The Offer Sheet No One Understood

Wednesday marks Canada’s 153rd birthday, and with COVID cancelling celebrations, those searching for fireworks should turn on Montreal Sports Radio. Wednesday is also the 1 year anniversary of the Sebastian Aho Offer Sheet. Money will inevitably be the focal point of people’s frustration, but why? 

We all know Aho is worth $10.6+M, but the price tag is 4x1st round picks in compensation. The better question is how many more wins would Aho have gotten us? With hindsight, imagine a rebuild without a 1st for the next 4 years, let alone winning the 1st pick this year resulting in Lafrenière + 3x1st for Aho. Long shot (~7% probability), but I digress.

Now let’s move on to the bigger enigma at play, the signing bonus had to be paid in 5 days. Did no one realize that this was a calculated gamble from the start? 

Follow me down the rabbit hole. 

Tom Dundon, majority owner of the Carolina Hurricanes (purchased 61% for $420M in 2018), a team that ranks in the basement of the NHL in most financial metrics. At the end of the 2019 season the Hurricanes had a valuation of $450M with a Debt/Equity of 22% (both 25th in the NHL) and little operating income from 2019.

Dundon doubled down on Sports when he committed $250M to the, now bankrupt, Alliance of American Football. The Year 1 investment was $70M which was to be used to help cover player salaries and to pay creditors, the latter being the issue as they typically protect themselves by making sure they are contractually paid first or as close to as possible. Case and point Dundon is currently in a lawsuit with the AAF in a closely related claim.

Why is all of this important? Because, a person’s net worth reflects the assets you hold in your name. How much of that is liquid, on hand, ready to put in a briefcase cash, is another story. Let’s recap

2018-01-11 – Purchased 61% ownership of Hurricanes for $420M (Current Value $450M)

2019-02-19 – Commits $250M investment in the AAF, $70M in Year 1

2019-03-02 – AAF suspends all operations

2019-07-01 – Sebastian Aho Offer Sheet ($11.3M in 12 days, $21.2M total in 1 year)

Back to the Offer Sheet, everything was done to the maximum allowable amount; the Offer Sheet was the maximum allowable AAV for a 1st, 2nd, 3rd compensation. It was the maximum allowable bonus money, and the kicker, it was the smallest time window allowable (remember the 5 days). 

Now pretend you are a Bank Manager, Dundon wants $11.3M immediately while holding a Sports Investment portfolio currently operating at a loss of $215M while carrying $99M (let’s call it $60M to be fair) in debt in roughly 15 months. How are you supposed to properly do the books to assess the probability of getting your money back? There’s a reason the Offer Sheet was only matched on the 2nd to last day, this was never a money play, it was a time play.

Full credit to Dundon, he matched it despite everything that has been outlined. It is important to note this barely scratches the surface and it would be naive to not think that there is more at play here. 

But like I said, it was a calculated risk, and if I can put all of this together with a Google Search, imagine what a Billionaire owner can do.

Leave a Reply

%d bloggers like this: