Halifax Gate Industrial Site: an HBB Nostra Culpa

It’s been two months since HBB ventured that a buyer for Valero Energy Inc.'s massive industrial site in Eastern Passage would be announced by year-end.

With one day to go before 2023, it is obvious that our prediction will no longer withstand scrutiny.

HBB speculated on October 21 that potential buyers had delivered bids for the 475-acre property, which offers harbour and CN railhead access. The Halifax site hosted a refinery until 1994, according to Industrynet.com. HBB will endeavor to provide an update if and when we have more information.

Halifax's Soccer Success Story Leads HBB to Wonder: What's It All Worth?

We attended a pro soccer match in Halifax this past August, and boy, was it fun. The day was too hot for our liking here at HBB, but the feeling in the pint-sized downtown stadium was like a festival, and kite tails danced in an all-blue sky over Citadel Hill.

At halftime, Nathan MacKinnon, the Nova Scotia native who two months earlier had led the Colorado Avalanche to the Stanley Cup, paraded the trophy before 5,729 fans at Wanderers Grounds. Topping things off, the home team scored the game’s only goal late to beat their playoff-bound opponents from Vancouver Island.

Most pro soccer matches played in Halifax are not so idyllic. The East Coast city gets rained on a lot and the HFX Wanderers FC, as the local team is officially known, lost a lot this past year: The Wanderers finished second to last in the eight-team Canadian Premier League ("CPL") and fired their coach after the season. But both soccer fanatics and families looking for something to do on the weekend will find that team owner Derek Martin can put on an impressive show.

And then we got to thinking: What might that show be worth? We’ve seen valuations for teams in all major sports leagues, but nothing so far for any in the four-year-old CPL. When Martin tallies his assets at the end of his day, what value does he place on his Wanderers?

The Grounds: grass, aluminum and fun

Valuation and Price

We play it straight here at HBB, and let’s face it: Canadian soccer’s black-box revenue-sharing arrangements make calculating a valuation for the Wanderers a fraught undertaking - what many accountants might call fanciful. Recall that Steve Ballmer, the Microsoft billionaire, spent US$2 billion to buy the NBA’s Los Angeles Clippers in 2014. At the time, Forbes valued the team at US$575 million. There is often no connection between a private team’s publicly discussed value and what it will sell for.

But now seems an especially good time to take look at what a CPL team could be worth as valuations in Major League Soccer (“MLS”), North America’s 29-team top-tier pro league, rose an estimated 6% in 2022 ahead of next month’s World Cup in Qatar.

Soccer is rapidly gaining popularity in Canada – and becoming more lucrative.

Commercial revenue was the biggest source of income at Canada Soccer, the sport’s domestic umbrella organization, tripling between 2018 and 2021, according to the Deep Dive, an investment website.

At MLS, sales of newly launched team jerseys were up 10% over the year on MLSstore.com, with 17 clubs selling more, and the Wanderers themselves appear to have sold out of this year’s jersey style. Atletico Ottawa, which is controlled by one of Spain’s biggest clubs, hopes to set a league attendance record at tomorrow’s championship against its opponent from Hamilton, Ontario.

The CPL also has teams in Calgary, Edmonton and Winnipeg, and there is a Toronto side whose sparsely attended matches take place at a university stadium.

Among candidates for the CPL’s peer-selected player of the year award are flame-haired Oliver Bassett, the Atletico Ottawa midfield general who scored eight goals this season, and Ali Musse, a Calgary striker who led the league in shots and finished with seven goals. The Wanderers’ best overall player may be Andre Rampersad, a midfielder and the team’s leading passer.

Revenue, Revenue Equivalents

All HBB can assert with any degree of confidence is that the team is probably worth more than Martin’s initial investment (discussed later) but less than C$50 million. We’ll identify the sources of CPL team revenues and what we consider revenue-equivalents, and what valuation method will be used to come up with a dollar figure for the Wanderers.

The Wanderers have four revenue sources: tickets sales and (we assume) a cut of gameday concessions (which we are ignoring); broadcast rights, which are shared; league-wide and local sponsorships; and sales of team-branded clothing and paraphernalia including jerseys, caps and items such as key chains.

There are many ways to divide this pie: Manchester United, the largest publicly traded soccer team, divides its revenue among Matchday, Broadcast and Commercial buckets.

To complete our valuation math we’ll employ a revenue multiple, which is a common yardstick for privately held sports teams because so many show losses in accounting terms, and reliable financial data can be hard to come by.

The components of revenue and revenue equivalents are:

Gate: Halifax led the CPL in attendance with an average of 5,825 attending 14 home games at Wanderers Grounds - 43% more than No. 2 Atletico Ottawa. Let’s assume an average Wanderers ticket price of C$30, the midpoint for the range of season tickets. So: C$5,825 x C$30 x 14 games yields C$2.45 million.

Broadcast: In 2019, Mediapro, a Chinese-owned broadcaster based in Barcelona, paid C$200 million over 10 years to acquire the exclusive rights to air CPL matches and the less desirable matches played by Canada’s national teams – i.e. not World Cup matches. Let’s ascribe C$1 million of this annual bounty to the Wanderers, assuming that the national teams command a slightly higher value.

HBB knows that C$1 million is not getting allocated to the Wanderers’ income statement as revenue. To call an annual cut of a broadest contract “revenue” is almost certainly wrong, but it is not unreasonable to consider for valuation purposes.

Sponsorships. The Wanderers’ website lists some 70 local partnerships, most with regional companies and non-profits ranging from electrical contractors to youth soccer groups to breweries and a casino.

We can assume that many of these sponsors have minimal monetary value and represent outreach for the Wanderers as they build goodwill in the community. The big money seems to us to come from the league sponsors. The CPL’s marquee sponsors are Westjet, the smaller member of Canada’s airline duopoly; Volkswagen, the German auto company; and Macron, an Italian maker of sportswear.

Hard Cash?

HBB’s assumption is that Volkswagen provides hard cash for its exposure since cars are of not much use to a sports team. But Westjet and Macron provide very specific products and services to the teams: flights and jerseys. Perhaps HBB can put a value on these products and services?

Proving that stadiums and condos can coexist

First, Westjet. The Wanderers played 14 away games last year and, we think it’s safe to assume, flew on Westjet planes for free or at a discounted rate. The Wanderers’ 28 players and three coaches needed transportation, as did a trainer. That’s 32 flyers. Next let’s assume a price of C$500 for domestic roundtrip flights. So: 32 x C$500 x 14 away games equals C$224,000 – that sounds pretty high.

Since HBB favours a conservative approach, we’ll say the Westjet partnership is worth C$100,000 to the Wanderers.

Second, Macron. HBB assumes that Macron, one of biggest suppliers of what soccer aficionados call ‘kits,’ provides jerseys to the Wanderers for free. So: 28 players on the Wanderers roster x 4 kits (2 home and 2 away) x a wholesale price of C$55 (just under half the $109 that Wanderers shirts sell for at retail) equals C$6,160. That seems low since Macron shares top billing with Westjet, and there is certainly other gear and consideration that Macron could provide.

Let’s assign C$50,000 of value to the Macron deal, and assume $100,000 for Volkswagen. For the three major sponsors we get a total value of C$250,000. For the remaining league sponsors, HBB will tack on an additional C$100,000.

What about the raft of other team sponsorships? Right off the bat, at least 15 appear to be non-profits, so figure there’s not much money there. Let’s say C$130,000. Total sponsorship value to the Wanderers: C$480,000. Let’s be conservative and cut this to C$300,000.

Licensed Merchandise: There are two limitations that we need to overcome in this area: how can we possibly know how many people bought Wanderers swag and how much they spent? Second, how much do the Wanderers keep?

Let’s assume at this stage of the league’s development that most of the people buying Wanderers apparel attended a match this year, and that most Haligonians won’t have heard of the team and/or won’t derive any cachet from wearing the team colours. Next we’ll assume that each gameday fan bought a jersey (C$109) and a cap (C$32) in 2022. A couple of other assumptions lead to C$55,000 in licensing revenue.

Matchday Versus Commercial

Adding our four sources of revenue, we get a total of C$3.8 million. It appears that much of the team’s value currently comes from ticket purchases. At Manchester United, by comparison, 44% of the revenue in 2019 came from clothing sales, sponsorships and other “commercial” sources – and just 18% from “matchday.”

It’s also worth noting that Manchester United and many major sports teams own their stadiums and/or the land they occupy, and these assets greatly enhance their value. Nothing there for Martin’s Wanderers, who rent the Grounds location (used for rugby and lawn bowling as far back as the 1880s) from the city.

So what multiple are we going to put on the total revenue?

For reference, we head back to the MLS, which has teams in Canada’s three largest markets: Toronto, Montreal and Vancouver. According to Sportico, a sports-business publication, valuations for the league range from a high of US$900 million for Los Angeles FC to a low of US$390 million for the Montreal Impact.

But in a clue to how popular soccer could get in Canada, Toronto FC ranks fifth at an astonishing US$705 million, exceeded only by two Los Angeles clubs and teams in soccer-crazed Seattle and Atlanta, and not far from Forbes magazine’s US$750 million estimate for Aston Villa in the English Premier League. The average revenue multiple for MLS valuations is 10, the highest among the major North American leagues, according to Sportico. National Hockey League teams get the lowest multiple at 5, and that’s closer to a figure that we think is appropriate for CPL teams.

Based on a range of 4 to 5 times revenue, the official HBB valuation will be struck at C$15 million to C$19 million, with C$17 million as the midpoint (about US$12.5 million or 10.7 million British pounds at current exchange rates).

A conservative valuation approach would be appropriate for Halifax, which is the CPL’s smallest TV market and ranks only 115th in North America (just behind Reno, Nevada), according to thinkTV. Halifax, with a population of 420,000, also places quite low among major Canadian cities in terms of household income, and the thinking at HBB is that much of the increase in the Wanderers’ future value could come from growth in shared broadcast and sponsorship revenues generated in other markets. In this light, it’s certainly possible that our valuation is significantly too low. After all, C$17 million is just 3% of Sportico’s valuation for Montreal’s club.

Martin, who is a member of the CPL’s board of directors, was preparing for Sunday’s championship and unavailable for immediate comment. Laura Armstrong, the CPL's communications head, could also not be reached.

What’s the Return?

How has Martin done on his investment so far? For an inkling, we turn to a March 2021 CBC News story in which David Clanachan, the CPL’s first commissioner and a former Tim Hortons chief operating officer, said CPL owner investments totaled “circa C$60 million.” We divide that amount by eight to get C$7.5 million, compared with our C$17 million valuation.

Clanachan, who as commissioner would have had a front-row seat from which to assess the league’s growth potential, quit in January after being awarded an expansion franchise for Windsor, Ontario. Clanachan and his fellow owners have a lot of work to do to upgrade their product. The quality of the league’s strikers must improve to generate more goals and excitement, and the standard of CPL officiating is a talking point.

Raising player salaries will be key. The league’s average compensation last year was about C$40,000 and maxed out at C$77,000. A large number of players are making much less, a labour lawyer helping CPL players organize is quoted as saying in the CBC News article.

Martin has by all accounts been a model for sports ownership. Tristan Cleveland, an urban planner in Halifax, has praised the way Martin stitched the stadium into the city’s urban fabric. Martin rented land from the city, assembled Wanderers Grounds from mobile bleachers and shipping containers, and proved he could pack it full on game day.

“Instead of gambling with public money, (the Wanderers) made a careful investment, and it was enough to deliver the full experience of a fun soccer game,” Cleveland said via email. “The idea has worked, and it has brought thousands of people to downtown streets.”

Martin plans to propose a permanent site that would almost double capacity to 10,000. If Martin manages to fill that stadium, it’s safe to say that his Wanderers will be worth a pretty penny.

-HBB

Halifax Gate Industrial Site: an HBB Status Report

Correction

It’s been more than five months since Valero Energy Inc. put a 475-acre industrial site in Halifax’s Eastern Passage area up for sale in what is shaping up as a huge land deal for eastern Canada. HBB figures that the Halifax Gate property could fetch $20 million to $30 million, but the final price will depend in part on the size of any environmental liabilities remaining after a cleanup of the former oil-refinery location.

HBB speculates that serious buyers have by this point reviewed the confidential documents and delivered their bids, and that the announcement of a buyer will likely come before the end of this year. Another signal that the sales process has moved to a more advanced stage may be that officials at CBRE, which is brokering the sale for Texas-based Valero, did not respond to HBB’s inquiries.

The property, which offers harbour access and a CN railhead, hosted a refinery until 1994, according to Industrynet.com. CBRE's sales brochure for Halifax Gate says a site clean-up is underway, to be followed by two years of environmental monitoring.

The brochure notes that, while the property remains zoned for heavy industry, municipal officials are disposed to look favourably on changes that would convert the site to low-pollution manufacturing such as food production, as well as for warehousing and transportation. According to the brochure, the site could accommodate 6.5 million square feet of development - equvalent to almost triple the floor area of the Empire State Building.

Such zoning changes would fit with the hopes of residents living on the periphery of the property in Eastern Passage, an unincorporated community across the harbour from Halifax. Their wish list for amenities close to the reimagined site includes a grocery store, a health-care clinic and recreational facilities, according to a 2020 CBC news story.

-HBB-