After the Lord Stanley of Preston was appointed by Queen Victoria as Governor General of Canada on June 11, 1888, he and his family became highly enthusiastic about ice hockey. Stanley was first exposed to the game at Montreal's 1889 Winter Carnival, where he saw the Montreal Victorias play the Montreal Hockey Club. The Montreal Gazette reported that he "expressed his great delight with the game of hockey and the expertise of the players". During that time, organized ice hockey in Canada was still in its infancy and only Montreal and Ottawa had anything resembling leagues.
Stanley's entire family became active in ice hockey. Two of his sons, Arthur and Algernon, formed a new team called the Ottawa Rideau Hall Rebels. Arthur also played a key role in the formation of what later became known as the Ontario Hockey Association (OHA), and would go on to be the founder of ice hockey in Great Britain. Arthur and Algernon persuaded their father to donate a trophy to be "an outward and visible sign of the hockey championship". Stanley sent the following message to the victory celebration held on March 18, 1892, at Ottawa's Russell Hotel for the three-time champion Ottawa Hockey Club:
I have for some time been thinking that it would be a good thing if there were a challenge cup which should be held from year to year by the champion hockey team in the Dominion [of Canada].
There does not appear to be any such outward sign of a championship at present, and considering the general interest which matches now elicit, and the importance of having the game played fairly and under rules generally recognized, I am willing to give a cup which shall be held from year to year by the winning team.
I am not quite certain that the present regulations governing the arrangement of matches give entire satisfaction, and it would be worth considering whether they could not be arranged so that each team would play once at home and once at the place where their opponents hail from.
Soon afterwards, Stanley purchased what is frequently described as a decorative punch bowl, but which silver expert John Culme identified as a rose bowl, made in Sheffield, England, and sold by London silversmith G. R. Collis and Company (now Boodle and Dunthorne Jewellers), for ten guineas, equal to ten and a half pounds sterling, US$48.67, which is equal to $1,277 today. He had the words "Dominion Hockey Challenge Cup" engraved on one side of the outside rim, and "From Stanley of Preston" on the other side.
Originally, Stanley intended that the Cup should be awarded to the top amateur hockey team in Canada, to be decided by the acceptance of a challenge from another team. He made five preliminary regulations:
- The winners shall return the Cup in good order when required by the trustees so that it may be handed over to any other team which may win it.
- Each winning team, at its own expense, may have the club name and year engraved on a silver ring fitted on the Cup.
- The Cup shall remain a challenge cup, and should not become the property of one team, even if won more than once.
- The trustees shall maintain absolute authority in all situations or disputes over the winner of the Cup.
- If one of the existing trustees resigns or drops out, the remaining trustee shall nominate a substitute.
Stanley appointed Sheriff John Sweetland and Philip D. Ross (who would serve in his post an unsurpassed 56 years) as trustees of the Cup. Sweetland and Ross first presented the trophy in 1893 to the Montreal Amateur Athletic Association on behalf of the affiliated Montreal Hockey Club, the champions of the Amateur Hockey Association of Canada (AHAC), since they "defeated all comers during the late season, including the champions of the Ontario Association" (Ottawa). Sweetland and Ross also believed that the AHAC was the top league, and as first-place finishers in the AHAC, Montreal was the best team in Canada. Naturally, the Ottawas were upset by the decision because there had been no challenge games scheduled and because the trustees failed to convey the rules on how the Cup was to be awarded prior to the start of the season.
As a result, the Cup trustees issued more specific rules on how the trophy should be defended and awarded:
- The Cup is automatically awarded to the team that wins the title of the previous Cup champion's league, without the need for any other special extra contest.
- Challengers for the Cup must be from senior hockey associations, and must have won their league championship. Challengers will be recognized in the order in which their request is received.
- The challenge games (where the Cup could change leagues) are to be decided either in a one-game affair, a two-game total goals affair, or a best of three series, to the benefit of both teams involved. All matches would take place on the home ice of the champions, although specific dates and times would have to be approved by the trustees.
- Ticket receipts from the challenge games are to be split equally between both teams.
- If the two competing clubs cannot agree to a referee, the trustees will appoint one, and the two teams shall cover the expenses equally. If the two competing clubs cannot agree on other officials, the referee will appoint them, and the two clubs shall also pay the expenses equally
- A league could not challenge for the Cup twice in one season.
Stanley never saw a Stanley Cup championship game, nor did he ever present the Cup. Although his term as Governor General ended in September 1893, he was forced to return to England on July 15. In April of that year, his elder brother Edward Stanley, 15th Earl of Derby died, and Stanley succeeded him as the 16th Earl of Derby.