New Ottawa Senators Owner Could Get $120 Million From Selling Montreal Canadiens Stake

The new owner of the Ottawa Senators, Michael Andlauer, is going to get a big assist from the rival Montreal Canadiens.

A group led by Andlauer is buying 90% of the Senators from the Melnyk estate for $975 million (enterprise value), pending NHL approval (Anna and Olivia, daughters of the late Eugene Melnyk, will retain a 10% interest in the team through the Melnyk Estate).

Andlauer was one of the limited partners when the Molson family purchased the Canadiens for $575 million in 2009. The Canadiens were valued at $1.85 billion in our most recent NHL valuations last December. Sources tell Forbes that Andlauer owns 10% of the Canadiens, which he will have to sell because the league forbids a controlling owner of an NHL team to own a stake in another NHL team.

Says Drew Dorweiler, managing director and valuation practice leader at IJW & Co., Ltd., “Assuming that Michael Andlauer would offer his LP stake in the Canadiens on the open market, the timing would be propitious. Considering the recent enthusiasm among media and entertainment groups, private equity and celebrities in acquiring ownership interests in professional sports teams, combined with the iconic status embodied by the Canadiens, the resulting valuation could likely establish a record benchmark for a NHL team.”

Typically, the NHL would give someone like Andlauer a grace period of several months to sell his LP stake in the Canadiens. But a piece of the Canadiens would find no shortage of potential buyers. Despite not winning the Stanley Cup since 1993, the Canadiens have captured 23 championships, 10 more than runner-up Toronto Maple Leafs, and are the most iconic NHL team. Bankers believe a 10% stake could fetch $140 million or so.

But he’d have to pay capital gains taxes because even if he gave the sellers his stake in the Canadiens as partial payment for their interest in the Senators, that “use” of the Canadiens’ stake would be tantamount to a sale of the stake and would give rise to a capital gain—and whether he has capital losses that can offset the capital gain does not make the capital gain any less taxable. Importantly, in Canada, capital gains are taxed at a 50% inclusion rate (i.e., half of the rate that an individual or corporation taxpayer would otherwise pay). Thus, Andlauer would net perhaps $120 million.

To his advantage, Andlauer will be selling a stake in a relativley high-value team for one in low-value team. Andlauer, who will own about 60% of the Senators, will need roughly $400 million of equity, of which selling his stake in the Canadiens would net him almost one-third.