The Coyotes Heading North?
Hey folks, I have spent the better part of the night talking to various folks in and around the Coyotes-Balsillie issue. I have tried to put together some facts and some opinions and, of course, in typical TSM fashion, a good look at what else is being said on the WWW:
Arizona Republic’s Craig Harris did a bang up job on his account of where things are and where they are going. Here are the goods:
“The Phoenix Coyotes filed for Chapter 11 reorganization today in a move that could allow the franchise to be sold and moved to southern Ontario, Canada.”
Yes indeed they did. The Coyotes have put themselves under the protection of the courts from their creditors. The potential move to Canada stems from the only offer on the table right now for the assets, which is Jim Balsillie’s very rich offer of US$212.5 million — an offer which carries with it a pre-condition that he be allowed to relocate the team to “southwestern Ontario.”
“The move is not a certainty, because other investors will have an opportunity to outbid PSE’s offer.”
This is correct, 100 per cent correct. Anyone can now tender an offer for the purchase of the assets of the now bankrupt Phoenix Coyotes. Normally, any new offer would have to be higher than the original offer (Balsillie’s in this case). However, these are not normal bankruptcy proceedings, and I will explain more below.
“Jerry Moyes, Coyotes’ chief executive officer and managing member is the team’s largest unsecured creditor at nearly $104 million, according to bankruptcy records. The city of Glendale, which receives lease payments from the team to play at Jobing.com Arena, is an unsecured creditor in the bankruptcy filing. The city would have to make a claim with the court to receive any payments, according to the team’s bankruptcy lawyer.”
For those of you a tad confused, let’s review some basic terminology. A secured creditor is a party who has lent money to another and has taken a piece of collateral as security on that loan. For example, when one buys a house, goes to the bank and gets a mortgage, the bank has the house as collateral. You can’t sell the house without the bank getting its money first. If you get into money trouble, the bank can take back the house. The bank is a secured creditor.
Now, when you buy that house and your parents or a friend lends you money to help pay for the house and you promise to pay that person back for their loan and you have nothing else between you and your friend or relative, if something happens to you, and you lose the house or stop paying for the house, your friend could lose all their money too. That person is an unsecured creditor. They have no security to get their money back.
Why is this important? Well, for one the top priority of the trustee in bankruptcy (like a judge) in these proceedings is to get the creditors the most money he or she can for the assets of the Coyotes. Secured creditors will get paid first. So, in this instance, when the team is sold, the secured creditors (see below) will get paid ahead of both Jerry Moyes and the city.
“Balsillie’s price of $212.5 million provides funds to pay secured creditors in full. Approximately $80 million would go to SOF Investments LP and $35 million to the NHL, which had loaned the team money earlier this year.”
Okay, so the amount of JB’s offer is just enough to pay off only the secured creditors, SOF investments and the NHL. There is nothing left for any unsecured creditors.
“That would leave $97.5 million to unsecured creditors. Coyotes owners would receive nothing for their equity investment, including $206.5 million in preferred and common equity that will not be recovered by Moyes under the current offer.”
Well, maybe. I don’t know who SOF Investments is, but it appears to be getting some money. So I have to believe that Moyes will get something back, otherwise why else would he allow or encourage Balsillie to put in this offer at this time?
“‘Likewise, the City of Glendale, which has been very cooperative with efforts to keep the team in Glendale, will be able to provide potential buyers assurances of the City’s willingness to offer incentives to keep the team as a tenant in the Jobing.com arena, the lease for which is subject to rejection in bankruptcy,’ Moyes said. ‘The process assures that the identities of the new owner and the team’s location will be known by June 30, 2009, thus enabling the NHL to include the team in its 2009-10 schedule.'”
Again, this may or may not be true. Yes there is now a window to try to figure this out. However, things in the legal process can be stretched out if needed. I do think there is no chance that this team plays anywhere other than in Phoenix next season.
“‘At the end of the day, you have a team that was not making money. It has not made money since it has been here, and he (Moyes) received an offer,’ said Thomas Salerno, the bankruptcy attorney for the Coyotes. ‘We feel it (offer) maximizes the value of the team for the assets and in such a way that sets up a process where other people can bid.'”
I include this so you know that when I talked to a successful bankruptcy attorney this evening the first thing he asked me was if Salerno was the attorney hired by the Coyotes. Salerno is without question the top bankruptcy attorney in Arizona and a renowned expert in the field in the USA. While the team may not be good at making money in hockey, it certainly knows how to pick a bankruptcy attorney.
The fine folks at TSN have a similarly good account of the story:
“‘The current team ownership asked that I table an offer to purchase the Coyotes and significant discussions resulted in an offer that is in the best interests of the franchise, the NHL, and the great hockey fans of Canada and Southern Ontario,’ Balsillie said in the release. ‘I am excited to move closer to bringing an NHL franchise to what I believe is one of the best un-served hockey markets in the world, Southern Ontario. A market with devoted hockey fans, a rich hockey history, a growing and diversified economy and a population of more than 7 million people,’ he said.”
And the PR campaign begins. Know this, sports fans: Jim Balsillie is not a fool. He doesn’t play games, and he certainly doesn’t play them to lose.
The release also states that Balsillie agreed to post debtor-in-possession financing of $17 million (US) at the request of the Coyotes franchise. The money will keep the franchise going before the sale is completed.
So Balsillie has now made US$17 million available to the Coyotes to continue operating should his offer be accepted, but before the transaction is completed. This is an important move and something that the trustee will look most favourably at. The Coyotes could use this money for operating expenses and Balsillie’s purchase would be reduced by any amount that the franchise used before the deal closes.
“Sources tell TSN that the NHL is not happy with what is perceived by the league as a powerplay by Balsillie and will wrestle with this matter in court. Those proceedings are expected to begin on Thursday. After learning of the purchase on Tuesday, the NHL’s deputy commissioner Bill Daly released the following statement: ‘We have just become aware of today’s Bankruptcy Court filing purportedly made on behalf of the Phoenix Coyotes. We are investigating the circumstances surrounding the petition, including the propriety of its filing. We have removed Jerry Moyes from all positions of authority to act for or on behalf of the Club. The League will appear and proceed before the Bankruptcy Court in the best interests of all of the Club’s constituencies, including its fans in Arizona and the League’s 29 other Member Clubs.'”
And now, my friends it gets really interesting. The league looks at this bankruptcy as being driven by Balsillie. Therefore, the league will likely petition the court to investigate the validity of the filing of bankruptcy as early as Thursday. So where the team denied that the league was running the show only days ago, it is now saying publicly that it is in fact running the team. The NHL has removed the owner!
Oh, the irony. Gary Bettman doesn’t like to be pushed around and he is clearly viewing this as someone trying to push him around.
Now, Scott Burdow, a journalist for the East Valley Tribune, reports that the Balsillie purchase is all but a done deal and the team is gone:
“In case you hadn’t heard, the Coyotes filed for bankruptcy Thursday [sic], and the filing included a proposed sale to Canadian billionaire Jim Basillie, who would pay $212.5 million for the team and move it to Ontario, Canada. Other offers will be entertained in an effort to keep the team in Glendale, but a buyer willing to outbid Basillie would require a miracle on the size of the Red Sea parting, and last I looked, Moses wasn’t in the market for a hockey team. No, by the end of June the moving vans will back up to Jobing.com Arena and take the Coyotes away box by box, stick by stick.”
Scott has jumped the gun just a tiny bit here. You see, this is not an ordinary bankruptcy proceeding. Let’s assume for one second that the trustee rules that this is a valid filing. Ordinarily, the Trustee’s only job is to get the most cash for the creditors. In this case there is a problem, at least in theory. The NHL has, I believe, a contractual legal condition precedent to any sale of the franchise.
You see, each NHL franchise has an agreement with the league that governs its ownership of their franchise. This agreement, I suspect, contains a provision that deals with any transfer (sale) of the franchise. I don’t know this for sure, but I am sure there is some sort of provision that gives the league the ability to approve any transfer. More specifically, this provision probably gives the league the ability to kill any transfer.
Now, in most bankruptcies this type of agreement may not prevail. However, courts will enforce these types of provision under certain circumstances. The league will argue that the provision is required to ensure that the right type of person buys a franchise (it doesn’t want mobsters, thieves, etc., – unless, of course, it approves them and only find out they are bad owners after the fact). The league won’t have to argue that the provision needs to be enforced to keep Balsillie out specifically, rather that the league needs the provision in general.
It is extremely unlikely that the trustee will not enforce this provision of the franchise agreement. Therefore, all the league has to do is object to Balsillie as an owner (in whatever fashion it has to in accordance with the actual provision) and the Balsillie offer is dead.
“Fans will brave rush hour traffic to see a winner. But it’s been seven years since the Coyotes were in the playoffs, and they never won a postseason series. By the end, only die-hard hockey fans were venturing to the arena, and there aren’t enough of those in the Valley to support a team. For that, Wayne Gretzky has to take responsibility. He was supposed to bring a Stanley Cup to Phoenix, but he surrounded himself with cronies and yes men and turned out to be a mediocre coach. His reputation will survive — he’s still the greatest player ever — but when the eulogy is given, he won’t be spoken highly of.”
One word for that — wow.
“Let this be said, even as we say goodbye: There isn’t a better game to watch in person. Even a hockey neophyte like me appreciated the athleticism, the speed and the hits that rattled the bones and the plexiglass. I’ll remember Jeremy Roenick playing with a broken jaw, Keith Tkachuk standing in front of the net, harder to move than a tree trunk, and the loyalty of Shane Doan. But the Coyotes were a longshot to begin with. Everything had to go right for them; instead, nearly everything went wrong and they never had a chance. We’ll move on without them. Quickly, I imagine. Still, I can’t help but think that sometime in the next few years, when a playoff series has gone to Game 7 and the hockey is intense and the beards long, we’ll wonder what might have been. What a shame.”
What a terrific eulogy to a team. It says here it is prematurem but it is the type of thing that Bettman Inc. was betting on when they moved the team to a market like Phoenix.
Over at Sportsnet, they fellas had some interesting tidbits to add:
“Balsillie has turned up the heat by going public in his bid. He’s asking fans who want to see a seventh NHL franchise in Canada to make their voices heard, asking them to log on to www.makeitseven.ca to add their voices to his bid. Balsillie said that the website has already had ‘thousands and thousands’ of comments. ‘I think it affirms there’s an unserved market, there’s a real opportunity here,’ Balsillie said. ‘I’m prepared to put this kind of funding…I believe this is a serious commitment.'”
The website, for the record, can’t have “comments” — it asks people to register. According to the folks running the site, in a little over three hours since its launch it had over 10,000 registrations. So what is Balsillie’s game? What is he trying to do? Are there not infinite ways this can end? The easiest way for it to end would be for another bidder to up the ante, offer more then Balsillie’s $212.5 million. That isn’t going to happen.
However, that isn’t the end of the discussion. If the NHL can enforce its ability to approve any transfer of a franchise, then Balsillie’s bid is dead. So what is left? Well, if no one else emerges, and the league kicks Balsillie’s bid that will be the end of the franchise. The team will go from Chapter 11 protection to Chapter 7 and fold. However, if another bid emerges (remember my earlier post on Jerry Reinsdorf), well then it too can be approved by the court. If Jerry gets huge concessions from the city, gets a real sweetheart deal, and puts in a lower offer of say $100-150 million, there is nothing stopping the Trustee from accepting that offer if the league agrees. Those are really the only options.
Where it gets really interesting is in the NHL office and backrooms. The economy is shit. Any number of teams are struggling and those who are doing better are facing upward pressure to keep them alive. Toronto is an interesting example because it is spending more money in propping up teams than any other team, so you would think it would want to move those teams on life support faster than anyone else. Except in this case, the Leafs certainly don’t want another team here in Toronto.
It’s the classic NIMBY case. We want to help, but not in my backyard, thank you! The league is owed over $30 million. That’s around a million bucks per team. Compare, if you will, what Larry Brooks claimed the league made from itss NBC deal last year: $100,000 per team! One million dollars is a lot of money to those teams in these times. Some say that the league can only veto a move if it has over one-third of the owners voting against the move.
Bettman will try to sway as many votes as he can; he was successful in the lockout in keeping his ducks in a row. How successful will he be now and with this fight? You can bet on two teams for sure voting with Bettman — Toronto and Buffalo. I would include Ottawa as a strong alley too. After that all bets are off. Owners are going to vote with their pocketbooks not allegiances. If the league gets its $32 million back and instead of a deadbeat team gains a profitable one, how much better is that for all the partners?
Over at the Globe and Mail, David Shoalts and Sean Gorden have this to offer:
“According to a source close to the deal, Balsillie plans to lean on his sterling business reputation and play the public opinion card strongly; the first burblings of the strategy showed up in the form of a new website in support of a seventh Canadian NHL team.”
As I have stated already, I agree he will try to win the PR war, the question is, who is he fighting with and to what end?
“At the same time, the source indicated there was no prior agreement or consultation between Balsillie and league commissioner Gary Bettman — who was said to be incensed at news of the proposed deal — although there are suggestions other owners and the players’ union could support moving the team. And Balsillie is reportedly determined not to play by Bettman’s rules, so just to be on the safe side, he has also pulled what appear to be some canny legal manoeuvres.”
Bettman is a control freak and an egomaniac. Of course this will incense him. The other owners are key; as the for the PA, Kelley and Healey can make as much noise as they want, but they are powerless unless they are prepared to strike over this issue.
“A former NHL owner was more forthcoming, calling it ‘a game of chicken’ whose winner will be chosen by an Arizona bankruptcy judge. Sources say Balsillie quietly contacted municipal officials in Hamilton, Ont., about 10 days ago to sound them out over whether they would be interested in reviving a 2004 deal for lease rights to the Copps Coliseum and Hamilton Place. City officials indicated they would leap at the chance, the source added.”
This really won’t be surprised by the courts. Assuming the NHL has the clause that I am told it does, there is not much to decide. Hamilton may have to suffice as a temporary home to a team. The problem for Balsillie is that he would have to deal with two teams — Toronto and Buffalo — not just one if he moved it closer to the GTA. Is anyone surprised at the Hamilton reaction?
“News of the bankruptcy and the shock offer to buy the team stunned several owners — ‘Holy shit!’ was the response offered by two of those contacted by The Globe — including one of the teams that could oppose a relocation to the Hamilton region. ‘This is a complete surprise, you still need league approval for all this stuff, so I don’t know what to say,’ said Buffalo Sabres minority owner Larry Quinn.”
To his credit, Balsillie and the owners of the Coyotes kept this very, very quiet. That is impressive. The owners’ response, by the way, is classic!
“Either way, Bettman’s sway over the owners, many of whom have been quietly courted by Balsillie, will be tested in what is shaping up to be a contest of wills. An NHL governor who spoke on condition of anonymity revealed some of the animus some owners feel toward Balsillie, whose ham-fisted attempts to move the Penguins and the Predators to the Toronto region earned him no friends among Bettman and his coterie of allies. The governor pointed out that franchises are granted by the league, which could just as easily revoke them — although that would surely form the basis of a nasty and lengthy lawsuit.”
There is no revoking to make so I am not sure the basis of that point. What the other governors think of Balsillie is paramount in this decision, however, and one thing worth digging into.
“‘Balsillie tends to do things like this. The game last night [on Monday between the Penguins and Washington Capitals] was amazing, it’s too bad this has to follow on the heels of that,’ the governor said.”
That is what must be killing Bettman. This is not what he wants idiots like me writing about tonight. Instead of watching one second of a game tonight I talked to people about this! That is not what the league wants its fans to do.
“More evocative, then, is a subsequent passage of the release: ‘overbids must exceed the PSE proposal by $5-million and must be fully funded at closing without a financing contingency.'”
Not so fast on that one. A lesser bid without the condition may have to be considered. At least that is what my legal gurus are telling me tonight.
Still at The Globe, Stephen Brunt has an excellent commentary:
“So here we are — with an owner who has no other options, in a league fighting multiple fires, with a process that is now in the hands of the courts. A more-than-fair offer is on the table, one that will help prop up franchise values, will solve a huge problem, will save millions in bailout money and will instantly transform a have-not franchise into a have. Think maybe Jim Balsillie has talked to some of those other owners over the past few months? Think maybe they’ve come to understand he’s not the bogeyman, that he might be the best and only alternative right now?”
That is exactly where we are at. This is all going to be handled behind closed mahogany doors. Bettman has been able to stay away from the likes of Balsillie before through magic and luck. Will that hold true this time?
“And when the commissioner calls them to the barricades for what would be a protracted, expensive legal battle to keep Balsillie out of the league and to keep him from moving the club (he certainly meets all of the criteria they’ve laid out in their bylaws), think they’re ready to follow him blindly into battle one more time? He won the lockout — and look at what that fine, fail-safe labour agreement delivered. He beat back Balsillie twice, and how did that fix anything? He said not so long ago that Phoenix would be just fine. How did that work out? By all accounts, the commissioner was apoplectic last night. It seems he may have good reason. In chess, it’s called being put in ‘check.’ Bettman has already proved himself a grandmaster of the game. But even the best of them eventually meet their match.”
Balsillie threatens everything that Bettman is to the league. If he is a rogue prospective owner, how will he act when he is an owner, one of Bettman’s bosses? This is war, and it is very, very personal.
Kevin McGran leads his column in The Star with this:
“The NHL took control of the Phoenix Coyotes on Tuesday evening, removing owner Jerry Moyes from all positions of authority and seems set to challenge the very notion that the troubled NHL franchise is bankrupt.”
Do you think that is what Bettman wants to be dealing with during the playoffs?
Hanky has one of the most bizarre posts in the history of his site, as he goes Oliver Stone:
“I think someone is trying to get the NHL to budge on their anti Balsillie stance. And listen. I know Balsillie and I like Balsillie. I WANT AND BELIEVE THE BEST THING FOR THE NHL WOULD BE TO GIVE JIM A TEAM! If Balsillie is the one behind this act I would be somewhat surprised. UNLESS Jim is just continuing on his path to make a legal case that would force the NHL to give him a team in some sort of settlement. Those are high risk stakes for a guy that would in all likelihood have a team if he just respected the systems in place…But seriously, I don’t know what is happening at this point. One thing is for sure…it’s a crazy night…stay tuned.”
I am going to let his post stand for itself…believe what you want, call me a sucker, but I don’t think this is a “sham.”
“He called it ‘a very clear and serious offer. I’m excited and delighted to make this offer and try to bring a seventh team to Canada for hockey fans in an unserved market of Southern Ontario.'”
That was the National Post quoting Balsillie himself. Doesn’t sound like a sham to me at all. Does it to you?
Several sources are telling TSM this morning that the reason the league is so upset is that Moyes, the Coyotes’ chief executive officer and managing member, had actually resigned his right to make any decisions as they pertain to the Coyotes as far back as two weeks ago (as sources in the Arizona media reported and the team refuted). So far no one from the league will confirm this.
Steve Simmon’s column in today’s Toronto Sun perfectly captures where things stand right now, in my opinion:
“Jim Balsillie is well on his way to becoming the dumbest, most stubborn, successful entrepreneur around. How else to explain his latest hockey outburst — his clumsy, all-too-public attempt to bully the National Hockey League into allowing him to purchase the now-bankrupt Phoenix Coyotes franchise and move it to southern Ontario. If all he is attempting here is to find his name in the headlines, he is certainly accomplishing that. But if he honestly believes he can pull an end-run on commissioner Gary Bettman, secure an NHL franchise, move it, and use a public website to drum up support for a seventh Canadian franchise, then he is either getting terrible advice or he is simply fond of banging his head against the wall. Because that’s all he can accomplish here. This is a war he may not be able to win. Even if he’s willing to overpay for the moribund Coyotes, which he is.”
I totally agree. This is a very strange way to get the leagues blessing to become a member of the club especially when the league has shown that this is perhaps more important than one’s background or financial wherewithal. I am not sure who is advising Balsillie on this matter, but I think perhaps he is getting bad advice.
“The league will say it has control over the franchise and any possible movement. They will say that, knowing also there is a long-term lease in Phoenix. But what Moyes and Balsillie are banking on here is direction from the bankruptcy court: Once the court orders the Coyotes to accept the Balsillie offer, which is entirely possible considering there is unlikely to be another offer anywhere close, then Balsillie will pick up the franchise and attempt to move it, likely to Hamilton, with the NHL fighting it all the way. This, almost certainly, will go to court, the way Al Davis had to go to court when he moved the Oakland Raiders to Los Angeles in the National Football League many years ago. Davis won his lawsuit against the NFL. Balsillie is gambling he can win here. Does a second NHL team in southern Ontario make sense? Yes. Does Balsillie have the wherewithal to operate this team? Yes. Is it in the NHL’s best interest to have another team around Toronto? Yes. But the reality is, the number of owners who have attempted to ambush the NHL and succeeded is zero.”
I think that the assumptions Balsillie is making, if Simmons is correct, are wrong. I can’t see Balsillie suing the NHL to get into the club and I can’t see a trustee in bankruptcy voiding the league franchise agreement.
Bob McKenzie has a great article up on TSN.ca, too:
“The first thing you need to know is that NHL commissioner Gary Bettman was in Phoenix today, ostensibly to put the finishing touches on an intent to purchase agreement from Chicago White Sox owner Jerry Reinsdorf, whose intention was to apparently keep the financially-troubled Coyotes in their current home of Glendale, which is also home to Reinsdorf’s spring-training baseball facility (a mile away from the Coyotes’ Jobing.com Arena). That offer was expected to materialize within the next few days.”
Everything I am hearing (and reported earlier yesterday morning) confirms this. Don’t think that the Balsillie bid is going to stop Reinsdorf, per se. The bankruptcy proceedings may not the US$212.5 million offer.
“Balsillie’s bid of $212.5 million is what is known as a ”stalking horse bid.” All that effectively means is that Balsillie’s bid officially kicks off an official auction process. If anyone chooses to outbid Balsillie, they must do so by at least $5 million. The bankruptcy court is obliged to accept the highest offer that provides the best financial relief to the secured creditors, which ironically includes the NHL as the second largest ($35 million). It is unfathomable to think anyone would make the $217.5 million offer to keep the team in Phoenix. But where this starts to get confusing is the conditional aspect of the offer. Balsillie is only prepared to pay $212.5 million as long as the franchise is moved to southern Ontario.”
Bingo! The condition precedent is a problem for both the Coyotes and Balsillie.
“The question then becomes, can a bankruptcy court in Arizona mandate the NHL to relocate or transfer a franchise in order to satisfy the needs of the Coyotes’ secured creditors? It’s an interesting legal question and without putting words in anyone’s mouth — no one is commenting anyway — the safe bet is that Balsillie’s group believes that’s a possibility while the NHL doesn’t believe a bankruptcy court can tell it how to conduct its affairs.”
That is right. The 212.5 million dollar question is — what does the franchise agreement say with respect to transfers and is that language legally binding? If it says the league can kill the transfer and a court will back that clause, Balsillie is out of luck. If it says the league can kill the transfer and Balsillie and the Coyotes are willing to fight in court and the court agrees that the provision is illegal then they have a good shot. If the provision says the league can kill a transfer with one-third of the owners agreeing to kill it, well then it gets really, really interesting.
“The NHL, meanwhile, is likely to battle Balsillie on the issue of ”control.’ While the league will get destroyed in the court of public opinion in Canada, it is quite likely to exert what it perceives to be its legal rights on how it does business. That is, the league believes it ultimately controls who owns NHL franchises and where they are located. To do that, NHL commissioner Gary Bettman will ultimately require the backing of the board of governors, but he has had it in the past. It remains to be seen whether he has it this time, but this has all the makings of a battle royale. The battle lines are clearly drawn. While Bettman and the NHL will take a beating in that court of public opinion in Canada, one suspects this situation will ultimately be decided in a legal court.”
That is correct. This, perhaps more than the lockout, will challenge Bettman’s authority and control over his group of owners. Will he survive this is the right question. The US$212.5 million sounds pretty good to the owners of the Thrashers, Panthers and the estate of Bill Davidson to name but a few.
If you are looking for another perspective on the matter, Damien Cox’s is here. The gist is that the only way the team ends up in southwestern Ontario is if Balsillie and Bettman kiss and make up, which Cox suggests isn’t very likely.
Simmons is here.
McKenzie is here.
Read Craig Harris here.
Read TSN here.
Read Scott Burdow here.
Read Sportsnet here.
Shoalts and Gordon are here.
Brunt is here.
McGran is here.
Hanky is here.
The National Post is here.