Balsillie and Coyotes: the road ahead
When an Arizona bankruptcy judge rejected Canadian billionaire Jim Balsillie's bid to buy the Phoenix Coyotes and relocate the NHL team to Hamilton, it was a significant milepost, but there are challenges ahead for all sides with an interest in the fate of the NHL club.
While Judge Redfield T. Baum was reluctant to wade into the issues of legality regarding the NHL's constitution, he said the bankruptcy sale deadline of June 29 proposed by Balsillie was too ambitious to resolve the many complex issues at play.
Left unresolved, however, are whether anyone will bid to keep the team in Phoenix and whether that bid will satisfy creditors to the court's satisfaction.
Here's a look at the road ahead from the perspective of the parties:
Representatives for Balsillie were unwilling to concede defeat after Judge Baum's ruling, with legal adviser Richard Rodier even making a bold prediction.
"At the end of the proceeding and the whole process, I think the Phoenix Coyotes are going to end up in Hamilton," he said.
While they may be overly optimistic, sports management consultant Marc Ganis said there is a possibility the NHL would be forced into doing a deal with Balsillie.
"If the bids are very modest that come in for the team and Balsillie's is still by far the most significant, and there's sufficient time given for analysis and [to] review what the judge feels is necessary, he may have a shot," said Ganis, head of SportsCorp Ltd.
That seems to be what the Balsillie camp, at least in the immediate aftermath, is hanging their hat on.
Rodier said he believed Baum's ruling only states that the NHL hasn't violated antitrust at the current time and that a challenge down the road is still possible.
"What needs to happen for an as-applied test, is the judge needs to see how a relocation application is dealt with or if it's not dealt with at all. Then the question becomes, 'Why haven't you dealt with it?' or if you've said, 'Why? Show cause'."
In such a scenario, the Balsillie camp would undoubtedly lean heavily on the fact that the league's board of governors previously approved the Research In Motion executive as an owner before negotiations to buy the Pittsburgh Penguins broke down, although the NHL in court filings over the past month brought up the specter of the large penalty RIM paid in a case involving allegations of stock option backdating.
Before that date comes, the hope is that the NHL will come around to its way of thinking — that the team cannot be successful in Phoenix — and begin a process of mediation to bring a Balsillie-owned franchise into the fold.
Baum's ruling buys the National Hockey League more time to find an owner or consortium to keep the team in Arizona.
"We will turn our attention now toward helping to facilitate an orderly sales process that will produce a local buyer who is committed to making the Coyotes' franchise viable and successful in the Phoenix/Glendale area," NHL deputy commissioner Bill Daly said in a statement late Monday. "We are confident that we will be able to find such a buyer for the Coyotes and that the claims of legitimate creditors will be addressed."
While it's a victory for the NHL, the wildcard is that the fate of the Coyotes is still being governed by the courts.
"The fundamental part of this ruling as it affects the NHL and other sport leagues is still effective, which is, it was up to a bankruptcy judge to decide where this team was going to play, not the league or the commissioner," Ganis told CBCSports.ca.
"That's got to be of great concern to the leagues, although it should not be a surprise."
The league has claimed that commissioner Gary Bettman was en route to present Coyotes owner Jerry Moyes with details of an offer, although even Judge Baum on June 9 expressed skepticism.
Baum said in the hearing that it was significant the league was willing to fund the team through next season if need be, and the NHL wouldn't be the first pro sports league go down such a path. Major League Baseball purchased the Montreal Expos and after initial talk of league contraction, the franchise eventually relocated to Washington.
The league in a filing said it had four expressions of interest in the team. In addition to a Phoenix businessman who wished to remain anonymous for the time being, the interested parties were: Howard Sokolowski and David Cynamon, the owners of the CFL Toronto Argonauts; Jerry Reinsdorf, the owner of the Chicago White Sox, whose spring training facility is not far from the Glendale, Ariz., arena where the Coyotes play; and current Coyotes minority owner John Breslow.
Time will tell if any make a final commitment or if there's someone yet to be determined with an interest in the club.
"Typically what will happen is when you do your due diligence on it, you realize a lot of people who express interest in purchasing a professional sports franchise don't necessarily have the financing," said Scott Rosner, sports law professor at Wharton University and lead author of The Business of Sports.
The notion that the owners of the Argos would be willing to operate a franchise long-term in Arizona raised eyebrows among cynical NHL observers and seemed to take another hit on Tuesday with a Globe and Mail report indicating that Sokolowski and Cynamon needed substantial financial support from a fellow CFL owner just to operate their football team.
At one time or another during the saga, Bettman has evoked the past financial struggles of at least eight NHL clubs that were able to weather the storm and remain in their current locations, most notably the Stanley Cup champion Pittsburgh Penguins. The challenge is that all of the franchises he mentioned have a much longer history with the game and the league.
The league, in its sales pitch to prospective owners and in the court of public opinion, will continue to make the case that better management of the Coyotes and concomitant success on the ice will lift the team's financial prospects.
The city of Glendale had maintained that the Coyotes would be on the hook for several hundred million if the team relocated and broke the Jobing.com arena lease. Concessions provider Aramark also came out against the Balsillie-Moyes play, stating that its contracts would be breached.
Because Baum said that ultimately the case was too complex to be addressed by an imposed deadline of June 29, he did not definitively rule on Glendale's claims.
Baum did state that there was case law supporting Glendale's assertion that the harm it would incur is disproportionate to the relief some creditors would get if Balsillie were able to relocate the team. But the judge also said that the city did a poor job of making that case to his court.
Glendale asserted that a better-run team could find savings and new revenue streams, bringing in a consultant who said, among other things, that the team has the 11th-highest non-payroll expense.
The mismanagement angle is not without merit for the city to follow, Rosner said
"Previous ownership has not done a very good job of creating a fanbase and exploiting and monetizing that fanbase," he said. "Whether that is a function of the market they're in or ownership's inability … remains to be seen."
Rodier and Ganis believe the team has no chance of success without the support of taxpayers, a potentially tricky proposition given less than a quarter of Glendale voters supported such a tack, according to a recent poll by a conservative thinktank.
"The team does not work in Phoenix without a massive, massive operating subsidy from the city of Glendale," said Rodier. "We're not talking a million a year, we're not talking five million a year, we're talking $15-to-$20 million a year from a city that from where I sit — and I'm not the mayor — has some financial challenges, let's say."
Rodier also raised the state's gift law which forbids "any donation or grant, by subsidy or otherwise, to any individual, association or corporation."
The non-profit watchdog group the Goldwater Institute, named after the longtime U.S. senator and former presidential candidate, has been public about its opposition to Glendale bailing out the Coyotes and promises to watch the case closely.
There has been speculation that the terms of the Jobing.com Arena lease are prohibitive to running a successful franchise, but Ganis said he believes it is a red herring.
"At best, it's an extremely challenging situation, regardless of whether the building was given away to the team rent-free," he said. "It's the market that's the fundamental problem."
Rodier said it took only days for baseball's Seattle Pilots to be relocated in 1970, but only the most ardent Balsillie supporters believe the team is playing anywhere but in Arizona next season.
Moyes, through a spokesperson, expressed disappointment to a Phoenix television station, and it is expected he will confer with Rodier to evaluate their options.
Moyes said the club had sales of just 5,600 season tickets last season and that on average he purchased 1,000 tickets to get the Coyotes over 14,000 per game, which put them in the bottom three league-wide for the second straight year. Daly admitted in court that season ticket sales for the upcoming season took a big hit in May, when the legal squabbles over the team's plight began.
It remains to be seen whether there will be a rush to the box office now that it appears likely the Desert Dogs are returning, especially when their fate beyond next season might not be known until September at the earliest.
The consultant hired by the city of Glendale pointed out that $6 million in savings could come from reducing coach Wayne Gretzky's salary. While Gretzky's star power brings cachet to a potential owner, the hockey legend may have coached his last game with the club. The optics of his contract may make it politically untenable for him to stay on.
Even if one accepts the argument that a winning NHL club will translate to business success, the Coyotes face huge challenges in that regard.
The club missed the playoffs for the sixth consecutive season and has not made it past the first round of the playoffs since moving to Phoenix from Winnipeg in 1996.
The Coyotes are set to draft sixth in next week's draft, adding to their haul of young prospects. Unfortunately for the club, their prospects have not progressed as rapidly as the likes of Chicago's Patrick Kane or Jonathan Toews, or even Steve Stamkos of Tampa Bay.
The NHL has said that under its purview general manager Don Maloney and president Doug Moss will be free to make hockey decisions as normal. On the positive side, only captain Shane Doan, defenceman Ed Jovanovski and goalie Ilya Bryzgalov make over $3 million US.
Unfortunately, the Coyotes have several restricted and unrestricted free agents from the last season's team to sign even before thinking about the pool of players leaguewide. Even if Maloney has the wherewithal to make deals, it's hard to imagine the Coyotes being more than a destination of last resort for NHL veterans.
Monday's ruling may have heartened the committed fans of the Coyotes, but there would seem to be many challenging days still to come.