Are the Coyotes Movable?

There are many interesting things that we are learning from the Phoenix Coyote’s Bankruptcy case because so much stuff is now becoming public knowledge that had previously been a well kept NHL secret, or at least a well denied rumours. Information that the general public had not gotten their hands on included things like the franchise agreements each of the NHL’s member franchises must agree too as well as the NHL constitution that governs the NHL. We now have access to some of that information.

Of interest is section 36 of the NHL By-laws which can be found on page 111 of the linked to document relating to the transfer of franchise location. The bylaw outlines the process for transferring a franchise and includes the member club seeking relocation to submit a written application to the commissioner of the league with the application to be filed no later than January 1 of the year prior to the year in which it is proposed the club will move without a majority of the other teams consenting to a later filing date. The league will then conduct an investigation into the merits of the relocation request and make a presentation to the board of governors after which time the board of governors will have an open vote on the relocation request.

In section 36.5 there is a list of criteria that member clubs are supposed to consider when deciding whether to approve a relocation. Lets go through these one by one and see if they would apply to the Phoenix Coyotes.

(a) Whether the club in question is financially viable in its present location and, if not, whether there is a reasonable prospect … that it could become financially viable there, either under its present ownership or under new ownership.

It is very debatable that a franchise in Phoenix will ever be financially viable. Even the NHL has concluded that it isn’t under the current conditions as the most positive thing they have said about the Coyotes is that they think they could be viable if they got a better lease arrangement and had a much more competitive and winning team. To me that means they are not viable because there are no guarantees of success. To me a viable team is one that can survive in good times and bad, not just when all the stars are aligned the right way.

(b)The extent to which fans have historically supported the Club in its present location.

Fan support has generally been among the worst in the NHL. Enough said.

(c) The extent to which the club has historically operated profitably or at a loss in its presen location.

They have lost well over $100 million over the past four seasons. Not good.

(d) Whether the current owner of the club has made a good faith effort to find prospective purchasers who are prepared to continue operating the club in its present location and/or has engaged in good faith negotiations with such purchasers.

(e) Whether there is any prospective purchaser of the club and franchise who is prepared to continue operating the club in its present location and, if so, whether such prospective purchaser is willing and able, if necessary, to sustain loses during at least the initial years of its operation there.

We know that Bettman has been looking for an owner for several months now and in an April 4th e-mail Bettman sent to Bill Daly he wrote “this is looking more and more difficult since no one seems to be excited about a team losing 40 (million dollars).” There have been rumours of a Jerry Reinsdorf deal in the works and yesterday there was rumours of minority owner John Breslow might put in a bit to purchase the team but are these serious bids and what conditions might be attached to them? There were some rumours that Reinsdorf’s offer would be conditional that he could move the team to Las Vegas in 2 years. Until a firm offer to purchase the team comes in we can only assume that after 6 months of searching there isn’t much interest from anyone to purchase the team and keep them in Phoenix.

(f) The extent to which the club might be operated in its present location in a more prudent, efficient, and/or cost-effective manner than it has in the past.

There is no doubt that Wayne Gretzky is making an excessive amount of money for an NHL coach (he is set to make $6 million next season and $8 the year after) but their player payroll is on the lower end of the required payroll range. Some savings could be made here for sure, but enough to make up $40 million? Not a chance.

(g) The extent to which there is a reasonable prospect that significant additional revenues may become available to the club within a reasonable time in its present location either from the sale of media rights or from other sources.

Phoenix is one of the harder hit cities in this economic downturn and local TV ratings are so dismal I wouldn’t expect revenues to take a huge jump up any time soon.

(h)The extent to which loal government authorities in the present location are prepared to reduce the operating costs of the club, either by granting tax relief or otherwise.

(i) The extent to which the operating costs of the club in its present location might be reduced through the willingness of the applicable arena authority to reduce rent charged to the club or otherwise to reduce the clubs costs or increase its revenues, and/or through the willingness of other suppliers to reduce their charges for goods or services provided the club.

The Coyotes do have a pretty bad lease deal and there has been talk that the city of Glendale will make cons concessions but how much? Even if they give $15 million in concessions, that will still leave a big chunk of the $40 million deficit left.

(j) The adequacy of the arena in which the club plays its home games and the willingness of the applicable arena authority to remedy any deficiencies in the arena.

By all accounts arena is an excellent hockey venue with all the amenities needed by any NHL team.

The rest of the considerations are related to the feasibility of the new proposed location or to marketing/league issues but there is no reason to believe that the Phoenix Coyotes are not a good candidate to be moved based on the above considerations.

Bankruptcy court judge Redfield T. Baum will hear arguments from both sides on June 22 as to whether the team can be moved as part of a sale and I suspect he will seriously consider the above list of considerations and this is what has the Balsillie camp so upbeat with the outcome of Tuesday’s proceedings. The Balsillie camp believes that when the above considerations are considered that a reasonable person (i.e. the judge) will conclude that the Phoenix Coyotes meet the criteria of a movable franchise and in the best interest of the creditors may choose to over ride the requirement of a board of governors vote. Now the caveat will be if the NHL can produce a buyer interested in keeping the team in Phoenix with a business plan that would provide evidence that the Coyotes in Phoenix are a viable business. Doing so would likely be enough for the judge to conclude that based on the above considerations that the Phoenix Coyotes are not a franchise that would meet the NHLs relocation restrictions. I think the ball is really in the NHLs court right now to produce a viable buyer because if they don’t, this team is Balsillie’s to lose.

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This article has 5 Comments

  1. DAvid, you might be interested in an empirical analysis of PHO as compared to some information that I have pertaining to the Nashville Predators.

    Long story short, you may be surprised as to the story it tells about PHO and how Mr. Moyes ran them, and the collective received wisdom of the hockey community as to whether PHO could be viable.

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