Jul 302009

There have been a lot of developments over the past couple days in the Phoenix Coyote situation and the next week will be an interesting one for sure.

Yesterday the NHL Board of Governors voted to approve Jerry Reinsdorf as a potential owner of the Phoenix Coyotes while voting against Jim Balsille and postponing any decision on the Ice Edge group do to an incomplete application. None of this is really surprising news but the vote against Balsillie is an interesting one as Judge Baum in an earlier ruling that barring material changes PSE (Balsillie’s company for purchasing an NHL team) should be an acceptable owner.

Absent some showing by the NHL that there have been material changes in PSE’s circumstances since 2006, it appears to the court that the NHL can not object or withhold its consent to PSE becoming the controlling owner of the Phoenix Coyotes. –Judge Baum

So if this was Judge Baum’s ruling, why would the NHL vote against Balsillie? The NHL was quick to point out that the vote was because of a clause in the NHL by-laws addressing ones character and integrity.

“The criteria set forth in the (NHL) constitution and bylaws relates to financial wherewithal, character, integrity and the view whether or not the other owners would deem you a good partner,” –Gary Bettman

Clearly financial wherewithal wasn’t the concern so it had to be in regards to character, integrity and whether Balsillie would be a good partner. It will be interesting to see the NHL defend their vote in the court of law should it get that far because they didn’t seem to have many problems with him when Balsillie was looking into buying the Penguins or Predators.

The other thing that the NHL was quick to point out was that this had nothing to do with relocation. To me, I believe that this had everything to do with relocation in that the last thing the NHL wants to do is consider relocation. By voting against Balsillie the person they don’t have to conduct a vote against relocation of the Coyotes to Hamilton because had they made that vote that would be all the ammunition that the Balsillie group would need to conduct an anti-trust case against the league. The main reason why on June 15th Judge Baum rejected the Balsillie bid was because he rejected Balsillie’s claim the NHL was violating anti-trust laws because the NHL had never voted against any team relocating and without such a dispute the judge felt no obligation to overrule the NHL constitution and by-laws. The NHL does not want to open themselves up to that so they are avoiding it by not addressing the relocation issue and clearly stating that the vote against Balsillie had nothing to do with relocation.

There have been more developments today as well that are quite interesting.

In a motion filed in bankruptcy court on Thursday, Moyes’ attorney said that Reinsdorf’s bid “cannot be approved as a matter of law” and that “there are no qualified bidders” based on terms set by the court.

We should find out tomorrow what the details of the argument against Reinsdorf and we’ll find out if the motion has substance or just more legal posturing.

Glendale said that it is “very close to a definitive agreement with each of the Reinsdorf group and Ice Edge that would allow the team, under new ownership, to continue to play at the Jobing.com Arena in Glendale for the foreseeable future with strong economic essentials and support from all necessary constituencies.”

The filings did not divulge what the “strong economic essentials” would be or provide details of the negotiations.

Glendale asked Judge Redfield T. Baum to postpone the sale to “early to mid-September.” The NHL, meanwhile, asked Baum to set a Sept. 10 deadline.

In my mind the agreement between the City of Glendale and the Reinsdorf and Ice Edge groups is a key to whether Balsillie has any chance of purchasing the team. If no agreement can be reached both the Reinsdorf and the Ice Edge offers to purchase the team go away and Judge Baum will have no choice but to open up bids to groups interested in relocating the team, and for that matter, the NHL will have no choice either.
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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.

Jun 102009

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.
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May 102009

So I sit down for dinner at around 6:30 last night and decide that it is a little quiet so I turn on the TV and watch CBC’s Hockey Night in Canada pre-game show. During the show they had a 15 minute interview with Jim Balsillie (click the link and then click on Inside Hockey: Jim Balsillie). Ron starts off asking the intro question asking Balsillie to tell everyone about what he is doing in putting in an offer for the Coyotes. What came next almost made my jaw drop. Ron MacLean then went on to quote from my article that I wrote a couple days ago. Very cool.

In the comments thread of the previous story I was asked what I thought was the likely outcome of this bankruptcy proceeding will be. The short answer is that I am not a lawyer and thus probably don’t have a clue. But that is dull so let me take a stab at outlining some of the issues that may arise.
I came across a copy of the actual bankruptcy filing which may give us some clues as to where this may lead. What we learn from the bankruptcy filing is that they have valued the teams assets as between $50 and $100 million with liabilities being between $100 million and $500 million. The filing goes on to list the top 40 creditors with secured loans/liabilities (they did not list unsecured loans) of which Jerry Moyes himself is at the top of the list with over $103.8 million being owed to him. The rest of the list doesn’t even total $5 million so by far, Jerry Moyes is the largest creditor. I can only assume that this is money he lent the organization over the past several years to keep it afloat. Other notable creditors are the City of Glendale being owed about $507K and the National Hockey league being owed $271,474.92.

The first defense the NHL is undertaking is that Jerry Moyes was no longer in control of the franchise and that the NHL had been operating it since November and thus Moyes did not have the authority to file the bankruptcy. It will be interesting to see what the NHL’s defense for this is because publicly they have stated on many occasions that they had not taken over the Coyotes, denying rumours that they had. Having no clue what actually happened behind the scenes it is really difficult to determine what the judge will decide here but this might be the league’s best option at stopping the Balsillie. But assuming the NHL can’t get the case tossed out on the grounds that the Moyes wasn’t in control things will get interesting.

In bankruptcy court, the judge’s mandate is to do what he deems in the best interest of the creditors (secured given priority over unsecured) and he has some authority to override existing contracts in order to do so. Moyes has submitted a plan that presumably will keep all of the creditors ‘whole’ meaning that they won’t have to take any cuts in the money that is owed them (i.e. they will be repaid in full). There is little doubt that this offer will be an enticing one for the judge to accept. The only issue is that the Balsillie offer is conditional on him being able to move the team to Southern Ontario. The NHL is going to argue that the Phoenix Coyotes don’t own the rights to an NHL franchise, but rather only own the rights to an NHL franchise in Phoenix and that it is non transferrable. They may have a case here too but it will all depend on the wording of the franchise agreement and what, if any, clauses are within that agreement. If the franchise agreement is explicit in that the franchise is for Phoenix and Phoenix only then they may have a claim, but as we know franchises have been sold and moved (the Coyotes were originally the Winnipeg Jets) so it will be a tough sell on the part of the NHL that the Phoenix Coyotes cannot be moved under any condition.

That might leave the NHL left in a position where the only option to stave off the Balsillie bid is to find another potential owner willing to buy the franchise for enough money to pay off the creditors and be willing to keep the franchise in Phoenix. If this happened then maybe the judge will deem this a better option, even if the offer was lower than Balsillie’s, because he would not have to break any contracts or agreements. But as we know, there is over $108 million in secured debt and who knows how much unsecured debt there is. On top of that Moyes has stated he has lost $73 million over the past three years. It is going to be a real tough task on the part of Bettman and the NHL to find such an owner because that person or entity might have to be willing to pay upwards of $150 million for a franchise that is likely to lose $50-75 million over the next few years. That won’t be an easy sell and presumably Jerry Moyes and the NHL has been looking for such a buyer for the past several months, if not longer, and has come up empty.

That makes the Coyote’s future in Phoenix unlikely at best if the NHL fails in getting the case tossed out of court on the grounds that Moyes was not in control of the franchise and not in authority to file bankruptcy. The only other possible outcome is someone outbids Balsillie be that another owner looking to move the team to Southern Ontario, or someone interested in moving them elsewhere, such as Kansas City. But is there anyone out there willing to pony up $215+ million dollars for a franchise to relocate them anywhere but southern Ontario? I am not sure. For that amount of money the most likely bidders are people looking to move the team to a proven hockey market like Southern Ontario. But you never know. I’ll certainly be interested in how all of this unfolds.

(if there are any lawyers or people knowledgeable on bankruptcy laws out there that have more insight into what may or may not happen I’d definitely be interested in hearing your thoughts)

May 062009

What happened to the Phoenix Coyote’s yesterday is what many people suspected may happen to them for a while. They went bankrupt. They went bankrupt despite the fact that over the past year Gary Bettman has continued to tell anyone who would listen that the NHL as a whole and its member teams are generally doing just fine, despite the economic down turn. Most people were smart enough to not listen to Gary Bettman.

What is interesting this time is that Jim Balsillie sat on the sidelines waiting for the moment for the Phoenix Coyote’s to declare bankruptcy. He has learned from past mistakes when he tried to purchase the Penguins and the Predators only to be foiled by Gary Bettman insisting that he cannot move those franchises. With the Coyote’s in bankruptcy court, the decision may not be completely in the NHL’s hands anymore as a judge will pretty much decide what happens to the Coyote’s and if the judge decides that the best way for the Coyote’s to repay its creditors is to sell the team to Balsillie and move it to Southern Ontario, the NHL may not have much say in the matter.
It should also be noted that the Coyote’s apparently filed for bankruptcy without notifying the league as noted in a statement released from the City of Glendale.

“The decision by the ownership of the Phoenix Coyotes to initiate bankruptcy proceedings without consultation or approval of the National Hockey League is an unfortunate turn of events for the NHL, the State of Arizona and the Coyotes’ loyal fans. Even as the propriety of this unprecedented action is being thoroughly investigated by the NHL, city officials are working diligently to ensure that the public’s interest is fully protected throughout this process.

Upon hearing of the news, the NHL immediately stepped in and took over control of the Coyotes removing owner Jerry Moyes ability to operate the club. The NHL is now operating the Phoenix Coyotes and the NHL’s Bill Daly issued a statement of on behalf of the NHL:

“We have just become aware of today’s Bankruptcy Court filing purportedly made on behalf of the Phoenix Coyotes. We are investigating the circumstances surrounding the petition, including the propriety of its filing. We have removed Jerry Moyes from all positions of authority to act for or on behalf of the Club. The League will appear and proceed before the Bankruptcy Court in the best interests of all of the Club’s constituencies, including its fans in Arizona and the League’s 29 other Member Clubs.”

It’ll be interesting to watch the league make its arguments in bankruptcy court because in theory bankruptcy court is about getting the best deal for the creditors of the Phoenix Coyotes, and not what is in the best interest of the club, the fans, or the leagues 29 other member clubs. The bankruptcy court judge is unlikely to listen to any arguments related to the best interest of the 29 other teams (other than in reference to any money the Coyotes may owe the league from money they were advanced) and certainly not in respect to the fans, except in consideration to any money they may have put down for 20010-11 season tickets (all dozen of them?).

This really was a devious plan that Balsillie and Moyes worked up. Moyes, unable to find anyone to pony up money to take the Coyotes off his hands and keep the Coyotes in Phoenix, knew that the best and easiest chance to sell the team for maximum return was to sell the team to Jim Balsillie. But Balsillie also knew from his Penguin and Predators experience that Bettman could force the sale of the team to another entity, even if the sale price was lower, as he did with both the Penguins and Predators. By taking the league to bankruptcy and then having Balsillie put in the offer they really are taking Gary Bettman out of the equation. I just can’t imagine the angst and anger that Bettman, Daly and the rest of the crew at NHL headquarters is feeling right now. The fate of the Phoenix Coyotes is no longer in the hands of Betman et al but rather in the hands of a bankruptcy court judge. It is quite likely that the only way they can block the sale of the team to Balsillie and have it moved to Southern Ontario is to find a better offer but one has to wonder how likely that is. Plus we know that the NHL Players Association is all for another team in Southern Ontario so they will likely side on behalf of Balsillie as well as might some of the richer clubs that have to pay into revenue sharing. This might be the first stage of Bettman losing complete control over the league.

If I were Bettman I would really do my hardest to embrace Balsillie because he isn’t going away. If somehow Bettman can resolve this Coyote situation, possibly with an owner interested in moving the team to Kansas City or Las Vegas or somewhere else, there are a number of other teams that Balsillie will target. The Florida Panthers, Tampa Bay Lightning, and Atlanta Thrashers are anything but strong organizations and the Nashville Predators have still not proven to be financially stable over the long haul.