Saturday, August 29, 2009
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.
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
"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?"
Wednesday, August 26, 2009
Saturday, August 22, 2009
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
Wednesday, August 19, 2009
Monday, August 17, 2009
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
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 Rivals.com. 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
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
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 Jobing.com 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
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. Jobing.com 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 Jobing.com. 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
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
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 considerationsTripp 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.
(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.
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.