Interesting Precedent With Coyotes and Balsillie

Recall folks that the Canadian Competition Bureau looked at the NHL’s policy as it relates to franchise relocation, the last time Mr. Balsillie went down this path? The findings were made public in March 2008. Here are some relevant points:

“In summary, the Bureau found that the NHL and its individual members did not engage in conduct that is reviewable under section 79 of the Act. As described in greater detail below, the Bureau recognizes that properly circumscribed restrictions on the relocation of sports franchises imposed by the NHL and other professional sports leagues serve legitimate interests, such as preserving rivalries between teams, attracting a broader audience, providing new franchises with an opportunity to succeed and encouraging investment in sports facilities and related infrastructure by local municipalities. The Bureau concluded that the policies implemented by the NHL were in furtherance of such legitimate objectives and did not constitute a practice of anticompetitive acts. Further, in respect of the proposed acquisition by Mr. Balsillie, the Bureau did not find evidence that the NHL’s conduct was undertaken for the purpose of preventing competition or for any other anticompetitive purpose. Moreover, as described below, the Bureau is satisfied that that NHL’s policies and procedures regarding the process that would be applicable to any future attempts to relocate NHL franchises to Southern Ontario do not give rise to concerns under the Act.”

“For a professional sports league to be successful, it must have the capacity to exercise certain rights and powers over individual franchises, including final determination as to who may own a franchise and where it can be located. Properly circumscribed restrictions on the location of a franchise can serve a number of legitimate interests of the league; such as: (i) creating and enhancing spectator interest by preserving traditional team rivalries and fostering the development of new ones; (ii) encouraging investment by private parties and municipalities in arena construction and related infrastructure; (iii) respecting the investment made by private parties in the supply of refreshments, parking, transportation, and team and league paraphernalia relating to the franchise; (iv) attracting spectators and corporate sponsors by showing a strong commitment to a local market and the league as a whole; (v) ensuring that the sport is being appropriately promoted and that the reputation and goodwill of the league and its individual teams are not being compromised; and (vi) maximizing revenues generated by the league in the form of television and media coverage rights by promoting the overall stability of the franchises that constitute the league and creating an appropriate regional balance to ensure that the greatest number of spectators is reached. Sports leagues have attracted competition scrutiny in a number of jurisdictions, including the United States and European Community. For example, U.S. courts have considered claims by prospective owners seeking to acquire control of a professional sports franchise and claims by teams seeking to relocate a franchise1. These courts have upheld the right of sports leagues to determine who will be allowed to own a franchise and have also recognized that properly circumscribed restrictions on the relocation of professional sports franchises are valid.

“The Bureau also examined the policies and procedures applied by the NHL in considering requests for the relocations of a franchise. In the Bureau’s view, these policies and procedures appropriately reflect the NHL’s legitimate concern that franchises should only be relocated in extraordinary circumstances. In broad terms, requests for the relocation of a franchise are considered by the NHL Board of Governors in accordance with the Bylaws of the NHL. The Bureau understands that applications for relocation of NHL franchises are considered as a last resort when a team is no longer financially viable in its present location or is unable to secure appropriate arrangements for arena facilities. As outlined in greater detail above, restrictions on the relocation of a franchise can serve a number of legitimate interests of the league; including, ensuring spectator interest by preserving traditional team rivalries and encouraging investment by municipalities in arena construction and related infrastructure. The Bureau found no instance where a “veto” was exercised by an incumbent team to protect its local territory from entry by a competing franchise. Since at least 1993, no franchise has been permitted to exercise a veto to prevent a team from entering into its local territory. Further, under the NHL’s rules and procedures, in respect of the proposed relocation of a franchise to Southern Ontario, the NHL would not permit any single team to exercise a veto, but would only require a majority vote. The Bureau may have concerns under the Act if a single team were entitled to exercise a veto to prevent a franchise from entering into its local region within Canada, but such concerns would have to be evaluated having regard to the facts and law applicable at the time such an event occurred.”

I post this as a guideline only. What a US court does is not the least bit dependent upon what a bunch of Canadian bureaucrats decided. However, it is interesting to get a better insight into what the league rules are and how these rules have been evaluated in the past. I am told, by two different owners who spoke on the basis of anonymity with TSM today, they both said the exact same thing, the NHL’s rights in the franchise agreement is absolute. It is so absolute, that one who reads the document could take the language to mean that the league actually owns the team!

I remain steadfast in my opinion that this matter as it relates to Balsillie is going to be pretty simple as long as there is a new bidder.

you can read the entire competition bureau report here

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