Decision Day Tomorrow

Tomorrow is a big day for the NHL, the Phoenix Coyotes and Jim Balsille’s bid to purchase and move the Phoenix Coyotes to Hamilton as tomorrow is when a judge decides who actually is in control of the Phoenix Coyotes. The NHL claims that the they took control of the Coyotes franchise from owner Jerry Moyes back in November while Moyes argues that while the NHL took control of many aspects of operating the team, they didn’t take over control of all of the team and most importantly that he still has authority to file for bankruptcy protection. Meanwhile Jim Balsillie has publicly stated that it really doesn’t matter who controls the team because theteam is bankrupt regardless of who the owner is.

“I can tell you this. I made a generous good faith offer to buy the Coyotes from Jerry Moyes, who I understand is the owner of the Coyotes. Who owns or controls the team is a distinction without a difference. The team itself is still bankrupt, voluntarily or not. The owner of the team has a fiduciary obligation towards the creditors.” –Jim Balsillie

Another interesting development is that Earl Scudder, a lawyer for Jerry Moyes , filed an affidavit with the court stating that NHL Commissioner Gary Bettman told him that Hamilton is not an ideal location because Copp’s Coliseum is over 30 years old and if the team did move to Canada it would be a return to Winnipeg. Also in the affidavit Mr. Scudder claims that Bettman told him that the only way a team would end up in Southern Ontario is through expansion. This is interesting because if true, and we can only assume it is, then Bettman and the league have at minimum considered the notion of having another team in Southern Ontario and thus a bankruptcy judge may consider that as evidence that the NHL considers Southern Ontario an acceptable NHL market and this could hurt the NHL’s claim that Hamilton would not be an acceptable market to the board of governors. As for Copps Coliseum being 30 years old, Balsillie has recognized this and has negotiated a significant upgrading of Copps Coliseum to bring it up to current NHL standards so that is not likely an issue either. If it is deemed that Hamilton is an acceptable market and Balsillie is deemed an acceptable owner (he got unanimous approval when he bid to purchase the Penguins so a judge could certainly come to that conclusion) then that would be two major hurdles that the Balsillie camp has overcome.

Another major hurdle will be the lease agreement with the City of Glendale for use of arena. There are some that are suggesting that cities are creating lease agreements that are meant to be bankruptcy proof, meaning a contract that a bankruptcy judge would be hard pressed to terminate. I personally don’t think this will be a major hurdle because there is zero chance that a bankruptcy judge will ever have to consider the option of a bid to purchase the Coyote’s by a prospective owner that won’t require significant changes to the lease agreement. While we don’t know the details, there have been rumours that the Jerry Reinsdorf bid of $130 million is contingent on a new lease agreement that would save the team $15, or maybe even $20 million in rent and parking fees they pay the city. The city will be forced to be willing to give up its current lease agreement or end up with nothing since if the judge does find that he does not want to break the lease agreement and any new owner is obligated to keep the current lease. If this is the case there will be zero bidders for the team and the team will be forced to fold and the City of Glendale will get nothing. The alternative for the City of Glendale is to get something, be that major concessions to an owner willing to keep the team in Phoenix, or possibly as a judge mandated cash payment for breaking the lease agreement (much smaller than the $700 million early termination fee written into the lease agreement) that will come out of the proceeds of the sale of the team to Jim Balsillie, or another prospective owner that would move the team out of Phoenix. So while the city of Glendale might put up a fight to try to protect its lease agreement when push comes to shove accept taking less than take nothing at all. They can only hope that the less they take is from an owner willing to keep the team in Phoenix, which the judge may see as a preferred option as well.

I also recommend every read the Arizona Republic’s article on whether Phoenix could ever be a hockey town. After reading that article it should be clear that there is serious doubt that that is ever possible.

This past season, the Coyotes had a 0.4 TV rating. That translates to about 7,210 homes.

That is pretty scary. The population of greater Phoenix is over 4 million people and they can only average 7210 homes? That isn’t much of a fan base after being in Phoenix for 12 years. The NHL claims that they believe that Phoenix can be a competitive market if they start fielding a competitive and contending team. While we could argue whether that is true or not, it does outline a serious issue in the NHL’s business model. That is, not every team can win, and winning teams don’t win forever (except maybe the Detroit Red Wings). You can’t build a business model that depends franchises winning, especially when in some cases you need to win just to break even.

Posted in NHL