This is going to get a bit long, so let me first put forward the short version for anyone who only wants that.

1) Peter Karmanos has been selling the Carolina Hurricanes in some way or another mostly unsuccessfully (which is why he is still doing it) since his partner Peter Thewes passed away in 2008. So this situation is 7 years old and not new news.  If the end is in fact coming, it is coming real slowly!

2) The preference was NEVER to move the team. I guess at some point if you cannot make plan A work, you have to come up with plan B, but I think it is important to recognize that the underlying goal here is to decrease or possibly gradually sell Karmanos’ stake in the team, not find a way out of Raleigh.

3) The probability of a team (any team) being sold and moved is at a generational low. The NHL has been walking up to adding two teams, put a HUGE price tag rumored to be $500M on them and has two takers in Quebec and Las Vegas. For the team owners, this means about $17M straight into their pocket for each of the two expansion teams. If they instead approved a sale and move type deal, all of the money goes to the selling owner and not the group. I would be shocked to see the NHL allow a team (how long have the Coyotes been supposedly on the move but suddenly with quiet) move before the expansion process is completed.

So the story in today’s News & Observer that Canes owner Peter Karmanos is not new news. Regular Canes fans of course recognize this as an annual summer ritual by the publication to post what is now a 7-8-year process in a way that makes it look like new news. And while the financial impact of a run of playoff misses is not at all a financial positive, even if the team wanted to move, I think it is protected by the “expansion shield” at least until that is resolved.


Now the MUUUCCCCHHHH longer version…If you don’t like long, complicated reads, just RUN AWAY!

1994: Peter Karmanos bought the then Hartford Whalers with Peter Thewes and also Jim Rutherford in 1994 for $47.5M. When they bought the team, they agreed to keep it in Hartford for 4 years.

1997: When the team was losing money, struggling to build a big enough season ticket base and unable to get concessions/relief from the government, Karmanos and company moved the team to North Carolina for the 1997-98 season.

2008: Peter Thewes passed away in September of 2008. Though I could not find specific financial details, the basics are that Karmanos bought (unclear how it was financed) Thewes’ ownership stake and became more or less the sole owner of the Carolina Hurricanes. Again, details are sketchy, but I am guessing that Rutherford still owned his stake at this point, but again guessing, I think it was a relatively small portion. In addition, it is my guess that Rutherford had to unload his stake when he moved to the Penguins if he had not already. It was later reported that Karmanos owned 100% of the team, so I think that validates it even though it does not detail exactly how/when it happened. This is maybe the most significant event in Peter Karmanos’ ownership of the Hurricanes.

There is plenty of evidence to suggest that he never really wanted to own the entire team. So if you do the math, it goes something like this:

–No business discussions happen for a month or two while everyone is grieving the loss of family and friend in Peter Thewes.

–Once things turn to business, the family wants to sell and Peter agrees to buy. That maybe takes a month or two. Even in an amicable deal, lawyers get paid by the hour.

–Then Karmanos takes some time time to mull over his options, consult his advisors and pretty quickly comes to the conclusion that he wants to sell Thewes’ share. (Per my commentary below, I actually think he knew that before he even bought it.) I never found concrete evidence saying that Karmanos and Thewes were 50/50 owners, but my best guess is that it was this or something similar. So in effect, Karmanos was looking to divest the part of the team that he bought from Thewes family/estate immediately after buying it.

So what happened here?  Why would he buy it just to turn around and sell it immediately?  Best guess is Thewes’ family did not care to own the Hurricanes. They wanted the cash. The deal seemed to happen quickly which suggest that it was a fairly simple and amicable transfer to Karmanos. Karmanos bought Thewes’ share not because he wanted to own it but because he wanted to control who did own it and under what terms.  Thewes and Karmanos were friends and long-time trusted business associates, so my expectation is that the original deal structured between them would likely have been a 50/50 deal with both having about equal control. No way was Karmanos going to risk letting the family just sell Thewes’ share to some random person/group and completely roll the dice on who he got for a next partner in such a big deal. So he bought Thewes’ half to make sure he had a say in who joined him, how the deal was structured, etc.

So long story short, the original “Peter Karmanos is selling the Canes!” story dating all the way back to 2010 was very simply a result of his partner passing away and him trying to work his way back to something like his original ownership structure when he bought the team.

But ohhhhhhhhhhhh what a winding road that has occurred since.

Allen and Co. was originally hired in March of 2010 with the goal of selling 50% of the team, which I believe to be Thewes’ stake and a return right back to where Karmanos started ownership-wise. The key difference was that surely Karmanos was pitching that deal as 50% financial ownership but with him still in control. Not surprisingly, the “YOU own half the team, but I control 100% (at least if push comes to shove) the management of it” was a no-go. It was also reported that the goal was to sell the share to local ownership. In essence, what he was looking for was to also parlay the ownership stake into a deeper support/help with heavy hitters in the local business community.

The Triangle Business Journal article from March 24, 2010 with some history and details of the original attempt at selling part of the team is here.

Already we can see the annual offseason cadence of “Karmanos is selling the Hurricanes!” starting to build. Thewes who was half-owner of the team passed away in September 2008. The March 2010 checkpoint was a tiny bit before the offseason but why not make the first entry a bit early.

The next checkpoint occurred on cue in September of 2011. Not surprisingly, Karmanos was not able to find any takers for “You buy 50%, but it is still pretty much 100% mine…you just get half of the profits.” (HAH!) So in July of 2011 (there is the annual offseason cadence), Karmanos had seemingly given up on the big sale and was instead hoping that he could round up a group with shallower pockets.  Surely potential investors would recognize that true ownership with control was not a reasonable request for only a few percent ownership but still love the idea of joining the elite ‘I own a pro sports team club.’ Basically, he traded down to selling a time share/rental kind of deal where you got to own a hockey team without needing to be worth a billion dollars. He was reported to be initially looking for 12ish owners to take a combined 25% of the company. Even that did not sell.

In September of 2011, it was announced that he was selling 8 percent of the team to a smaller group of investors. A bunch of local names were bandied around including Jim Goodmon, CEO of Capitol Broadcasting Co., Matthew Szulik, former Red Hat CEO, and Bob Ingram, former vice chairman of GlaxoSmithKline. At least at the time, Karmanos could not confirm names.  It was not clear if this was an accurate list of investors’s names that had leaked early or a reporter’s best guess at compiling a list of locals who would be capable of ponying up $2+ million for a hobby/side business.

Here is the kicker though. That deal was reported to have what sounds like an out clause for the investors. Karmanos supposedly guaranteed these investors an annualized return of 3.5% if they wanted to opt out after five years. Again, I obviously do not have a copy of the contract, but “annualized return of 3.5% if they wanted to opt out after five years” seemingly means that they could at the end of five years just say ‘no thanks’ and get their money back plus a bond-like 3.5% return. It is unclear if they would also get a refund on anything else that they had to pay in for share of losses, but annualized return would suggest that they came out positive by 3.5 percent per year for the five years.

So think about the math. The original 8% that he did finally sell initially and I believe some follow on investors, had an opt out option that was roughly five years from September 2011. Think about the financial timing. The Canes had recently had the great 2009 playoff run pretty close in its history, was not that far from the Stanley Cup win and had great young, marketable players like Eric Staal, Cam Ward and Jeff Skinner. The purchase price was, relatively speaking, negotiated when it would have been at a fairly high point. Then think about what has happened since. Through the first four years of the five-year money back guarantee, the Hurricanes have seen payroll grow with new contracts for some stars but have earned seen exactly $0 of playoff money. And the lack of playoffs has obviously impacted season ticket and other sales as well.  There are some positives with both team and league TV deals, but the losses have probably been fairly significant with the growing payroll and stagnating ticket sales.

Karmanos began by wanting to sell 50% of the team sometime in the 2008-10 timeframe. He downgraded to 25 percent, probably more out of reality/necessity than desire in 2011. And it is not clear he ever even sold the 25 percent. But going a step further, is it possible that a significant portion of what he did sell will be refunded to him next September?

Many of the details of the 2011 investments, the terms and the lead up to it are in this Triangle Business Journal article from September 9, 2011.

The best part of the whole thing is the ‘Groundhog Day’-like handling by the local paper the News & Observer. I do not have time to hunt down the individual articles for the history covered and also articles written since the 2011 investment, but maybe struggling like most newspapers to make the transition from paper to digital, I think they at least stumbled upon the page views that happen when you write the basic “Karmanos is selling the Hurricanes!” article on a slow day in the hockey offseason. This time of year, the hockey community is starving for any information, so if you write this with a breaking news! kind of tone instead of part of a recap of a drawn out update on an old news history, it sells like digital hot cakes. If I had a bit more time, I would separately lay out the ritualistic annual chronology of the N&O article and compare and contrast the story from year to year. But I am about out of time for this long write and am not sure I want to feed it and help assure next summer’s addition.

So chronology, analysis and media handling aside, I think there is a legitimate discussion to be had about the Hurricanes financial situation and Karmanos’ transition and what it could mean for the team.  There is some risk here even if not immediate.

I see it like this:

1) Per my introduction, at an NHL level I would be shocked to see any movement of current teams happen near-term. The league has two fish on hooks for a $500 million expansion fee each and veto rights over any purchase deals. Why would they not collect the $500 million first and then, if there is a team sale to be made, use it for one of the next tier ownership groups who could not make the $500 million cost and/or schedule work?

2) There is some risk in Karmanos’ situation. My gut feeling is that he is sincere in wanting to keep the team in Raleigh. It has proven that it can be a good hockey market when the team is winning which is not that different than many markets. But with the seven-year struggle to sell the team under plan A, there is a chance that he moves to plan B and that out of necessity the buyer dictates what that is.  I guess one possibility is that he sells the entire team and washes his hands of where it ends up.

My greatest wish as a Canes fan right now is that the “Jimmy Goods” (Jim Goodmon and James Goodnight) ultimately step up to buy the team when the entire thing is for sale in a clean business deal instead of the ‘you own it I control it’ option that has seemingly been pitched so far.

And with that, maybe we can march past the 2015 edition of “Karmanos is selling the Hurricanes!” and turn toward training cap which is now less than a month away.  And I am not worrying at least until the expansion stuff is resolved.

Go Canes!

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