Deposition of a Fan

An independent look at the Coyotes’ 2009 proceedings

Swirls of improprieties and brazen adversarial posturing surround the landmark Phoenix Coyotes’ unkempt bankruptcy, auction, and transfer.  A ground-breaking event between the controlling partner of the world’s fastest growing company, Commissioner Gary Bettman overwhelmingly supported by the National Hockey League Board of Governors (and a team of lawyers), separate interested ownership parties, the concerned community of Glendale, a vast group of debtors, and the insolvent group, Coyotes Hockey, LLC¹.  Many factors have brought this particular case to the attention of not just those in the hockey world, but those within the financial, judicial, and general sporting communities have been occupied with the inquisitions and findings.  The case truly spans the breadth of society.

This remarkable drama began unfolding when the ardent global National Hockey League fan base, a prying media, and a community were captivated by this wholly unique circumstance.  Guarded matters were open for all those fanatical and patient enough to gaze upon them with their own eyes.  The everyday public is rarely privy in matters reserved solely for executive meetings, court, and private luncheons. 

Majority owner Jerry Moyes filed for Chapter 11 Bankruptcy on 5 May 2009, just moments before the NHL planned to broker a deal which would have sold the team to the League’s preferred buyer.  Moyes claims to have sunk $310M as majority owner into the club.  Reports set the franchises losses at $73M over the past three years alone and the club has never made a profit in the desert.

PSE Sports and Entertainment and Co-CEO of Research In Motion Jim Balsillie retains the highest bid in order to secure the rights to the team, on the condition of relocating to Ontario.  In collaboration with BBB Architects and its subsidiary group (Stadium Consultants International, currently under contract to renovate Madison Square Garden and Nassau Coliseum), Balsillie has submitted plans and renderings² to renovate the long standing Copps Coliseum in Hamilton.  Balsillie has since set a 14 September 2009 deadline to accept his bid of $212.5M US Dollars.

Sporting mogul Jerry Reinsdorf had tendered an offer to buy the club, but pulled out on 25 August 2009 after receiving an endorsement from the NHL, which put in an offer at $140M the same day, that still remains.  After removing the bid, Reinsdorf stated that Moyes was “an unwilling seller” who “created an expensive litigious environment that has had the effect of chilling the negotiations with the city.”

Ice Edge Holdings, Inc. also has a bid on the table, with plans to play ‘home’ games in Saskatchewan, for $150M.  Interestingly, minority club owner, Coyotes’ head coach, and Canadian icon Wayne Gretzky backed the Ice Edge bid.  “We will build on the team's brand, the Wayne Gretzky brand and a partnership with the city of Glendale to ensure that Arizona continues to enjoy the NHL for many years to come,” said Ice Edge CEO Anthony Leblanc.

Of course the NHL Constitution, forced to be made public by the courts, gives specifics on the duties and rights of the Commissioner and the League during transfer of ownership circumstances.  Judge Redfield T. Baum will decide if the Constitution and Bylaws³ apply in these circumstances.  The Constitution states that no club can be moved into a radius of 50 miles to another operating team without paying a fee and obtaining rights, among other points of contention.  This is the case in a few instances most notably the New Jersey Devils move across the Hudson River in the 1980s to Manhattan, home of the New York Rangers.  As will be interesting later in the article, the Constitution states on page 1 under Section 2.2 that, “The League shall be operated not for profit.”

Evidence of a poorly run franchise prior strongly exists.  The league allowed the franchise to relocate to Arizona in 1996, after mounting financial pressures coerced the Jets from Winnipeg, Manitoba, to reorganize as the Coyotes.  Poor attendance figures, a long list of both arena liabilities and team liabilities, and a scarce marketing and public relations plans left the club with much to aspire to.  

The list of liabilities is long and rather embarrassing for both the Coyotes and for the NHL⁴.  Among some of the rather larger sums the club owes money to such as: ACUL Credit Unions for Kids ($92.00), The Boy Scouts of America ($130.00), Imagine Schools at East Mesa ($68.00), My Team Cares, LLC ($5,000.00), Special Olympics Arizona ($238.00), Make Parties Happen ($2,047.03), Medical Emergency Devices and SV ($522.85), and St. Mary’s Food Bank Alliance ($4,000.00).  Curiously, the NHL is on the list multiple times, most notably claiming to recoup losses of $1,321,539.00 for shortfalls in the 2005-06 Stanley Cup Playoffs.  A separate claim for $210, 835.70, with no designation is also outstanding.

The NHL wishes to establish four key points in the upcoming hearings.  First, the League officially had control of the club when Moyes filed for Chapter 11 Bankruptcy.  Second, that allowing teams to circumvent League Rules and relocate franchises would ‘wreak havoc’ on professional sports leagues.  The three other major sporting leagues (MLB, NBA, NFL) have issued an ‘amici curiae’ brief in support of the NHL.  Third, Mr. Balsillie’s credibility is in question and the ruling the Board of Governors gave, dispensing with Balsillie’s bid by a vote of 26-0, should stand.  The NHL itself has a team of 42 lawyers, not named Bettman or Deputy William Daly, assigned to the proceedings, including local lawyers operating out of Arizona and members of its legal team from the NHL Head Office in New York. 

Balsillie has made arguments that the NHL violates anti-trust laws in keeping him apart from the auction for the team by denying him membership as an owner.  Balsillie’s key argument is that the NHL had previously granted him membership when he applied to become the owner of the then struggling Pittsburgh Penguins and afterwards the Nashville Predators. 

Depositions are set to be made by key figures in the case as requested by opposing parties.  Bettman, Daly, Balsillie, Moyes, Moyes’ attorney Earl Scudder, Coyotes’ President and CEO Doug Moss, Minnesota Wild owner Craig Leipold, and Boston Bruins’ owner Jeremy Jacobs are all scheduled to give account on the case.  It should be noted that Leipold’s statements will be of particular interest, as he was majority owner of the Predators before selling to a now defunct group, and garners a distrust of Balsillie from his attempt to buy the Nashville franchise in 2006.

The ruling is not simple.  The fortunes of an entire city are affected and Judge Baum’s greatest concern is the debtors.  Judge Baum ruled on 15 July 2009 that the Motion⁵ seeking authority to sell the Coyotes franchise and to allow the buyer to move the club to Hamilton, Ontario without the consent of the NHL was denied.  While the ruling appears damning, Judge Baum also made the statement that “the Motion presents novel and unique issues to the bankruptcy court” and “No cases have been found that precisely or even closely fit this scenario.”  Further on, his Honour gave this account, “Here it appears that the proposed sale to PSE (Balsillie’s bid) might, and very conceivably would, provide a significant payment to the general creditors.

While liberation of the team in varying degrees is a certainty, the long term effects of the proceedings will not soon be fully accounted; the precedent that may be determined in part tomorrow would ultimately shake the sporting world.  A carefully calculated decision by the presiding Judge Baum is necessary and expected.  The hearing does not simply defend or abandon Balsillie’s bid.  The ruling could forever change the landscape, desert or not, in which pro sports are conducted.

1 September 2009

Robin Keith Thompson

Notes and related documents:

¹ also known as Dewey Ranch Hockey, LLC

² story concerning renovations / pictures concerning renovations

³ League Bylaws Part One, League Bylaws Part Two, Exhibits 1-2 and the NHL Constitution

⁴ liabilities and debt list

⁵ Judge Baum's statement

⁶  full notes of author