Saturday, August 29, 2009

An Open Letter to Gary and Jim

Dear Gary and Jim,

You don't know me, and you're probably wondering why I bothered to send a letter to you. I'm just a hockey fan who loves the game, and it's brash of me to send this to each of you, but I have been watching the drama in Phoenix with interest and a growing sense of distress. Guys, this has turned into a disaster of epic proportions, and the negative repercussions of this mess are going to harm the game for a long time. So if I may be so bold, I want to offer some suggestions.

Jim, I'm going to start with you. I will admit that I don't have positive feelings about you since you tried to pirate away my beloved Predators, and frankly, I don't care if you ever get a team. Now that I have that out of the way, let me be frank with you. It's obvious that you are a successful businessman and passionate about the game. That is commendable. It's also obvious that you really don't care about rules and conventions. I mean, paying the largest fine in the history of the Canadian securities industry for rules violations and over $700MM for patent infringement tells me that rules have little meaning to you. You have to realize, however, that the NHL is built on a certain set of rules as enumerated in their by-laws and constitution. Don't you think this process would have been easier and maybe even have worked in your favor if you chose to follow those rules? So the first suggestion I would offer you is get someone on your staff to make sure you are complying with the rules. Stop looking for "side doors"- everyone knows that is your attempt to circumvent the rules. The constant effort to bend the rules to your wishes obviously is meeting with resistance and makes the path to ownership more difficult.

Secondly, lose your legal thug Richard Rodier. It is plain as day that he abets this process. You need sound counsel that understands how the game is played, not someone that attempts to constantly game the system. Be transparent about everything. Now I know this next suggestion may be very difficult for you, but you need to do it. Apologize to the League and the Board of Governors for the way you have conducted this attempted confiscation of the Coyotes. There are a lot of hurt feelings and an ocean of animosity that exists toward you by the powers that be. A sincere apology will go a long way toward healing those rifts.

And Jim, stop fomenting this "us against them" mentality cloaked in Canadian nationalism. It does no one any good and long term it is harming the game. Sure, hockey was birthed in Canada, but it is no more exclusively your sport than football is exclusively our sport. It is a beautiful game that is growing in new markets and gaining new fans. Trying to rip away a franchise through subversive means under the guise of nationalism is a cheap ploy.

Jim, you have stepped on your di, uh, toes. You are a butt head of the first magnitude. Does that mean you shouldn't be an owner, or wouldn't be a positive influence on the game? I don't think so. Stop making it so difficult to accept you into the club. You are driven, talented, and passionate. Those are fine qualities that have been obscured by your behavior. Channel those qualities within the framework of the NHL system, and I think you would be good for the game.

Gary, what can I say about this mess? Let's specifically start with Phoenix. I feel for the fans of the Coyotes who are in limbo and have the cloud of potentially losing their franchise hanging over their head. Sure is difficult to generate fan interest in that type of environment, isn't it? But I have to ask you a question. Doesn't anyone in the league office review any potential venue change for a franchise? Gary, you got an arena in the middle of what was once a cotton field with very little around it and about an hour's drive from the main component of the fan base. What were you thinking? What was anyone thinking in this process? Someone at the league office has to be looking at these situations and offering some objective advice about the potential negatives of this location. Now the horse is out of the barn, so we have to deal with the situation as it stands. I wouldn't expect concessions from the City of Glendale, so your task is to work with the team to get revenues up. You have to work with the new owner in any way feasible to make this happen. Be creative here, and offer the full support of the League to make this happen.

And what about the finances of this team, Gary? They have been hemorrhaging red ink for years. Didn't that raise any red flags in your office? Did no one look at their financials? It certainly is easier to deal with problems when they are smaller than when they explode like this one has. The League hopefully will learn from this and intervene, when necessary, at a time that is appropriate in future situations that are similar.

You know, Gary, even to a bystander like me, it is apparent that you and Jim are, to use a technical term, in a pissing contest. I know Jim is a pain, and he has disdained the rules of the League. But I have to believe there is some common ground that can be found between the League and Jim, and ultimately, he could be good for the League. Here is a suggestion. I think Canada needs at least two additional teams. Make Hamilton one of the expansion teams. I know, there is this Buffalo and Toronto market territory thing, but this is what I would do. Have the Hamilton franchise pay these teams a fee for five years an amount that is equal to the loss of ticket revenues and sponsorships that occur once the Hamilton franchise is in operation. Take the average of three years top line revenue for Toronto and Buffalo prior to the initial season that a Hamilton franchise begins operation. If the top line revenue (gross ticket revenue and sponsorship revenue) declines from that average, then Hamilton will pay the difference. This gives each team time to stabilize their ticket sales and sponsorship revenue once this franchise is operational. I have to believe a franchise in Hamilton and another market in Canada would be good for the League, ameliorate some of the animosity that Canadians feel toward the League, and remove the temptation to pry an existing franchise out of its market and relocate it north of the border. And Gary, should Jim apologize for his past indiscretions, then accept it and move forward. Jim has to re-sell himself to the Board of Governors. If he can do that and abide by the rules, then accept him as an owner.

Jim, it's no secret that you are generally despised south of the border. Gary, you are not exactly loved north of the border. And the NHL has a public relations nightmare as its dirty laundry is being aired for all to see. Think how you two could turn this massive negative into a positive PR coup if you find a way to work this out. Working this out in a positive manner improves the image that you both have, not to mention being generally good for the game. And how sweet would it be to get a healthy franchise in Phoenix and two additional franchises in Canada?

As I mentioned, I'm just a fan that loves the game. I want the Coyotes to succeed. I want markets in Canada that can support a franchise to have one. And I want you guys to stop tearing the game apart. Thanks for listening.

Nashville Tweetup

Some images of the Nashville tweetup courtesy of AJ in Nashville. This was a great evening this past Thursday that was held at Past Perfect in downtown Nashville. About 40 Predator tweeters were there enjoy great fellowship, food and libations. Thanks again to Tom Callahan for organizing this event.

Friday, August 28, 2009

My View

Some random thoughts from a warped and fevered mind...

Some of the angst over a takeover of the U. S. healthcare system by the Federal Government is best summed up by this quote from the blog Maggie's Farm:

"Let me get this straight... We're going to pass a healthcare plan written
by a committee whose head says he doesn't understand it, passed by a
Congress that hasn't read it but exempts themselves from it, signed by a
President who also hasn't read it, with funding administered by a Treasury
Chief who didn't pay his taxes, overseen by a Surgeon General who is obese
and financed by a country that is broke.

What could possibly go wrong?"

This past weekend, I went to a very emotional wedding. Even the cake was in tiers.

Suppose for a moment that you have just received a new credit card with a $10,000 spending limit. You start to use that card for purchases, and it's an enjoyable process. Soon, discipline goes out the window and you have spent to your credit limit. Now the bill comes in the mail, and the pleasure of the purchase is replaced with the pain of the payment. The consequences of the profligate spending can take years to repay and it is always a painful process. This lesson has been learned by many consumers over the years, often at the cost of their credit rating and a bankruptcy proceeding. Our nation is no different than that hypothetical individual I have cited. The White House Budget Office has estimated that our cumulative national deficit will be $9 trillion (TRILLION!) dollars from 2010 to 2019. This is the result of the federal government spending more than it takes in from taxes. This deficit is before a proposed socialized healthcare system is put in place and before insolvent entitlement programs such as Medicare, Medicaid and Social Security are addressed. And be assured, there are only four ways for our country to correct this mess: raise taxes; cut spending; default on our debts; or some combination of the first two options. None are going to be without sacrifice and pain. Be very scared for future generations.

I joined a bridge club. I jump off next Tuesday.

One of the interesting aspects of the debate over Obamacare is the treatment by the mainstream media and the majority Democrats of those that have dissenting opinions. "Agitators", "Nazis" and other pejoratives have been used to describe those that disagree with the implementation of socialized healthcare. Regardless of your agreement or not with this program, civilized and reasoned debate will be essential to crafting a solution to the healthcare problems in this country. The shrill voices that attempt to drown out opposing viewpoints show a blatant lack of respect for others and serve to shortchange the process. This type of discourse balkanizes the parties involved and will lead to a "solution" that only serves to worsen the problem. Perhaps a good starting point for those on both sides of the debate would be to talk to the other side like you would prefer to be spoken to.

Is it just me, or do buffalo wings taste like chicken?

A great Predators tweet-up last night at Past Perfect in downtown Nashville. For the uninitiated, a tweet-up is a gathering of folks that share a common affinity and is organized using the medium of Twitter. Social media tools are changing the way we communicate, interact with one another, and disseminate information. One of the hazards of a social media vehicle like Twitter is that the more connected we are, the more disconnected we can become. Essentially, our interpersonal relationships are displaced by our electronic relationships. A gathering like last night's tweet-up is not only a fun event, but provides the opportunity to have the interpersonal contact and meet new people as well. Thanks to Tom Callahan, the radio voice of the Predators, for organizing the event.

There are days that I think I am diagonally parked in a parallel universe.

And that's my view.

Wednesday, August 26, 2009

Reinsdorf Folds, NHL All In

Last evening a series of events unfolded in the Phoenix Coyotes bankruptcy that has completely changed the dynamic of that situation. Jerry Reinsdorf, owner of the Chicago Bulls and White Sox, withdrew his bid for the Phoenix franchise, citing a truculent seller (current owner Jerry Moyes) that had chilled the process and increased litigation costs, and although not stated, was unable to obtain certain lease concessions from the city of Glendale on the arena lease. Concurrent with this action, the NHL put in a bid to purchase the franchise. Terms of the bid were not disclosed, but this is obviously an effort by the league to keep Jim Balsillie and PSE from having the only bid before the court and an attempt to be awarded the franchise so that it may be eventually sold outside of the bankruptcy process. There is lots of excellent coverage about this from James Mirtle at; Greg Wyshynski at Puck Daddy at; and Tyler over at http://www.nhldigest/. I'm not going to rehash the great analysis that these guys have provided. I do want to look at what the NHL bid may do to the auction process.

As has been stated before in this blog, the bankruptcy court has the charge of attempting to maximize the value of the assets for the benefit of the creditors. On the surface, the Balsillie bid of $212.5MM is significantly superior to the bid that had been placed by Reinsdorf of $148MM or the Ice Edge bid that is estimated to be $150MM. The Balsillie bid would have paid the secured creditors and provided approximately $100MM to the unsecured creditors (read: Moyes) whereas the Reinsdorf bid would have left unsecured creditors in the lurch. We know what Balsillie's bid is- a stalking horse bid that is designed to be so high that other potential bidders are discouraged from the bid process. Although we don't know what the NHL's bid will be, it is safe to assume that it will have significantly more financial muscle that the Reinsdorf bid (in May of this year, the NHL secured a financial commitment for a line of credit for $200MM) and will most likely be greater. Will the entry of the NHL into the process lead to a frenzied bidding war between the NHL and Balsillie? Perhaps, but I sincerely doubt it. Instead, I think it solidifies the Coyotes in the Phoenix market. Here's why:

The City of Glendale

The City of Glendale has a valid lease with the Coyotes, and the City has indicated that if the franchise is moved, they will seek lease and penalty payments of $794MM to mitigate the financial damage resulting from the loss of the anchor tenant at arena. It is my belief that the relocation provision of the Balsillie bid will weigh heavily in the consideration of the court, especially if there is another bidder that can satisfy the majority of the creditors. I believe that the court will be inclined to consider a bid that is for a lesser amount than the Balsillie bid provided that it keeps the franchise in Glendale. That is the obvious intent of the NHL by entering the bidding process. Awarding the franchise to a bidder that will keep the team in Glendale avoids the financial hazard to the City and the potential for lengthy litigation should the franchise move.

The NHL as an operating entity

As stated before in other posts, the courts have typically shied away from interfering in the operations of professional sports leagues. The Balsillie bid and subsequent anti-trust filing has asked the court to set aside sections of the NHL's by-laws and constitution and allow the relocation of the franchise. Unless there is a substantive legal reason to do so, I believe the court will refuse this request.

Rejection of Balsillie as an owner

The leadership of the NHL, as represented by the Board of Governors, has unanimously rejected Balsillie as an owner. The NHL has asserted their right before the court to determine membership in the league. I believe they will prevail on this issue.

Because of these factors, I would believe that the NHL will make a bid higher than the Reinsdorf bid but significantly less than the Balsillie bid and rely on the court to take the factors I have cited into consideration. Judge Baum has to take into consideration the interests of all creditors: secured, unsecured, the NHL, and the City of Glendale. In that hierarchy, unsecured creditors are at the bottom, and if a bid from the NHL satisfies the court while leaving the unsecured creditors receiving virtually nothing, the franchise will remain in Phoenix.

This game of high stakes poker has just gotten a lot more interesting. The NHL has anted up while Reinsdorf has folded. Across the table is Blackjack Jim. And the dealer is Judge Baum. Will the NHL draw four aces or will Blackjack Jim's full house stand? The flop is September 2nd.

Saturday, August 22, 2009

The Anti-Trust Question

The legal maneuvering by the NHL, Jerry Moyes, and Jim Balsillie continues in Judge Redfield Baum's Phoenix bankruptcy court with each side filing motions and counter-motions in an attempt to establish favorable position before the September hearing date. One motion in particular has been filed by attorneys for Jim Balsillie that merits close attention. On May 7th, a motion was filed by Balsillie's attorney's that seeks injunctive relief against the NHL for violation of federal anti-trust laws. The claim is that the NHL unlawfully exercises market power for NHL games to the exclusion of competition and restraint of trade through unreasonable restrictions in its constitution and by-laws, specifically those which prevent the relocation of the Coyotes franchise. The claim is that the NHL has conspired to maintain monopoly power over teams in violation of the Sherman Anti-Trust Act by use of "home territories" as defined in section 4.1 of the NHL constitution which prohibits the relocation of teams into markets where existing teams are currently located.

To grasp the significance of this filing, it is important first to have an understanding of the Sherman Anti-Trust Act that is referenced therein. The Sherman Act was passed in 1890, and in its simplest form, outlaws monopolistic business practices. Originally passed to limit the activity of trusts, such as the Standard Oil Trust, the act has been used to prohibit business entities that had combined to restrain trade or competition. Originally, competing business would form a trust with each member having an ownership interest in the trust. The trust determined membership in the trust and operating rules. The component companies would contribute their profits to the trust and in turn the trust paid dividends back to the companies under a pre-approved formula. Since the trust controlled all the member companies, it could operate as a monopoly. The Act specifically prohibits the exercise of monopoly powers and the restraint of trade through a vehicle such as a trust.

Some of the considerations that are weighed in determining a violation of the Act are: do close substitutes exist?; are there defined exclusive geographical territories for the members?; and are there high barriers to entry? When you read the description of the trusts that were outlawed under the Act and how they operated, and when you review the considerations that have to occur in a violation of the Act, it sounds suspiciously like a professional sports league. Balsillie's filing claims that these characteristics and manner of operation have created a monopoly and an absolute barrier to entry to competitors and results in a restraint of trade. In reading Balsillie's filing, the groundwork is laid to bolster a complaint under the Act. His attorney's complaint says that the NHL had engaged in a conspiracy to unlawfully restrain trade, limit location of franchises, and is anti-competitive. The last point of their motion, anti-competitiveness, states that by not allowing a franchise in Hamilton, fans are deprived of seeing NHL hockey. An interesting claim since most anti-trust actions that deal with competitive aspects focus on price competition. Would a franchise in Hamilton lower ticket prices in Toronto or Buffalo? Certainly not in Toronto; perhaps in Buffalo. Other claims in the filing are that the constitution and by-laws of the NHL are exclusionary due to an unreasonable relocation process for an NHL club. The salient point of the complaint is the claim that although individual clubs are members of the NHL, they are independent businesses and thus engaged in a conspiracy to restrain trade.

In my post of July 21, A Needle in a Legal Haystack, I discussed the case of the NFL versus American Needle Incorporated. In that case, the NFL has asked the U. S. Supreme Court to declare the League as a single enterprise and as such is exempt from anti-trust regulations. Essentially, the NFL claims that it is not a league of 32 individual business, but a single entity that can make business decisions for the whole without running afoul of anti-trust provisions. Typically, courts have been loath to interfere in the operations of a sports league, and to a limited extent have agreed with that position. A favorable ruling by the Supreme Court in this case would codify that reluctance into law in all aspects of their business operations and protect all sports leagues from the type of action that Balsillie has filed in the bankruptcy proceedings.

Should Balsillie prevail with this filing, the professional sports landscape will be significantly altered. Franchises would be free to move to another city willing to provide the acceptable financial inducements. The ability to control the location of its franchises is a source of stability for all professional sports leagues. Loss of that ability could turn franchises into a portable commodity. Balsillie's filing asks that the court to permanently enjoin the NHL from enforcing the provisions of its constitution that prohibit the relocation of a franchise. The ramifications of a victory will be felt not only in the NHL, but the NFL, NBA, and Major League Baseball, which is why each of these professional leagues has assembled a team of high powered attorneys to argue in support of the NHL.

If Balsillie is rejected as a potential owner by the court in a hearing on September 2nd (which I think will happen), then his legal team will press the anti-trust argument. Will this tactic be successful? At this point, it is difficult to tell how the court will rule. The balance that must be struck by Judge Baum is obtaining the best price for the asset that is the Coyotes hockey club for the benefit of the creditors and the right of a private enterprise to lawfully conduct business as it sees fit. The ruling could shake the foundations of the professional sports world.

Friday, August 21, 2009

Behind the Scenes with Mitch Korn

A great article on Predators goaltending coach Mitch Korn is on Hockey's Future web site. The Predators are very fortunate to have the caliber of coaching for our tenders that we do. The article can be found on:

Wednesday, August 19, 2009

My View

Random thoughts and ruminations from a warped and fevered mind...

I had some serious disagreement with my premise that healthcare is not a right. It is not. If healthcare becomes a right, then the door is opened for the confiscation of funds from one group of citizens to fund the "rights" of another group of citizens. This would be the first type of "right" that our nation has enacted that would allow this type of action, and it establishes a very dangerous precedent. All of our rights as enumerated define personal liberty, the limits of government, and the ability to participate in our representative form of government as citizens. "Rights" to healthcare, the type of home in which we live, or the cars we drive, for example, are non-existent.

That being said, we do need to reform our system of healthcare in this country. I for one do not believe that a nationalized form of healthcare is the best route to reforming the system. Our current entitlement programs (Social Security, Medicare, Medicaid) are insolvent or rapidly moving in that direction. I do believe that we have a moral obligation to care for those less fortunate for the good of our communities and society as a whole. The debate should not be over what is my "right" to healthcare, but how to most efficiently provide quality healthcare to all citizens. I just renewed my automobile license. Frankly, I do not need this kind of "efficiency" in the delivery of my health care services. Neither does our nation.

We had a tragedy in our household this past week. I spilled spot remover on my dog and now he is gone.

I also had some comments about my proposal to establish a stipend for college football players that would be paid only on the completion of their degree requirements. Some said that the fact they were on scholarship and had the opportunity to obtain a degree was enough incentive. For 60% of the kids that enroll in college as Division 1 college football players, that is true. Obviously, that is not the case for 40%. If we are happy with a 60% graduation rate among college football players, then maintain the status quo. Otherwise, the system needs to be changed to improve outcomes. And I know that one of the main arguments against this type of program is that other students can't receive this benefit. True enough. However, ESPN didn't just agree to pay the SEC $2.25 billion dollars over the next 15 years to televise a philosophy class. Schools reap enormous financial rewards from their athletic departments; use some of that remuneration from the networks to boost graduation rates. (FULL DISCLOSRE: I was fortunate enough to play Division 1 college football. I have seen how the system works and I had teammates that were out of college within the week after their eligibility was up. We can do better.)

I was just wondering if the Little Mermaid wears an algebra.

More and more, we are seeing newspapers shrink to cut costs and attempt to survive. One of the hardest hit areas is sports coverage. Many (most) dailies no longer send a beat reporter on the road with their hometown hockey club, instead relying on wire reports to fill the void. Local television coverage is generally weak as well. To fill that void, hockey bloggers have assumed the responsibility once held by the mainstream media. Nashville is considered a "non-traditional" hockey market in the eyes of hockey purists, but from the perspective of quality bloggers, we are second to none. We are blessed to have passionate AND talented bloggers that not only love the game but write very well. Take a look at some that are listed on my blog roll. Quality from top to bottom. Hockey fans in general are ahead of the curve in embracing new technology and the dissemination of news through blogs. It helps to have blogs in our market that are good reads.

Our society spends a lot of time and money searching for a fountain of youth. How about a fountain of smart?

In 2008, the Ford Motor Company sold 148,000 Ford Fusion vehicles. The top of the line model costs $28,000. Suppose in 2009, Ford decided to produce 1,000,000 Fusion vehicles. What do you think would happen to that price? It will inevitably fall. Precipitously. WARNING: Economics lesson ahead. When supply is greater than demand, price will fall until it reaches what economists call an equilibrium price. The greater the supply relative to demand, the lower the price. Why talk about this? Since the beginning of 2009, the U.S. deficit has ballooned to $1.27 trillion dollars, and we have printed an enormous amount of dollars to support stimulus packages, bailouts, and other government programs. There are a lot of new dollars on world markets. Consequently, the value of the U.S. dollar is falling relative to other world currencies. So what's the big deal? When you import the majority of your finished goods (tv's, computers, electronics, clothing, etc.) as we do, and your currency is falling in value, what happens to the price of those goods. It goes up. This is the inflation worry that many are presciently focusing on even in the midst of our economic doldrums.

As I have said before, never repeat yourself.

And that's my view for the week.

Monday, August 17, 2009

Brent Peterson Celebrity Golf Tournament

Brent Peterson enjoyed a solid 11 year NHL career, earning his keep in the league as a rugged defensive forward that often drew the assignment of checking the other team's top scorers. Originally a first round pick of the Detroit Red Wings, he is an assistant coach for the Nashville Predators and truly a classy individual. Today, Brent is doing battle with a different kind of opponent. Brent has Parkinson's Disease. Although the progressive nature of this disease tends to wear its sufferers down, Brent has shown no sign of slowing. Since his diagnosis, Brent has gotten very involved with the fund raising efforts of the American Parkinson's Disease Association's middle Tennessee chapter through his Peterson Foundation for Parkinson's. His foundation is hosting a celebrity dinner and auction on Tuesday, September 1 at the Factory in Franklin from 6:00 until 9:00. The dinner will be emceed by comedian Henry Cho and will feature an amazing silent auction with signed NHL jerseys from stars such as Alexander Ovechkin, guitars autographed by stars of country music, trip packages, dinner and entertainment packages, and more. The next day, there will be the Brent Peterson Celebrity Golf Classic at the Vanderbilt Legends Club. Predator players will be playing with the foursomes along with celebrities like golfing great Peter Jacobson. Tickets to the dinner are $50 per person and can be purchased by calling (615) 292-0159. Additional information about the dinner or the golf tournament can be found on Brent's website . The proceeds of this fundraiser are used to fund research into Parkinson's Disease and educational and support groups in middle Tennessee.

If you are a golfer, this is a great event to interact with the Predator coaching staff and players as well as other notables that will be in attendance. If you're not a golfer, then by all means make plans to attend the silent auction and dinner. It will be a great evening of entertainment and some very special silent auction items await those in attendance. And it will support the efforts of the American Parkinson's Disease Association and a class act like Brent.

Sunday, August 16, 2009

My Proposal for College Athletics

The Southeastern Conference announced in August 2008 a 15 year, $2.25 billion contract with ESPN for the broadcast rights to all SEC sports. The size of this contract is unprecedented in college sports and represents an amazing financial windfall for the Conference. In the past year, the SEC distributed $127MM to its 12 member schools, representing their share of television and bowl appearances, so one can assume that the annual distributions will increase because of this new television rights package. Each school uses these proceeds to augment their athletic department budgets- whether it is funding Title IX sports, covering operating shortfalls, or constructing or revamping facilities. While the SEC television contract is the largest in college sports, other major schools reap the rewards of television coverage and bowl appearances.

Football stadiums across America will be filled on Saturdays as fans cheer on their respective schools, and these schools will amass the financial rewards of those filled stadiums. But what of the athletes that play for those schools? How will they fare, not on the field, but in the classroom? Through a concerted effort by the NCAA and its member schools, graduation rates have improved, but are still surprisingly low. The latest graduation rates for football players at Football Championship Schools (FCS), those that are eligible to play for the mythical national championship, range from a high of 94% at Northwestern University to a low of 41% at Georgia, according to Most NCAA schools will have an average graduation rate of their football players of 60%- those players that enroll as freshmen and complete their degree within five years. It is obvious that most major colleges can and should improve on this average graduation rate. The question is how to do so. Currently, NCAA schools can lose scholarships if the graduation rate falls below a certain level, so there is an incentive for the school to keep players eligible by any means to avoid the disincentive of losing scholarships, at least until an athlete has used up his eligibilty. Is there another way that will improve the graduation rates of college athletes, specifically football players, and have them emerge from their college years with a degree?

I think there is, and I would propose incentivizing athletes to complete their degrees. How? Here is my proposal. When a student athlete enrolls in college, an account is created for that athlete and upon successful completion of the academic requirements of that school year, a deposit is made into that account of $10,000. Upon completion of another school year and meeting the academic requirements required to advance toward a degree, another $10,000 is deposited. This would continue until the athlete completes his eligibility AND his degree. These funds would not be accessible by the athlete until graduation. Upon successfully completing their degree requirements, these funds would then be distributed to the graduating athlete. An athlete that fails to complete their degree requirements or chooses to leave school early would forfeit these funds and they would be returned to the school.

FCS schools have a football scholarship limit of 85 students, so theoretically, a school would be on the hook for $8,500,000 yearly to fund this program. It could be argued that this would be finacially burdensome for some schools. Let's take a hypothetical example to see if it would be. Suppose you have a school that has a football stadium that seats 60,000 (the majority of FCS schools have stadiums that are far larger) and they charge $25 per ticket for a game. Each home game grosses $1,500,000 in ticket sales. Six home games gives an annual gross of $9,000,000. Say that all 85 athletes qualify for the program that I have proposed and the school is obligated to fund the scholarship accounts to the tune of $8,500,000. The school would net $500,000.

The immediate agrument to this scenario is that most football programs are the economic engines for the remainder of their athletic programs, and that if these monies are diverted to a program of this type, other sports will suffer. That most football programs are the economic engines of the athletic department is true, but there are other revenue streams that a major college program generates. Seat license revenue, concessions, merchandise sales are some of the revenue streams that these programs spawn. And don't forget those massive television revenues that are being paid. There are numerous sources of revenue that a school could use to fund this program. Most schools manage their athletic department budgets well and manage to run a surplus.

Imagine an athlete with a monetary incentive to go to class, and the effect of knowing that when you graduate, there will be funds available to continue education or use to get started in life. This will have a powerful and positive effect on graduation rates, and ties the athlete more closely to the educational process. One can argue that the scholarship an athlete receives and the educational opportunity that he has should be incentive enough. The graduation rates of college football players argues otherwise.

One can play with the number that I propose to deposit for the student athlete. Even cutting it in half can, I believe, still provide a powerful incentive to complete the degree requirements. And graduating more student athletes with degrees will be a good thing.

Friday, August 14, 2009

My View

Some random thoughts from a warped and fevered mind...

I'm going to try to put up a blog on Fridays that focuses not so much on hockey, but just on things that are interesting, quirky, or just plain unusual. I will ramble from sports to politics to business with just some brief comments about whatever strikes my fancy (since it is my blog).

Someone please tell me specifically when healthcare became a RIGHT. I'm still looking and can't seem to find when we as a nation adopted that one. If healthcare is a right, then I demand... free hockey tickets as a right. After all, I have a right to happiness. Says so right there on that old parchment. If we want to have an honest debate about healthcare in this country, then let us first realize that healthcare is NOT a right. Then we can start to make progress on how we deal with the healthcare problems in this country.

I had a chance to take the family on vacation a couple of weeks ago. We went to LA (Lower Alabama) to beautiful Orange Beach. You know what I discovered while there? Jellyfish taste nothing at all like jelly. Oh, and there must be a horrific shortage of mirrors in that area, because I'm certain that some of you would not have walked out of your house or condo looking the way you did if you just had a mirror.

The NHL does a lot of things that I would do differently, but kudos to them for embracing the new media of bloggers and tweeters. They are far ahead of the other sports leagues, in my opinion, and this will serve them well with the changing media landscape.

Absolute power corrupts, but we still need the electricity.

I invest and manage money for people. In my 30 years in the financial services business, there has NEVER been an investment opportunity that my clients had to do RIGHT NOW. If I tried to manage my client's assets that way, they would be very suspicious of my motives if not just outright fire me as their money manager. Doesn't it make you just the least bit concerned when anyone out of Washington says we have to do something RIGHT NOW?

There has been a shocked reaction to the actions of Patrick Kane. Shocked because "hockey players are different" and not like their counterparts in the other professional sports leagues. Sorry, but this is not correct. Young men that play hockey are subject to the same whims, temptations, and foibles that other athletes face.

The other day, my wife called me a complete idiot. That's not true. Parts of me are missing.

Speaking of my wife, we celebrated our 27th anniversary in May. I can't believe how fast time has gone by. I told her it felt like five minutes. Underwater.

Okay, that's all the ramblings for now. New topics and opinions await next Friday.

Tuesday, August 11, 2009

Time To Ante Up

Richard Rodier, hired legal gun and mouthpiece for Jim Balsillie, famously (or infamously, depending on your perspective) called the legal situation surrounding the bankruptcy of the Phoenix Coyotes "a lawyers wet dream". After reading through the bid procedure order issued by Judge Redfield Baum's bankruptcy court, I would have to agree with Rodier. This case is rife with legal arguments that could go on for years, and every lawyer associated with each side has to believe they have hit the jackpot when it comes to billable hours on this one. Motions and counter-motions are being filed by each side in an attempt to bolster their position before the auction date on September 10th, and James Mirtle in his On the Rink blog has outlined the NHL's initial response to the Balsillie camp and their claims that Balsillie and PSE should be allowed to bid on the Coyotes. One thing we can count on is that there will be more and numerous filings to come.

After reading the bid procedure order, there were some salient points that emerged that bear emphasis. First, any bidder has to complete a standard NHL ownership application and submit it to the NHL as well as a confidentiality agreement (whoops- somebody tell Jerry Moyes' attorneys), and a term sheet outlining the proposed bid. The delivered documents qualify the party as an "Acceptable Potential Bidder" for the purposes of the bankruptcy court. Each Acceptable Potential Bidder must submit their bid to the court by August 25th accompanied by a purchase agreement which will constitute an irrevocable offer to buy the assets. The money clause in this part of the order is,

"The purchase Agreement shall include as a condition of the
Debtors obligation to consummate the sale of the acquired business, approval
by the NHL under the Constitution of the NHL (the "NHL Constitution"), the
by-laws of the NHL (the "NHL by-laws") and all other applicable

Uh, Hamilton, we have a problem. Balsillie and his legal minions have shown through past acts that they have no regard for the NHL constitution and in their eyes, the rules are for other guys. Incorporating the specific references to the NHL constitution and by-laws into the bid purchase order signifies, in my opinion, that the court is going to give significant weight to the governing rules of the NHL.

There is a good faith deposit required of $10MM required of all qualified acceptable bidders, and additionally, all bidders must show the court that they have the financial wherewithal to close the transaction. The Balsillie/PSE bid certainly meets this requirement as it is an all cash bid. The Reinsdorf bid includes no cash, and the specifics of the potential Ice Edge Holdings bid are not known.

Interestingly, the court is auctioning two groups of assets on the 10th: Coyotes Hockey LLC, which includes the hockey club and the assets that are specific to the club; and Arena Management Group LLC, which is the arena operating entity. Bids will be accepted for both entities to continue operations in Glendale, however, a relocation bid can bid on the hockey club only and does not have to bid on the Arena Management Group. If city leaders in Glendale were not nervous before now, I would certainly think they would be knowing that the anchor tenant in the $180MM facility could move on and revenue streams from that facility could be severely diminished.

Section A.18 of the order provides that the bidder and the transaction to buy the asset(s) will comply with and be approved under section 3.5 and 3.6 of the NHL constitution and NHL by-laws 35 and 36. Furthermore, this section states that the successful bidder will execute a Standard Consent Agreement with the NHL. Section 4(c) of that consent agreement states that the acquiring party "covenant and agree that for a period of 7 calendar years from the purchase date they will not move or transfer the franchise to a new home territory". Again, the court, in structuring this order, has appeared to place a point of emphasis on the rules set forth by the constitution and by-laws of the NHL.

Section 6 of the bid procedure order outlines the identification of the successful bidder. At the close of the auction on September 10th, representatives of the NHL, the creditors committee, and the debtors (Moyes) will recommend to the court which qualified bidder had the highest and best bid. Now, I don't know about you, but I would buy a ticket to watch that little conference. If there is no agreement, then it will be submitted back to Judge Baum, and he will make the final decision.

Running concurrent with this process is a relocation bid process, which requires submission of bids on or prior to August 24th. This process is identical to the bid process for parties that propose to keep the team in Glendale with the exception that the NHL has to notify any bidder of their approval by the League by September 2nd and the League must notify the potential bidder at that time of any proposed relocation fee. Ah yes, the relocation fee. Early on in this process, numbers were bandied about, but this has been in the background since the NHL believes the franchise will stay in Glendale. This will be the subject of much speculation if a relocation bid is awarded, but should this occur I would guess the fee would be north of $200MM if the franchise goes to Hamilton (purely speculation on my part). Obviously a winning relocation bid will negate the 7 year stay provision outlined in the Standard Consent Agreement with the NHL, but will come in to play once, and if, the franchise were to be relocated.

Reading the bid procedure order defines the parameters of the process leading up to the auction on September 10th. There are numerous references to the NHL procedures, Constitution, and by-laws in the order. This leads me to believe that Judge Baum is going to give serious consideration to the right of the NHL to conduct its business as it sees fit. Judge Baum also has a fiduciary and legal duty to realize maximum value for the assets that are being auctioned. The serious battle will occur prior to the auction as Judge Baum has to determine if the best bid on paper is actually an acceptable qualified bid. The Judge is still on the high wire and without a net.

Sunday, August 9, 2009

A Legal High Wire Act

The drama that is the Phoenix Coyotes continues to play out in Judge Redfield Baum's bankruptcy court with his latest ruling that ALL bidders will have an opportunity to bid on the troubled franchise at a September 10th auction. The door has been opened for Jim Balsillie as Judge Baum has indicated that he will accept bids that include a relocation option. In the interim, Judge Baum will hear motions from all parties this week that will determine the conditions that will be placed on the bids and even if all potential bidders will be allowed to bid. To this end, the NHL has filed a motion to have Balsillie disqualified since the Board of Governors has unanimously rejected him as a potential owner.

There are a number of legal issues that will be considered by the court in weighing the potential bids for the Coyotes, and there is much opinion about how the court will rule on these issues. While none of us knows how the court will rule in this case, it is important to understand the central issues that confront Judge Baum. In a bankruptcy filing, the prime directive of the bankruptcy court is to maximize asset value to the benefit of the creditors. On the surface, this would appear to be the bid of Balsillie's organization, PSE, which is an all cash bid of $213MM. The other bids have been filed by Jerry Reinsdorf, is for $148MM, and offers no cash to any of the creditors, instead it is a re-work of the existing debt plus concessions from the City of Glendale on the arena lease; and Ice Edge Holdings for $150MM but has the caveat of the Coyotes playing some games in Saskatoon and other Canadian cities. Balsillie's bid would seem to be the best for the creditors and for current owner Jerry Moyes as this bid is: all cash; and allows the creditors to recover a majority of their investment.

Clouding this issue, however, is the relocation provision that Balsillie has put in on his bid. This facet of the PSE bid opens other legal considerations that must be considered by the court. First is the existing lease with the City of Glendale. The court must consider the nature of the lease and the potential financial harm to the City. Precedent in bankruptcy has been to, in most but not all cases, award a payment that is equivalent to the payment to the lessor that would have been received for one year. arena was specifically constructed to house the Coyotes and they serve as their anchor tenant. The loss of the hockey club will have a severe detrimental impact to the City of Glendale, and this will factor in to an evaluation of the bids that propose to keep the team in Glendale.

A potential relocation means that existing contracts are nullified. Judge Baum has already expressed his skepticism toward Balsillie's lawyers about their desire to just walk away from existing contracts that the Coyotes have in place. These include contracts such as Aramark Corporation, who is the concessionaire at In a bankruptcy reorganization, the intent is maintain as reasonably as possible the existing contractual relationships that were in place prior to the bankruptcy filing. Relocation throws this consideration out the window and Judge Baum has indicated that this action is not viewed favorably by the court.

Perhaps the thorniest issue faced by the court will be interjecting itself into the inner workings of a private enterprise like the NHL. Should the franchise be awarded to PSE and allowed to relocate to Hamilton? This legal question that must be entertained is fraught with numerous landmines. Can the court tell the NHL to allow a franchise to relocate against the provisions of its charter and by-laws? Can the court tell a league to accept an owner that has been rejected? I know, the league approved Balsillie as a potential owner. In 2006. Since that time, revelations about his actions and those of his associates have come to light that has overturned that decision. Courts have been loathe to interject themselves into the operations of professional sports leagues, Al Davis and the NFL notwithstanding. Judge Baum has signaled that the NHL has a right to control its franchises and where they play. The question is will the rights of the league to operate according to its by-laws be superseded by the aims of the bankruptcy court to make creditors, as much as possible, whole.

I am certain that if the PSE does not win in the bankruptcy court, that there will be an anti-trust suit filed by Balsillie and his attorneys. This will keep the franchise in limbo for the foreseeable future and will be damaging to attempts to grow the fan base and corporate support. Balsillie has shown that he can be relentless in his pursuit of an NHL franchise and will use every method at his disposal regardless of the effect. Could the impact of years of litigation diminish the value of the franchise further? This aspect has to be taken into account by the court as it weighs the competing bids. Interestingly, while Balsillie and his lawyers argue in the Phoenix bankruptcy court that the asset that is the Coyotes should be awarded to the highest bidder with no other considerations involved, his attorneys are arguing in an Ottawa courtroom that the wireless assets of Canadian company Nortel should not be awarded to the highest bidder (in this case, Ericsson) because it is not "in Canada's interest". MP Michael Chong said to Research In Motion's co-CEO Mike Lazaridis,

"To me, there seems to be a bit of inconsistency here, because your colleague, Mr. Balsillie, has argued that under one court supervised bankruptcy proceeding in the southwest United States that the auction be awarded to the highest dollar bidder, that the successful bidder be allowed to be a foreign buyer, and that the successful bidder be allowed to move the business outside the country. Yet on the other hand, at another court supervised auction proceeding in the United States and here, you and your colleagues believe that the auction be awarded not to the highest dollar bidder and that the successful bidder not be a foreign buyer, and that the successful bidder not be allowed to move the business outside of the country. And you've put our government in a very difficult position."

Think that Balsillie, Lazaridis, and their lawyers are worried that they have put their country in a difficult position?

There will be numerous motions filed in the days leading up to the September 10th auction as lawyers for each party involved will attempt to position their client as favorably as possible. Judge Baum is on a high wire. On one side is the duty to maximize the value of the asset for the benefit of creditors and his obligation to adhere to the strictures of the bankruptcy code. On the other side is the interests of a private enterprise and the right of the league to operate its business according to its rules and control it franchises. There are numerous legal issues that must be balanced and difficult decisions to be made. And Judge Baum has no net.

Wednesday, August 5, 2009

Would You Buy A Used Blackberry From This Guy?

This morning, NHL Deputy Commissioner Bill Daly filed a declaration with the bankruptcy court of Judge Redfield Baum in the Phoenix Coyotes bankruptcy case about the vote against Jim Balsillie being approved as a potential NHL franchise owner. This was much discussed last week as Balsillie was unanimously rejected by the 26 governors from each team in attendance (3 teams were not represented at the meeting and the Coyotes did not have a vote). James Mirtle has a link to the declaration that Daly gave the court on his site, From the Rink, which is linked on the right. I have read the declaration, and there is not much in it that hasn't already been reported or discussed as most of the declaration relates to Balsillie's aborted attempt to acquire and relocate the Pittsburgh Penguins. There is, however, an attachment "C" to the declaration, which is a statement from former Predators owner Craig Leipold that provides an interesting look not only into Leipold's dealings with Balsillie, but I think provides great insight into the character of this wannabe owner.

In his attachment to Daly's declaration, Leipold outlines three points against Balsillie becoming an owner. First, Balsillie attempted to devalue the Predators franchise through his attorney, Richard Rodier, prior to contacting Leipold about acquiring the Predators. Leipold details the contact by Rodier (Balsillie's hired legal gun and advisor that has been his knight errant on all his failed attempts to acquire an NHL franchise) to the City of Nashville Director of Finance office inquiring about the terms of the lease between the City and the Predators, and more importantly, whether the team was in compliance with the lease. These contacts occurred on February 23, 2005; February 25, 2005, and again on March 7,2005. These contacts were via e-mail, which Leipold is said to have copies. Additionally, there are said to be several telephone conversations between Rodier and administration officials for the City. One of the items questioned by Rodier was compliance by the Predators in meeting the net worth requirements of the lease. According to Leipold, prior to these conversations, the City of Nashville had never made an inquiry about compliance with the lease or about the calculation of the team's net worth. Leipold further states that a letter was forwarded by Rodier to him (Leipold) on March 9, 2005, two days after the last e-mail to the City, to introduce himself. The Toronto Globe and Mail newspaper then, over the span of the next ten days published a series of three articles about the Predators and their financial difficulties. Those articles appeared on March 10; March 16; and March 18. The gist of the reporting was that the Predators might be in default of their net worth requirement of their lease and could be in trouble. Leipold discloses in his declaration that officials from the City of Nashville never disclosed to Rodier that the team did not meet the requirement- in fact, the City did not have documentation of the Predators net worth.

Fans of the Predators may recall this period when outside sources were reporting numerous stories about the Predators and their supoosed violations of the terms of their lease. Mayor Bill Purcell's office took the position (which I believe to be grossly incorrect) that the net worth of the hockey club could only be calculated using tangible physical assets. This dispute, as Leipold outlines in his declaration, caused the City of Nashville to withhold large sums of money due to the Predators which had a negative financial impact on the team in the last year of Leipold's ownership. Leipold states that he did not learn of Rodier's contact with the City or his line of questioning until after he discontinued negotiations with Balsillie in 2007.

Leipold goes on to recount his negotiations with Rodier and Balsillie for the purchase of the Preds. There were some interesting points that are itemized in this section of the declaration. Leipold says he agreed to a provsion in their confidentaility agreement that required Leipold and Predator officials NOT to discuss a potential transaction with Balsillie with any party- INCLUDING THE NHL. This a clear violation of the NHL constitution and by-laws, to which Leipold (he says "naively") agreed. The first offer ("term sheet") that was received from the Balsillie camp required the Predators to relocate to southern Ontario (presumably Hamilton and Copps Coliseum) by the end of the follwing season (2008) and that Leipold was responsible for obtaining the consent of the NHL for the relocation. Leipold said he refused because of the lease with the City and because that would violate the NHL constitution and by-laws (by-laws, meet Mr. Leipold. Mr. Leipold, NHL by-laws). Eventually, it was agreed that Balsillie would purchase the team and assume the risk that relocation of the franchise might not occur because the Predators couldn't terminate their lease or the NHL might not approve the relocation. Regardless, Balsillie agreed to execute the standard form of consent required by the NHL which provides for a non-relocation provision of seven years after a change of ownership. Balsillie also agreed to place $10MM in an escrow account as a break up fee payable to Leipold should the deal not close. Leipold states that he met with Balsillie and Rodier in Balsillie's office and that he agreed to buy the Predators "where is, as is" and was committed to make the team work in Nashville. On May 24th, Leipold executed the binding nature of the term sheet and announced that he was selling the franchise to Balsillie. At that moment, Balsillie was to deposit the $10MM escrow. Guess what? Never happened. In fact, Balsillie's camp sent back to Leipold a purchase agreement that was not what was agreed upon in the conditions of the term sheet. Furthermore, Rodier advised that the team should now sue the City of Nashville for "bad faith" under the terms of the lease. Then, after the closing on June 30th, the team could be moved "in the dead of night" using the pending litigation as an alibi.

As Predator fans are all too painfully aware, we watched in horror as our franchise was nearly wrested away. Pred fans should know that the application to move the franchise was filed by Balsillie on June 11th, 19 days before the sale of the franchise was to close. Also prior to closing, Balsillie announced the lease with Copps Coliseum for the coming season as the new home of the Hamilton Predators and he began taking ticket orders for the team.

Once these actions came to light, Leipold informed Rodier on June 10th that the sale of the franchise to Balsillie was not going to happen. Rodier responded to this news with the threat of an investigation of Leipold by the Canadian Competition Bureau (their equivalent of the Federal Trade Commission) and the potential for Leipold to have personal liability in this matter. Sure enough, Leipold was contacted on June 13th by Bill Miller of the CCB. This investigation was initiated, and subsequently terminated by the CCB in October of 2008 with no action taken.

Jim Balsillie, he of the coprophagic smile and cloaked in Canadian nationalsim, has set himself out to be just a passionate hockey guy that loves the game and wants to bring it "back home". Those facts may be true, but the character of Jim Balsillie- and his associates- became even more suspect in my opinion after seeing the manner in which he operated in trying to acquire the Predators. Lying, bullying, failing to honor binding agreements, duplicitousness are not the traits that the NHL needs in an owner. Is it any wonder why the vote against Balsillie was a resounding and unanimous "no". So now the fans in Hamilton are left hanging, wondering if they will have a franchise either by relocation or expansion. And the fans in Phoenix are being yo-yo'ed with an owner (Moyes) that decided to circumvent the NHL protocol via bankruptcy and hand a franchise to Balsillie. Oh, by the way, this will be the only way that Moyes can recover even a portion of financial investment, so the rules be damned. So do the Coyotes stay or go, and will Balsillie's money win out in the end? Balsillie has shown that he has no regard for the rules in his attempts to get what he wants, and the NHL owners have seen him for what he is. Now, it remains to be seen if the bankruptcy court will allow him to join a club that doesn't want him as a member.

Saturday, August 1, 2009

The Business of Boots

Ownership of an NHL franchise is an exclusive club, one that is habituated by individuals with significant financial horsepower. Entry into the circle of owners requires proof of that financial capability and a vetting of the individual(s) by the NHL to make certain that the owner can support the franchise. The NHL by-laws state:

Section 35.1 "In determining whether to consent to the sale, assignment, or transfer of a membership or of an ownership interest in a Member Club pursuant to Section 3.5 of the Constitution, each Member Club shall be guided by the following considerations

(a) Whether the persons who would be holders of an ownership interest in the Member Club and the entity or entities which would hold the franchise, player contracts and/or other assets of the Member Club in question after the proposed sale, assignment, or transfer, are able and willing to commit sufficient financial resources to provide for the financial stability of the franchise.

(b) Whether the persons who would be holders of the ownership interest in the Member Club are of good character and integrity.

Tripp Mickle, writing in the Sports Business Journal, has done an excellent job of dissecting the fraud perpetrated by William "Boots" del Biaggio in his purchase of a 27% ownership interest in the Nashville Predators. At his core, Boots was a con desperate to gain ownership of an NHL franchise, and Mickle details his efforts to gain insider status with the League. Boots insinuated himself with high powered/high profile individuals like Mario Lemieux, leveraging the success of his venture capital firm Sand Hill Capital to gain access and provide the appearance of financial stability and integrity. After a failed attempt to buy the Pittsburgh Penguins, Boots was able to raise the funds to buy his interest in the Predators, borrowing $40MM through his company Forecheck Holdings from CIT financial and obtaining loans (unbeknownst to the NHL) from former Predators owner Craig Leipold ($10MM) and Anshutz Entertainment Group ($7MM), and the new Predators ownership group agreed to pay the interest on the CIT note as part of his buy in. In less than 90 days, the fraudulent transactions that supported the purchase by Boots started to unravel in the face of an investigation by the Securities and Exchange Commission. Boots has subsequently filed for bankruptcy and is awaiting sentencing for fraud.

Section 3.5 of the NHL constitution states that "Application for the sale, transfer, or assignment of a membership or ownership interest must be made in writing to the Commissioner. Upon the receipt of such application, the Commissioner shall conduct such investigation as he deems appropriate." Upon reading the account of the fraud committed by Boots, one has to wonder what type of investigation the Commissioner conducted into the background of del Biaggio. Did his prior 1% ownership in the San Jose Sharks influence the investigation? Or his friendship with hockey luminaries like Lemieux or Luc Robataille? Or perhaps his past success in the volatile venture capital market? His success with his venture capital firm, Sand Hill Capital, made him a star in San Jose and its social circles. There was familiarity with Boots from his failed attempt to purchase the Penguins, and an investigation into his background and financial capability was surely conducted by the League at that time. That was in 2005, and his purchase of the Predators was in 2007, ample time for his finances to begin to unravel with the economy. Regardless of the depth of the investigation prior to his purchase of an interest in the Predators, the financial capability of Boots was not examined deeply enough to catch the fraud that he was perpetrating. The fact that the fraud was caught by the SEC in a routine field investigation of a brokerage firm that Boots used leads one to believe that the investigation by the NHL regarding his purchase of the interest in the Predators was cursory at best.

Compounding the situation are the loans from Leipold and AEG to Boots. At the time of his loan to Boots, Leipold was still the owner of the Predators; AEG is the owner of the Los Angeles Kings. Section 13.7(b) of the NHL constitution states: "... A multiple owner shall not make direct or indirect loans (whether secured or unsecured) to any of the member clubs in which it owns a non-controlling interest except for loans to other owners of member clubs that relate exclusively to non-hockey business, are disclosed in a prior written notice to the Commissioner and are determined by the Commissioner prior to consummation of the loan not to provide any party to the transaction with increased control or influence over the hockey operations of any Member Club or the ownership interest in a Member Club of any owner." Commissioner Bettman expressed surprise at the discovery of $17MM in side loans executed by two existing NHL owners to Boots, without which his purchase of an interest in the Predators would not have been possible. Both existing owners had something to gain from these loans- Leipold got the sale of the team to local buyers to close and AEG was going to use Boots to attempt to relocate the Predators to its newly completed Sprint Center in Kansas City, which did not, and still does not, have an anchor tenant. Section 6.3(j) of the NHL constitution states that the penalties for any violation of the constitution or by-laws results in the potential penalties of: expulsion or suspension from the League; cancellation of the contract that the individual has with a Member Club; imposition of a fine not to exceed $1MM; or loss of draft choices. To date, no penalties have been forthcoming to Leipold or AEG.

Now we pick through the rubble of the Boots fraud. What happens to the Predators and the operation of the hockey club? At the Skate of the Union meeting, David Freeman, Chairman of the ownership group stated that this situation would have no impact on the operation of the Predators. It's out there, but nothing will happen until the bankruptcy trustee overseeing the del Biaggio bankruptcy decides to do something about the ownership interest that is tied up in the bankruptcy proceedings. The bankruptcy trustee has an obligation to get the maximum value for this asset, but how will that be determined? Is this interest valuable to someone willing to assume a minority stake in the Predators? In my opinion, that market has certainly become more limited coincidental with the contraction of the U.S. economy. One can look at Tom Hicks and his efforts to sell a minority interest in the Dallas Stars to raise cash. To date, he has had no serious offers and has tabled that effort. I would submit that the existing ownership can possibly pick up Boots interest in the Predators for less than the debt that is owed on that ownership interest. CIT Financial has written off the loan they made to Boots, and will look to recover as much as possible through the bankruptcy court. No interest is being paid on this loan as the bankruptcy proceeding places these payments in abeyance. Leipold and AEG will lose their respective loans to Boots, As unsecured creditors, they are on the bottom of the food chain, so to speak. Unsecured creditors get paid only after the secured creditors get paid. Given the extent of the fraud and the debt on most of Boots assets, I would doubt they will see anything back on these loans.

It is obvious that there was a breakdown in the vetting process with Boots. This breakdown has been an embarrassment to the NHL and has resulted in huge losses for CIT, AEG, and Leipold. And until it is resolved, there is a cloud hanging over the Nashville Predators until the issue of Boots ownership is determined by the bankruptcy court. I would look for any potential new owner to undergo much more detailed scrutiny before they receive approval from the league.