Judgment looming in Coyotes case

The decision resulting from the June 9 hearing in an Arizona bankruptcy court will go a long way in determining the future of the Phoenix Coyotes, and might set a precedent.

What might happen after June 9 hearing

Jim Balsillie is seen arriving at the Asper School of Business in Winnipeg last week. Balsillie has been upbeat since agreeing to purchase the Coyotes, but will he be smiling when Judge Redfield T. Baum issues his ruling? ((Joe Bryksa/Winnipeg Free Press/Canadian Press))


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The presiding judge in the case involving the sale of the NHL's Phoenix Coyotes has pushed up the date of a hearing on who owns the team and whether it can be moved to Canada.

The decision resulting from the June 9 hearing in an Arizona bankruptcy court will go a long way in determining the future of the club, and might set a precedent.

Here are some of the pertinent questions surrounding the case:

Who are the main parties?

Jim Balsillie is co-CEO of Research In Motion Ltd., maker of the popular BlackBerry mobile device. He has agreed to a price of $212.5 million US to buy the Coyotes, but wants to move them to Hamilton. He has skilfully played on the hockey passion of Canadians and even politicians with an orchestrated public relations campaign, but that may not matter in court.

It's the Canadian billionaire's third attempt at owning an NHL club. He previously tried to buy the Pittsburgh Penguins and the Nashville Predators.

NHL commissioner Gary Bettman says the league is in for the long haul in Phoenix and hockey can succeed in the desert. He recently pointed to Stanley Cup finalists Pittsburgh and Detroit, both of which encountered financial difficulties within the last 25 years but weren't abandoned by the league. However, both of those Rust Belt cities already had a long history with NHL hockey at the time of their struggles, unlike Phoenix.

The NHL has argued that the owner of the Coyotes gave up control of the team through a proxy signed last fall and, regardless, didn't have the authority to put the team into bankruptcy.

"This is about league rules, league processes, the right of any sports league to make the two most fundamental decisions … namely, who owns the franchises and where the franchises are located," Bettman told Hockey Night in Canada on June 2.

Jerry Moyes is a trucking magnate who describes himself as a reluctant owner of the Coyotes. His involvement with the team started with a small loan to previous owner Steve Elkman and now involves more than $300 million.

Moyes put the team into bankruptcy protection on May 5 and entered an agreement to sell to Balsillie. He has said he expects to lose two-thirds of that even if the sale to Balsillie is approved and contends that the proxy signed only relinquished voting rights at league meetings.

Judge Redfield T. Baum is the 60-year-old bankruptcy judge in Phoenix thrust into the spotlight of a possible landmark sports case. Even he was surprised by the degree his court was packed for a May 19 hearing. Baum has impressed all sides with his grasp of the issues and the complexity of the case, even though he has chided the lawyers involved for filing a mountain of court documents

The City of Glendale, just west of Phoenix, says it would suffer "irreparable harm" if the team were allowed to relocate, due to lost revenue, taxes and jobs related to the team and its spinoff economic impact. The Coyotes would be in for $500 million US if it broke the Arena lease, the city says.

Creditors of the Coyotes are numerous, including the NHL. Three investors — SOF Investments LP, White Tip Investments LLC and Donatello Investments LLC — through filings with the court, said they are open to Basillie's large bid in the absence of a strong local deal as it maximizes the value to all concerned parties.

Who owns the Coyotes?

This issue is inextricably linked with the relocation. Since the Coyotes are headed towards a sale, no matter which way you slice it, the judge said it makes sense to decide first whether the team can be moved, before deciding on ownership.

The NHL entry draft is taking place June 26-27 and Balsillie has threatened to withdraw his bid by the end of the month.

Baum said to Balsillie's representatives: "If you lose the relocation issue, then the urgency of doing this by June 24 seems to have gone away."

As well, the judge believes where the team can or can't be located could determine exactly who would bid for the franchise in a court-supervised auction.

Baum will listen to oral arguments June 9. Shortly after, that he’ll rule on who gets the honour of taking control of the money-losing team.

Can the Coyotes be moved?

This question is almost impossible to answer. The NHL says a team owner cannot unilaterally take a franchise and move it to another location. The NBA, NFL and Major League Baseball have lent their support to that stance, as it helps ensure their stability.

Given that these venerable organizations are all decades old and realistically without competitors, it could be argued that they are restraining trade.

Balsillie has been very upbeat about the progress of the proceedings so far, but Baum's comments on relocation on May 27 should temper his enthusiasm a bit.

"I’m not sure I have the power to do that, and if I do, I’m not sure I want to use it," said Baum. "If I do that, I’m rewriting the constitution of their league. I’m not sure that’s within the power of this court."

That said, a bankruptcy judge's primary duty is to the creditors, and the NHL may have to establish how it plans on fulfilling those obligations.

What happens if the judge says the NHL owns the Coyotes?

Ironically, Balsillie's strategy could ultimately benefit the NHL. The league had searched for months without success for a potential buyer, but just happened to be on the verge of finding one, it claimed, on the date of the bankruptcy filing.

Instead of the league trying to locate suitable partners to prop up a flagging team — a strategy that backfired spectacularly when  it was revealed that William Del Biaggio of the Nashville group defrauded investors — the process can be opened up to bidders, possibly bumping up the price tag of the franchise. The NHL has hinted it would hold an auction in late August or September.

Baum has been critical of the NHL's overlapping claims of being all of the following: owner, creditor and paternal figure for the good of pro hockey.

So even if the league wins the battle, it wouldn't be surprising if the judge had some choice words for the league pursuing a tack that doesn't maximize value to the creditors or its business partners.

Regardless of the outcome, Balsillie is determined to be involved in hockey, the sport he loves, as an owner.

"I'm hard-pressed to see a case where I won't carry on," Balsillie said in an interview with The Canadian Press news agency.

But at some point, being a hockey carpetbagger may catch up with him in the court of public opinion. He may have to out-wait Bettman's tenure as commissioner in pursuit of his goal.

What happens if Judge Baum says Moyes owns the Coyotes?

If Moyes is deemed to be in control, he can sell the Coyotes, valued by Forbes Magazine at $142 million US, in a court-supervised auction.

"Mr. Balsillie's committed to a fair, transparent process ... should Judge Baum allow the auction to proceed,'' said spokesman Bill Walker. "We're happy to see other bidders come forward.''

NHL deputy commissioner Bill Daly has already said the league would appeal if it loses at the bankruptcy court level. Appeals go to a bankruptcy appellate panel unless an application is made to have it heard by a U.S. district court judge.

Given that the case involves uncharted territory, however, it could be difficult to establish that any error of law occurred in the case.

If the Coyotes can be moved, what happens with territorial rights?

The NHL has a bylaw that states that any relocation needs approval by a majority of its governors, though its unclear how many would want to gird for a fight if Baum's ruling paves the way for the Coyotes to be moved.

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."

If Balsillie were to move the Coyotes to Hamilton, the club would be within that distance of both the Toronto Maple Leafs and Buffalo Sabres.

It's never been challenged in a court, although Canada's Competition Bureau said last year the league's relocation policy doesn't restrain competition, in part because the Sabres or Maple Leafs wouldn't be able to veto the move.

Long ago, the New Jersey Devils had to compensate the New York Rangers and New York Islanders, who fell within the radius. They also compensated the nearby Philadelphia Flyers.

Balsillie has vowed to play nice with his fellow owners.

"Obviously, the whole territorial issues have to be negotiated," said Walker.

Experts have maintained that territorial rights can actually be counterproductive to a league, since they might block what could be profitable teams near existing franchises and centres of interest, in favour of arbitrary geographical disparity.

Balsillie's team believes the inclusion of Hamilton would intensify interest in eastern Canadian clubs, as well as Buffalo.

Territorial rights won't suddenly disappear or become toothless, regardless of the outcome of the case, as Balsillie wouldn't be the first to relocate a pro sports team, although his unconventional way of going about it could result in changes.

An artist's rendering of the interior of Copps Coliseum after planned renovations if the Coyotes move to Hamilton. ((Canadian Press/CNW))

Is it possible to set up a relocated team for the 2009-10 season?

The NHL has maintained that any relocation bid must be made by Jan. 1 for the following season and that the schedule for the 2009-10 campaign has pretty much been set, with a club operating in Phoenix out of the Pacific Division.

Supporters of a Moyes sale to Balsillie maintain that the NHL is confusing "inconvenient" with "impossible" and have challenged the  league. They have requested the NHL produce all documents related to moves within the past 20 years involving the Carolina Hurricanes, Colorado Avalanche, Dallas Stars and the Phoenix Coyotes themselves, when they moved from Winnipeg.

While it can be argued that the running of the league is more complex than it was 14 years ago, the process of transferring the Quebec Nordiques to Colorado effectively ran from May to the first day of July.

It might be tough for the NHL to have any qualms about Hamilton's Copps Coliseum as a make-do facility, given that the Hurricanes played in the geographically unsuitable and half-empty Greensboro Coliseum for a couple of seasons before moving to their great facility in Raleigh, N.C.

The Balsillie side has made suggestions, however, that one more season in Arizona to better facilitate a transition is possible.

Where would a new team in Hamilton play?

Copps Coliseum, which opened in 1985, would be the home. Balsillie's team has said the ice quality, dressing rooms, media facilities and the scoreboard are among those things that would need immediate attention.

On May 29, Balsillie unveiled splashy plans to upgrade the facility to include luxury boxes, new lounges and restaurants, food and bar amenities throughout and a seating capacity surpassing 18,000.

The first of two issues is that the plan developed by BBB Architects was based on the last available construction costs estimates, from 2007, so the $150-million-US estimate for the overhaul is probably conservative.

The bigger issue is, who will foot the bill? Balsillie has said repeatedly in interviews he wouldn't ask for "a single dollar" from the government and he will provide for the short-term renovations to get the club going in the fall.

It's a bit of an illusory stance, given that in the next sentence Balsillie says he expects the city to own the building. So, unless the City of Hamilton is hiding a couple of hundred million dollars, the money has to come from somewhere.

Fred Eisenberger, the city's mayor, recently told the Hamilton Spectator he a envisaged a scenario in which all levels of government and Balsillie would share the cost.

Given the hardly discouraging words from the likes of Ontario Premier Dalton McGuinty and other public figures since the Balsillie-Moyes play came to light, it's hard to imagine an overhaul getting bogged down in details if the franchise can cross the border.

The real strength of the Balsillie bid may be that he has performed the tricky task of making opposition to public funding for a sports facility untenable for Canadian politicians.