Bell & Rogers?

As Bell and Rogers scoop up the Maple Leafs, questions abound about telecom

competition in Canada ... and the lack of it. Ron McDougall reports …

It’s all about telecommunications, not hockey. In a blockbuster $1.32 billion deal, Bell Canada Enterprises and Rogers Communications have jointly purchased Maple Leaf Sports and Entertainment (MLSE), Canada’s richest sports franchise. That’s undoubtedly the biggest acquisition in Canadian sports history.

Under the purchase arrangements, Bell and Rogers will each own 37.5% of MLSE, with the remaining 25% held by the existing minority shareholder, Larry Tanenbaum.

MLSE owns the Toronto Maple Leafs hockey club, the Toronto Raptors basketball team, the Air Canada Centre where both teams play, Toronto FC (Major League soccer team) and the Toronto Marlboros (American Hockey league team). Last March, the Ontario Teachers’ Pension Plan, the previous majority owner of MLSE, started to explore the possibility of selling its share and rumours were rampant over the summer about possible buyers.

But abruptly on November 25th, Ontario Teacher`s took MLSE off the market saying that they had not received any suitable offers. Perhaps that was enough to trigger Bell and Rogers to make their new joint bid. Larry Tanenbaum, who had the rights of first refusal on the sale of shares by Ontario Teachers’, was thought to have played a major role in finalizing the deal. He increased his ownership of MLSE by 5%.

For Rogers and Bell, neither one of them could afford to have MLSE go exclusively to the other or to an outside party.

The acquisition had virtually nothing to do with the sports teams involved themselves. What was at stake were the long-term regional television and radio rights to the games of the Leafs, Raptors and Toronto FC. These will now be split between the two companies.

“The transaction is all about accessing long-term access to content that is phenomenally important to Canadians,” said Rogers CEO Nadir Mohamed.

Bell and Rogers currently have the television rights to feed regional hockey and basketball games through their sports channels – Sportsnet (Rogers) and TSN (Bell). But these contracts expire in 2014 (basketball) and 2015 (hockey).

This acquisition ensures that those rights will remain with Bell and Rogers in the longer-term and it also avoids an expensive bidding war at renewal time. The rights will still have to be transferred at a market price because of Larry Tanenbaum’s minority interest, but most of the money will transfer back to Bell and Rogers.

Both companies have indicated that the details of the splitting of the rights between them have been worked out, but these have not been made public. However, the radio rights have been split 50/50 between the two companies.

It’s all quite a cosy deal. But is it good for consumers? The deal is still subject to regulatory approval both from the competition bureau and from the sports leagues.

That approval is expected to allow the deal to finalize by the summer.

Surprisingly, at this point there has been no public outcry about allowing this duopoly to control the sports broadcasting in the biggest television market in Canada.

Rogers also owns the Toronto Blue Jays baseball team.

As it is, the Toronto Argonauts football team are the only professional sports team in Toronto not owned by Rogers or Bell. Not only does the purchase help Bell and Rogers to solidify their stranglehold on the telecom market, but will quite possibly start to have an effect on the editorial content of television and radio sport commentators.

After all, if your corporate boss at the television station is also the boss of the team you’re commenting on, your views can easily become much less objective.

Even CBC, the national television broadcaster with the rights to Hockey Night in Canada, has raised no objections. In fact, they congratulated Bell and Rogers. Said Kirstine Stewart, executive vice-president of CBC English services: “Increasingly, sports rights deals are dependent on strong partnerships,” and pointed to sports partnerships that they have with Rogers and Bell.

It’s not that owning a team in order to have access to television content is unusual. It’s becoming quite common in North America. It’s just that two giant telecoms are cornering the market.

One thing that Canada needs is more competition in the telecom industry. It should be opened to foreign competition. But even if this were to occur, the Rogers/Bell deal will make it harder for newcomers to compete. Telecom services are already very expensive in Canada, and it’s the consumer who will undoubtedly pay even more as a result of the MLSE purchase.

There will be more than ownership changes at MLSE as well. A search is currently underway for a new CEO to replace the long-term incumbent, Richard Peddie, who left the job at the end of December, a move unrelated to the sale.

So, will the change of ownership have any impact on the performance of the hockey team? Leaf fans are dying for a winner. Out of the playoffs since 2005, they are at least currently showing a glimmer of hope that they might make the post-season play this year.

But winning is also a function of having the cash to buy the right players and having the management who can make the right decisions.

Neither of these will change with the Bell/Rogers acquisition.

There was always plenty of cash available with Ontario Teachers’ and there will continue to be cash available with Rogers/Bell. This is a lucrative franchise. And Brian Burke will continue building the team as the team manager.

The question of competitiveness should not be taken lightly. Bell has just had its hands slapped by the Canadian Radio and Television Commission (CRTC). Bell insisted that Bell Mobility customers were the only wireless users who could receive streaming of NHL and NFL games on their mobile devices. Telus, a competitor, had tried to negotiate with Bell to obtain access for their cellphone users, but Bell refused.

Telus appealed to the CRTC.

The Commission says that this violates Canadian broadcasting rules.

“Canadians shouldn’t be forced to subscribe to a wireless service from a specific company to access their favourite content,” says Konrad von Finckenstein, chairman of the CRTC.

He added that Bell was subjecting Telus to an “undue disadvantage.”

This particular problem doesn’t arise with television services, however, because no matter who provides the service, customers have full access to TSN and Sportsnet.

But surely this draws attention to the need for a more competitive environment. It should be a sign to the Competition Bureau that there needs to be a rethink about where the telecom industry is going, and the need for more empathy and understanding of the customer – something on which both Bell and Rogers come up short.