Gary Bettman's recent win streak in league business – finding owners for three of the NHL's financial basket cases – was broken by Judge Redfield T. Baum. And it looks like there will some rough sailing for the NHL commissioner and the league as a result.
The U.S. Bankruptcy Court judge ruled last week the NHL cannot recover most of the $145.9-million (U.S.) it was trying to get from former Phoenix Coyotes owner Jerry Moyes, including $6.5-million owed to former minority owner and head coach Wayne Gretzky.
The NHL went after Moyes for $112.7-million in operating losses the league incurred after buying the Coyotes out of bankruptcy four years ago (although the league told the court it would lower this number after recently selling the Coyotes to George Gosbee and Anthony LeBlanc), $15.1-million in lawyer fees, $11.6-million paid to unsecured creditors of the Coyotes and the $6.5-million owed to Gretzky.
Baum ruled in favour of the NHL in September of 2009, when Moyes tried to force a sale of the Coyotes through the bankruptcy court to Canadian businessman Jim Balsillie, who wanted to move the team to Hamilton. But this time, the judge balked, saying in his decision federal bankruptcy law does not allow the league to recover any of the $112.7-million in operating losses from the past four seasons, after it bought the club. He ruled Moyes was not responsible for paying Gretzky.
The NHL was not completely shut out, as Baum wrote in his decision he needs more information about the $15.1-million in lawyer fees and the $11.6-million paid to unsecured creditors before he decides if Moyes is responsible for paying part or all of those claims. But the judge's wording indicated he is not inclined to rule in the NHL's favour.
This was a nasty blow to Bettman, as he has long told the NHL's 30 owners they would not lose money on the Coyotes debacle, in which the league was forced to buy the club for $128-million and then have to cough up well north of another $100-million for lawyers and covering losses from keeping the Coyotes in suburban Glendale. A big part of the recovery plan was the lawsuit against Moyes.
The Coyotes were finally sold in the summer for $170-million to a group led by Gosbee and LeBlanc, two Canadian businessmen, but – for reasons we will get to in a minute – the NHL is still a long way from recovering its money. This could mean some awkward questions for Bettman at the annual governors meetings Dec. 9 and 10.
The ruling on the Gretzky debt was interesting because Baum invoked the principle of judicial estoppel. This means someone cannot gain an advantage in court by taking one position and then changing it later to gain another advantage.
In the purchase agreement approved by the court, the NHL said it would pay all unsecured creditors except Moyes and Gretzky. The league claimed Gretzky was not a legitimate creditor, which led to an estrangement between the league and its greatest former player.
Baum ruled this precluded the league from then trying to claim Moyes should cover the $6.5-million, so it will be interesting to see if the NHL – which had promised to pay Gretzky once it sold the club – is willing to settle up.
But the worst long-term problem the commissioner faces comes from the ruling on Moyes. The judge said the consent agreement all NHL owners must sign, in which they promise to finance all costs of a franchise, does not apply in a bankruptcy proceeding.
This is a severe blow to Bettman, who has long used the consent agreement to force owners eager to escape the financial obligations of a money-losing franchise to keep paying the bills. Often, their only out is to hand over a large chunk of cash, such as the $25-million Ray Chambers paid to get rid of his share of the New Jersey Devils, and then walk away with nothing because the new owner only assumes the franchise's debts.
But thanks to the precedent set by Baum, an owner can now place his franchise into bankruptcy with the possibility of realizing something through an eventual sale. And he doesn't have to worry about being sued by the NHL, as Moyes was.
However, NHL deputy commissioner Bill Daly disagrees. He wrote in an e-mail message: "We do not have any long-term concerns about the enforceability of the various contracts that govern the league."
Recovering the money the NHL lost on the Coyotes is going to be tricky. The NHL lent $85-million to Gosbee and LeBlanc so they could buy the club. The pair also borrowed $120-million from Fortress Investment Group, which came at a stiff interest rate because the Coyotes are a distressed borrower.
While one financial source said the Fortress loan has priority over the NHL's, Daly said that is not correct and, "we, obviously, are not concerned about our ability to be repaid."
Given what is at stake, an appeal is expected by the NHL, which was acknowledged by Daly.
"The case is a long way from conclusion at this point," he said. "The ruling we got on Friday is just the first word on this particular claim."
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