Scott McCain adjusts his Bulgari to his favourite time zone: Sea Dogs Standard. He's on his way eastward to Saint John, the home of the Quebec Major Junior Hockey League (QMJHL) franchise he owns and cheers on rinkside every chance he gets. The ostentatious watch is one of the few signs that McCain is the scion of a legendary Canadian business family. Well, that and the private jet. But this is a hockey trip, so the chief of Maple Leaf Foods' agribusiness group, jacket off and Levis slung low, is quick to hand beers around the eight-seat cabin.
This will be McCain's fifth home opener with the Sea Dogs, and his record isn't great. "One and three," he moans. "One and three." The team has certainly tested his devotion and business mettle. A lifelong hockey nut, he and a group of minority partners bought the franchise as an expansion team in 2004. For several years, he saw little but losses, both on the ice and on the spreadsheets. The whole escapade started to seem like the punchline for a mid-life-crisis joke: Rich bored guy buys new toy and can't make it work. "My dad couldn't understand it," he says, referring to billionaire entrepreneurial legend Wallace McCain. "He'd say, 'What did you go and do that for?'"
This season, however, the Sea Dogs have emerged as the most compelling story in the Canadian Hockey League, the umbrella organization for the three junior leagues and 60 franchises that are the primary source of talent for the National Hockey League. By Christmas, the team had fashioned a 22-game winning streak, the third-best in QMJHL history, and was trailing only the defending Memorial Cup champion Windsor Spitfires in the rankings.
Still, the economic rationale for owning a junior-league hockey team continues to elude McCain. The team came perilously close to bankruptcy early on, and as wealthy and hockey-mad as McCain is, he's not interested in losing money forever. "I didn't get into the goddamn thing with a view to writing a cheque for a couple of hundred thousand every year," he says. Even now, with the Sea Dogs playing like championship contenders, the franchise is lucky to fill half of its 6,300-seat arena. As McCain's operations team struggles to raise attendance and eke out a profit, the corporate titan who has spent his entire career working behind the scenes of the family-owned food conglomerate is getting a schooling in just how hard it can be to run a small business.
Despite the on- and off-ice headaches, McCain acknowledges that the Sea Dogs were a welcome respite from the food-contamination crisis that unfolded at Maple Leaf Foods a little over a year ago. An investigation by the Canadian Food Inspection Agency confirmed the presence of listeria monocytogenes bacteria in sliced-meat products that had been processed at a Maple Leaf plant in suburban Toronto. The tainted meats were eventually linked to 22 deaths. The company's share price plunged nearly 30 per cent. While his younger brother, Michael, was front and centre with the media, Scott, the family's operations expert, was charged with implementing new food safety protocols at the McCain plants. "If I had a long day and wanted to go home and drink a bottle of Scotch, I'd instead have a glass of wine and call one of the guys and talk hockey," he says.
Still, it would be wrong to suggest that McCain thinks of the hockey franchise as a plaything. Even though he's an heir to a $2-billion fortune, he balked when the QMJHL upped the expansion fee from $2-million to $3-million virtually overnight, after business groups in Saint John and St. John's both clamoured to bring new teams into the league for the 2005-'06 season. The St. John's organization was willing to pay the new price, so McCain had little choice but to follow its lead. He jumped in, after joining forces with a competing group of bidders headed by Wayne Long, whom he'd met and hit it off with some years earlier. Long saw the merit of having a McCain as a partner; McCain liked the idea of having a co-owner on the ground in Saint John. McCain ended up with a 75 per cent share in the franchise, while Long and a few other local entrepreneurs put up the rest of the money.
McCain still winces when he thinks about how much they paid for the team. "The fact is, we overpaid by about $500,000," he says, sounding like a chagrined homeowner who got caught up in a bidding war. "But for us, it was, 'Do you want it or not? Take it or leave it.'" And McCain really wanted it. Because, for all his talk about the joy of playing hockey when he was growing up in tiny Florenceville, New Brunswick, and all his old team photographs in his midtown-Toronto office, McCain has something to prove. "If I wasn't going to be a pro player and I wasn't going to be a coach, the only thing I could be is an owner," he says.
The CHL, which comprises three junior leagues (the Western Hockey League, the Ontario Hockey League and the Quebec Major Junior Hockey League), was once a mishmash of mom-and-pop operations, with teams playing in run-down community arenas and changing hands for as little as $50,000. That generation has largely sold out to new, wealthier owners who, like McCain, are looking for investments that give them sizzle along with their stake rather than simply a way to pay the bills.
In the right market, a savvy entrepreneur can turn a junior-league franchise into a lucrative business. As owners began to promote their teams more vigorously, raised ticket prices and tapped previously neglected sources of income, such as merchandising and sponsorship, average revenues for teams in the Quebec league rose from $350,000 to $2-million a year. The best clubs in the CHL now draw as many as 10,000 fans to a game, and are worth in the order of $10-million.
"The ownership profile in the CHL has changed drastically since I first got involved," says Jeff Hunt, who bought the Ottawa 67s in 1998. "Even a decade ago, you had owners who had 80 per cent of their net worth tied up in their franchise, and as values increased, they couldn't afford not to sell them. Now we have five billionaires in the CHL," including Biovail founder Eugene Melnyk (Mississauga's St. Michael's Majors) and Edmonton Oilers owner Daryl Katz (Edmonton Oil Kings). They tend to be the best kind of owners, says Hunt, and not only because of their wealth. "They're usually busy guys with a lot of passion, so they let their hockey people do their thing. But at the same time, they don't look to squeeze every penny out of the club, so they can afford better coaches and provide the players with the resources they need to be successful."
The ideal market for junior teams tends to be medium-sized cities (London, Windsor, Quebec City) where the clubs are the only source of elite hockey in town. Saint John doesn't quite fit the bill, says QMJHL commissioner Gilles Corteau, but with a modern arena, luxury boxes and no competing franchises nearby, the Sea Dogs have one of the best markets in "the Q."
Whether a club is profitable, however, depends on many factors. Some teams in the league struggle to fill 2,500-seat arenas, but prosper because of favourable lease arrangements that allow them to pocket all of their revenue, says Corteau. (The Sea Dogs split their revenues evenly with the City of Saint John.) In addition to overpaying to get in, McCain will admit to other newbie mistakes. His club went through two coaches and two general managers in four years, with the practice of hiring "hockey people" proving to be more like a black art than a science. And as for revenue forecasts, McCain and his partners soon discovered they had been way too optimistic, projecting attendance of 5,000 a game and instead averaging 3,800 – a respectable total, to be sure, good for fifth in the Q, but a miscalculation that cost them roughly $300,000 a year.
For the first two seasons, the Sea Dogs bled red ink. Long, who as president is responsible for the club's day-to-day operations, admits the partners were simply too enamoured of their product. "We thought everyone would love it as much as we did." And while Saint John, with a regional population of about 130,000, is one of the bigger markets in the QMJHL, it's not a particularly wealthy one. McCain likes to say that Saint John is a sports town where "if a guy has $50 in his jeans, he'll spend it on hockey." But with unemployment and poverty rates above the national average, the region may simply not be wealthy enough to fill a 6,300-seat arena for nearly 40 home dates. "An $18 ticket price in Saint John means taking your family to a game is $100 to $120, and that's a lot here," says Long.
Talent isn't cheap, either. While CHL leagues only give players honoraria – $60 a week on average, plus room and board – the clubs pay into a league-wide scholarship fund that sets aside $4,500 a year per player to be put toward their post-secondary education if they don't end up playing professional hockey. Sometimes it's much more than that, though, as top prospects may demand an allowance to pay for an Ivy League education, for example, along with a travel budget for their families and whatever other perks their agents can think of. The total can reach $400,000 or more, as in the case of one elite player the Sea Dogs were thinking of drafting, but didn't after learning the price tag. "You hear rumours," says Long. "A player's agent will be asking for $100,000 a year to come to a certain club. You don't know if they're bluffing or not. When it comes to that, we just say, 'Thanks but no thanks.'"
For the Sea Dogs, things hit bottom after the second season when the franchise technically ran out of money. (The team's expansion cousin, the St. John's Fog Devils, did go under.) Facing the second of five $200,000 expansion payments to the league, the Sea Dogs' partners had a decision to make: Pump in more cash or shut down. At such difficult moments, McCain's steadying presence and business experience have come into play. "He kept everyone calm and focused," says Long – and he wrote the majority of the cheques that were needed to keep the players lacing up their skates.
The turnaround has taken time. The partners hired a controller to curb runaway costs, but managing the team's expenses without undermining players' ability to go out and win games is a tough act. When games are in Halifax, for example, the teenagers would be hard-pressed to spend six hours on the road and then play their best that night, so they travel on the day prior to the match (no small luxury when every day of travel costs the club $4,000). The post-game journey from Rouyn-Noranda, Quebec, to Saint John takes 22 hours over two days, but going by bus saves the club $40,000 in air fares – an expense that the Sea Dogs' rivals in Moncton find to be worthwhile.
Now, with two experienced ex-NHL coaches on staff – Mike Kelly as general manager, Gerard Gallant as head coach – McCain is satisfied that his team is in good hands. The pair joined the club last June; by the midpoint of the season, the Sea Dogs were alone atop the QMJHL standings and were emerging as serious contenders to win the Memorial Cup.
Still, it's bums in the seats that drive revenue, and attendance hasn't increased significantly. Ticket sales not only account for 65 per cent of the Sea Dogs' cash flow, but are instrumental in juicing other income streams – merchandise sales, concessions, parking, sponsorships. Through this season's first 19 home dates, the club attracted an average of 3,700 fans per game, or about 60 per cent capacity. Why haven't the team's winning ways translated into a bigger bump in attendance? "It's been a surprise," says Long. "But the economy has a wide-ranging effect on sports. Because, [on-ice]success or not, we are entertainment, and entertainment dollars are the first ones to go in tough times."
As the economy improves, however, and the Sea Dogs' talent matures, more fans are likely to find their way into the arena. And league insiders see junior hockey getting richer over time. The Q generates about $1-million a year in broadcast and webcast rights. A decade from now? "That's going to grow," says QMJHL Commissioner Gilles Corteau. "Big time."
For now, the Sea Dogs are playing with tight margins. Over the past five years, annual revenues have hovered between $2.3-million to $2.5-million – clearing expenses by a mere $300,000 or so. Co-owner Wayne Long believes that if the Sea Dogs can entice 3,800 to 4,500 fans to come out and watch the home games, the venture can work. "A large money-making franchise? Absolutely not. A franchise that teeters around break-even? Yes, but stable and viable for the long term."
McCain is unwavering in his commitment to the Saint John Sea Dogs, but he's also resolved that the business side of junior league hockey needs to make sense. "We didn't get into the hockey business thinking it would be like a technology start-up that was going to take off. But we don't want to have a financial wreck on our hands, either," he says. "Dipping into your pocket isn't fun, but I'm going to be in this business for a long time."
The tide may be turning in the Sea Dogs' favour: This year marks the owners' final expansion-fee payment to the QMJHL, and if the team can get into the playoffs, they stand to net an additional $80,000 per home game in ticket sales and other income. The books should look even better by 2014, when McCain hopes the partners will be able to retire their debt.
Besides, these days, McCain is getting a return on his investment in hockey that offsets the gaps in the bottom line. The season opener turned out to be a harbinger of good things to come. The Sea Dogs won in an overtime thriller as McCain and his guests – Irving Oil CEO Kenneth Irving and his wife, among them – looked on from his box. Most of the time, however, he prefers to sit in a row of seats just behind the Sea Dogs' bench, to be closer to the fans and the action.
The game over, McCain reclines in an armchair, a Moosehead Light in hand, in the Alpine Room, a members-only pub of sorts above the arena talking hockey with friends.
McCain was closing in on 50 when he purchased the Sea Dogs. He admits that the investment has given him a chance to step outside his family's shadow for the first time in his career and build a bit of brand identity for himself. "I'd never really done anything on my own until I did this," he says. "This has nothing to do with Maple Leaf, it has nothing to do with my family. It's my own time and my own money, and I made the decision without consulting with my brother or sisters."
Perhaps the most satisfying outcome for McCain is his father's gradual shift from skeptic to fan – a transition that has mirrored the team's fortunes. During the first couple of years, as the Sea Dogs struggled, McCain didn't have a good answer when his dad asked why he was spending time and money on a losing hockey club. Still, the son kept inviting the father to games.
"He'd say, 'I'll come when they're going to win,'" says McCain. But in year five, with the Sea Dogs the toast of junior hockey and finally in the black, his father's tune has changed. "Now, when I tell dad to come, he'll do everything he can to clear his calendar."
Special to The Globe and Mail