Thursday, September 3, 2009

Battle in the Desert - the Saga Continues

What started out as a quick trip to bankruptcy court for Research in Motion co-founder Jim Balsillie and Coyotes owner Jerry Moyes has slowly become more of a Norse Viking Saga, or perhaps a Greek Tragedy, or better yet that Star Wars movie with Jar-Jar Binks; although I will not disclose whom I think falls into the role of Jar-Jar. The court battle appears to be in the home stretch but with almost 80,000 pages of documents and over 1,000 filings in Judge Redfield T. Baum's Phoenix courtroom; there are still plenty of issues to sort through before the September 10th auction. The current debate revolves around whether Balsillie can take part in the auction because the NHL rejected him as an owner in a recent vote.

As the lawyers for the NHL and the Basillie group tore each other apart yesterday, the Ice Edge investment group must have been very pleased to just sit back and watch the proceedings with a smile on their faces. If the two big players are bringing negative attention to each other, pointing out all of each other’s flaws, Ice Edge begins to go from a long shot to one of the more reasonable choices for Judge Baum. After all, Ice Edge plans to keep the team in the desert for the short-term and they have secured deals with all creditors except the City of Glendale.

The Judge commented at the start of this court battle that the NHL was “wearing too many hats”; they have now added themselves to the list of potential buyers, putting on yet another hat. The Balsillie group has a point in their argument that the NHL, by becoming a potential buyer, have failed to keep the bidding fair and transparent. Any further attacks on Basillie’s character and integrity can only appear to be one potential bidder attacking another. Which leaves Ice Edge sitting on the sidelines, quietly watching the drama unfold.

For those unfamiliar with the bids, here is a quick recap... Basillie wants the team moved to Hamilton immediately. His Make it Seven campaign has grown into a legitimate movement across Canada as hockey fans on this side of the border feel let down by the NHL. An estimated 30-40% of league revenues are generated north of the border and in these current, uncertain economic times, fans and Canadian team owners should be questioning why they are supporting teams that are failing in the US Sunbelt.

The Coyotes have lost at least $30 million per year, for several years and if they remain in Phoenix, the conservative estimate of losses for the 2009-2010 season is $40 million. While there is not a large base of corporate support in Hamilton, fans would flock to Copps Coliseum and Basillie’s friends in the business world would certainly jump on board to support the team. Let us not forget the recent Fortune Magazine listing that revealed RIM as the fastest growing company in the world, Balsillie has deep enough pockets to guarantee the move will be a success. If it is not, he is prepared to cover the losses. Balsillie’s bid on the team comes in at $212 million, with $100 million going to Moyes as a creditor.

Since the beginning of the bankruptcy battle, the NHL repeatedly stated the team must remain in Phoenix. That is, until they became potential owners and their tune changed. They wish to keep the team in place while searching for local investment but now even the league has stated the team is gone in one year if no investors come forward. Chicago Bulls and White Sox owner Jerry Reinsdorf is the owner of choice in the NHL’s opinion but he did not like the public display of his offers and negotiations with Glendale. He backed away from the bidding process but there is little doubt he will resume negotiations with the league behind closed doors if they win the court battle. Say hello to the Kansas City Coyotes. The NHL bid comes in at $140 million, Moyes gets nothing but any future profit from a sale goes to the creditors, which could include the NHL and their financial partner, Michael Dell.

Ice Edge appeared to emerge from nowhere as bidders for the Coyotes with their proposal to keep the team in Phoenix while playing five “home” games in Saskatoon Saskatchewan. In 1987, the St. Louis Blues almost moved to the prairies after their own financial troubles and ironically, one of the games in their proposal has the Coyotes playing in Saskatoon against the Blues. The trouble with Ice Edge appears to be the question of how deep are their pockets. They have gathered enough investors to buy the team, can they sustain the massive losses that will follow as the team remains in a market place that has not embraced NHL hockey.

Minor league teams have drawn well in the desert in the past but the few hockey fans left in Phoenix are tired of the drama and citizens that do not watch hockey have to wonder why their tax dollars were spent on an arena for the Coyotes in the first place. These unhappy taxpayers will not be pleased if the City of Glendale renegotiates the lease agreement. The Ice Edge bid for the team is $150 million and hinges on the league approving the Saskatoon games, which at this time; the league seems reluctant to do.

Then we have the Toronto Maple Leafs... A move to Hamilton will infringe on their territorial rights and they are apparently prepared to take on the NHL in court to discuss the situation. The Leafs believe they have veto power to stop the Coyotes from coming to Hamilton. Balsillie is prepared to pay the Leafs something, $100 million in compensation was one number floated in bankruptcy court but it appears the Leafs want at least double that amount.

An important market in North America, a second team in Toronto or Hamilton would bring in a $300-400 million expansion fee, with the Leafs taking a major piece of the pie and the other owners splitting the rest. This is the true issue in this situation, expansion dollars. The league is dead set against a team moving into their priciest real estate free of charge.

Balsillie lawyer, Jeff Kessler argued in court yesterday that the NHL did not approve his client as an owner because of the possible lawsuit from Toronto. “God knows what they will sue for and the league does not want that battle,” said Kessler. This writer has to wonder, is it that they do not want to pick a fight with the Leafs, or can they not afford a fight with the Leafs?

While it may take several weeks to discover who Judge Baum believes is the best choice for the creditors, he has already acknowledged a lengthy appeals process is in the future of the Coyotes. If the NHL wins, Balsillie and Moyes will certainly appeal the ruling, claiming the process did not proceed fairly. Anti-trust laws in the United States will be challenged. Another factor to consider in an appeal would be if any new owners receive concessions from Glendale in a new lease agreement. Moyes will argue that he may not have lost an estimated $300 million if the city had been willing to renegotiate his lease.

The NHL will appeal a ruling in favour of Balsillie, claiming they have already turned him down as an owner and he has no right to move the team without following the proper procedures the NHL has in place regarding relocation. They claim it is impossible to adjust the league schedule weeks before the season begins. The league has also mentioned the players and their families having to move on a moments notice as a factor in rejecting Balsillie. A good point but as my hockey insider pointed out to me in a recent conversation, trades happen all the time in the NHL, players and their families do have to move sometimes at a moments notice.

Throughout the proceedings, Judge Baum has listened to all sides intently, scolding them for their actions when needed and revealing a tremendous knowledge of the sports world. Personally, I would not wish to play poker with Judge Baum, his poker face would be unreadable. The best guess anyone can have at this point is that there is a 33% chance the Coyotes land in Hamilton. In a way, it is too bad it is not the Dallas Stars in court, at least then we would have a name for this drama and all of us sports writers could come up with J.R. Ewing jokes... Have a great sports day everyone.


Ed said...

Dear Voice,

After following this saga for many months now, I find that both the media and public have tended to focus more on the quips and quirks of the quotable players (Bettman, Balsillie, Reinsdorf, Moyes and LeBlanc) vs what may be the real story here.

What is the real deal with the City of Glendale? What is their objective? What is their past record? Why are they always named as an accessory when it comes to explaining the failure of hockey in Phoenix?

It appears on the surface that they are not only advancing a most painful and embarassing decent into bancruptcy for Jerry Moyes, but are also responsible for sending Jerry Reinsdorf back on a plane to Chicago in frustration, while stalemating Anthony LeBlanc's white knight overtures for resurrection.

Is this the case of a small business being driven by the dream of unrealsitic revenues in a strained economy or is it a local community standing up; refusing to be a pawn in the financial scheme that is the NHL? One that we now know to be carefully and methodically maneuvered by a small number of name brand owners and investors.


The Voice of Sport said...

Hi Ed, The City of Glendale is a major player in how all this turns out. They could be on the long list of groups appealing Judge Baum's final decision. I will begin the investigation and will post an article on Glendale in the coming days. It is very true, that of all the major players in this case, we know very little about their motivations for building an arena with tax dollars and what will they do, now that even the NHL says they will move the team after the season. - Thanks for the comment - The Voice.