Wednesday, June 10, 2009

Coyotes Courtroom Confrontation

The continuing drama of the Phoenix Coyotes continues to unfold in Judge Redfield Baum's bankruptcy court, with the NHL, Jerry Moyes, Jim Balsillie, and the City of Glendale filing more than 600 pages in legal briefs with the court yesterday. One of the best lines of the hearings so far was from Judge Baum, who, upon seeing the volume of filings, said "If this is an endurance contest, I'll concede." Balsillie's camp has cited the fact that a protracted consideration of the potential relocation by the NHL would, in essence, veto Balsillie's offer because it would make a relocation scenario unworkable. To bolster the argument about making an expeditious decision on relocation, Balsillie's attorney's have cited the relocation of Major League baseball's Seattle Pilots after the one and only season in Seattle in 1968; and the relocation of the Quebec Nordiques after the 1995 season to Denver. The NHL has countered this argument by stating in their filings that the League controls who owns the clubs and where they are located. The League also argued that they controlled the rights to the southern Ontario market and those rights cannot be unilaterally claimed by any party. Current owner Jerry Moyes has filed a petition that he is an unsecured creditor and should be given consideration as such. The League contends that the additional monies that Moyes has invested in to the club amount to equity and are not debts owed to him as a creditor. This distinction is critical, because Judge Baum will render a decision that will provide the greatest benefit to creditors. Obviously, Moyes is operating with his economic self interest in mind by employing this tactic, and if successful, would reap the greatest return on the dollars he has invested into the Coyotes. Finally, the City of Glendale has filed a motion to protect their interest in the arena, which was constructed by the city at a cost of $183MM and financed with $155MM in bonds. The city estimates that it would lose $565MM in taxes and fee revenue, and has claimed that they should be paid for the remaining value of the lease should the Coyotes relocate. That value is claimed to be $500MM.

There is obviously a tremendous amount of legal maneuvering that is occurring in this process, and the outcome remains undecided. There are several key issues, however, that merit our consideration. It was reported that Judge Baum has stated that the NHL is within its rights to demand a relocation fee should the franchise move to southern Ontario. The numbers that have been publicly discussed are in the $100-150MM range. If so, it is speculated that $50MM would each go to the Maple Leafs and the Sabres for a franchise relocating within the 80 mile radius of their city, and the remaining $50MM would be allocated among the remaining 28 teams. This will change the financial dynamic of Balsillie's bid, and initially, his attorney, Richard Rodier, said that the Balsillie camp has the right to walk away from their bid for the Coyotes if there was the imposition of a relocation fee. Balsillie has since softened his stance on that issue, but there is no denying a fee of that size will force reconsideration of the bid. The last time a franchise was awarded a fee because of the violation of their territorial sovereignty was when the Anaheim Ducks paid the L.A. Kings a fee, which was $25MM to place the franchise in the Anaheim market. In my May 21 post, I proposed that the offer to purchase and relocate the Coyotes by Balsillie was a way to get a franchise in the market he wanted (southern Ontario) "on the cheap" by avoiding the expansion fees that the League would charge. The relocation fee that the League could charge negates some of the financial advantage that Balsillie would gain if this tactic is successful.

While Judge Baum has been unsparing in his criticism of all the attorneys and their arguments when it has been warranted, it was his questioning of Moyes lead attorney, Thomas Salerno, that caught my eye. In an exchange yesterday, the Judge asked Salerno to explain how the proposed buyer, Balsillie, could request the team to be relocated to Hamilton when one of the articles of the bankruptcy code clearly states that a buyer "assign and assume" all contracts, and that the Coyotes have contracts to play in Glendale and honor the bylaws of the NHL. That question, as you can imagine, went unanswered.

The Balsillie camp has cited the relocation of the Pilots from Seattle to Milwaukee as a precedent for allowing the move from Phoenix to Hamilton. Balsillie's lead attorney, the aforementioned Richard Rodier, went so far as to call this case as a "lawyer's wet dream" since it so closely parallels the Coyotes situation, and the move was consummated one week before the 1969 baseball season. According to Rodier, this case negates the NHL's claim to need ample time to consider the relocation issue. The significant difference in these two cases is that the Pilots had filed bankruptcy and neither the City of Seattle nor a local buyer would agree to fund the operation of the club AND neither would Major League Baseball. In the case of the Coyotes, the NHL has committed to fund the operations of the team for the coming season in order to insure an orderly sale and transition. In my non-lawyerly mind, the comparisons become moot for that reason alone.

Balsillie attorney's have also cited the relocation of the Nordiques. When Marcel Aubut, owner of the Nordiques, found himself in financial difficulties in 1995, he went to the provincial government and asked for financial assistance. That request was refused, and he ultimately sold the club to a group of investors in Denver. Again, the substantive difference in my mind is that this was a negotiated sale between Aubut and the Denver buyers. Balsillie's attorneys cite these situations to negate the League's claim that they would need time to review a relocation request. However, I think these two salient points in each of these specific situations invalidate the argument from the Balsillie camp.

The decision's coming out of Judge Baum's court have implications not only for the NHL and the Coyotes, but for all of professional sports. The next few weeks will be interesting, not only for hockey fans in Phoenix, but for sports fans everywhere.

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