Coyotes and Balsillie Update- Hamilton It Is! No Compensation For Maple Leafs!

It has been over 24 hours since the news first broke about the Coyotes filing chapter 11 bankruptcy and the team “accepting” Jim Balsillie’s $212.5 USD conditional offer for the team. While there is a lot of noise around, we continue to learn more with each passing hour. Here is a rundown of the latest developments as I see them:

“Phoenix attorney John Kaites said that he began putting together a team of investors and approached the city and team six months ago about taking over and keeping the Coyotes in Glendale. Kaites, who represents the White Sox among other sports teams, declined to say who or how many investors were involved.’It’s a robust group, and that is what it’s going to take to save the team,’ he said. Kaites said he met with National Hockey League Commissioner Gary Bettman in Phoenix on Tuesday.”

Reinsdorf’s name has been mentioned and this only confirms that the league had been diligently working on a new ownership group to keep the team in Phoenix.

“Earl Scudder, a financial adviser for Moyes, said Moyes tried to find a buyer to keep the team in Glendale, but none could compete with Balsillie’s offer that guarantees secured creditors, who are owed $115 million, and unsecured creditors would be paid. Scudder said Balsillie contacted Moyes around April 2, and finalized an offer two weeks later. A signed agreement was struck Tuesday.”

Balsillie’s statement was that he had been approached by Moyes and asked to make a formal bid. This statement seems to contradict that. What does it mean? Perhaps not much, but if nothing else it is an inconsistency.

We have also learned that the NHL is going to march into bankruptcy court and try to discredit and disqualify Moyes from having the ability to place the franchise into bankruptcy. Moyes lawyer is having nothing of it.
“Moyes’ lawyer Thomas Salerno said any challenge by the NHL would have no merit.’They are mistaken,’Salerno told The Associated Press.” As I have told you before this is going to be a legal battle field with casualties all over the place. This is really a battle about ego, and very little else.

“Salerno said Moyes would welcome another bid, but the top offer would get the team. ‘Our job is to maximize the value of the asset,’Salerno said. “We will sell this team to the highest and best bid.'”

That is true, that is his job. However there is that small issue of the condition precedent and the NHL franchise agreement. Selling the team to the highest bidder isn’t as crystal clear as the “experts” would like it to be here.

“It was Bettman, sources have said, who went to Moyes on Tuesday and presented a conditional offer from Chicago Bulls and Chicago White Sox owner Jerry Reinsdorf that would have paid down a portion of the team’s indebtedness as long as Moyes walked away. Moyes walked, all right. He went right to Balsillie and finalized a $212.5-million (U.S.) transaction — with another $17-million for bridge financing — that would ensure every creditor got paid. That has put Bettman between a rock and a cactus, and those in the know say he’s not happy about it.”

Now that is a new part to the story. This certainly sheds some light as to why there is so much bad blood involved here.

“The thing is: That unhappiness is certain to spread among the owners, some of whom have begun to question Bettman’s handiwork, along with his vision. For example: His decision to have NHL games broadcast in the United States on Versus has been a spectacular dud, despite claims to rising viewership. His decision to keep teams in their current marketplaces no matter how much money they lose has created all manner of stress and strain throughout the league. ‘Bettman’s smart,” a source said, “but he’s under tremendous pressure, maybe the most he’s ever felt.'”

Now this is important because everywhere you turn you see these stories about Bettman being in trouble. Call me crazy, but I am not buying it. I read about these unhappy owners and pressure on Bettman, but I just think that if this was really the case there would be tangible signs of this everywhere.

“Right now, both Balsillie and the NHL commissioner are lobbying owners, garnering support, digging in for the long fight. Balsillie has made his move, Bettman has been caught vulnerable and the Stanley Cup playoffs are taking a back seat to the intrigue. If he loses this battle, consider the commissioner finished. Many will say it should have happened years ago.”

Balsillie is smart. I can’t believe for one second that he hasn’t at least tried to get a pulse of as many owners as possible to see where they would stand should they be asked to vote in favor of or against this type of transaction. I still fail to see how Bettman has been caught vulnerable, but I definately agree that he must be pissed beyond all belief that this has taken center stage from the games themselves. What Balsillie has that Bettman doesn’t is media savvy. The sports media is in love with Balsillie. They are drooling at the thought of him being an owner in the NHL. They clearly are taking their cues from team Balsillie and it appears in their work. There is nothing wrong with that, just as long as it is clear.

Mccown, who was all too happy to share audio evidence of his prophecies from months ago that the Coyotes would have to go bankrupt had a well known bankruptcy attorney on the air. The lawyer confirmed what you have read here. Balsillie is going to have to get the trustee in bankruptcy to void the transfer provision of the NHL franchise agreement in order to prevail on the merits of the case. The lawyer said that the trustee has to consider what is best for the league as part of it’s decision. The nasty A word was mentioned throughout the interview. A, in this case is anti-trust. For clarity, that would be the argument that Balsillie and the Moyes would have to make to get the trustee to void the NHL franchise agreement. They would have to convince the court that the provision which allows the league to ban transfers is in violation of US antitrust law, that is it is uncompetitive. It is for this reason that the experts are saying that this could take forever in the court system. This is the proverbial onion with unknown number of layers to be peeled back.

“Hockey legend Wayne Gretzky stands to make as much as $22.5-million (all currency U.S.) if the sale of the Phoenix Coyotes to Canadian businessman Jim Balsillie is approved, court filings show. Balsillie, co-chief executive officer of Research In Motion, has offered to buy the NHL club for $212.5-million. Gretzky owns 1.5 per cent of the Coyotes and serves as head coach and “managing partner.” Court filings show Balsillie’s offer includes an immediate payment of $8-million to Gretzky to cover compensation he is owed. He is also entitled to an additional $14.5-million payment as part of the change-in-control provisions of his employment contract.”

So this is interesting isn’t it. The first part, wherein Gretzky would get 8 million for compensation would need to be approved by the Trustee. The last part, the 14.5 million in the change of control provision maybe out the window as part of the bankruptcy filing. Just as the arena lease could be voided, so to could employment and personal services agreement. In other words neither of these payments are a done deal for 99.

“With Bettman’s help, the Coyotes can lure other investors, like Bulls/White Sox owner Jerry Reinsdorf. The city can attempt to wrest control of a $25 million escrow account funded by Ellman (designed to further develop the Westgate complex), and offer that money as a buyer incentive. They can think of all sorts of ways to make hockey in Glendale as financially viable as it was in Phoenix. And as soon as Glendale unveils any form of concession, the lawsuits will fly. The Goldwater Institute is watching this matter closely, having already filed records requests to monitor negotiations between the city and the team. And they’ve already halted development of the City North project over a $100 million subsidy offered by the city of Phoenix. ‘An overt incentive of taxpayer dollars to bail out the Coyotes to keep them in Glendale would ring serious alarm bells,’ said Clint Bolick, lead attorney for the Goldwater Institute, good enough to sport a 2-0 record in the U.S. Supreme Court. ‘We don’t think the taxpayers should be asked to throw good money after bad, and we would be very interested in challenging further taxpayer subsidies.’If people want to gamble on hockey in the desert, we prefer they not do it with taxpayer dollars.’

Now this is angle that no one has mentioned so far. That is what if the good people of Arizona don’t want any public money being spent on keeping a hockey team afloat??? One, who can blame them? The economy is in the shitter and why would they want taxpayer money that could go to other things be used for a hockey team. All the reports I have seen seem to suggest that the city wants the team to stay. Well, what about the citizens? Not a knock against hockey or the people who live there, but can you blame them? This could be a huge asset for Moyes and Balsillie.

“So, even if the Coyotes rally to find a new buyer with an array of concessions, a watchdog group can sink them into legal Jell-O. And at that point, Bettman may be forced to pull up stakes and concede his private battle with Jim Balsillie, the BlackBerry billionaire who has already tried to purchase the Penguins and the Predators.”

Can you imagine the backlash if that were to happen. Bettman successfully battles Bassillie, then can’t get the concessions approved locally and is forced to move the team???? OUCH!

“The NHL sent a memo to all 30 teams on Wednesday outlining its intent to fight Jim Balsillie’s quest to buy the Phoenix Coyotes and move the team to an unidentified location in southern Ontario. The memo assured league owners Coyotes owner Jerry Moyes surrendered control of the financially troubled team months ago to the NHL and made it clear Moyes didn’t have the authority to place Phoenix in to chapter 11 bankruptcy.”

That is pretty telling with respect to strategy. It also adds further evidence to the amount of lying going on in the NHL these days. Bettman and Doug Moss must subscribe to the J.P. Ricciardi school on the definition of a lie (it’s not a lie if the teller knows the truth).

“The NHL will also argue owners simply own the right to operate a team in a specific region or territory, Owners are shareholders in the National Hockey League and don’t have the right to apply conditions to any sale that includes moving the franchise. If the league loses and Balsillie’s offer is accepted by the bankruptcy court, he would still need three-quarters approval – or 23 of 30 votes from the other owners for the sale to be approved. Relocation specifically to southern Ontario would require a simple majority of 16 votes to pass.”

That is the best summation of the situation I have seen. It accurately represents the basis of the leagues argument and what will have to happen in the aftermath. Except, if the league loses, one can’t tell if the the simple majority requirement will be left in tact. Remember, the court will have to rule that the transfer provision is illegal. It is possible then, that the simple majority could be tossed too.

“According to court filings, Mr. Moyes was concerned the NHL would seize the team on May 1 if he did not deliver “a reasonable proposal for the disposition of or investment in the franchise acceptable to the NHL. Last November, Mr. Moyes notified the NHL’s head office that he would no longer fund the team’s operating losses. As a result, the league stepped in and provided funds, known as priority advances, through an advance payment of US$31.4-million, which is a total based on what the team would have likely been entitled to receive from its share of the NHL’s television revenues for last season. On Feb. 24, 2009, court filings reveal, the NHL notified Mr. Moyes that it was no longer going to extend money through the priority advance. Instead, the Coyotes secured an unlimited line of credit from the league. To date, the team owes the NHL US$13.4-million, including interest which is due on demand, and the league could refuse to extend further financing. As a result, Mr. Moyes and his partners hired Citi Private Bank Group and Scudder Law Firm P.C. to find other sources of capital, or a possible buyer because the franchise “will go dark.”

So all this is going on while the Commissioner is telling people that all is well in the world. That, my friends is why the press sharks are circling. Forever, we have heard rumblings that things were bad all over. He denied them. Rumblings are just that until there is evidence. Now there is evidence. As we all know the saying goes, if you get lying, it is inevitable that the next question will be what else are you lying about and therefore your credibility is shot.

“More importantly, Mr. Balsillie’s bid clearly stipulates that his offer is contingent on league approval that he be able to relocate the Coyotes to Hamilton. As well, the bid anticipates that the Toronto Maple Leafs and the Buffalo Sabres may try to block or prohibit the relocation of teams because of the so-called 80-kilometre exclusive territorial rights granted to each team in the NHL’s bylaws. In that event, the bid states Mr. Balsillie would refuse to pay the Leafs any compensation for moving the Coyotes to Hamilton.”

Now someone has done their homework. We hadn’t seen a definitive location for the team to play until now and, what’s this? A definitive statement about the refusal to pay the Toronto Maple Leafs any compensation! WOW (Theresa Tedesco is without a question my favorite business writer when it comes to sports in Canada).

“In the bankruptcy filings, the Coyotes appear to support Mr. Balsillie on the contentious relocation issue. The documents state the “purported rights or interests” to prevent relocation of teams and the “application of the NHL’s bylaws in a manner that blocks or otherwise restricts the proposed buyer’s attempts to relocate the Phoenix Coyotes would violate antitrust laws.”

There you have the basis of the legal argument. This is the case that you learn about in law school. The sterotypical anti-trust case in sports leagues!

So, tomorrow the hockey world will slowly advance upon Judge Redfield T. Baum’s courtroom. At that time the case of the year will start to unfold. TSM will provide regular updates as they become available. To those who have been spreading the good word, I thank you.


Quotes in this story come from the following sources:

Globe and Mail articles here and here
The Star articles here
The Arizona republic articles here and here
TSN’s Drefeger is here
The National Post’s Tedesco is here

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