Canadian billionaire Jim Balsillie is being confronted with having to pay another $100-million (U.S.) to buy the Phoenix Coyotes and move the club to Hamilton - a figure that could force him to walk away from his dream of owning a Canadian team.
Mr. Balsillie has offered to pay $212.5-million (U.S.) for the club, which filed for Chapter 11 protection in Arizona last month. The NHL has opposed his bid, arguing it violates league rules governing relocation. The league says it has found other potential buyers who will keep the club in Phoenix. During a bankruptcy court hearing on Tuesday, NHL lawyers told the court that the league would be entitled to relocation fees if the judge approves Mr. Balsillie's bid. Those fees, the court heard, could exceed $100-million.
Judge Redfield Baum accepted the arguments and pointed out that the league controls the right to play NHL hockey in Hamilton and should be compensated if Mr. Balsillie is allowed to move there.
He asked Mr. Balsillie's lawyers how much he is willing to pay. Susan Freeman, a lawyer for Mr. Balsillie, stated the league should not be allowed to charge an unreasonable amount, indicated that $100-million would be too much, and said, "If the fee is too large, [Mr. Balsillie]has the right to walk away."
Shepard Goldfein, a lawyer representing the NHL, told the court the NHL has not worked out an exact figure. In court filings preceding Tuesday's hearing, the league has said the relocation fee would "dwarf" Mr. Balsillie's offer.
Judge Baum suggested mediation to determine the right amount. If the sides can't agree, the judge will consider holding a hearing.
The judge did not make any rulings Tuesday but he is expected to make some decisions this week. He could approve Mr. Balsillie's bid on the condition that the relocation fee had been sorted out. If Mr. Balsillie's bid is withdrawn, the judge would likely go ahead with a court-supervised auction for the club through the Chapter 11 process.
After the hearing, Richard Rodier, a Toronto lawyer working for Mr. Balsillie, said he spoke with Mr. Balsillie about the fee earlier in the day. He declined to comment on what they discussed but Mr. Rodier added the sale agreement "gives us the right to walk away if there is any transfer fee at all."
Three NHL owners contacted by The Globe and Mail Tuesday night proposed that Mr. Balsillie should pay a relocation fee of at least $150-million (all currency U.S.), while two governors said the NHL should appeal a court order to negotiate a relocation fee. All spoke on the condition of anonymity as NHL commissioner Gary Bettman has withheld authorization from league executives to speak on the matter.
"$150 million on top of the purchase," was the e-mail reply from one Eastern Conference owner. On top of Mr. Balsillie's $212.5-million offer, that would bring the cost of the team to $362.5-million before arena renovations.
Another Eastern Conference governor also said $50-million each should go to the Toronto Maple Leafs and Buffalo Sabres for waiving any territorial rights and $50-million as a relocation fee to divide among the remaining 27 NHL teams.
"I don't think a team in Hamilton will hurt Toronto that much over the next 50 years," he said. "But I do think it will hurt Buffalo."
Stephen Ross, a sports anti-trust expert at Penn State University, said a fair and legal relocation fee would be to calculate the difference between the value of the team in Phoenix plus the amount it takes to pay off creditors, subtracted from the team's value in Hamilton. The simplest way to establish that value is for the NHL to pay off local creditors, buy the Coyotes at local market value and auction off the franchise.
"The question is, how much would the team go for in Hamilton compared to Phoenix?" said Ross. "That, it strikes me, is the relocation fee."
One Western Conference governor said the value of a team in Hamilton would be at least $300-million, and probably higher in Toronto where he thinks it should be located.
"There would be all kinds of suitors for an expansion team in Toronto for that kind of money," the governor said.
Mr. Bettman left the hearing without commenting.
Deputy Commissioner Bill Daly told reporters that the league had not arrived at a figure but said, "I would think it's a big number." In the past, the league has assessed the amount at roughly twice the value of the franchise, he said. Mr. Daly added the fee has been calculated to some extent through negotiation with the potential buyers.
Mr. Daly stressed the league is "very confident" it can find a buyer who will keep the team in Phoenix.
Tuesday's hearing centred largely on whether Judge Baum can use bankruptcy law to override NHL rules governing relocation. Mr. Balsillie's lawyers argue that he can because the NHL is applying its rules in violation of anti-trust laws. The league argues courts have consistently upheld the rights of leagues to determine who owns teams and where they play.
The NHL has been backed by other sports leagues that argued that if Judge Baum permits Mr. Balsillie's bid to go forward, it will cause havoc.
One of the NHL governors contacted by The Globe and Mail after the hearing saw a benefit to an order allowing the Coyotes to move.
"If Balsillie wins, the value of all sports franchises goes up because they'll all now have wheels on them," the governor said. "If you can move your team, the value goes up."
Stressing that this case is unique, Judge Baum dismissed the sports leagues' concerns, saying that many franchises have moved and leagues have survived.
Judge Baum also criticized the NHL for not revealing what other offers it has for the Coyotes. The NHL has said that it has received expressions of interest from four potential buyers, including the co-owners of the Canadian Football League's Toronto Argonauts. It has not provided any details.
The league wants the judge to hold a court-supervised auction in September to find a local buyer for the Coyotes. If that auction fails, the league said it would ask the court to hold another auction for buyers who wanted to relocate the club, based on NHL rules. Tony Clark, a lawyer for the NHL, said he would bet a month's salary that Mr. Balsillie would make a bid during that auction.
But Judge Baum said if he accepts the NHL timetable, Mr. Balsillie's bid would be gone and the club could sell for less in September. "You've got a bird in the hand with [Mr. Balsillie's]offer," he said.
Lawyers for the Coyotes current majority owner Jerry Moyes argued that if Mr. Balsillie's bid is not accepted, creditors will be surprised at how low the other offers turn out.
But lawyers for the NHL and other creditors said if Mr. Balsillie's offer is approved, it will trigger other charges that will wipe out creditors. They point to the NHL relocation fee and payments to the City of Glendale, the Phoenix suburb that built the arena where the Coyotes play. Those payments would be in the hundreds of millions of dollars, leaving nothing for creditors, they said. However, if a local buyer is found, none of those payments are triggered because the team will not move. A local bid only needs to be $120-million to pay off creditors, they argued.
Judge Baum also threw cold water on a key argument raised by lawyers for Mr. Moyes. They argued the club is not financially viable and needs to be sold immediately to protect creditors. They pointed to a case involving baseball's Seattle Pilots, who were sold to a group led by current MLB commissioner Bud Selig in Milwaukee in 1970 for $10.8-million. That sale was conducted through bankruptcy courts and took only a few weeks to conclude.
But Judge Baum said the case does not apply because the American League did not agree to fund the Pilots through the next baseball season, making the situation a true financial emergency. In the Coyotes case the NHL has agreed to keep funding the club for the upcoming season, the judge said. That is a crucial point because it weakens much of the argument to hurry the sale process, the judge noted.
With a report from David Shoalts