Burning Questions: Balsillie's bid for the Coyotes

Here is a look at some questions that could be addressed in the coming days and weeks as the saga unfolds surrounding Jim Balsillie's bid to buy the NHL's Phoenix Coyotes and move them to Ontario.
Jim Balsillie has made the passion Canadians have for hockey a big part of his platform to bring the Phoenix Coyotes to Ontario, but will that ultimately matter? ((Dave Chidley/Canadian Press))


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The announcement that Jim Balsillie had reached an agreement to buy the Phoenix Coyotes and wanted to move the club to Ontario only broke in early May, but the National Hockey League and struggling franchise are already involved in a complicated legal process designed to try to settle their differences. 

Any settlement could happen quickly, but it appears as if there will be weeks and even months of litigation involving Canadian billionaire Balsillie, Coyotes owner Jerry Moyes, and the NHL.

In a bankruptcy court hearing on May 19, a judge ordered the two sides into mediation to try to untangle the team's ownership situation and potential sale.

Judge Redfield T. Baum questioned why the dispute had reached the court without any attempts to settle the matter before that stage, and ordered a report on the progress of mediation by May 27.

In the coming days and weeks, this saga could take a number of paths. Here is a look at some important questions that could be addressed.

Judge Redfield Baum ordered the NHL and Phoenix Coyotes into mediation to try to work out the ownership situation and potential sale. What does this mediation entail?

A mediator's job is to attempt to get the two sides to meet on common ground "and come up with creative compromises," Rob Becker, a New York attorney specializing in sports law, told CBCSports.ca.

The mediator "is a neutral person whose job, if he can do it, is to get the people to settle on a mutual agreement," Becker added.

While an arbitrator can make rulings on cases, mediators can't.

"In arbitration, a decision is made by a neutral person, whether it's the arbitrator or the judge," Becker said. "He's going to listen to the arguments from both sides, and then he's going to make a ruling. That's not the case here."

If the NHL and the Coyotes can come to an agreement through the mediator, a written deal will settle the issue. If the mediator is not able to get the sides to settle, Baum will rule on which side has control of the Coyotes.

This is a decision Becker anticipates will take longer to arrive than a day or two after the May 27 deadline. The judge can also agree to an extension if the mediator requests one.

"Let's say the mediator feels he's making a lot of progress and feels 'I've got them very close but can't get it done by [May 27],' " Becker said. "What I would assume would happen is the mediator would go to the judge and ask for [an extension]. I would say that the judge would certainly say yes, because the mediator is neutral."

What will happen to the Phoenix Coyotes if the judge says the NHL owns the franchise and Jerry Moyes does not have the authority to declare bankruptcy?

The NHL presumably would get its wish and quash Balsillie's third attempt of purchasing and relocating a franchise to southern Ontario if judge Baum rules the league owns the financially strapped club.

Earlier this month, Balsillie offered to pay $212.5 million US for the Phoenix Coyotes on the condition the bankrupt team relocate to Canada, namely Hamilton.

Majority owner Moyes formally filed for Chapter 11 bankruptcy protection on May 5, a move the NHL is protesting and says is subject to approval from the league's 30 governors.

The NHL would run the team until it finds a suitable owner, believing the team could succeed in Phoenix, despite reported losses of more than $200 million since 2001.

"I think there's a plan here that clearly gives the Coyotes a chance to stabilize themselves and be successful in this marketplace," NHL deputy commissioner Bill Daly told reporters recently, adding the league has made certain advances and loans to the team.

According to Daly, the NHL has funded operation of the Coyotes since last August or September.

Prior to Balsillie's bid, the NHL is said to have been in discussions with a prospective ownership group that includes Jerry Reinsdorf, owner of baseball's Chicago White Sox and basketball's Chicago Bulls.

But to keep the team in Glendale, the city likely would be forced to offer major lease concessions.

The Coyotes apparently played the entire 2008-09 season virtually rent-free at Jobing.com Arena and re-working the arena lease is viewed as vital to luring new investors.

The team signed a 30-year lease with Glendale when it moved from Phoenix. The city maintains the judge cannot revoke it because the Coyotes signed a "Non-Relocation Convenant" that prohibits them from relocating, and requires them to play all home games at the arena for the full term of the lease.

If Judge Redfield T. Baum says Moyes has legitimate control over the Phoenix Coyotes and has the authority to take the team into bankruptcy, and Balsillie is able to move the team, what would that mean for the NHL and territorial rights?

In the legal debacle between Moyes, the NHL and Balsillie, territorial rights shouldn't even come into play, says a well-known sports law expert.

Rob Becker, a New York attorney and legal analyst on sports issues, says territorial rights won’t play a role because Judge Baum lacks the authority to rule on relocation rights.

Even if the judge rules the team can be sold to a new owner, such as Balsillie, a transfer of ownership doesn't change the contract between the team and the NHL, which includes the league's approval rights over relocation, he said.

"The league would retain its rights of approval even over a sale of the team in bankruptcy," Becker said.

CBC Sports journalist Scott Morrison, who has covered the NHL extensively, including the 2004-05 lockout and Balsillie's previous attempts to purchase the Pittsburgh Penguins and Nashville Predators, agreed.

"Part of what [the NHL] will be arguing in court is that Jerry Moyes owns the Phoenix Coyotes, that he owns the right to have an NHL team in Phoenix, but he doesn't own the right to have an NHL team in southern Ontario," Morrison said.

It's these rules and regulations the NHL is fighting to protect, he added.

"The feeling is, if the franchise is able to move on its own and relocate without league approval, then you have potential for anarchy, and you'll see teams flapping up 'for sale' signs, backing up the vans for the prospective owners and saying, 'Hey, here's the team, here's the keys, take it where you want, and away you go," Morrison said.

He says if Balsillie does win the court case and gains ownership of the Coyotes, the case will continue in the court system as the NHL fights Balsillie for relocation rights.

"There's a million ways to go about it," Morrison said.

Becker said, "for the sake of argument", if Balsillie was eventually granted authority to move the team, as long as relocation was one that resulted in the most money for creditors, the owner could ignore the NHL's rules on territorial rights, "pack up the team and move it wherever he wants".

"And that's why the NHL is fighting tooth and nail against Moyes and Balsillie's plan," Becker said.

Does the Al Davis case mean it is impossible for the NHL to prevent the move of the Coyotes to Ontario?

Short answer? No. Not according to Richard McLaren, a law professor at the University of Western Ontario who teaches courses in both sport and bankruptcy cases.

"I think [the Davis ruling] doesn’t come into play," he said.

Some background: Al Davis is the current owner of the NFL’s Oakland Raiders. But they weren’t always in Oaktown. Davis wanted to move the team to Los Angeles in 1980, but the NFL blocked the move with a court injunction.

Davis filed an anti-trust lawsuit soon after, and in 1982 the court ruled in his favour. The Oakland Raiders became the L.A. Raiders despite the NFL’s complete objection to the move. Davis subsequently moved the Raiders back to Oakland in 1995.

A few people think the Davis ruling set a guideline for any future pro franchise movement that needed to be settled in court, but McLaren says that’s not true at all.

"[The Davis] case itself is an extremely unusual situation in the first place," he said, and not a precedent-setting ruling because of its unique circumstances.

And even if it was a precedent, the point is moot because the Coyotes case is being handled by the same level of court as the Raiders ruling, so the presiding judge wouldn’t be bound to follow the Davis guidelines anyway.

McLaren added that unusual circumstances surround the NHL-Moyes battle too.

"The big thing that's different here [with the Coyotes case], that's never happened before, is it’s in bankruptcy court," McLaren said.

"The courts have been generally respectful of private sporting organizations and their rules about how to move a franchise, agreement with the other owners, and so forth.

But in this sort of case the judge is looking for the best possible return on the bankrupt assets, said McLaren.

"The important point to make is that the whole reason you go into a restructuring is to get out of your contractual obligations," like, for example, the ones that allegedly had Moyes give control of the Coyotes over to the NHL, and others that keep the team in a weak market that won’t support it.

What are territorial rights?

Should Balsillie succeed in purchasing the Phoenix Coyotes for $212.5 million US and move the NHL team to southern Ontario, he would incur further costs, including those for territorial rights.

The league's constitution grants territorial rights to the 30 teams, stating "each member shall have exclusive territorial rights in the city in which it is located and within 50 miles [80 kilometres] of that city's corporate limits."

Teams exclusively control their "home territory," and can prevent hockey games from being played on their turf without consent.

In other words, if Balsillie were to move the Coyotes to Hamilton, he would be required to pay a fee determined by the NHL to the Toronto Maple Leafs and Buffalo Sabres, both of whom fall within the radius.

Years ago, clubs had an effective veto power over any move into their home territory, so teams infringing on their territorial rights would have to negotiate a fee to have a team waive its "home territory" exclusive rights.

But the NHL has since adopted a rule (Bylaw 36) that removed the ability of a team to veto a move, instead requiring a majority vote of the league's board of governors.

In 1982, once the Colorado Rockies relocated to New Jersey, the Devils had to pay the New York Rangers and New York Islanders, who fell within the 50-mile radius. They also compensated the Philadelphia Flyers, who fell outside the 50-mile radius, because of their proximity and the impact having another team in New Jersey would impact their market. The combined total was a reported $12.5 million.

"So there is now precedent for the NHL [to] say [to Balsillie] wherever you're going to put your new rink, if it's 52 miles out, it doesn't matter. … You still have to pay because you're still [inside] what we deem to be the territory," said Morrison.

The conventional wisdom is that Wayne Gretzky, seen in 2006 with Jerry Moyes, is unlikely to uproot to Ontario in the event the Coyotes can be moved. ((Khampha Bouaphanh/Associated Press) )

If Balsillie and Moyes win and transfer the Coyotes to Hamilton, what has to happen to get the team established in Hamilton?   

The fact that Balsillie is trying to buy and move an existing franchise, instead of expanding to Hamilton with a brand new team, means that it's a little easier to get things up and running.

The team already has a general manager, coach, players, and front office staff in place. Ideally, all that means is hauling the whole thing up to Hamilton.

However, theory sometimes doesn't match reality. For example, in February head coach Wayne Gretzky said he would not move away from Phoenix. In addition, Gretzky's children have all grown up in Southern California.

Hockey Night in Canada commentator Marc Crawford was the head coach of the Quebec Nordiques when they packed up and left for Colorado in 1996.

"We didn't bring a lot of our existing staff from Quebec City," he said. "We had to hire new equipment people and medical people, and that took some time. Then it was trying to get to know the area."

Even though the Nordiques (soon-to-be Avalanche) had all the players and hockey personnel in place, there was a surprising number of staff that still needed to be hired when the team arrived in Denver.

"When you go in new, and you don't have an infrastructure in place, there's so much [to do]," Crawford said.

"Often times [hiring doctors is] the huge thing, because the doctors are so important not only for your team, but also the [families and personnel]."

Local hires are crucial, Crawford said, because the players are moving into a new city they're unfamiliar with.

"Getting people who know the city, and can help your players to adapt right away, those are huge things," he said.

Another important thing to think about, Crawford said, is where the team will practise between games. Copps Coliseum may be able to handle an upgrade, but an NHL squad still needs a practice facility to tide it over when its arena is being used for other events.

Technically, the team could practise at one of the nearly 20 municipal rinks that dot the city, and even Copps when it's not being used, but those arrangements would still have to be made.

What does Copps Coliseum need to be NHL-ready? How long would it take?

In a pinch, Copps would need a $30 million facelift to be NHL-ready for the start of next season.

So says Duncan Gillespie, the chief administrative officer of the Hamilton Entertainment and Convention Facilities Inc, which operates Copps Coliseum.

"That's why this market, this city, this area is so attractive [for an NHL team]," Gillespie told the Hamilton Spectator a couple weeks ago.

"You are in the heart of hockeydom and your building is renovatable. Hamilton is the best option."

The list of costs Gillespie gave the Spectator look like this:

  • Replacement of some 7,500 seats — $1.5 million.
  • Installation of modern scoreboard — $4 million.
  • Power bands installed on upper concourse facing for ads/graphics — $1.5 million.
  • Interior/exterior painting — $1 million.
  • Concession upgrades — $200,000.
  • Installation of de-humidifiers — $1 million.
  • Addition of 20 private boxes, making the total 32 — $9 million.

It comes with a caveat, though: these renovations will give Copps the basics to house an NHL team, but if the city really wants to go the whole nine yards — a $150 million renovation would be needed for the long-term.

But Copps was actually designed by someone with an eye towards this kind of expansion. Gillespie said that when the arena was built back in 1985, it included structural plans that could place another 60 private boxes and a second concourse on the upper level.

It would bring the totals up to around 100 boxes and 20,000 seats in the stands. And all you’d need to do is raise the roof to accommodate the extra room.   "This is feasible," Gillespie said. "You would be left with one of the top 10 arenas in the NHL. People are not aware of the potential of the building. I don't think people are aware of it."

The big facelift wouldn’t take long either. If Hamilton got its team, Gillespie estimates that work could begin and end during a single offseason, meaning you could potentially see a brand-spanking new Copps (BlackBerry?) Coliseum by 2010.

Balsillie told Ron MacLean on May 9 that transferring a franchise to Hamilton would bring a great deal of economic activity to a depressed economy in Southern Ontario.  Is that the case?

Experts in the field aren’t so sure.

University of Chicago professor Alan Sanderson says "if you’re trying to create positive impact on you’re economy, you’re better off taking the money you would spend on a team and an arena and going up into a helicopter and throwing it out the window."

Lars Osberg is an economics professor at Dalhousie University that specializes in income and wealth distribution. He says that moving an NHL team to southern Ontario will only help business if the money comes from outside the area.

"If these fans are coming from a distance, it’s a net addition to the purchasing power in the GTA, but if it means people in Waterloo now watch a game in Hamilton instead of Toronto, all we’re doing is redirecting that money," Osberg says.

University of Toronto economics professor Dwayne Benjamin says expectations of increased spending are exaggerated, and money will just be redirected from businesses to the team.

"Consumers in Hamilton are now going to be spending their money on hockey tickets instead of everything else," Benjamin says. "It creates jobs within the business, but I don’t think it really adds to the size of the pie we’re working with." 

Historically, the owners benefit the most from relocating a team.  "The percentage of the cities population going to games are so marginal, that it’s tough to claim it benefits a local economy," Osberg says.

Osberg says that "stadiums are never a good value for taxpayers, they always get screwed by those kinds of things."

He says "If people want a hockey team in Hamilton that’s perfectly fine, but it’s hard to make a case that it’s great for the economy - just ask the people in Phoenix."