U.S. Bankruptcy Court Judge Redfield T. Baum did not make a decision on the sale and relocation of the Phoenix Coyotes to Canadian billionaire Jim Balsillie in bankruptcy court Tuesday. He could rule as early as Wednesday that the NHL set a franchise relocation fee that must be paid by Balsillie before he moves the team to Hamilton, Ont.
Despite arguments from Balsillie's attorneys that no relocation fee is required, Baum said the NHL indeed has the right to charge a relocation fee. He needs to know what that fee will be before he rules on whether Balsillie's offer buy the insolvent Coyotes from Jerry Moyes out of Chapter 11 bankruptcy for $212.5 million is viable.
Baum feels that once the fee is established, Balsillie could decide it is too high -- in which case he would likely pull his bid and the potential relocation of the Coyotes to Hamilton would be a dead issue.
Baum is also looking for an expedited decision in this process because Balsillie has threatened to pull his bid if it is not approved by the end of the month.
Balsillie's attorney, Susan Freeman, said in court that the NHL's fee could exceed $100 million, which would run the price tag for the Coyotes and the franchise's move to Hamilton to at least $312.5 million. Freeman called such a fee exorbitant and asked Baum to force the NHL to reveal its fee to the court so the judge could then rule on its fairness.
Baum hinted that he may rule in favor of a motion to relocate the club in order to get the NHL to move quickly on establishing a relocation fee. NHL Deputy Commissioner Bill Daly would not confirm the $100 million figure Freeman claimed, saying, "We haven't even begun that process, and I couldn't even speculate."
The League's attorneys, led by Tony Clark, argued that in relocation cases the Board of Governors sets the fee after it approves relocation. The Board has not approved relocation of the Coyotes to Hamilton, which is why the NHL is not prepared to issue a number yet.
"That's something that is generally determined by the Board of Governors in the context of a relocation application," Daly said. "And from our perspective, we have a couple of steps before we get to a relocation application."
Richard Rodier, Balsillie's lead adviser, told reporters that the contract Balsillie has entered in his bid to purchase the team from Jerry Moyes and relocate it provides an out clause should any relocation fees be attached.
The NHL doesn't believe Baum should rule in favor of Balsillie no matter the relocation fee because it attests Moyes relinquished ownership control in previously executed documentation and that only the League can approve the sale and relocation of franchises. The NHL does not believe that Moyes had the right to file for bankruptcy.
NHL Commissioner Gary Bettman, who was present in the courtroom along with Daly, has said the Phoenix situation is fixable by following League rules and regulations. Bettman has said in a declaration filed in U.S. Bankruptcy Court that there are four potential buyers for the Coyotes that would keep the insolvent team in Arizona.
The interested parties include Jerry Reinsdorf, owner of baseball's Chicago White Sox and the NBA's Chicago Bulls; Howard Sokolowski and David Cynamon, co-owners of the Toronto Argonauts of the Canadian Football League; and Las Vegas-based businessman John Breslow, who owns 3 percent of the Coyotes.
The fourth prospective buyer requested anonymity while further investigating the possible purchase.
The NHL would like the team to go up for auction in September to owners who plan to keep it in Arizona, such as the prospective buyers who have already filed applications to purchase the Coyotes.
"We're very confident we can find a buyer who wants to keep this team in Phoenix," Daly said. "We've had conversations with people who want to do that and are willing to bid a sufficient amount to cover creditors, and so we're very confident in our ability to sell the team in Phoenix."
Baum also has to consider Section 4.3 of the NHL Constitution, which essentially says the Toronto Maple Leafs would have to consent to a franchise in Hamilton because it is 40 miles away and technically within their "home territory" -- defined as within an area of 50 miles.
Moyes' attorneys, led by Tom Salerno, argued that Section 4.3 violates antitrust laws. Baum responded by saying a jury must rule if it is in violation of the antitrust laws -- and that the existence of such rules in the constitution does not violate antitrust laws.
"I think we felt that was the state of the law and we felt that was pretty well established, so I guess I'm not surprised by it," Daly said. "It's an important ruling from that perspective -- to the extent he made a ruling. As he said, he doesn't like to make rulings from the bench. But it’s an important principle for sports leagues."
There are numerous issues to consider when you're talking about relocation, including scheduling, television and the existing divisional alignment.
Baum said his concern is that no other offer will come close to the $212.5 million that Balsillie has on the table and that would mean less money going into the pockets of the creditors who are currently losing money on the Coyotes.
However, the NHL's counsel said Balsillie's offer is far less than $212.5 million and more like $165 million. Coyotes coach and Managing Partner Wayne Gretzky is owed $22.5 million and the League is owed $25 million -- the amount it gave to Moyes to keep the team operating throughout the 2008-09 season.
The NHL believes a sale in the amount of roughly $150 million would both cover the creditors and keep the team in Phoenix.
A report in the Globe and Mail bolsters that contention, saying the city of Glendale does not believe Moyes' debts are upwards of $220 million, which he alleges in court documents.
Moyes, the city contends, can not be considered a creditor because he received an ownership interest in return for $104 million in loans he made to the club. Removing his debt lowers the amount the creditors are owed to $138 million, the newspaper reports.
However, Baum has not seen any other offer to purchase the Coyotes other than Balsille's.
Attorneys for the Coyotes' creditors argued that Balsillie's offer would provide well over 100 percent return on investment, which is why they urged Baum to make a quick decision on it. Baum, though, said that is based purely on an assumption.
Attorneys for Glendale, where the Coyotes currently play, argued that if Balsillie's bid is approved and he moves the team to Hamilton, it would be a breach in the current lease contract and the city could face damages of $565 million.
The Coyotes entered into a 30-year lease with the city for the right to play at Jobing.com Arena in 2003-04 -- and the city argues that it has the legal right to the team until the lease is up. The city kicked in $183 million to help build Jobing.com Arena.
The NHL also has the backing of the other three major pro sports leagues in North America -- Major League Baseball, the NFL and the NBA -- because none of the above want to see a precedent set whereby franchises can simply file for bankruptcy and relocate without consent of the league's members.
A representative from the MLB, NFL and NBA argued that point to Baum on Tuesday, suggesting it's something he should consider before making his ruling. The NFL, NBA and MLB all filed a joint brief in support of the NHL prior to Tuesday's hearing.
"The relocation and the ownership transfer issues are some of the most fundamental issues we have in our League," Daly said. "So the ability to control who owns our franchises, and where they play their games, you can't get more important."
Information from other news outlets were used in this report.
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