14 key issues heading into the Coyotes auction

by James Mirtle on Aug 17, 2009 8:42 AM CDT Comment 49 comments

We haven't seen all that many executive summaries among the court documents in the Coyotes case to this point, but on Friday, the minutes from last week's scheduling hearing were posted and they offer us an itemized list of the 14 "scheduling issues" for the court to tackle prior to the Sept. 10 auction.

They are (with the most interesting/notable debates in bold):

A motion from the NHL which states the team cannot be transferred to Jim Balsillie because he was found to not comply with Article 3.5 and By-Law 35 of the NHL's constitution and by-laws.
A "renewed motion" from the NHL for control over the Coyotes
An order to show cause to remove Jerry Moyes from the sale process
"Have the debtors and Moyes complied with their fiduciary obligations? Have they chilled bidding and colluded with Mr. Balsillie to sell this team to one bidder?"
Can the arena lease be rejected by the bankruptcy court? Is Glendale entitled to damages and are those damages capped?
Can the court force the NHL to accept a relocation?
Can it be demonstrated Balsillie "has violated or intends to violate the constitution and by-laws by virtue of his conduct in the past and in this bankruptcy court?"
Are Moyes and/or Balsillie's breaches of the NHL's constitution "curable" by financial penalties alone?
What financial losses could the NHL suffer should the Coyotes be sold against the league's wishes? "What are the cure costs to the NHL if this team is relocated (in addition to the relocation fee) over its objections?"
Can the Coyotes relocate for the 2009-10 season?
"Opposition to Scudder/Fairview role as the independent marketer/consultant of the debtor."
Should Moyes be considered as a creditor? Should his "claims be equitably subordinated or otherwise restricted?"
"Is Gretzky's claim a claim against the debtors?"
"... has the conduct of these cases and the sale process been in all respects complaint with the Code and fair and equitable, under all of the facts and circumstances of the cases, including especially the conduct of the auction?"

Most of those are pretty straightforward, although No. 11 and 14 seem relatively new to me. I'll let our legal beagles around here weigh in on those in the comments.

Anyone have a handle on how the judge will rule on these points? And which items are you most interested to see resolved?

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"What financial losses could the NHL suffer should the Coyotes be sold against the league's wishes? "What are the cure costs to the NHL if this team is relocated (in addition to the relocation fee) over its objections?""

Are you kidding me? the NHL is worried about the losses it would suffer if the Coyotes were moved. The reason its in bankruptcy court is because theres nothing but financial losses. Just cut bait and let Balsillie do what he wants to do.

by LeafFan1989 on Aug 17, 2009 9:23 AM CDT reply actions 0 recs

I was going to post on this elsewhere, but here is as good a place as any,

13. “Is Gretzky’s claim a claim against the debtors?”

I suspect that people might think that this is similar to the “is Moyes a credotr” argument, and maybe it is, but perhaps not.

I have alluded in various places to this point, but I have long held a sneaking suspicion, ever since I read the JB asset purchase agreement and saw the very unusual terms whereby Grettzky was specifically allocated $22.5 million out of the purchase price.

That suspicion is that Gretzky’s contract is not so much a contract with the Coyotes as it is a form of personal services contract between him and Moyes, or alternatively it is a contract with the team which is personally guaranteed by Moyes himself.

The idea that Gretzky’s money was to be paid directly to him (thus assuring him of receiving 100 cents on the dollar) instead of going through the creditor process (where even Moyes would not get 100 cents on the dollar) always struck me as exceedingly odd, UNLESS it was a to discharge a personal obligation of Moyes. It certainly was not with the idea of keeping TGO on side, because (a) JB’s bid did NOT assume TGO’s coaching contract in his bid, and (b) most of the $22.5 million ($14.5 mil, or about 2/3 in fact) is actually a “golden parachute” severance arrangement that only applies if he does not come along with the team..

In essence, this would have resulted in a deal structured to allow Moyes to get $22.5 mil in direct benefit to the exclusion of the other creditors, since he would have been getting relieved of a personal direct obligation of $22.5 mil to TGO.

In the absence of this, the only sensible approach would have been for Moyes to structure the $212.5 mil as one piece (not two pieces where $190 goes to the estate and $22.5 goes to TGO). Moyes would then have an additional chunk of the $22.5 mil (the lion’s share, in his theory where the City is limited in its recovery) for himself.

by Gerald on Aug 17, 2009 9:39 AM CDT reply actions 0 recs

One thing's for sure...

…while all of this is going on, you KNOW the NHL’s lawyers are frantically drawing up methods to close the giant pile of loopholes this case is bringing to light in the NHL’s bylaws.

In a sense, Balsillie’s doing the league a big favor – by poking holes in their envelope, they now know where to patch it. That is, if they have any sense whatsoever. If the league is smart, the Coyotes’ situation is going to be the last that gets this ugly – good news for Atlanta, Tampa, etc.

As for the auction itself, this has “train wreck” written all over it. If I didn’t have such a personal stake in it I might even be enjoying it in the same way I get a kick out of seeing people risk injury on “Wipeout.”

You are validating my inherent mistrust of strangers.

by zyllyx on Aug 17, 2009 10:08 AM CDT reply actions 0 recs

Balsillie is the best thing that ever happened to the NHL. He got an arena built in Pittsburgh, he found a mythical local ownership group in Nashville, he’s managed to manipulate the city of Glendale into probably giving the Coyotes a ton of money and/or create a potential out on that lease, and he’s exposing loopholes in the NHL by-laws.

Seriously. I am looking forward to what will happen when he makes his play for the Lightning.

by Resolute on Aug 17, 2009 11:04 AM CDT up reply actions 5 recs

As an aside, this is a really silly statement that I assume was meant for purely comedic purposes, no?

by Gerald on Aug 17, 2009 11:34 AM CDT up reply actions 0 recs

Do you not think that there isn’t even a germ of truth in what Resolute says?

I've seen enough to know that I've seen too much.

by Smoboy41 on Aug 17, 2009 12:34 PM CDT up reply actions 0 recs

Uh, no.

by Gerald on Aug 17, 2009 10:15 PM CDT up reply actions 0 recs

Evidently sarcasm, but good sarcasm is rooted in fact. Good one sir! LOL

I find sometimes it's easy to be myself
sometimes I find it's better to be somebody else

by Fauxrumors on Aug 17, 2009 12:23 PM CDT up reply actions 0 recs

Indeed. Mario Lemieux seriously should give Balsillie a SC ring though. Or at least name one of the men’s washrooms in the new building in his honour.

Off hand, Gerald, I wasn’t thinking of anything specific. I was building off of zyllyx’s comments. I suppose one thing that might change is a defined limit put on how long a prospective owner is “approved” by the BoG, stemming from Balsillie’s arguments that such a claim from his attempt to buy the Penguins still persists today.

I don’t think you can deny, however, that the Penguins arena issue, and the Predators local ownership issue both got resolved a hell of a lot faster once Balsillie came involved. If I was conspiracy minded, I’d suggest that Bettman has probably sent Balsillie an anonymous telegram hinting that the Islanders could be next on the chopping block unless the Lighthouse project goes ahead. (Maybe we can get a certain twit on hockeybuzz to call this rumour an e5 to help fan the flames.)

Never kill your enemies off if they are proving useful.

by Resolute on Aug 17, 2009 1:19 PM CDT up reply actions 0 recs

Regardless of the other statements, your last sentence is both wise and irrefutable.

by Gerald on Aug 17, 2009 10:17 PM CDT up reply actions 0 recs

rec'd...

for bringing a delightfully twisted perspective to this mess.

by bison on Aug 17, 2009 3:39 PM CDT up reply actions 0 recs

To both zyllyx and Res:

Exactly what loopholes are there in the NHL constitution that have been exposed for the NHL’s (or anyone else’s) benefit)?

by Gerald on Aug 17, 2009 11:33 AM CDT up reply actions 0 recs

not sure what loopholes you are talking about. The NHL Constitution/Bylaws seem very clear as to the process to get control of a team – and the language is nebulous enough (purposefully I assume) to gives the NHL a lot of leeway to approve/reject people…which is what it did in this case with Balsillie.

Are you really saying that the “loophole” was Moyes ability to start this bankruptcy/sale process in the first place? That, I can see the League trying to tighten up in when it grants franchises.

Glen Sather is a Hockey Genius.

http://glensathersucks.com/
http://twitter.com/ThGeneralissimo

by poploser on Aug 17, 2009 11:47 AM CDT up reply actions 0 recs

The key issues where the league is going to get bit if it doesn’t change its procedures are, IMO, bankruptcies and sale processes and relocation.

I’m sure the NHL’s relocation procedures are purposefully nebulous to allow the league to move teams how and when they want… but now that Balsillie has come out and challenged them directly I think they’re going to be forced to tighten up that process so that other “maverick” owners don’t blindside them like JB did.

I’m sure there are a bunch of other smaller issues that I don’t have the knowledge to quantify here but from a layman’s perspective the NHL’s case is porous enough to warrant some review on the league’s part.

You are validating my inherent mistrust of strangers.

by zyllyx on Aug 17, 2009 12:43 PM CDT up reply actions 0 recs

Bankruptcies cannot be guarded against, unfortunately. I and every other lawyer is the world will continue to put in rights of termination for bankruptcy, but they are simply not enforceable due to the automatic stay in the Bankruptcy Code. It cannot be defended against.

The rules are pretty well constructed, but certainly the practice will be decidedly different. I imagine every troubled NHL owner is ready to wring JB’s and Moyes’ necks, because no NHL owner will ever get the amount of leeway that Moyes got. The next NHL owner who starts to get in trouble will be cut off at the knees.

The areas where JB is attacking are in respect of good faith dealing and the like, which are areas that the NHL cannot contract out of.

by Gerald on Aug 17, 2009 10:23 PM CDT up reply actions 0 recs

I haven’t exactly noticed the NHL cutting Hicks off anywhere.

by J. Michael Neal on Aug 17, 2009 11:28 PM CDT up reply actions 0 recs

No doubt. That guy is just treading water and potentially ruining franchises in three sports.

by yrmom on Aug 18, 2009 3:14 AM CDT up reply actions 0 recs

Fair point, but:

1. You should not assume that everything the NHL does gets in the papers.

2. No one is suggesting that Hicks is not funding his franchise.

3. Hicks’ issues are not a daily subject for the media. For all anyone knows, he has resolved his issues, which were brought about by the banking industry’s credit freeze (which is far less urgent now).

by Gerald on Aug 18, 2009 9:32 AM CDT up reply actions 0 recs

1. Yet.
2. Yet.
3. Yet.

The latest report earlier this week indicated things were pretty dire, barring the sale of one of his other sports interests.

Blogging on hockey at fromtherink.com

by James Mirtle on Aug 18, 2009 11:26 PM CDT up reply actions 0 recs

Fair enough, although adding “yet” to everything is the equivalent of saying “when different stuff happens, then things will be different”. [shrug]

by Gerald on Aug 19, 2009 12:51 AM CDT up reply actions 0 recs

We do know that MLB floated him some cash for the Rangers, and it sounds like it was along the same lines of the “advance” the NHL said it was giving the Coyotes.

Because we’re in a pretty slow period for hockey news, I bet we hear more on Hicks over the next few weeks. It sounds like a potential mess unless he can get his hands on some capital.

Blogging on hockey at fromtherink.com

by James Mirtle on Aug 19, 2009 8:50 AM CDT up reply actions 0 recs

Hicks and Gillettes trouble with refinancing the debt they took on to buy Liverpool have been well documented in the British media. They’ve had to drastically scale back plans for a badly needed new stadium,and have tried(and failed) to find new minority partners.
Perhaps most frightening is that they’ve had to drastically limit the club’s player transfer budget which has directly threatened the depth of its squad. This might be small potatoes in other sports but if the club doesn’t finish top four it doesn’t qualify for the Champion’s League and its revenues.

by yrmom on Aug 19, 2009 10:29 AM CDT up reply actions 0 recs

I don’t think that a contested bankruptcy of a professional sports team with multiple bidders would ever, or even could ever, be anything but a circus, unless leagues are held to be single entities.

by J. Michael Neal on Aug 17, 2009 12:02 PM CDT up reply actions 0 recs

# “Have the debtors and Moyes complied with their fiduciary obligations? Have they chilled bidding and colluded with Mr. Balsillie to sell this team to one bidder?”

I’m less interested in this issue – I think the Judge will find a resolve the matter without having to address this. Judge’s often look for the shortest/simplest/narrowest means of resolving cases – and in this case it seems to me the way to do that is to find in favor of the NHL’s motions in No. 1, 2 & 3.

I am, however, very interested in a similar question – Has NHL chilled bidding and colluded with Mr. Reinsdorf to sell this team to one bidder? Collusion is a strong word – but I am very interested in how the NHL selects its partners, and what it will do to support the efforts of those partners.

Glen Sather is a Hockey Genius.

http://glensathersucks.com/
http://twitter.com/ThGeneralissimo

by poploser on Aug 17, 2009 11:39 AM CDT reply actions 0 recs

As I said in a previous thread, I’m also interested in what affect the league consistently opting for lesser bids in the bankruptcy process will have on the behavior of creditors and potential creditors of other teams that have financial issues.

by J. Michael Neal on Aug 17, 2009 12:04 PM CDT up reply actions 0 recs

Case in point, the Mr. Hick and the Dallas Stars, from whom the creditors want answers.

by Resolute on Aug 17, 2009 1:20 PM CDT up reply actions 0 recs

Speaking of Hicks

Isn’t Major League Baseball paying the freight so to speak for Tommy’s Texas Rangers?
Not to mention the albatross known as the Liverpool football club.

by Exit716 on Aug 17, 2009 2:35 PM CDT up reply actions 0 recs

LFC isn’t an albatross. The financing shenanigans that Hicks and Gillette used are an albatross.

Pension Plan Puppets: A Toronto Maple Leafs blog and a group therapy session.

by PPP on Aug 17, 2009 7:07 PM CDT up reply actions 0 recs

Thank you. I was going to try to address this but parenting gets in the way. I loathe Hicks and Gillette for their financial strangling of LFC.

by yrmom on Aug 17, 2009 8:02 PM CDT up reply actions 0 recs

Well, in this case they are not actually supporting a lesser bid.

The single most important partnership that every team has is with the owners of their arenas. I expect that every arena owner is watching these proceedings and nodding with approval.

by Gerald on Aug 17, 2009 10:25 PM CDT up reply actions 0 recs

You mean they like the idea of being forced to swallow huge concessions?

by J. Michael Neal on Aug 17, 2009 11:29 PM CDT up reply actions 1 recs

If huge concessions are the lesser of two evils compared to an empty building, then yes.

2008-2009 Colorado Avalanche: Dry Humping Mediocrity

by Mike @ MHH on Aug 18, 2009 8:56 AM CDT up reply actions 0 recs

As I’ve said before, I’m far from convinced that the empty building is the greater evil.

by J. Michael Neal on Aug 18, 2009 10:30 AM CDT up reply actions 0 recs

I know, but we’re both irrelevant since neither one of us is writing the check.

Unless you’re personally wealthy.

And if so, I need a sponsor for my beer league team. Or just a personal sponsor for me. You can put your logo or name on my goalie pads. I know I sound like a sellout, but there IS a recession…

2008-2009 Colorado Avalanche: Dry Humping Mediocrity

by Mike @ MHH on Aug 18, 2009 2:11 PM CDT up reply actions 0 recs

None of us is writing the check, but it sounds as if there are people involved on the city’s side, such as the mayor, that are quite a bit more skeptical of concessions than the city manager is. I have not tried to track down the city charter to try to figure out who has how much power.

by J. Michael Neal on Aug 18, 2009 3:31 PM CDT up reply actions 0 recs

City Charter online here. As you might expect, the Mayor is like the Board Chairperson, and the City Manager is like the CEO.

City also has a Code of Ethics – [warning – PDF file] – that might have some interesting application to the City Manager’s activities

Glen Sather is a Hockey Genius.

http://glensathersucks.com/
http://twitter.com/ThGeneralissimo

by poploser on Aug 19, 2009 1:29 PM CDT up reply actions 0 recs

I believe that that Code of Ethics only applies to members of the city council and members of the various boards and commissions, so I’m not sure it affects the city manager at all.

As for the charter, I read that as saying that the council can fire the city manager at any time. It is remarkably unclear on the subject of how anything like the lease for Jobing.com Arena is supposed to be negotiated. I assume that that’s covered somewhere in the various deliberations of the council.

by J. Michael Neal on Aug 19, 2009 3:21 PM CDT up reply actions 0 recs

Are you actually suggesting that they would NOT be liking what they are seeing from the NHL’s efforts?

by Gerald on Aug 18, 2009 9:33 AM CDT up reply actions 0 recs

Taken as a whole, yes. Glendale is taking an enormous bath on this whole escapade. Your attempts to limit this to just the last six months misses a huge part of the picture.

by J. Michael Neal on Aug 18, 2009 10:31 AM CDT up reply actions 0 recs

I assume you are referring to your previous analysis of the City’s revenues and such. Are you now putting that into the category of unquestioned wisdom, merely because it went unquestioned by me or others? I hope not.

by Gerald on Aug 18, 2009 10:45 AM CDT up reply actions 0 recs

My point in the specific comment you replied to is that, at best, the NHL’s efforts leave the city of Glendale losing more than a hundred million dollars on this whole deal. The NHL wanted the city to build an arena, and the deal was structured around the belief that the team would generate sufficient revenue for the city to cover those costs.

According to Glendale’s budget, it hasn’t come close to working out that way. Even under the current lease, the city is losing huge amounts of money. The NHL’s efforts involve the city losing even more money on the deal, and, effectively, giving up it’s right to enforce the lease if the team is losing money in five years.

Any prospective future arena builder/operator should look at the NHL’s efforts in this matter and conclude that they should avoid doing business with the league at all costs. This is a perfect example of why I’m asking whether or not potential creditors of the league should take this mess as evidence that they either should avoid the NHL, or charge a lot more money if they don’t.

by J. Michael Neal on Aug 18, 2009 1:50 PM CDT up reply actions 0 recs

That’s the same logic Matt Fenwick used in his post. If this is what “winning” looks like, is it really all it’s cracked up to be?

SNN Sports - A theoretical Oilers blog (i.e. theoretically, I write stuff there)

by Doogie2K on Aug 18, 2009 3:29 PM CDT up reply actions 0 recs

I’m interested in this as well, particularly with the “coalescing” of bidders – the NHL made it very clear that they want Jerry Reinsdorf to come away with this deal, and a guy like John Breslow who is already an owner and seems to have no ulterior motive (relocation, etc.) or desire to fleece the Glendale taxpayers gets shuffled aside.

You are validating my inherent mistrust of strangers.

by zyllyx on Aug 17, 2009 12:44 PM CDT up reply actions 0 recs