Peter Forsberg was born in Ornskoldsvik, Sweden, the son of Kent Forsberg, a former coach of Modo Hockey and the Swedish national team. Forsberg was coached by his father for a significant part of his career: the two teamed up from 1991-94 with Modo and later for the national team in the 1996 World Cup, 1998 Olympics and 1998 World Championship, which Sweden won. Forsberg played minor hockey alongside boyhood friend Markus Naslund, who was also born in Ornskoldsvik. Born ten days apart, the two were well-acquainted while playing on separate youth teams before joining together on the regional Angermanland all-star team for the under-16 TV-pucken national championship in 1988.

Forsberg debuted in 1990 with the junior squad of Modo Hockey, the club of his hometown Ornskoldsvik. During the course of the season, he debuted with the senior team that played in the Elitserien, the highest-level professional ice hockey league in Sweden, and scored an assist in his only game. In 1990-91, he scored 102 points in 39 games with the junior team and 17 points in 23 games with the senior team.  At the end of the season, Forsberg was drafted sixth overall by the Philadelphia Flyers in the 1991 NHL Entry Draft, the first European player taken that year. The draft pick was surprising because Forsberg was expected to be selected later in the draft. The Hockey News had ranked Forsberg as the 25th best draft prospect in its 1991 draft preview, saying he was "a solid second rounder who could move into the first." The pick was criticized by the Philadelphia media, prompting Flyers' General Manager Russ Farwell and the team's chief European scout to reply that time would prove them right.  Eric Lindros was the main attraction of the draft. He was drafted first overall by the Quebec Nordiques but refused to sign a contract and, on advice from his mother, began a holdout that lasted over a year. Forsberg was included in a deal that sent five players, two first-round draft picks, and US$15 million to the Quebec Nordiques in exchange for Lindros. In hindsight, the Lindros trade is seen as one of the most one-sided deals in sports history, and the deal became a major foundation for the Nordiques/Avalanche franchise's success over the next decade.  Forsberg remained in Sweden, playing for Modo for the following three years. In 1993, the team was eliminated in the playoffs quarterfinals against Malmo, and Forsberg won the Guldpucken for Player of the Year and the Guldhjalmen for Most Valuable Player of the Elitserien, an award decided by the players. He won both prizes again in 1994, when, after barely making the playoffs, he led his team to their first final since winning the Elitserien playoffs in 1979. In a five-game series again against Malmo, Forsberg scored in overtime in game two to put his team one win away from the title. However, he suffered from the flu,(influenza v) and Modo lost the remaining games of the series and the title. By this point, Forsberg was thought to be the best player in the world outside the NHL.  During the summer of 1994, Forsberg decided to play in the NHL after he signed a contract with the Quebec Nordiques in October 1993. The contract was a four-year deal worth $6.5 million, including $4.275 million given as a signing bonus. However, a lockout delayed his NHL debut until 1995, and Forsberg returned to Modo to play 11 more games before going back to North America.

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