• Countdown to Schadenfreude

    by Tyler Dellow • June 8, 2010 • Uncategorized • 11 Comments

    David Shoalts, March 11, 2010:

    Their plan – pipedream, the realists say – to buy the Phoenix Coyotes from the NHL is reminiscent of another audacious play hatched over a few drinks after a beer-league hockey game. Bruce Firestone and his pals did land the Ottawa Senators expansion franchise with no real money, but they crashed and burned.

    At this point, it looks as if Anthony LeBlanc, Daryl Jones and the rest of the Ice Edge group will not even get off the runway. Too many problems are coming up, almost all of them because no one in the group appears to have the substantial personal fortune needed to convince a banker or bankers to lend Ice Edge enough money to pull it off.

    - The Ice Edge principals will not discuss their finances in detail, but a banking source says they have only a relatively small amount to put into the proposed deal. As a result, bankers are not queuing up to lend money.

    Darryl Jones, front man of the Ice Edge operation since joining Twitter on April 10, 2010:

    Shoalts is just sad.

    At least for my Man U joke, Shoalts had a source. The big boy is now just grasping at straws. Sad day for the globe and mail.

    Ice Edge has just nominated Shoalts for the Pulitzer Prize … In Fiction. Another non-fact based fantasy article by the big boy today.

    Ice Edge congratulates Don Maloney on GM of the Year. A no brainer that even Shoalts could have picked.

    Darryl Jones, May 14, 2010:

    “You have guys like Dave Shoalts from the Globe and Mail who write a lot of inaccuracies in their articles and don’t have real sources…I think the number one inaccuracy is that he has any real understanding of whether we have any financing…His story changes every article he writes – he doesn’t have any legitimate sources…We feel pretty comfortable that there are a number of major banks willing to finance our deal.”

    Darryl Jones, June 8, 2010:

    Daryl Jones, CEO of Ice Edge Holdings, the lone group in discussions with the City of Glendale to buy and keep the Phoenix Coyotes at Jobing.com Arena, is not sure his team will be able to put together a financing package to purchase the team.

    “It’s hard to gauge the probability of this deal closing,” said Jones.

    “Realistically, there has been a great deal of financial turmoil in the world over the last 45 days, sovereign-debt issues and stock market corrections, which are going to make it harder for us, or any group, to close this transaction. That being said, we do remain optimistic.”

    Ah, my favourite scene from Goodfellas. When Paulie sends the boys out to collect a debt and the debtors explain that they have no money becaus of the Greek financial crisis. This is beyond funny, particularly when you noice that, like 25 days ago, he was saying things like “We feel pretty comfortable that there are a number of major banks willing to finance our deal.” There was more in the paper about just how tenuous the financing might be and the additional hurdles that Ice Edge would have to clear:

    …But at some point, the purchaser must negotiate with the NHL and attempt to buy the team from the league.

    “The proof of finance at this stage is just what they call a terms sheet and it’s highly contingent,” said a source close to the deal, meaning any agreement with a financial institution at this early stage is not binding.

    “Even if (Ice Edge) can provide proof of financing right now, there’s no guarantee it will still be in place when this deal gets near closing. (Ice Edge) will likely get an extension and work on this deal for the next 60 days and then who knows what will happen. The City of Glendale wants to work with (Ice Edge) because (Ice Edge) has the best terms where the city is concerned. So the city will take (Ice Edge) to the 11th hour.”

    While Glendale likely has some form of due diligence Ice Edge must undergo, it will pale in comparison to the financial exam the NHL will put the group through.

    The legendary NHL financial exam. Shoalts has a story in the paper today on Len Barrie, who recently passed that exam.

    It looks to me like Shoalts is going to come out looking pretty good in this whole thing. I’ve thought a lot of the barbs he’s tossed at Shoalts have been unfair, when Shoalts has been basically breaking the stories on what a disaster Phoenix is from day one. I haven’t been impressed by Darryl Jones in the slightest. It’s nothing more than a sense from listening to Jones, but he doesn’t come off as the front man of a group that actually has its financial ducks in a row. Serious people just don’t generally seem to behave this way.

    Jones made a comment somewhere or other about how his legal team included a former Attorney-General of Arizona which just struck me as an unusual thing to be talking about to show what a big deal you are, unless you’re too dumb or naive to realize that having served as AG is not a form of certification as “BEST LAWYER IN ARIZONA.” I’m sure that Attorneys-General are like Queen’s Counsel in Ontario; some of them are excellent lawyers, some of them aren’t.

    Do mouthy guys with mysterious or ill-defined fortunes ever end up working out well as NHL owners? In addition to the aforementioned Barrie, I’m reminded of Michael Largue and Lester Bittendorf – Bittendorf didn’t exist but Largue sure talked a lot. That didn’t end well. Same deal with John Spano. The Senators went bankrupt after guys with no discernible fortune bought them with a credit card. Can anyone offer an example of a case where guys who didn’t have an obvious and well-documented source of buckets of money ended up working out as NHL owners? I genuinely can’t think of any.

    I’m in no way saying that Jones et al. have or would do anything criminal, only that people who actually have millions to spend on an NHL team generally seem to behave in a certain way and Jones doesn’t really seem to fit the mold. He doesn’t come off as particularly sophisticated and I’ve never seen an owner (or potential owner) go after a media member this way. The whole thing doesn’t smell right. It has to have been a bit uncomfortable for Shoalts, who’s basically in a position where he can’t fire back at the guy.

    Now that Jones is hedging a bit on whether the money will actually be there…well, if they’re unable to come up with the money and I’m David Shoalts, I’d be awfully tempted to revel in the failure of a guy who’s basically done nothing but call me a fat liar for the past few months. If I was his editor and my paper had been catching some of the crossfire, I’d be inclined to think he’s taken enough abuse that he’s earned a few gratuitous potshots at Jones & Co. as well.

    So if Ice Edge falls through, what happens from there? Well, my bet is that Reinsdorf comes back. I would be pretty certain that he’s got the City’s position figured out right to the absolute last dollar and I can’t believe he’d have spent as much time as he has if he didn’t think that there was a deal there that worked for both of them. I’ll be interested to see if anything gets done before the season starts though. Seems to me, with Glendale’s guarantee in place, the entity that’s desperate to make a deal is Glendale, not Reinsdorf – the NHL can actually afford to spend a pile of money on rebuilding the Coyotes’ brand in the Arizona next season. If you’re Reinsdorf, wouldn’t you rather get the team after that’s taken place?

    About Tyler Dellow

    11 Responses to Countdown to Schadenfreude

    1. tazemazey
      June 8, 2010 at

      “Can anyone offer an example of a case where guys who didn’t have an obvious and well-documented source of buckets of money ended up working out as NHL owners?”

      Might not be the example you’re looking for, but how about the Edmonton Investors Group? None of the owners was fabulously wealthy, and while they ran the team on a shoestring, they certainly didn’t run it into the ground or make it a laughingstock like the Lightning were the last couple years.

    2. Tyler Dellow
      June 8, 2010 at

      All of the guys involved in the EIG were pretty well known in Edmonton and had obvious business interests where you wouldn’t be surprised that they could come up with capital contributions ranging from $1MM to $5MM IIRC.

    3. mclea
      June 8, 2010 at

      Who is going to give these guys financing? The franchise is, at most, worth $40-50MM. Probably not even worth that unless you get an opportunity to absolute exploit the city of Glendale. These bankers are being asked to participate in a deal where the NHL has an asking price of three times that. It’s crazy.

      Unless a deal is arranged where Glendale is guaranteeing the loan, putting up the arena as collateral, and paying the loan down itself, I don’t see how this gets done. The team doesn’t generate any operating income. Ice Edge can only act as a sort of front men in a transaction where Glendale effectively buys the team and takes on the risk of its ownership.

      If somebody ends up paying $160MM for this team, someone really has to be taking it in the chin. And since Ice Edge has no money and no bankers willing to give it to them, it is without question going to be the city of Glendale.

    4. Tyler Dellow
      June 8, 2010 at

      mclea – I don’t do any transactional stuff. What’s the purpose of an MOU? Seems to me to just be an agreement to agree, unless you decide not to. What’s the point? Does it formulate the basis on which people are willing to extend financing?

    5. Pete.
      June 9, 2010 at

      I was reading down, thinking about Michael Largue, and – oh, hey, there he is.

      These guys remind me of those consortiums of 20-somethings in BMWs and expensive, shiny suits who open “the city’s premier nightspot” amid much fanfare and brash public self-congratulation. Six months later, the place closes down without any notice, because what profits there were all went up somebody’s nose, and the whole thing was built on sand in the first place.

      You’ve got a good eye for bullshit. I salute you.

    6. mclea
      June 9, 2010 at

      I don’t know what purpose the MOUs serve other than to provide Ice Edge with some comfort that they are not totally wasting their time and money with these negotiations. When you’re structuring a deal where the availability of financing is dependent almost entirely upon the city getting fleeced, it’s probably a good idea to have Glendale formally acknowledge that this is the case for the purpose of moving the negotiations forward.

      At some point we’re going to have to see a term sheet which will outline the financing and its terms, at which point we’ll have a good idea of how this will play out.

    7. Tach
      June 9, 2010 at

      Tyler’s last quote from the paper’s “source close to the deal” says they have a term sheet. Mclea feel free to disagree, but in any bank deals I have seen the if you have a signed term sheet you have a deal. The fact that it is described as “highly contingent” is also unsurprising as most term sheets have pages and pages of conditions before the Bank will advance. The question is whether those conditions are what I would consider ordinary course conditions (security delivery, maybe postponements, maybe signed purchase and sale for the team) or qualifying conditions (demonstrating revenue or debt equity ratios) that might be more difficult. Real rubber might hit the road if the bank is looking for guarantees and proof of assets from the guarantors to show they are good for it.

    8. June 9, 2010 at

      Thanks for the article Tyler. It sure does seem like these guys don’t have much cash. They’ve been a better theoretical deal than Reinsdorf for a long, long time and yet the city didn’t seem to want them. There’s got to be a reason for that and if it’s not cash on hand, I’d be very surprised.

    9. Smytty777
      June 11, 2010 at

      I would agree with Tach that a signed term sheet on a bank deal generally means they have reached a consensus on basic terms of the financing, but does not necessarily mean that they will be able to get the funds.

      The term sheets I have seen vary from a one or two page letter with only the bare bones of the deal, to something that essentially contains all material terms of the financing arrangement. Either way they would need to meet all conditions precedent to funding to get any money.

      I would be interested to see what they are actually getting as security here, I don’t think the team owns the stadium so a mortgage may not be an option. Are they financing accounts receivable? What type of security would these guys have available to put up for a bank financing?

    10. DSF
      June 12, 2010 at

      Ice Edge now saying they have 50% cash.

      Another thing to consider is Ice Edge is reportedly paying $160 million for the team plus an estimated $25 million to cover the operating losses for last season or $185 million.

      Vinnik purchased the Tampa Bay Lightning for a reported $110 million including 5 acres of prime real estate next to the arena.

      You would have to think the Lightning franchise has more value than Phoenix. Forbes has Phoenix valued last in the league at $142 million.

      Does paying a huge premium to purchase a struggling asset make sense to anyone else?

    11. nightfly
      June 14, 2010 at

      Funny, while I was reading all I saw after a while was “John Spano John Spano John Spano John Spano o god not another John Spano we learned our lesson John Spano go away John Spano.”

      Not that the league hasn’t had mouthy guys with at least a little spare dough, but those guys all sell out in the end too.

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