Jeff Shumway knew the Phoenix Coyotes were in deep financial trouble as he headed into a meeting at the Glendale Civic Center last Oct. 14.
The National Hockey League club was losing more than $30-million (U.S.) a year, attendance at games had plummeted and efforts to find other investors had gone nowhere. Mr. Shumway, the club's CEO, knew something had to be done and he called the meeting to discuss the team's future.
More than a dozen people gathered to hear what he had to say. They included Coyotes' majority owner Jerry Moyes, his long-time lawyer Earl Scudder, representatives from lenders MSD Capital LP who manage money for computer magnate Michael Dell, and David Zimmerman, the NHL's chief legal council.
Mr. Shumway was blunt. Without substantial changes the Coyotes were not viable in Phoenix. It was time to consider selling the club, moving it or filing for bankruptcy protection.
Over the next seven months, Mr. Shumway and the others wrestled over the options.
Today, an Arizona bankruptcy court will begin hearing arguments to determine the fate of the franchise.
Mr. Moyes wants to sell the club to Canadian businessman Jim Balsillie, who plans to move it to Hamilton. The NHL wants to keep the Coyotes in Phoenix and argues it controls where teams play. The league is being backed by the National Football League, National Basketball Association and Major League Baseball, which have filed motions in support.
While the problems facing the Coyotes go back years, court filings show that everything came to head during that meeting last October.
Mr. Shumway told the gathering that he had been grappling with the club's financial woes for months. He'd travelled to the NHL's head office in New York four times since June, seeking financial help. The league had given the club an advance on some of the national television revenue all teams were due to receive in late October. But it wasn't enough. The Coyotes were still on track to lose $36.3-million for the 2008-09 season.
The situation was about to get worse. Despite some of the lowest ticket prices in the league, Coyotes attendance had dropped below the NHL's revenue-sharing requirement. The league mandates that each club meet certain benchmarks, including selling an average of 13,500 tickets a game, in order to qualify for a full share of television revenue. Teams that don't meet the benchmarks get less money. For the Coyotes, that meant a $4-million reduction to $10.4-million in 2008.
Mr. Shumway laid out four options - status quo, find a buyer, move the team or renegotiate the club's 30-year arena lease with the city of Glendale, the Phoenix suburb that had spent more than $180-million building the Jobing.com arena in 2003.
He ruled out the first option, telling the meeting that under current conditions the club was not viable. The second and third options involved the NHL operating the team, finding a buyer or getting out of the arena lease, such as through bankruptcy protection. But he said, "ultimately [the]NHL will conclude that [the]team must be moved."
The meeting quickly became heated. The MSD officials, who are owed nearly $80-million, rejected talk of loan concessions and Mr. Moyes said if the city and others didn't relent, he would put the team into bankruptcy protection. NHL deputy commissioner Bill Daly said Mr. Moyes announced he was "broke" and "done" financing the team, opening the door for the league to take control.
Nothing was decided and by early November, the club was running out of cash and slashing costs.
On Nov. 3, NHL commissioner Gary Bettman summoned everyone to New York for an "all-hands meeting." Joining the discussions was Glendale city manager Ed Beasley.
According to Mr. Shumway, Mr. Bettman persuaded Mr. Beasley to provide up to $15-million in lease concessions. Then in private chats with Mr. Shumway and Mr. Moyes, he said he could get even more. Mr. Shumway wasn't convinced. He'd calculated that even if the club received $24-million worth of breaks, it would still be $4-million in the hole.