Teachers' true-blue investment

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Fans of the Toronto Maple Leafs are a frustrated bunch. The club has gone 42 years without a Stanley Cup and the second-longest championship drought in the National Hockey League shows no signs of ending soon.

But as an investment, the team never seems to disappoint, despite what happens on the ice.

Even in the face of a recession that has crippled asset values of entertainment companies over the past year - and pro sports franchises are no different - the Maple Leafs and their affiliated businesses have held more of their value.

When a small stake in the club's parent company, Maple Leaf Sports and Entertainment Ltd., changed hands Thursday for an estimated $100-million, the deal valued the entire business of MLSE at about $1.3-billion.

For CTVglobemedia Inc., which sold the 7.7-per cent stake to majority owner Ontario Teachers' Pension Plan, the sale represents a near doubling of the amount that holding would have been acquired for in 2003. Though CTVglobe did not disclose the price, the company said in a statement that it was exiting "profitably" from MLSE. The investment was originally part of a media strategy aimed at matching sports franchises with cable channels such as Leafs TV and TSN.

However, that concept never produced the profits its backers thought, and the benefits to the media company owning a minority stake in sports franchises never materialized.

CTVglobe, the parent company of the CTV network and The Globe and Mail, will use the proceeds to pay down debt associated with its $1.4-billion acquisition of CHUM Ltd. three years ago. At a time when media companies have been hit hard by a decline in advertising markets, cash to service debt has become crucial.

It is the second time in less than a year that CTVglobe sold a stake in MLSE, after the company flipped 7.7 per cent to construction magnate Larry Tanenbaum for $90-million in December. That sale valued MLSE at $1.2-billion.

For Teachers, the rising value of MLSE has been more pronounced. The pension fund initially bought into the business for $210-million in 1994. By 2001 that same stake was worth about $490-million.

With some additional investment since then - including Thursday's acquisition - the pension fund's 66-per-cent share is now worth more than $850-million, not including any dividends collected over the years.

Such financial performance comes in stark contrast to the club's on-ice fortunes: only the Chicago Blackhawks, at 48 years, have gone longer without winning.

In boosting its stake, Teachers' is signalling a renewed interest in the asset, which has become an unexpected safe haven at a time when falling markets have sideswiped some of its other investments.

"Our increased investment in MLSE reflects our confidence in the organization's long-term success on and off the field of play," said Erol Uzumeri, senior vice-president of Teachers' Private Capital.

The Maple Leafs are the plum asset in MLSE, a sports conglomerate that also owns the National Basketball Association's Toronto Raptors and the Air Canada Centre in Toronto, along with smaller sports franchises such as the Toronto FC soccer team and the Toronto Marlies minor-pro hockey club.

Mr. Tanenbaum is the second-largest investor in MLSE with a 20.5-per-cent stake, followed by Toronto-Dominion Bank, which holds the remaining stake at 13.5 per cent. After buying into MLSE several years ago, Mr. Tanenbaum has talked publicly about rebuilding the Toronto Maple Leafs into a winning team and has long coveted a larger stake.

In the event Teachers decides to exit, he could become the largest investor, since each owner has claim over a portion of the other's shares when they come up for sale. For that reason, Mr. Tanenbaum took a pass on this week's sale.

"There was no real reason for Tanenbaum to own more of MLSE, he has the position he wants," said one source close to the Teachers fund. "On the other hand, Teachers likes this asset and is happy to own more of it."

TD has consistently said that it would prefer to cash in on its MLSE investment at a premium price, and that top dollar is most likely to be paid when Teachers sells majority control in the sports empire.