New Jersey Devils Facing Possible Bankruptcy, New Owner

Jeff Vanderbeek
Mar 16, 2013; Newark, NJ, USA; New Jersey Devils owner Jeff Vanderbeek (left) is $230 million in debt and the Devils could be taken over by the league. Ed Mulholland-USA TODAY Sports

The future of the New Jersey Devils hangs in a state of limbo as of today with reports coming out from Forbes magazine that Devils owner Jeff Vanderbeek had missed his first payment on a restructured bank loan, essentially setting the wheels in motion for the proud NHL franchise to file for bankruptcy.

The Forbes article cites three sources that explained to them the NHL does not want the Devils to file for bankruptcy. If Vanderbeek were to file for bankruptcy, the NHL would be forced to take over the franchise, something it did for the Phoenix Coyotes in 2009. What ensued in Phoenix was four years of madness, leading to the City of Glendale, and specifically their tax-payers, pouring money into a black hole from which they might not ever (probably won’t ever) get their money back.

The Coyotes were sold to a group called Renaissance Sports & Entertainment and part of this agreement was that the City of Glendale, which owns the Arena where the Coyotes play, would lease the arena for $225 million over 15 years. Included in the agreement is an “out” clause, which states that RSE can simply up and leave after five years. After pouring nearly $100 million into a franchise that has never turned a profit, then restructuring a deal that essentially ensured they will lose money in the first few years of this deal, the City (specifically tax-payers) could be left holding the bag after five years. This is the type of situation the NHL wishes to completely avoid—again.

There are a myriad of reasons why the NHL doesn’t want to take over the Devils franchise:

  • The NHL generally doesn’t like to meddle with franchise affairs.
  • The NHL would have to sink potentially hundreds of millions of dollars into a team saddled with an estimated $200 million of debt and a 112 percent debt/value ratio (as of last November). By comparison, the Columbus Blue Jackets had a Debt/Value ratio of 69 percent, the next-highest ratio to the Devils (lower ratios are better, it is indicative of high franchise value or low amounts of debt obligations).
  • The biggest problem with the Devils is similar to that of Phoenix: No one else occupies the Prudential Center (home of the Devils). At the start of July, the Coyotes’ arena had only two dates booked in the next 12 months that weren’t for Phoenix Coyotes home games. The Prudential Center was not among the Top-50 busiest arenas in the world in Q1 2013, a significant drop-off from 11th the year before.

With not much else in the way of revenue streams coming into the Prudential Center other than the NHL franchise with the lowest D/V ratio in the league, the NHL would much rather pass the buck to a potential owner rather than take it on themselves.

There are other considerations to take into account when discussing the financial stability of a franchise in Newark, New Jersey:

  • Attendance at Devils games had been trending downward. From 1994-1999, the Devils had averaged at least 16,200 fans per game throughout the season. From 1999-2012, they never cracked 16,000 again. The lockout-shortened season attendance spiked to 17,114 but I’m not sure if that’s not just a function of the NHL being “taken away” from its fans. Even with this spike in attendance, it still put them near the bottom-third of the league in average attendance and they only averaged about 122 more ticket sales per game than the Florida Panthers.
  • Unemployment is higher than the national average. In fact, in January of this year, it was nearly double the national average. Not only that, the poverty rate in 2011 in Newark was nearly triple that compared to New Jersey as a whole, the median household income was about double in the state of New Jersey compared to Newark, as was per capita income. (Information from US Census Bureau).

Quite simply, the Devils are a franchise located in a state that can support a hockey franchise, but are probably in the worst area in that state in which to do so. The only way the franchise can be supported in Newark is if the Prudential Center is full on game days and busy on off-nights—the Prudential Center’s price tag is $375 million. By comparison, that was the same price tag for the Staples Center, which houses the Los Angeles Kings, Los Angeles Lakers and Los Angeles Clippers. The MTS Center – like Prudential Center, is home to one sports franchise, the NHL’s Winnipeg Jets – opened three years before the Prudential Center at a cost of $134 million. Even worse, while the Staples Center and MTS Center are owned by entertainment companies, the Prudential Center is owned by the Newark Housing Authority, a non-profit public housing authority. That’s right: The most expensive building in the NHL is in an area of high unemployment and low income while owned by a non-profit public housing organization.

Finally, if the Devils were to go into bankruptcy and the City of Newark was forced (like Glendale was “forced”, I suppose) to start pouring money into a debt-saddled franchise (arena) with low attendance rates while parts of New Jersey are still rebuilding from Superstorm Sandy, well that is just bad optics and morally reprehensible.

I am not saying this team has to be moved. Just because there is high unemployment and low income in Newark it doesn’t mean an NHL team can’t survive (ahem, Detroit). Also, the franchise has been around for 30 years, it obviously is able to sustain itself on some level. That does not mean something doesn’t have to change quickly. The debt is piling up and if this continues it might be the last time the NHL will be able to find an owner for this franchise as is.

The New Jersey Devils are one of the more storied franchises to come out of the expansion era of the 1970s. They have three championships to their name, which is tied for third among non-Original Six Teams. This news is bad for them, all we can hope for is a prospective buyer comes to the forefront sooner rather than later.

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