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NHL deputy commissioner is surrounded by reporters following a U.S. bankruptcy court hearing in Phoenix last month. (Ross D. Franklin/AP File)
NHL deputy commissioner is surrounded by reporters following a U.S. bankruptcy court hearing in Phoenix last month. (Ross D. Franklin/AP File)

Leagues watching Coyotes closely Add to ...

Unlike the NHL, none of their franchises is on the brink of bankruptcy. Yet the NFL, NBA and Major League Baseball all believe they have a great deal at stake Tuesday in a U.S. bankruptcy court in Arizona.

The NHL's court battle to keep the Coyotes in Phoenix represents a much larger struggle for professional sports leagues to keep the courts from interfering with their business.

"It's the battle that has been fought for almost 100 years," said Gabe Feldman, director of the sports law program at Tulane University. "It's about the ability to control their teams, make their own business decisions and not be second-guessed by the courts.

"Whether it was the reserve clause or anti-trust challenges, in each step leagues have argued that a challenge is improper because they have a right to make all these decisions - without getting into the merits of them. The leagues have sought to insulate themselves from the courts and [the Coyotes']situation is another challenge. They do their best to seal off loopholes so they can run their businesses without interference and not have their decisions overruled by the courts."

The strategy of putting a team into bankruptcy to avoid league control is one few may have contemplated. And Judge Redfield T. Baum has sounded leery of setting a precedent when the sides are heard again on Tuesday.

During a hearing on May 30, when Baum reluctantly agreed to decide the issue, he referred to it as "the 10,000-pound elephant in the room." He also wondered about the ability of a bankruptcy court to decide if an NHL club can relocate because it is also an anti-trust case.

"If I do that, I am essentially rewriting their constitution for them, and I'm not sure I have the power to do that," he said.

Baum also noted how none of the related case studies "has a fact scenario remotely close to this case."

However, given the value to creditors of Jim Balsillie's offer to purchase the Coyotes for $212.5-million (U.S.), Baum has no choice but to consider it. And it is the bankruptcy element of this case that has legal scholars debating an outcome.

Baum, appointed chief bankruptcy judge for the District of Arizona in 2005, has written and lectured extensively on bankruptcy law, and dealt with sports-related cases before. But this decision may well be associated with his name for many years.

"Intertwined with this bankruptcy matter is one of the most complicated anti-trust issues out there - not just in sports - anywhere," said visiting Rutgers University professor Marc Edelman, an expert in anti-trust law. "It's a series of issues that the [U.S.]Supreme Court has never decided and a series of issues that circuit courts seem not to agree upon.

"And here we have this bankruptcy judge who is an expert in protecting creditors and he has before him one of the most complicated cases out there."

By and large, the courts have been willing to recognize that sports leagues - while not single entities - are joint ventures that require certain decisions to be made at a central level. Under the "rule of reason," it has been accepted that the pro-competitive reasons for allowing leagues to have control over their own business supersede the anti-competitive reasons for doing so.

The NHL will argue under rule of reason that it should not have to justify keeping the Coyotes in Phoenix. Lawyers for current majority owner Jerry Moyes and Balsillie, who plans to move the team to Hamilton, will likely counter that blocking the move is anti-competitive and therefore preventing creditors from receiving the best payout cannot be justified.

"The NHL's refusal to allow a team to relocate from a failing area to highly promising issue is an anti-trust violation," said Stephen Ross, sports law professor at Penn State University. "You can control relocation to protect the sport as a whole, but not to protect some of the owners.

"When [Bill Hunter during the 1980s]wanted to move the St. Louis Blues to Saskatoon, the league said you can't move them to a city of 150,000. He lost his anti-trust case because the league had a legitimate reason. The NHL has yet to express in public what legitimate [reason]it has, as a league as a whole, saying it's better to have a team in Phoenix than Southern Ontario," Ross said.

"In Southern Ontario, the TV numbers would be better, the live gate would be better. The bankruptcy judge would have a very good claim that the only reason the league is opposed to [Southern Ontario]is to protect the [Toronto Maple]Leafs and the [Buffalo]Sabres and that's not legitimate."

The critical issue Tuesday is whether Baum will recognize the NHL's right to make decisions concerning location of its franchises, or further, explore whether the league's position constitutes an unfair restriction - particularly if a move from Phoenix to Hamilton satisfies the league's stated criteria for relocation.

"The league would respond that this is a business decision and, while you might disagree, we have to be allowed to make our own decisions, we have criteria in place," Feldman said. "But the new owners could put six or seven facts down to make that criteria cut in their favour and the judge might agree the [NHL position]is just pretext [to prevent a move]

"The NHL has laid out the rules for relocation and if Balsillie can check them off, it would weigh in his favour - but I'm not sure enough."

Beyond the rule of reason, the NHL is sure to argue that whatever restrictions it maintains on the ability of teams to relocate were agreed upon when Moyes bought the team and agreed to abide by the league's constitution.

"The Coyotes have to say, 'We signed onto these rules but it's irrelevant because we can't agree to something as policy that violates anti-trust law,'" Edelman said. "'We didn't give up the right to challenge those rules.'"

Baum would no doubt prefer the two sides settle the matter in the interest of creditors, outside the courtroom. But both sides seem keen to play it out.

"Bankruptcy judges are very much into the practicalities of things," said Charles Tabb, bankruptcy scholar at the University of Illinois. "[Anti-trust law]is not his area of expertise and the last thing he wants is a full-blown anti-trust case. But if the NHL won't budge on Southern Ontario and there's no other bid close to Balsillie, then you're at an impasse.

"If there are other legitimate contenders for the team, then he would want to look at that. But if not, then he'll really put it to the NHL to explain why Balsillie and Hamilton aren't good enough."

- With reports from Paul Waldie and David Shoalts

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