NHL Declares Victory Over Balsillie in Bankruptcy Case

By Dan Canavan

Last week, Judge Redfield T. Baum rejected the bids of the NHL and Jim Balsillie to purchase the troubled Phoenix Coyotes out of bankruptcy.  Judge Baum’s decision effectively concludes Balsillie’s attempt to relocate the Coyotes to Hamilton, Ontario.  Judge Baum rejected Balsillie’s bid, which was conditioned on moving the team, as it would have undermined the NHL’s ability to determine where its franchises are located and who will own them.   The NHL now has the ability to determine who will own Coyotes and, more importantly, determine where the franchise will play. 

Precedential Value of Decision

nhl_logoJudge Baum’s decision is a significant victory for all of the professional sports leagues and franchise ownership groups. The Coyotes’ bankruptcy had far-reaching precedential value.  Had Judge Baum awarded Balsillie the team, financially strapped franchises in all leagues would have used this case as a blue print to circumvent league bylaws and move teams independently without league approval.  Prospective owners would have looked to the bankruptcy court to acquire franchises without league approval and at below-market costs.  The result would have devalued franchises, undermined league borrowing power and diminished league revenue. 

Victory for Commissioner Bettman; Verdict Still out on Sunbelt Expansion

Although the Coyotes’ bankruptcy fight was a public relations nightmare for the NHL, Bettman’s costly victory fully protected the interests of the league and its owners.  And his ownership groups are not worried about the cost.  As reported by the Globe and Mail’s David Shoalts, team owners and NHL Governors are thrilled, despite the huge legal bills and the massive and unknown expense of operating the Coyotes for the foreseeable future.  Shoalts has reported that many NHL and team officials have declined to comment publicly on their bankruptcy victory, but several “had plenty to say anonymously“:

‘I don’t care if our share is $5-million [for the legal costs and the Coyotes' losses this season],’ one said. ‘I’ll send a thank-you note along with the cheque.’ Another owner said he ‘will gladly pay the bills,’ because ‘this could have set a very dangerous precedent for all sports franchises.’

It should also be noted that Judge Baum’s decision represents a personal victory for Commissioner Gary Bettman.  Not only was the personal animosity between Bettman and Balsillie widely reported, but Bettman successfully defended the league’s southern expansion, at least for the immediate future.  The expansion of major league hockey into the Sunbelt, however, will continue to be an issue. 

“I think you have to question the whole Sunbelt strategy of commissioner (Gary) Bettman,” said Richard C. Powers, associate dean and executive director of the MBA and Master of Finance programs at the Joseph L. Rotman School of Management. Powers added “[i]t was a bad decision before, it is a bad decision today.” 

With three to four sunbelt franchises rumored to be suffering from significant financial distress, the criticism of southern U.S. expansion likely won’t go away, despite Bettman’s immediate victory in an Arizona Bankruptcy Court.

Balsillie’s Ownership Bid Defeated

Given the league’s overwhelming rejection of Balsillie as an owner, Judge Baum’s decision effectively bans Balsillie from future NHL involvement.  Shortly after the court released his decision, Balsillie offered the following statement:

“From the beginning, my attempt to relocate the Coyotes to Hamilton has been about Canadian hockey fans and Canadian hockey. . . . It was a chance to realize a dream. All I wanted was a fair chance to bring a seventh NHL team to Canada, to serve the best unserved hockey fans in the world. I believe I got that chance.”

Coyotes1Regardless if Balsille was afforded a chance, he surely won’t get another one.  Balsillie must be wondering what could have been had he cooperated with the league instead of running off with Jerry Moyes to the bankruptcy court.  Although he will never be an NHL owner, look for Balsillie’s legal team to debate, or event threaten, an antitrust claim against the league.

Jerry Moyes, who lead the Coyotes into a financial abyss, made a huge gamble when he partnered with Balsillie and hatched a plan to sell the team via bankruptcy.  If he had been successful, Moyes would have recouped approximately $100 million from the Balsillie bid.  Now, Moyes likely won’t recover any funds from the bankruptcy proceedings and his equity interest in the club will be likely be extinguished.    

The Future of Hockey in Phoenix

Although the legal fate of the Coyotes remains uncertain, the team is finished in Phoenix.  The City of Glendale issued a statement that it “looks forward to working with the NHL to keep the Coyotes playing in Glendale, Arizona, for years to come,” but it’s hard to believe that the Coyotes will survive long term in the desert.  As reported by The Star’s Robert Cribb, “it has been shown very clearly that the NHL is not a viable business in Phoenix.” Given the historical financial data produced in the bankruptcy, any conclusion to the contrary appears to be a fiction. 

The bankruptcy fight has taken an unquantifiable toll on the franchise, and the future is bleak.  Corporate support will be slim for a bankrupt club on the verge of relocation.  The team will likely have to subsidize ticket prices over the long term to overcome the lack of fan interest, which will further undermine the ability of the Coyotes to be attain financial stability.  While the business and economic hurdles will be significant, the team will face major challenges in producing an entertaining hockey product. Attracting top-level free agents will be difficult, and developing a team of marginal and unknown talent won’t be enough to create a winner in the desert.  Hockey in Arizona may never fully recover.  Look for the Coyotes to be sold and relocated over the next 12 to 24 months.  But regardless, Balsillie will not be part of the move, and Hamilton hockey fans will have to wait for the next franchise to falter.   

dan_canavan1Dan Canavan is an attorney in Hartford, Connecticut.  He has appeared as an on-air guest with regard to the NHL and the Phoenix Coyotes bankruptcy proceedings on CBC Radio’s World Report.  His analysis and commentary have also been published in various media outlets including The National Post, The Windsor Star, The Star Phoenix, The Montreal Gazette, The Edmonton Journal, The Ottawa Citizen, The Vancouver Sun, The Province, Faceoff.com, and the Sports Litigation Alert, a leading sports industry publication which is circulated throughout the United States.  Dan is also the Carolina Hurricanes correspondent for The Hockey Writers.  You can follow Dan on Twitter @DanielRCanavan, and he can be contacted directly at dcanavan@ctsportsgroup.com or at (860) 665-3276.

Comments

  1. The only answer to the question of if the Coyotes are going to remain in Phoenix can be answered by the owners.

    The owners run the NHL. They are concerned with 1 thing: making money, and other owners who want to make money without taking any of their money away.

    Balsille scared them. Too much renegade, I guess.

    For the Coyotes to be moved 3 things will need to happen:
    1. An owner who is approved by the other 29 owners will have to step in.
    2. That owner will have to pay enough “expansion-type” money to move the team
    3. The team will have to be moved to an area where it will not threaten to take away profit from the most powerful ownership group in the NHL – the Toronto Maple Leafs.

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