The reasons for Judge Baum’s rejection of Jim Balsillie’s offer to buy the Phoenix Coyotes is available online. Looking at some of the early stories, it seems to me that the story in Canada is probably going to be that the Coyotes will not be playing in Hamilton next year. That looks to be true. There are a lot of interesting pieces in the decision though. Like this, on the NHL’s right to approve Balsillie as an owner:
“Significant to the court here regarding the objection to the transfer of the ownership to the Phoenix Coyotes is the fact that in 2006 the NHL approved PSE to become a member of the NHL. The court has the firm sense that if the only issue here was PSE purchasing the Phoenix Coyotes [no relocation term] there would be no objection from the NHL. The law implies in every contract a convenant of good faith and fair dealing. Even where one party retains, by virtue of the contract, a right of approval or disapproval or a discretionary power over the right of the other, such parameters must be exercised within the parameters of good faith.”
PSE is Balsillie’s corporate alter-ego here. Reading between the lines, that reads to me like a pretty strong statement that the judge wouldn’t be convinced by any arguments that the NHL doesn’t like Balsillie as an owner, if a dispute ended up in front of him about it.
Interestingly, the judge also strongly indicated that he doesn’t really buy that team movement wreaks havoc on sports leagues. Given that that wasn’t really necessary to his decision - he explicitly refused to address a number of other issues that were obiter - I would take that, in conjunction with his comments about fair dealing, that if he’s required down the road to consider the question of whether the NHL is acting reasonably in refusing permission for the team to be moved, they’d be wise not to rest their argument on that point.
It’s not at all clear to me what happens from here. The key question, I think, is whether a bankruptcy process goes on or if the team is now out of bankruptcy and someone else - the NHL, I would assume, given that they have proxies giving them control of the team - controls the process. I’m reasonably certain that it’s still a bankruptcy process - as I understand things, the NHL agreed that the team should be dealt with there a while back. Bill Daly has released a statement saying:
“We’re pleased the Court recognized the validity of League rules and our ability to apply them in a reasonable fashion. 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. 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.”
I don’t see the decision as such a ringing success as Daly does, given that the judge has basically said that Balsillie can’t be held out as an owner. If they can’t hold him out and the judge won’t let the NHL stick Balsillie with a term requiring a seven year commitment to Phoenix, I don’t see that they necessarily gained much by beating Balsillie back.
Looking over things quickly, I’m not sure what Daly takes from the decision as providing for an “…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.” I’m with him that there will be an orderly sales process and that the judge didn’t like the timeline on Balsillie’s offer. Everything after that, I think, requires taking a pretty rose coloured view of the world.
The reference to legitimate creditors is interesting. If I was guessing what the next step for the NHL will be (assuming that this is done in the context of a bankruptcy), I’d guess that they’re going to try and convince the judge that the debt owed to Moyes is bogus and that an offer satisfying the other creditors and not resulting in the lease being broken (or broken anymore than Glendale will offer to whoever the NHL comes up with) is the preferable approach.
From Balsillie’s side:
“The court did not approve either our approach or the NHL’s. Judge Baum did state he does not have time to decide all the relocation issues. But the court still controls the sale process. As a result, we look forward to hearing from the NHL soon on its view of our relocation application and an appropriate relocation fee, so as to allow the court to determine if that fee is reasonable. We still think there is enough time for the NHL to approve Mr. Balsillie’s application and move the team to Hamilton by September. The court invited mediation on these issues and Mr. Balsillie is willing to participate in such mediation if the NHL is also willing to do so.”
“I am willing to write you a large cheque to play hockey in Hamilton.”
What happens next? I’ve had about thirty minutes to consider this, and I would predict the following:
1. Balsillie will be approved for the purposes of bidding for ownership of the team;
2. The NHL will reject his relocation application;
3. The NHL is going to come up with someone who will pay enough to satisfy all of the creditors except Moyes, possibly because Glendale is going to offer various subsidies/breaks on the lease; and
4. The NHL is going to try to convince the judge that Moyes isn’t really a creditor.
All of this, of course, comes with the caveat that bankruptcy isn’t my field and I’m not an American lawyer. If you’re planning a hostile takeover of an NHL team, you should consult counsel who are qualified in the appropriate areas.
I’m almost sad to see this thing coming to a close because the coverage that you and some other writers have provided has been extremely insightful and interesting.
I agree with almost all your assessments here but I have one question? How do you think the NHL will go about convincing the judge that Moyes is not a real creditor?
It’s going to be interesting to see the details on the offers that the NHL has been hinting at and to see the monetary differences between those offers and Balsillie’s.
I feel like Judge Baum really punted on this one.
I’m not sure how the judge can say on one hand that relocation of a team isn’t going to hurt the NHL and on the other hand there has to be good faith bargaining. Good faith bargaining implies highest bidder wins - especially from the point of view of Moyes. Does his reasoning stem from the NHL’s constitution or am I understanding this incorrectly?
@Kyle
How do you see the good faith bargaining as being contradictory towards the idea that relocation of a team won’t hurt the NHL. On the relocation end of things, the judge thinks that relocating a franchise is not going to significantly harm the league. The NHL’s position is that relocating is going to cause the end of sports as we know it because it will stomp all over their power to control teams within the league, the judge thinks thats a lot of bunk. The implication of good faith = high bidder should have nothing to do with this, and in fact is more justifiable with the judge’s views towards relocation. The high bidder gets the franchise, and because relocation isn’t a big deal, if the bidder wants to move the team that he’s buying, that’s just fine and dandy.
Maybe I’m missing something here, but that’s what I’m coming up with, to answer your question.
How do you think the NHL will go about convincing the judge that Moyes is not a real creditor?
I would imagine that this argument would mostly be based on the idea that because Moyes is the owner, he is responsible for operating losses in his business, especially when said losses may in large part stem from mismanagement of the asset on the part of the owner. Basically, if you run a business into the ground, noone owes you the money you lost, its your own personal loss. The NHL will likely try to make the same argument for Moyes here.
While that argument would have some validity, depending exactly what money Moyes is trying to claim, it may not matter. If Moyes was also serving as a lender to the Coyotes through his other businesses, that might make some difference in terms of what money Moyes has lost to poor management on his part, and what money was a loan made to a company in good faith. Especially if the NHL were working to convince him that it was in good faith and would all be returned upon sale of the franchise or some such, that could definitely be some money owed to Moyes. I don’t know the specifics of what Moyes is trying to claim to know exactly which is the case here.
“How do you see the good faith bargaining as being contradictory towards the idea that relocation of a team won’t hurt the NHL. On the relocation end of things, the judge thinks that relocating a franchise is not going to significantly harm the league.”
Exactly my point. Relocation isn’t an issue, Balsille has the highest bid. So what’s the problem?
One of the aspects of the decision I found interesting was the discussion of the “bona fide dispute” and the Court’s statement that the “NHL has never made any decision about the relocation of the Phoenix Coyotes to any site, be it Ontario, Canada or anywhere else, i.e., the NHL has not yet applied its relocation requirements to this request.” While that may technically be true, the NHL’s acceptance of PSE’s (or rather, what became PSE) offer to buy the Penguins as being only conditional on them never moving the franchise (or whatever the conditions were that resulted in them withdrawing their offer), combined with the NHL’s public statements on Ontario and relocation, seem to indicate where they stand on the issue, i.e., how the relocation application would be handled. I think the Court somewhat unfairly skirted the issue in saying that more is needed to establish the bona fide dispute and was likely just trying to find a way out of ordering an insanely expedited auction/relocation resolution timeline that Moyes and PSE had forced upon it. It also seems to have been a monumental error to have waited until so late to file the relocation application, though I’m not particularly sure why that’s so significant.
Tyler, what do you think of the media’s spin of this whole thing? It is very interesting to see how the media reports on these events, it is readily apparent that at least half of the reporters haven’t bothered to read or even look at the decision itself and are basing their opinions on quotes from the NHL and Basillie’s camp (neither of which accurately reflect the decision).
I don’t know that this is a slam dunk win for the NHL, it doesn’t seem to suggest that Basillie can not move the franchise, just that the move cannot be accomplished within the timeframe indicated.
The NHL still needs to produce a legitimate buyer and if Glendale will not agree to concessions that seems like an uphill battle. This is far from being resolved.
I also thought the part about the relocation timeline taking place during the Stanley Cup playoffs, what the “court assumes [ ] is one of the more important time periods of the year for the NHL and its members” is basically absurd. Notwithstanding the fact that the Stanley Cup playoffs were over before the decision was filed and well before the auction would have occurred, and that all but two of the league’s members have been doing little more than twiddling their thumbs for weeks now, I’m not sure what relevance the importance of the time period would or should have anyway. It’s probably much easier for the league and its members to deal with all this now rather then when, you know, they’re engaged in the bulk of their business, producing and selling hoceky. The better argument would seem to be that PSE and Moyes left everyone with little to almost no time to figure out enormously complicated issues like holding an auction, ruling on relocation, and altering the schedule if necessary (I consider it akin to the Russian Hockey Federation inquiring with Hockey Canada about holding a senior team Super Series only a few months before when the games would have to be played. Balsillie/Rodier = crazy Russians). I think that’s a valid reason for scrapping the auction and relocation decision. But don’t tell me it’s because Gary Bettman had to leave court a bit early to be photographed watching a hockey game.
You may not be a lawyer but your predictions are very likely to happen. I, for one, am sure on that!!