Instructors Solutions Manual:

Negative Factors affecting the Ottawa Senators and the Corel Center:

• The five taxes (PAT, PST, GST, Property taxes, and infrastructure taxes)
• TV rights (National vs. Local TV rights)
• The lack of signage on the west side of the Corel Center
• US/CAN exchange rate differential

The profitability of the Ottawa Senators and the Corel Center:

To assist in the calculation of the value of the Senators and the Corel Center, please use the spreadsheet provided called Valuation software.  This valuation software was adapted from concepts and materials from Aswath Damodaran, the Author of “Applied Corporate Finance, A user’s Manual”, John Wiley and Sons Inc., 1999.

The value of the firm, as calculated by the Valuation Software, equals $130,703,684.75.  The inputs used in the model, can be changed on the valuation software as to assist in a sensitivity analysis. 

Recommendations to Improve the Senators chances:

· The Senators should attempt to force Pro-Line and other Provincial sports betting lotteries into sharing profits for using NHL names and logos and IP.

· The Senators should lobby the NHL with an attempt to change the US T.V rights (National vs. Local taking precedence).

. Change the TODS rules to address the lack of signage on the west side of the Corel Center

. The Sens should be considered Canadian entertainment and hence be PAT exempt.

· The Senators should examine the possibility of establishing a website for online gambling called www.NHL.com.

· An opportunity may also exist for a Senators/NHL hockey channel with ppv.  This would allow the Senators/NHL to collect extra revenues during the year.

· An NBA team in Ottawa would allow the Corel Center to own 2 professional sports teams therefore also increasing revenues during the year.

· The Corel Center could be sold to the city and leased back to the team.  Property taxes would be reduced to zero.

· With regards to NAFTA, this agreement should extend the US’s favourable lease agreements that the US teams have with their cities to Canadian teams as well.  In other words, since the US teams can lease their Arenas for $1/year, the Canadian teams should also be able to.

· Telepresence machines could definitely increase revenues for the team and Corel Center.  This could be done by installing cameras on specific seats and in specific areas of the arena so when one is viewing the game at home, they can manipulate their view so as to specialize their viewing likes and dislikes. 

· Land Development.  It will be more profitable to develop the 500 acres around the Corel Center instead of selling it to other developers. 

· Distressed Preferred Share issue could be taken into consideration.  This would allow for increased cash flows to the firm which could lead to a reduction in the Corel Center debt and interest payments. 

. Tax on visiting players (15% of 41 games divided by full season of 82 games times average payroll of $40 million USor $3.375 million per annum.)

Marketing and Sales Strategies Recommendations:

• The Ottawa Senators should consider marketing to a higher salaried group of people.  This would increase the “dollars per viewer eyeball” as Barb Smith put it.  The team would make more money in the long run by marketing to a higher salary bracket. 

• Barb Smith said that the Senators want to teach viewers that keeping salaries down will keep ticket prices down.  By explaining the cost structure to the fans the team can make them understand the relationship between players salaries and ticket prices.  This would keep the fans on the team’s side when there’s a dispute between management and players regarding their salaries.
• Owners of Hockey teams should treat owning a hockey team like owning a business and apply all other business practices you would if you wanted it to be profitable.  As Barb Smith said “You’re selling sizzle not steak”. It’s a service industry.
• The reason for the past huge salary jumps was that when new arenas were built in the States, the US Arenas got all the profits but incurred no debt since the cities paid for the Arenas and leased them to the teams for one dollar per year.  In Canada all the revenues go to the teams but all the cities didn’t cover the cost of the arena.  The arenas costing a large sum of money lead to extra costs, which lead to an increase in the players salaries because they had nothing else to do with it.  This concept should be involved in the marketing strategy so at do decrease the chances of high salary jumps in the future which will increase the profitability of the companies.
• One of the core competencies of the Ottawa Senators is winning games.  They have many points being scored by good quality players.  This keeps very dedicated fans around longer.  This should also be worked into the marketing strategy of the firms to increase fan dedication.

• By the Corel Center hosting different events, more revenues are earned and the draw of the Corel will grow. 

Why else would one buy the Ottawa Senators and the Corel Center?

Core Competencies:

• The Senators win games, they score points and attract good quality players.
• They are starting to have many different events at the Corel Center.
• The team and Corel Center have excellent management who keep tight budgets, have good marketing, and maximize their signage potential.  Along with their excellent marketing capabilities, they were able to manipulate the Senators appearance. It used to be “Come see your favourite team play the Senators” and now it’s “Come see the Senators”
• 30% population growth over the next 10 years (Barb Smith’s forecast)
• Ottawa is the third largest tourist city in Canada.
• Large population within a 70-mile range.
• Ottawa has an international airport.
• Ottawa has many government workers and high-tech workers all of whom are paid relatively well.  The average income in Ottawa is around $65,000.
• Ottawa loves its hockey!!!

Conclusions:

            The value of the Ottawa Senators and the Corel Center is positive.  The EBITDA is positive this year and the Net Income will be positive if the team makes the playoffs.  Ottawa is an excellent market for other professional sports teams, which can lead to increased revenues.  The team and building were not only bought for the love of hockey but mostly to make a profit on potential increase in land value.