NHL Wins the Battle in the Desert, But Will it Win the War?

Coyotes1By Dan Canavan

Late on Monday, Bankruptcy Judge Redfield T. Baum ruled that Jim Balsillie cannot force the NHL to move the Coyotes to Canada.  The Coyotes’ saga, however, is far from over.

Judge Baum’s ruling does not preclude the ultimate transfer of the team to Balsillie or any other party that may seek to relocate the team. Balsillie has already made it known that he isn’t going away.  But the ruling effectively lets the NHL make ownership and relocation decisions regarding the Coyotes on its own terms.  For the immediate future, Coyotes Hockey, LLC will remain in bankruptcy, which will allow the franchise to reorganize.

Considering Judge Baum’s factual findings regarding the Coyotes’ inability to remain profitable over the last 10 years, all interested parties have their work cut out for them.  The Coyotes’ current lease with the City of Glendale has effectively precluded the franchise from any hope of turning a profit.  Any new ownership group should also consider renegotiating Wayne Gretzky’s exorbitant coaching contract.  There are likely countless other debts that the franchise will now be able to renegotiate with the help of the bankruptcy trustee.  This is all before the Coyotes address their on-ice issues.

If we believe the NHL, a full makeover of the franchise will allow the Coyotes to be profitable in Phoenix.  Remaining in bankruptcy will also allow the NHL to effectuate an ownership change in a manner of its choosing.  If the Coyotes remain in the desert, look for the new ownership group to commit to a significantly lower price tag than Balsillie’s $212.5 million offer.  If no new ownership group emerges, the team could be put up for auction.  Theoretically, the bankruptcy trustee could hold an asset sale pursuant to 11 U.S.C. § 363, and sell the franchise to the highest bidder willing to remain in Glendale.

As New York Times blogger Stu Hackel posted this morning,

yesterday’s ruling, though it sustained the status quo, has not fixed this situation.… It’s still a mess.

The NHL Players Association wants out of Phoenix.  The NHL spent the last six weeks engaged in litigation instead of celebrating a competitive and exciting Stanley Cup tournament.  The sports world has again been reminded that only four major league professional sports teams have filed for bankruptcyall of which have been NHL teams.  Phoenix isn’t the only NHL current franchise on the ropes, and there is widespread concern regarding the health of the league.  The Commissioner will likely be able to patch something together to keep the Coyotes in Phoenix for the short run, and the NHL will have successfully protected its “league opportunity” in Southern Ontario.  But Balsillie, Canadian hockey fans and other under appreciated hockey markets, will be waiting for the next franchise to falter.

dan_canavan1Dan Canavan, Connecticut Sports Law’s resident hockey expert, is an attorney at Updike, Kelly & Spellacy in Hartford, Connecticut and fan of the former Hartford Whalers.  He has appeared as a guest with regard to the NHL and the Phoenix Coyotes bankruptcy proceedings on CBC Radio’s World Report.  Dan can be contacted at dcanavan@uks.com or 860-548-2672

Comments

  1. Just as a point of reference, only four major league professional sports teams have filed for bankruptcy since 1978 under the Bankruptcy Code. This, however, does not include the entire universe of sport franchises in the four major professional leagues that have filed for bankruptcy in the US or Canada. Other franchises that have filed include the Ottawa Senators in 2003 under Canada’s Companies’ Creditors Arrangements Act (Canada’s Chapter 11); the Pittsburgh Penguins filed in 1974 under the old Bankruptcy Act; the NBA’s Indianapolis Olympians went bankruptcy in 1954; and the NHL’s California Golden Seals went bankruptcy twice in the early 1970s before merging with the Minnesota North Stars.

    For more on sport organization bankruptcies in the United States, you can access my comment on the topic, published in the Seton Hall Journal of Sports & Entertainment Law, at http://ssrn.com/abstract=1320996.

  2. Tim, thank you for the point of clarification, which reemphasizes the point that the NHL is a repeat offender when it comes to bankruptcy. I look forward to reading your article.
    -Dan

  3. Can we get back on topic please. Everything seems to have gotten off the subject. Some of these comments are unbelievable.

  4. I see the 2worry;I am very x glad to hear that you got your Supra fixed; I remember reading about some of your problems5x !.

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