The battle for control of the Phoenix Coyotes has heated up with all sides trading insults in a flurry of court filings leading up to a hearing tomorrow in an Arizona bankruptcy court.
The hearing before Judge Redfield T. Baum will determine whether Canadian billionaire Jim Balsillie can buy the Coyotes out of bankruptcy protection for $212.5-million (all currency U.S.) and move the club to Hamilton.
The NHL says Balsillie's bid violates league rules and it wants to keep the club in Phoenix.
Over the weekend, the NHL raised a host of legal arguments against Balsillie's bid and questioned his integrity. The league cited Balsillie's recent settlement with securities regulators in Canada and the United States over allegations he and others backdated stock options at Research In Motion, where Balsillie is co-chief executive officer. Balsillie and other company officials paid more than $70-million (Canadian) to settle the allegations and Balsillie stepped down from the company's board for one year.
"Mr. Balsillie may well have reasonable explanations for these matters that will satisfy the [NHL]board of governors, but the league has a legitimate interest in conducting a full and proper investigation," the NHL said in filings.
The league added that during a meeting with its executive committee in December 2006, Balsillie "trivialized the significance of the allegations in the then-ongoing investigation into his activities."
For his part, Balsillie filed an impassioned argument for his offer, noting his love of hockey and long-held interest in bringing a team to Hamilton. "In fact, I have been convinced for several years that one of the most important contributions I can make to my country and my community is to bring a seventh NHL franchise to [Hamilton]" he said.
He added he has met all league application requirements and provided stacks of material, including letters of commendation from several politicians and business leaders, vouching for his character.
His lawyers meanwhile slammed the NHL's legal arguments during a press briefing, alleging the league is illegally trying to protect the interests of the Toronto Maple Leafs.
The issues raised in the legal battle go beyond Balsillie and the NHL and could affect how other professional sports leagues operate.
If Balsillie's bid is approved by the judge, it "would mean chaos for the NHL and all other professional sports leagues, especially in the current economic environment," the NHL said in its filings. The league is being backed by the NFL, NBA and Major League Baseball.
Balsillie's lawyers have called those arguments "bogus" and noted that four NHL teams have relocated since Gary Bettman became NHL commissioner in 1993.
Much of court case focuses on how far leagues can go in deciding where teams play.
The NHL argues that courts have long established that sports leagues have the right to decide "who the members are and where the teams play."
Instead of applying to the NHL to move the Coyotes, the league alleges Balsillie struck a secret deal with the club's current majority owner, Jerry Moyes, just before he put the team in Chapter 11 protection on May 5.
If Baum approves Balsillie's bid, it would turn bankruptcy courts "into the option of first resort for any financially distressed owner seeking to sidestep league rules and sell or relocate a franchise without league consent," the NHL argues.
Moyes only owns, and can only sell, the right to operate an NHL team in Phoenix, the league adds. Without league consent to relocate, Balsillie will be buying nothing more than "a collection of used hockey equipment - none of which could bear the NHL logo."
The NHL claims Moyes doesn't even own various league logos, such as the NHL shield or the conference and division names, and has no right to sell them to Balsillie.
Furthermore, the NHL says Balsillie's bid does not include substantial relocation and indemnity fees the league is entitled to charge. Much of that money would go to the Leafs as compensation for a new team in Hamilton. The league did not say how much it would charge, but said the size of the payment would "dwarf" Balsillie's offer and leave no money for Coyotes' creditors who are owed more than $200-million.
The NHL said at least four groups have expressed an interest in buying the Coyotes and operating the team in Phoenix. They include Howard Sokolowski and David Cynamon, owners of the CFL's Toronto Argonauts.
Balsillie's lawyers acknowledge the NHL has a right to consent to moving the team, but they argue the NHL is applying its rules illegally in this case in order to protect the Maple Leafs.
They allege the NHL's constitution and bylaws give the Leafs a de facto veto over any club moving within 80 kilometres of the team. That is contrary to antitrust laws, they say, and Baum has the power under bankruptcy law to approve Balsillie's bid and override the league's consent. The Leafs' veto, which the league insists does not exist, is not only unreasonable but damages the interests of Coyotes' creditors because no better offer has surfaced.
The NHL "cannot unreasonably refuse consent," said Susan Freeman, a lawyer representing Balsillie. The league's refusal appears "to be out of spite, [and]appears to be an attempt to protect a monopoly on the part of the Maple Leafs and the rationale that [the NHL]has given is not really legitimate, it's bogus."
Balsillie's lawyers also acknowledge the NHL can seek relocation fees, but those fees are supposed to compensate the Leafs for whatever work that club has done to build support for the NHL in Hamilton. They argue the Leafs have done just the opposite, repeatedly blocking attempts to bring a team to Hamilton. Therefore, they say no relocation fee should be paid.
They also scoffed at suggestions the sports world would be thrown into chaos if Balsillie succeeds, noting that many teams have relocated including baseball's Seattle Pilots, who moved to Milwaukee in the 1970s through bankruptcy protection. The owner involved in that case, Bud Selig, is commissioner of Major League Baseball.
As for the NHL logos, Moyes' lawyers argue they belong to each club because of the way the NHL is structured. The league is technically an unincorporated association based in New York. Under New York law, Moyes' lawyers argue, these associations cannot directly own property. Instead, the members of the association own the property.
However, Baum rules the case will be far from over. Both sides can appeal, meaning the saga could play out in other courts for months if not years.