise attempts to tdo this though.. it is the 1st transaction that does go thru... i read in the gazette
La Presse said no sports team has ever cashed in all its revenues from a single source at one time.
The National Football League forbids such financial arrangements, while the National Basketball Association frowns on such deals but doesn't ban them outright.
The Memphis Grizzlies, formerly the Vancouver Grizzlies, are putting the finishing touches on a deal similar to that of the Canadiens, said La Presse.
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Post by MPLABBE on Dec 10, 2002 10:55:26 GMT -5
They are going to give the Bell naming rights deal to the Bank for money to pay off the debt? Are we getting screwed here?
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Post by AH on Dec 10, 2002 10:56:22 GMT -5
The Present Value of that $ 100 million over the next 20 years is no more than $ 80 million. Factor in the interest savings on the money they are getting to pay off the debt and you basically end up with no difference at all. Then why do it in the first place ??
Need a finance guy to come up with the exact Present Value of the 100 mill the club is giving up.
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Post by darz on Dec 10, 2002 11:13:30 GMT -5
70 million now, for 5 million a year for 20 years is an excellent business deal for GG. nothing to worry about here.
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Post by montreal on Dec 10, 2002 11:43:45 GMT -5
The Present Value of that $ 100 million over the next 20 years is no more than $ 80 million. Factor in the interest savings on the money they are getting to pay off the debt and you basically end up with no difference at all. Then why do it in the first place ?? Need a finance guy to come up with the exact Present Value of the 100 mill the club is giving up. Well I got a degree in Finance, so I could find the PV. But then I would have to think, and that's not any fun. Plus it's important to know how the Bell deal is structred. I am worried as to why GG would do this deal, as interest rates are very very low right now in the US, so debt isn't racking up high fees in interest. Usually something like this would spell a move of some sort, as this is a clean up (paying off large debt, to make yourself look more attractive). Now I'm not trying to stir up anything, I'm just saying what I am used to, as I have worked in the Finance sector for 5 years (I got my degree in '98, only took 5 years ). As you don't do this kind of move for nothing. Now getting 70M now, to give up 1.5M a year for 20 years, isn't bad at all. With that 70M he can do a lot. With interest rates so low, you have to move the money around, it can't stay parked, cause rates are around a half of a percent, so beside oppurtunity cost, you are burning money if its at a half of a percent, based on inflation + taxes. But with so many great investments out there, if GG were just cleaning up the balance sheet so to speak, then a very smart move would be to take 40-50M and pay down debt, while using the other money in several different financial instruments. (stocks, corp bonds are paying very very well, stock opinions, futures, etc...)
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Post by habfan4 on Dec 10, 2002 11:50:32 GMT -5
Whether or not it's a good deal all depends on the "discount rate" (essentially the interest rate) and the rate of interest on the debt, most of which is held by the Caisse (no doubt a sweet heart deal)
Assuming the rate is steady for the next 20 years:
The net present value of the 100M at 2.5% is approx 80 million The net present value of the 100M at 5% is approx 65 million The net present value of the 100M at 7.5% is approx 54 million The net present value of the 100M at 10% is approx 46 million
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Post by AH on Dec 10, 2002 11:56:01 GMT -5
Some quick math to put some perspective into all of this.
If one of us was to take out a $ 70 million loan today to be paid over the next 20 years at the prime rate of 4.5% and with the Canadian inflation rate being relatively steady at 2.5% (exact figures from October 2002), according to the amortization schedule we will be making yearly payments of $ 5 316 000 towards the loan.
How does this help the bank ? Well, over the next 20 years, the $ 70 million loan is netting them $36 285 000 in interest income. Since banks stock value is based on actual income and not potential income, it just adds to theit bottom line.
In essence, the team takes out a loan towards which they should be paying at least $ 5.316 million a year, but are only on the hook for only $5 million a year !!!
From the looks of things, the team actually makes money. hmmmm ... Maybe GG is not stupid after all. His last bankruptcy was really a matter of the markets crashing and him being over extended with his credit. He is just trying to reduce his liability in case it happens again. As they say, people learn from their mistakes, and it seems GG has learned.
So really there is nothing to worry about.
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Post by MPLABBE on Dec 10, 2002 12:20:49 GMT -5
Thanks for clearing this up guys!
Man this board has some very bright people posting ;D
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Post by FormerLurker on Dec 10, 2002 12:33:22 GMT -5
Not exactly. Bell still has naming rights, but they'll pay the $100mln (over 20 years) to the bank instead of to the Habs. Habs get $70mln up front.
Gillette is apparently a very shrewd businessman:
1. Negotiates to buy 80.1% of the team and 100% of the Molson Center for Cdn$275mln, $190mln payable in advance with balance over the next seven years. Forbes estimates that the team alone is worth US$190mln, i.e. he gets the Molson Center for free.
2. Gets the municipal tax bill on the Keg cut in half.
3. Negotiates a $140mln loan from the Caisse de depot et placement, presumably at low rates.
4. Sells naming rights of the Molson Center (which he owns 100%) to Bell for $100mln over twenty years.
5. Sells the naming rights contract to a US bank for an instant $70mln.
So he has generated $70mln in present value dollars from an asset (the Bell Center) that he basically acquired for free.
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Post by Rhiessan on Dec 10, 2002 12:39:52 GMT -5
Yep. Now if only AS or MT would listen to us
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Post by PTH on Dec 10, 2002 12:41:24 GMT -5
Ouch.
I really, really, REALLY hate this deal.
It's as if we were dealing away 20 first rounders to get back some terrific players, but you've still lost out on a sure thing for the next 20 years.....
I hate this more than I hated the Audette deal.
Bad management I can live with, as long as it's not at the expense of the future. Even dealing away individual picks one by one I can stand, but if they need this money this badly, so that they are signing away future revenue, then I'm really worried.
If they're in this kind of financial straights, I think they should have gone for the cheap, build-on-youth-and-spare-parts strategy rather than overpaid vets.....
I'm thinking AS has orders to improve this team ASAP whatever happens, to raise its value so that GG can sell it, 'cause he might not be able to handle the debt load himself....
Then again, he's selling off the franchises future, so maybe he CAN afford to keep the team by doing that.....
I really, really hate this.
And to anyone who thinks it's all normal and OK, ever wonder why the other pro leagues don't allow this ?
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Post by habfan4 on Dec 10, 2002 13:20:33 GMT -5
Ouch. I really, really, REALLY hate this deal. It's as if we were dealing away 20 first rounders to get back some terrific players, but you've still lost out on a sure thing for the next 20 years..... Not the best analogy, if 5 million is the equivalent of a first rounder in present terms it would be the equivalent of a 9th rounder 20 years from now. IMO your post is a little on the alarmist side, essentially the Habs are liquidating an annuity so then can service some debt. Which in the short term increases cash flow (by lowering the amout of debt repayments), and long term reduces the Canadiens overall debt load, how is that bad?
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Post by GoMtl on Dec 10, 2002 14:08:35 GMT -5
possibly we won't need that extra 5 mill a year after 2004? this move still bothers me though, makes you think something might be up. you don't just trade in your 100 over time for 70 upfront unless you need the money NOW. and if GG needs the money so badly he shouldn't have been willing to spruce up the budget 10 mill for the team this season. but i'm not a multi millionaire and he is so i'll give him this one.
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Post by habmeister on Dec 10, 2002 15:04:20 GMT -5
I can tell by some of the posts on this board, that financial illiteracy is running rampant. If anyone, business or otherwise was guaranteed that kind of money over 20 years and could get a large chunk of it now to invest over the 20 years they'd take it in a heartbeat. Not sure why the bank wants to do it, although as long as its guaranteed, they're coming out ahead.
This is an excellent deal, hopefully GG doesn't take the $80 mil and spend it on something other than the team. But he's increased the payroll substantially, and AS has mis-managed the money. How can we complain about an owner like GG?
Some of you might want to get a book called "rich dad, poor dad" it will set you on a better course on financial literacy. Another good read is "the wealthy barber"
out...
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Post by zenseeker on Dec 10, 2002 19:06:50 GMT -5
Well I got a degree in Finance, so I could find the PV. But then I would have to think, and that's not any fun. Plus it's important to know how the Bell deal is structred. I am worried as to why GG would do this deal, as interest rates are very very low right now in the US, so debt isn't racking up high fees in interest. Usually something like this would spell a move of some sort, as this is a clean up (paying off large debt, to make yourself look more attractive). Now I'm not trying to stir up anything, I'm just saying what I am used to, as I have worked in the Finance sector for 5 years (I got my degree in '98, only took 5 years ). As you don't do this kind of move for nothing. Now getting 70M now, to give up 1.5M a year for 20 years, isn't bad at all. With that 70M he can do a lot. With interest rates so low, you have to move the money around, it can't stay parked, cause rates are around a half of a percent, so beside oppurtunity cost, you are burning money if its at a half of a percent, based on inflation + taxes. But with so many great investments out there, if GG were just cleaning up the balance sheet so to speak, then a very smart move would be to take 40-50M and pay down debt, while using the other money in several different financial instruments. (stocks, corp bonds are paying very very well, stock opinions, futures, etc...)[/quote I was quite impressed with how many of us have finance training. Your right we don't actually know how the Bell deal is structured. That leaves us with only a rough estimate of the PV of the Bell deal. With the Bell deal he is most likely getting minimal returns, and with the long time till maturity probably wants to liquidate the investment to seek better opportunities. He might being paying off debt, but with interest rates so low why would he bother, unless as montreal says he is trying to make the balance sheet more attractive ie for a possible sale. I believe he is just freeing up the capital to invest in higher return investments.
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Post by seventeen on Dec 10, 2002 21:04:04 GMT -5
Do I have to get my 2 cents worth in? Most of the calculations were close enough. 3.67% return on a present value basis for the US bank, if, as we understand, its $5mm a year for 20 years. Maybe that US bank is owned by MT's family. I think I could find better values for my $70MM than 3.67% per year, even if it is a reasonably safe bet (Even Ma Bell isn't a guarantee...just ask theTeleglobe bondholders). The bigger question is what does GG plan to do with the money? His bank debt is surely at a higher rate than 3.67%, so he could pay it down, but that sounds like a responsible, dull decision and GG is too much of a high roller for that. It could simply be that the Habs need the money for operating purposes, at least until 2004. Or perhaps GG needs the money for one of his other investment ideas. He owns the Habs, he could lend one of his companies the money...at say 5% and call it a good business move. Sure, if the 'idea' survives. Maybe he and AS and MT are all going for an extended vacation to say.....the Bahamas, or Caymans. Can I come along?
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Post by UberCranky on Dec 10, 2002 22:11:58 GMT -5
The bigger question is what does GG plan to do with the money? His bank debt is surely at a higher rate than 3.67%, so he could pay it down, but that sounds like a responsible, dull decision and GG is too much of a high roller for that. It could simply be that the Habs need the money for operating purposes, at least until 2004. Or perhaps GG needs the money for one of his other investment ideas. He owns the Habs, he could lend one of his companies the money...at say 5% and call it a good business move. I just read "somewhere" that he was looking into buying a plant in Australia. Come on guys, it’s pretty simple. He sold the Hab’s future income to raise cash for another purchase. Think about it. He raised cash, which he does NOT have and will use it for another purchase. Completely unrelated to the Hab’s present or future. Remember the argument a few months back about GG the Three Card Monte artist? If you hear that he paid down his Hab loan by 70 million then he is only interest is the club. If you hear nothing, as I suspect you won’t, then you know that this guy is an “artist” with creative financing. Be afraid of that. VERY AFRAID. P.S. Seventeen, we need to talk. I need 200 million for a "certain" purchase. They didn't believe us about GG, did they...................
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Post by The New Guy on Dec 10, 2002 22:12:15 GMT -5
The yway I look at the situation is this:
If GG takes the money he gets from the deal at a modest 5% interest per annum for 20 years we'd have about 186 million. If the unnamed US Bank invests the 5 million per year at the same interest, the amount they wind up with is 164 million. That's a 22 million dollar plus for us in the end.
Someone can check my math if it's bad. I wrote my Mathematic of Finance final today and I'd like to know if I passed of failed....
The only reason I can figure out for the bank doing this is because they can likely invest the 100 million right now, which will earn them more in the end (where it would likely be harder for GG to do so).
Anyways... my analysis...
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Post by MPLABBE on Dec 10, 2002 22:22:08 GMT -5
I just read "somewhere" that he was looking into buying a plant in Australia. I read that in a Red Fisher column...
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Post by UberCranky on Dec 10, 2002 22:23:10 GMT -5
The yway I look at the situation is this: If GG takes the money he gets from the deal at a modest 5% interest per annum for 20 years we'd have about 186 million. If the unnamed US Bank invests the 5 million per year at the same interest, the amount they wind up with is 164 million. That's a 22 million dollar plus for us in the end. Someone can check my math if it's bad. I wrote my Mathematic of Finance final today and I'd like to know if I passed of failed.... The only reason I can figure out for the bank doing this is because they can likely invest the 100 million right now, which will earn them more in the end (where it would likely be harder for GG to do so). Anyways... my analysis... TNG, This has nothing to do with interest and percentages for GG. GG does not play for 5%. GG needs cash for a lot bigger fish. His bank will loan him two or three times the cash he puts in to make a large buy. More often then not, this will be a high risk buy. In their type of high risk world a 5% return is laughable. They do not get up and shave for such pitance. These guys live on the "high" of leveraged buyouts and high risk investments.
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Post by habfan4 on Dec 10, 2002 22:25:26 GMT -5
The Aussie deal is not a surprise, it's actually part of Gillettt's usual business investments (aside from resort management), he owns or has owned a number of meat packaging plants.
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Post by MPLABBE on Dec 10, 2002 22:25:52 GMT -5
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Post by BadCompany on Dec 10, 2002 22:33:06 GMT -5
Extracts: "Nous échangeons un montant payable sur 20 ans afin d'avoir de l'argent sonnant immédiatement et de payer l'hypothèque. Comment peut-on y voir quelque chose de négatif?", a commenté Gillett au cours d'un entretien téléphonique de Boston, où le Canadien affrontait les Bruins. - "We exchanged an amount payable over 20 years, to have money available right away, to pay off the loan. How can anyone see that as negative?" commented Gillette during a telephone interview from Boston, where the Canadiens faced the Bruins. L'argent servira à rembourser le prêt de 140 millions $ que Gillett a obtenu en mai 2001 de la Caisse de dépôt et placement du Québec. - The money will be used to pay off the debt of $140 million that Gillette obtained in May 2001 from the Caisse de dépôt et placement du Québec. While HA's analysis, that Gilllete would take the money to buy something else, seems more realistic (though I don't see it as being quite as negative or high risk that you do) this article seems to suggest, indeed, Gillette himself seems to suggest that some, if not all, of the money will be used to pay off the debt...
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Post by UberCranky on Dec 10, 2002 23:02:20 GMT -5
Extracts: "Nous échangeons un montant payable sur 20 ans afin d'avoir de l'argent sonnant immédiatement et de payer l'hypothèque. Comment peut-on y voir quelque chose de négatif?", a commenté Gillett au cours d'un entretien téléphonique de Boston, où le Canadien affrontait les Bruins. - "We exchanged an amount payable over 20 years, to have money available right away, to pay off the loan. How can anyone see that as negative?" commented Gillette during a telephone interview from Boston, where the Canadiens faced the Bruins. L'argent servira à rembourser le prêt de 140 millions $ que Gillett a obtenu en mai 2001 de la Caisse de dépôt et placement du Québec. - The money will be used to pay off the debt of $140 million that Gillette obtained in May 2001 from the Caisse de dépôt et placement du Québec. While HA's analysis, that Gilllete would take the money to buy something else, seems more realistic (though I don't see it as being quite as negative or high risk that you do) this article seems to suggest, indeed, Gillette himself seems to suggest that some, if not all, of the money will be used to pay off the debt... Two options available. 1. He puts in a token sum to make it look good and uses the majority money elsewhere. 2. Puts all the money into the loan. He can still use the Hab's franchise as collateral. This make is a little more complicated. Suffice to say that playing Three Card Monte with his assets are his forte and drug of choice.
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Post by PTH on Dec 11, 2002 0:13:19 GMT -5
OK, why are we talking about GG ? That's what worries me.
If this were restructuring the Habs to pay off some debt immediately, I'd guess it's ok, but then the guy we'd be talking about would be Boivin, not GG. If Gillett is involved, it's because there's money going from one business to another, and that worries me.
GG goes bankrupt, sells the Habs, and we have the same team with 5 million less in revenue for 20 years.....
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Post by habwest on Dec 11, 2002 0:41:17 GMT -5
PTH, since GG owns the team how can he not be involved? I sure wouldn't let something like this go down if I were the owner without my close involvement. And I imagine it was the media who contacted GG, so again he's involved. I mean he can't really say "talk to Boivin about this, I'm not really involved" without looking like a fool.
It goes back to Bad Co's post. And I'm not ready yet to assume GG is a liar.
Besides, even if he used all of the money for leverage to buy another business in Australia and made a pot full there he migh actually have more $ to plow back into the Habs. That is a possible scenario, just as valid it seems to me as the bankruptcy one.
I'm sure many owners of successful franchises play in this arena. We just don't hear much about it here in Canada as there aren't many Canadian investors willing to take chances. That's why the US tends to be more successful. There are proportionally a lot more Americans willing to take calculated risks for big rewards.
Of course, as you say it can lead to disaster. But given the comments so far I'm personally not concerned. Anyway, over the years I've learned not to fret over the things I can't do anything about and this clearly falls into that category.
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Post by montreal on Dec 11, 2002 2:21:15 GMT -5
Two options available. 1. He puts in a token sum to make it look good and uses the majority money elsewhere. 2. Puts all the money into the loan. He can still use the Hab's franchise as collateral. This make is a little more complicated but nevertheless, he is 80% owner and he can do that. IF his partners do not like that, then he can offer to buy their shares out. He probably has an established share price that is way below market value so many interesting and “wondrous” scenarios exist. Suffice to say that playing Three Card Monte with his assets are his forte and drug of choice. HA, I would love to hear how you came up with this, that GG is a high risk taker. I really don't know much about him outside of his ski resorts and his food company taking Tyson to court. I don't really understand you choices, as he has several options, but since he doens't own the team 100%, I doubt he can put it up as collateral, unless the other 20% agree to this, and I also thought that the 20% had to remain a part of the team, per his contract in getting the 80%, but I could be wrong.
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Post by BadCompany on Dec 11, 2002 8:48:21 GMT -5
Anyway, over the years I've learned not to fret over the things I can't do anything about and this clearly falls into that category. What's that saying about messing in the affairs of giants?
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Post by Doc Holliday on Dec 11, 2002 11:36:50 GMT -5
What's that saying about messing in the affairs of giants? We are freaky fans are we!!! Here we are, discussing Gillett's financing deals and how it could impact the HABS... We are a very strange generation of fans...
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