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 on Tuesday. He could rule as early as Wednesday that the NHL can 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 for the sale, 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.
According to sportsnet.ca, the relocation fee should be the difference between what the Hamilton market is worth minus what the Phoenix market is worth.
Baum's feeling is that once the fee is established, Balsillie could decide it is too high, in which case he would likely pull his offer from the table and the potential relocation of the Coyotes to Hamilton would be a dead issue.
Balsillie's lead attorney, Susan Freeman, said in court that the NHL's fee could exceed $100 million, which would run the price tag on the Coyotes and a move to Hamilton to at least $312.5 million. Freeman called such a fee exorbitant and asked Baum if to force the NHL to reveal its fee to the court so the judge could then on its fairness.
Richard Rodier, Balsillie's lead advisor, told reporters after court was adjourned that the contract Balsillie has entered into with Moyes provides an out clause should any relocation fees be attached to the purchase.
NHL attorneys, led by Tony Clark, argued that the League's Board of Governors decides the relocation fee, but first must approve a relocation. The Board has not done so in this case and is not expected to.
However, Baum could rule in court Wednesday that he will force the NHL to announce its relocation fee regardless of a ruling from the Board. He believes expediency in the matter is essential because Balsillie has said he will pull his offer if a ruling on the sale of the franchise to him is not official by the end of the month.
The NHL doesn't believe Baum should rule in favor of Balsillie no matter the relocation fee because it contends that 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 Deputy Commissioner Bill 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 four prospective buyers that have already filed applications to purchase the Coyotes.
It was revealed in court that the League is willing to fund the Coyotes for the 2009-10 season, which impressed Baum.
Another caveat that Baum has to consider before ruling on Balsillie's bid is 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 the "home territory" of the Leafs. The home territory is 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 anti-trust laws.
"As I sit here right now, as long as they do it reasonably and not arbitrarily and not with spite toward Mr. Balsillie, I'm not so sure they don't have the right to (veto move), so long as it is fair," Baum told the courtroom, according to sportsnet.ca.
There are numerous issues to consider when considering relocation, including scheduling, television and the existing alignment of the divisions.
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, led by Clark, 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 backs that contention. It says the City of Glendale does not believe Moyes' debts are upwards of $220 million, which he alleges in court documents.
The city contends that Moyes can't 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 an offer to purchase the Coyotes other than the one that Balsillie has submitted. The NHL is still reviewing the background applications submitted by the four prospective buyers.
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 Balsillie's offer. Baum, though, said that is based purely on an assumption.
According to attorneys for the City of Glendale, where the Coyotes currently play, 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, NFL and NBA -- because none of the three want to see a precedent set under which franchises can simply file for bankruptcy and relocate without the consent of the league's constitutional laws.
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. Information from other news outlets were used in this report.
Contact Dan Rosen at email@example.com