NHL's Hardline loses Steam in Court

Ever since Jerry Moyes decided to take the Phoenix Coyotes to bankruptcy the NHL has chosen to take a hard line against the Moyes-Balsillie scheme but when it comes to the court proceedings their hard line stance has been softened by the judge.

Initially the NHL claimed vehemently that Jerry Moyes did not have the authority to take the team to bankruptcy because the league was in control of the team and had been in control of the team since last November. Moyes argued that he had given up some control of the team, but had not given up the right to file for bankruptcy. The NHL requested a hearing on the issue and essentially Judge Redfield T. Baum to toss out the bankruptcy filing. The judge chose not to make a ruling and instead decided to order the two sides to mediation which essentially didn’t resolve anything and left things pretty much status quo. That being that the team would remain in bankruptcy and court will proceed with the next issue.

The next issue was whether the team was relocatable. Publicly, and in court filings, the NHL insisted that the NHL and only the NHL could decide that matter and that so long as there was a possibility to sell the team to someone interested in keeping the team in Phoenix they had no interest in considering to move the team anywhere. To some extent this was still their stance in court yesterday but the judge has seemed to effectively shift the debate not to whether the team can be moved to Hamiltion, but what relocation fees the NHL would be entitled to if they did move. Although the judge has yet to issue a ruling, it appears that he will either ask the NHL to come up with a suitable relocation fee (with a rationale for that fee) or possibly mandate the two sides into mediation to negotiate an acceptable relocation fee. Depending on your perspective, this can be viewed as either a win for the leaugue or a win for Balsillie. It’s a win for the league because the judge said that the league owns the Hamilton location and has the right to collect a reasonable fee for use of the Hamilton location. From my perspective it is a loss for the league because once again the court is siding against the league in the argument that the league, and only the league, has complete control of relocation. We don’t know for sure but the judge has hinted he would side against the league so long as there aren’t any firm offers on the table that keeps the team in Phoenix and pays off all the creditors. For Balsillie it is a win because the debate has to some extent shifted from can the team be relocated to Hamilton to what will the price of relocation be and that can only be viewed as a positive.

For much of yesterday the judge seemed to go with the idea of ‘we have one, and only one, offer here for $212.5 million, let’s make it work’ and really didn’t give the NHL any leeway because of expressions of interest from other potential buyers. The judge’s mandate is to the pay off the creditors and as of right now he only sees one way to do that and that is with Balsillie’s offer to purchase the team, but this is where things are going to get real interesting. If the NHL’s ultimate goal is to keep a team out of Hamilton they are going to have to argue that Hamilton is such a prime location for hockey that it deserves a high relocation fee which is just strange because if it is such a good market, why would the NHL be so reluctant to have a team there. Second, they will hope that whatever Balsillie’s final offer is less the relocation fee will not be enough to pay off the creditors in full. So, if there was a $100 million relocation fee and Balsillie was willing to pay $250 million, which would only leave $150 million to pay the creditors. This is interesting because according to Moyes, creditors are owed more than that but the league has argued that the creditors are owed less than that because the loans Moyes made to the team are really not loans but capital infusions. They made those arguments in the context that in reality a bid to keep the franchise in Phoenix only needs to be $120 million in order to pay off all the creditors but those arguments may very well come back to haunt them in the future.

The only other caveat in the Balsillie bid is what the judge will decide the City of Glendale is owed for breaking its lease agreement should the team be relocated. The city has argued that that number is over $500 million but that judge countered with ‘he city feels they have a legal right to have team there until 2035. What about in November if league says ‘we’re done. We’re not paying anymore.’ By that he meant you may not be owed anything because there are no assurances that in the future you will get anything because at some point the NHL could just pull the plug on the team. What the judge determines the city is owed for breaking the contract will go a long way to determine whether a Balsillie bid is able to pay off all the creditors in full but even if he can’t pay off the creditors in full he may still win because as of yet there are no offers to pay off any of the creditors anything let alone in full.

In my mind the NHL has four avenues to pursue.

1. Find someone willing to bid to keep the franchise in Phoenix that will pay off the creditors in full. This seems unlikely because if they had such a buyer we probably would have seen more evidence of it now rather than statements of ‘expressions of interest’.

2. Hold their collective noses and negotiate a fair relocation fee with the Balsillie group and allow the team to move to Hamilton.

3. Try to play hardball on a relocation fee too high for Balsillie to afford forcing him to back out of the deal which may give the league more time to come up with a more suitable plan to the league, be that finding an owner to keep the team in Phoenix or an owner willing to move the team to a more desirable location for the league (Kansas City, Las Vegas, etc.). This is going to be a challenge because it seems like this isn’t a path the judge wants to go down (or most of the creditors for that matter) because they want the certainty of the Balsillie deal over the uncertainty of what future bids might be.

In the end, the debate has gone from ‘Can Moyes even take the team to bankruptcy’ to ‘the NHL and only the NHL controls where teams play’ to ‘How much will it cost to relocate the Coyotes to Hamilton’ and that can only be seen as good news for Balsillie.

Tom Benjamin has a few thoughts as well.

This article has 3 Comments

  1. I agree with your interpretation…the way I read things the only thing really standing between Balsillie and his hockey team is the potential relocation fee. However, the judge seemed to indicate that the league would have to justify the relocation fee, but also that it could potentially be pretty high, as “the relocation fee that NJ paid to move from Colorado was higher than the value of the franchise”

    The lawyers for Balsillie sort of balked at the relocation fee…but I don’t believe he would be that disinclined. A franchise in Hamilton could well possibly become the 2nd most lucrative team in the NHL next to the leafs. If Balsillie ended up paying $300 million overall, he still might be willing to do it.

    My question is…would a relocation fee go primarily to the two franchises being infringed on (Sabres and Leafs) or be distributed throughout the league? It seems to me that the former should be the case, as these two teams are the most likely to see a revenue impact. The Sabres probably worse than the Leafs in terms of % revenue. Sabres would see an immediate impact on individual ticket sales, and also after the first year on season ticket sales. Leafs revenue would be harder to manage because it is unlikely to affect ticket sales at all, but *could* affect merchandise sales as some fans switch allegences.

    There was an interesting article by Jim Kelly at SI. http://sportsillustrated.cnn.com/2009/writers/jim_kelley/06/04/balsillie.coyotes.battle/index.html

    In it he claims the Maple Leafs are behind the fight to stop Balsillie, to the point that they will sue the NHL and all the other teams that would play against a team in Hamilton. Now, Kelly is frequently full of s**t and he cites no sources, so take it with a grain of salt, but if Balsillie wins the right to move, you could see a legal battle for the ages.

  2. If the NHL did collect a relocation fee it would be divided up however the NHL sees fit. When the Anaheim Ducks got their team they paid a $50 million expansion fee with supposedly $25 million of that going to the Kings for territorial rights. In the case of the Hamilton franchise it might be a three way split with one third going to the league and divided up amongst the member teams, one third going to the Leafs and one third going to the Sabres, but really it can be divided up however the NHL wants or however the NHL needs to divide it up to appease its members.

    As for the Jim Kelly article, I think it is a work of fiction. Sure, the Leafs may despise the fact that there will be another team in their market but they will have little to say about it. The Canadian Competition Bureau has already stated that it doesn’t have a problem with the NHL controlling where franchises are located chosen via a vote, it would frown upon the idea that any one franchise would have veto power. Whether there is a team in Hamilton or not is not up to the Leafs, but rather up to the league. The league can sue all they want but I doubt it will hold any merit. But then, the NHL constitution is not necessarily clear on the issue so who knows.

  3. The NHL has no problem with Hamilton. Bettman is no white knight in any of this, but his prime concern – the NHL’s rules and regulations regarding franchise transfer and relocation – is legit.

    The league is concerned – and rightfully so – with the can of worms this is opening. If Balsillie wins and is allowed to relocate, the precedent is set for any owner to duck league regulations and up and move at will. Any franchise relocation impacts all areas of league operations … it is easy to understand the league’s concerns about having some degree of control over the process. Can you imagine the logistical nightmare for all areas of operations, from the executive through to the merchandising levels, if two or more owners (eg Florida, Atlanta) decided to relocate in the same offseason?

    Bettman’s problem, all along, has been his unwillingness to consider the possible relocation of any of his “US Growth” franchises, going so far as to lie publically about the league funding the Coyotes.

    Balsillie figured that given Bettman’s stance on relocation, and with expansion years away (if it happens at all), the only way he could get a team was via the legal challenge. It’s an understandable move … but it does create a few problems for the league moving forward, if he is granted the right to relocate.

    This is where the relocation fee becomes the key issue. The fee essentially allows the league to retain some degree of control over the relocation process. Many existing owners do not have the kind of money to spend that Balsillie does, and the existence of such a fee may deter those owners from moving their franchises.

    One way or the other, Southern Ontario will eventually receive a franchise, via relocation or expansion. Paying the relocation fee is Balsillie’s best bet … it will still be more cost effective than a future expansion team (future expansion fees have been suggested at anywhere from $450m – $700m, depending on location).

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