Aug 052009
 

Judge Redfield T. Baum has decided to allow all bidders into the September 10th auction, including Jim Balsillie against the pleading of the NHL. It was the most significant decision that Judge Baum has made so far in the bankruptcy case and in my opinion has clearly put Jim Balsillie’s offer for the Coyotes at the front of the line.

On June 15th, Judge Baum ruled against the Balsillie offer to purchase the team largely because Balsillie could not prove that the NHL was violating anti-trust laws mostly because they had not yet denied his request to move the team to Hamilton. This was a setback for the Balsillie camp, but only a setback. Today’s decision of Judge Baum’s to allow Balsillie to participate in the September 10th auction is an outright nightmare for the NHL. It really is a worst case scenario because unlike what was set to occur, a Glendale only auction followed by a relocation auction only if necessary, the new setup will see any bids to keep the team in Glendale directly compared to Jim Balsillie’s bid and that is bad news because it will likely now just come down to how much Jim Balsillie is willing to pay for the team. In essence the Phoenix Coyote’s are now Jim Balsillie’s team to lose. Yes, there will be appeals by the NHL and possibly by Glendale, but that probably won’t change the outcome.

I suspect that there are two key factors in Judge Baum’s decision today. The first is that he has no assurances that either the Reinsdorf or the Ice Edge bids can resolve all of their outstanding issues (and there are still a number of significant outstanding issues with both bids) prior to the September 10th auction meaning there might still be no bidders on September 10th just as there were no bidders for the auction that was supposed to be today. The second significant factor, and maybe the primary factor, is the statement from Michael Dell’s investment company SOF Investments Ltd. in which they supported the Jim Balsillie bid as it was the only bid that provided cash to fully repay the nearly $80 million in secured debt that SOF is owed and neither the Reinsdorf or the Ice Edge bids had come to any satisfactory arrangement with SOF (Reinsdorf has stated he wants to renegotiate the loan arrangement but hasn’t even talked to SOF yet). Furthermore, SOF and nearly every other creditor outside of the NHL spoke to the importance to have these bankruptcy proceedings resolved by the end of September at the latest and of course right now, keeping the Jim Balsillie bid alive is the only way to assure that of happening. These factors made the NHL Board of Governors vote against Balsillie look like a small issue in comparison.

With all the issues that still surround the Jerry Reinsdorf and Ice Holdings bids and the fact that they are now going to be bidding against Balsillie, it would not surprise me if one or both of them drop out of the process. Jerry Reinsdorf has previously threatened to drop out and his attorney’s in court on Monday stated they they never expected to be bidding against relocation bids. With all the backlash that has come about regarding the $23 million subsidy request Reisndorf has made to the City of Glendale I might actually be surprised if Reinsdorf just says it is not worth it anymore and pull his offer.

I eagerly await the response from Gary Bettman and the NHL regarding this decision. I expect the response will be to fight the decision however it can, but the proper response should be, at least behind closed doors, is to start preparing for hockey in Hamilton this October.

Jun 162009
 

Jim Balsillie spokesman Bill Walker and Lawyer Richard Rodier held a press conference this morning and made some very interesting points.

1. Jim Balsillie hasn’t given up his quest to move the Coyotes to Hamilton and it is likely that they will submit another bid to purchase the team with a different timeline. No details were given and a lot will depend on consultation with Jerry Moyes and his lawyers.

2. Of the four ‘expressions of interest’ in keeping the team in Phoenix, Richard Rodier is only aware of one of them having done any due diligence so far (likely Jerry Reinsdorf but he didn’t specify).

3. Richard Rodier found it interesting that the NHL is hanging its hat on the idea that so long as there is someone interested in operating the team in Phoenix the team will remain in Phoenix. Rodier found that interesting because it is essentially telling the other owners, who may have spent $175 million on their franchise, that even they will have to sell at a possibly significant loss. He used the Nashville franchise as an example. The current owners paid $193 million for the team and have an out clause in their lease should they lose $20 million over a 3 year period. Rodier hypothesized that what the NHL is trying to say is that if someone from another city offered $200 million to purchase the team and relocate it and someone from Nashville offered $25 million to keep the team in Nashville, then the team would have to be sold for $25 million to the group intent on keeping the team in Nashville. Now, if I was a current owner that would be disturbing to me. If I was a potential future owner, say through expansion, would I want to pay a $150 million expansion fee if I could be forced to sell my team for a fraction of that if for whatever reason the expansion franchise was not a success? Furthermore, the NHL does not consider loans made by the owner to the team loans and not repayable upon sale of the team. It isn’t sounding like the NHL is treating its owners all that fairly and one wonders how long the owners will stand by Bettman’s side.

4. Most interesting though, Rodier mentioned that it appears there are teams that cannot be sold in their local markets and that at least one has approached the commissioner about moving. I’ll speculate that that team is the Florida Panthers but it could be the Islanders as well.

In other news, one of Bettman’s vaunted potential ownership groups for the Phoenix Coyotes may now meet the NHL’s required level of dysfunctionality.

Jun 152009
 

If you haven’t heard yet, Judge Redfield T. Baum has ruled against the Balsillie bid to purchase the Phoenix Coyotes and move them to Hamilton. This means that the Coyotes will remain in Phoenix for at least one more season.

In the 21-page document he said the court didn’t believe there was enough time to resolve all the various issues before the sale of the insolvent team to Balsillie for US$212.5 million that was due to close June 29.

I haven’t yet read the document but when I do I’ll have further comment but I think it would be premature to just assume that Balsillie’s bid to move the Coyotes to Hamilton is now dead in the water. From what I have read the judge has just ruled that Balsillie hasn’t proven his case that the NHL has violated anti-trust laws so he wasn’t going to order the relocation of the team and that the other issues related to the sale of the team cannot be resolved in the time frame required (by the June 29th deadline in the Balsillie bid). The largest outstanding issue was the relocation fee which the Balsillie bid did not address.

The judge did rule that that the NHL will have to address Balsillie’s bid to relocate the team to Hamilton which was submitted to the league a couple weeks ago. Presumable the NHL will reject that bid but the NHL may have to be careful in how that bid is rejected to not clearly violate anti-trust laws. Also, the situation surrounding the Coyotes is still not anywhere close to being finalized. Presumably the next step will be according to the NHLs proposed schedule which will be to hold an auction to sell the team in September with bids only from prospective owners intent on keeping the team in Phoenix. If there are no bids at that time then there will be a second auction where prospective owners looking to relocate the team will bid on the team. At this point Balsillie could once again put in a bid on the team.

We now await comment from the Balsillie camp as to what their plan is from here on. Will they pull their application to the NHL for relocation? Will they stick with it and see what the NHL decides? Will he wait it out and hope to put in a bid when it goes up for auction? Will he attempt to purchase another team that might be for sale?

Update: After reading the full decision this is certainly not a clear win for the NHL or a clear loss for Jim Balsillie. In fact it may be more of a win for Balsillie than the NHL. If I understand the decision correctly (and feel free to correct me if I am wrong) on the issue of relocation, the Judge decided that he was not in position to impose relocation on the league because he could not determine that there was a real dispute in that matter. The judge ruled that the NHL does have the right to approve or deny relocation and does have a right to charge a relocation fee but since the NHL has yet to respond to Balsillie’s request to relocate the Phoenix Coyotes nor have they set a relocation fee to move the team to Hamilton, Balsillie is not in position to claim anti-trust violation or any other reason for dispute and thus the Judge was in no position to rule on the dispute.

The judge also ruled that since this is a busy time of the year, with the NHL Stanley Cup playoffs just ending, the NHL did not have time to act on Balsillie’s request to transfer the Coyotes to Phoenix and ruled that the NHL would not have the time to do so before the June 29th deadline. Although the judge did order the NHL to address the Balsillie request to relocation the Coyotes he did not set a time frame to do so. That said, if the NHL does not act on the request in a timely fashion (i.e. deliberately delaying the issue) or if they unfairly dismiss or vote against the Balsillie transfer request or set an unfairly high transfer fee then Balsillie could go back to the court with a valid dispute and the judge would be forced to make a ruling.

Although Bill Walker, spokesman for Jim Balsillie said there is still time to resolve the issue and have the Coyotes begin next season in Hamilton, that seems unlikely at this point. That is unlikely to end the Balsillie bid but how it affects his offer is unknown. He previously has volunteered to keep the team in Phoenix for another season if the NHL picked up the losses but that is a non-starter for the NHL and may give the NHL a valid reason to reject the Balsillie bid which is a risk I would not want to take if I were Balsillie. Would Balsillie be willing to absorb the losses of another year in Phoenix? That is not yet known, but he may need to if he wants the team because time is not on his side.

Jun 122009
 

Over the past couple of days I have heard all kinds of numbers thrown out on what a reasonable transfer would be, most of these numbers just picked out of the air and given little thought from the people tossing them out there. I have heard numbers like a $300 million transfer fee plus additional fees for entering into the Maple Leafs and Sabres territory. I heard one media member suggesting that Balsillie’s end cost could be upwards of $600 million or more.

The number tossed around in the court room on Tuesday was $100 million. Supposedly this number came out of sealed court filings but we don’t know exactly where that number comes from. Other media members have been tossing out a number of $300 million stating that that number came from unspecified owners and governors that they contacted.

But if the Hamilton franchise is worth $300 million, does that mean that the relocation fee is $300 million? And if the relocation fee is $300 million, do indemnification fees need to be paid to the Leafs and Sabres on top of that?

The answer to the first question is no. At best the relocation fee should be the difference between the value of a franchise in Phoenix and the value of a franchise in Hamilton. So, what is the value of the franchise in Phoenix? Well, if you listen to Balsillie, the answer is zero because there is no one interested in buying and keeping the team in Phoenix. If you listen to Bettman and the league, the answer is somewhere around $130 million because supposedly he has 4 potential owners interested and rumours are that one of them (Jerry Reinsdorf) might be interested in paying $130 million. So, that might set the cost of the Hamilton market at $170 million. If you use the value that Forbes places on franchises they estimate the value of the Phoenix franchise at $142 million, the lowest in the NHL. At the other end of the scale, the Leafs are worth the most at $448 million followed by the Rangers ($411 million), Canadiens ($334 million), Red Wings ($303 million) and Flyers ($275 million). Would a new Hamilton franchise worth as much as Montreal or Detroit? Not likely considering they don’t have any history where as the Canadiens and Wings have nearly a century of hockey behind them and the local Hamilton market is at least half the size of Montreal or Detroit. Using these numbers one could easily argue that a Hamilton franchise is worth less than $300 million making the difference between the value of a Hamilton franchise and the Phoenix franchise somewhere probably closer to $150 million.

So, if the cost of using the Hamilton market is $150-170 million, will Balsillie have to pay additional fees to the Leafs and Sabres for entering their territory? The NHL would probably argue yes, but recent precedent says no. From 1991-92 to 1993-94 the NHL expanded by 5 teams (Sharks, Senators, Lightning, Ducks and Panthers). Each of those teams paid $50 million in expansion fees, except that, supposedly, $25 million of the Ducks expansion fee went straight to the kings in indemnification fees. So recent precedent is that the NHL takes indemnification fees out of the ‘location’ fees and are not assessed on top of the location fees. The NHL would argue that the New Jersey Devils, when they moved to New Jersey from Colorado, paid indemnification fees directly to the Rangers, Islanders and Flyers but to the best of my knowledge I am not aware that they also paid the NHL location fees (please correct me if I am wrong). As far as I can tell, there is zero precedent in charging location and indemnification fees in a transfer of a franchise. In fact, when the Minnesota North Stars moved to Dallas, Quebec Nordiques moved to Colorado, Winnipeg Jets moved to Phoenix and the Hartford Whalers moved to Carolina no relocation fees were charged at all. Has the NHL ever charged a relocation fee?

To me, a relocation fee of around $150 million seems reasonable with no additional indemnification fees to be paid to the Leafs and Sabres being placed on top of that (the NHL would have to pay these fees, should they decide to, out of the $150 million). Is that too steep for Balsillie? Probably not, but he may decide to lower his offer to purchase the Coyotes from $212.5 million to offset some of the added cost. For example, he could change his initial offer to $170 million for the Coyotes (instead of $212.5 million) plus the $150 million relocation fee making the total cost $320 million. From there he would only have to up his offer to purchase the Coyotes should another bidder step in and bid against him. But would he really balk at owning a team in Hamilton if the total cost were $262.5 million? I suspect not.

So long as the judge rules that the franchise is relocatable, which he seems inclined to do, I believe that the Phoenix Coyotes will be playing hockey in Hamilton next season. We may find out today.