Score One for Who?
According to the Globe and Mail headline, it was Bettman and the NHL who scored in the Phoenix courtroom.
I don’t think so. The judge did not make any ruling about anything but he did make it clear that he agreed with part of the NHL position. The league claimed the Balsillie offered to buy something that Moyes did not own and therefore did not have the right to sell. The market for NHL hockey in Hamiltion belonged to the league, not the Phoenix Coyotes.
Judge Baum seemed to accept that argument. However, instead of dismissing the Balsillie offer, Baum wants the league to put a price tag on the market for NHL hockey in Hamilton. He is implying that if Balsillie ponies up enough to compensate the league he can have the team and move it. The bankruptcy court may not be giving Balsillie the right to move his team to Hamilton, but the judge does seem inclined to force the NHL to sell that right.
The RIM billionaire may not be willing to pay a fair price – after all much of his profit in this venture in the difference between a fair price for the team in Phoenix and a fair price for the team in Hamilton. In that respect, the Globe is correct. Balsillie could balk and walk away from his offer to buy the Coyotes. In that case, Bettman would dodge a bullet and win.
On the other hand, the league does not want to sell – at almost any price – what the judge agrees they own. They do not want to put a price on the relocation themselves and they definitely don’t want the judge doing it for them. Either way, it gives Balsillie – not the league – the choice. If he is willing to pay the price, he gets the team in Ontario. If not, the team stays in Phoenix.
For the first time, I think there is a good chance Balsillie will be successful. The judge has put Bettman in a box. He’s going to have to attach a price to the legitimate NHL interest in the Ontario market. Instead of arguing about whether Balsillie has the right to buy and relocate the team, they will be arguing about how much Balsillie has to pay to acquire a right the NHL doesn’t want to sell.
It had to be a bad day in the courtroom for Gary Bettman.
I am doubtful whether at this point Moyes is prepared to close his transaction with JB.
I would also strongly caution against reading into the judge’s suggestion as much as you (and others) may be. The relocation fees may in fact suppress bidding for the franchise, as Moyes has effectively tried to attain an $80 million premium that related to the relocation of the franchise. It would seem apparent that JB will be reducing his offer to moyes by a substantial amount if he has to pay that premium instead to the rightful owners of that franchise opportunity.
Undoubtedly the NHL would prefer not to be in the box, but with that exception (and it is a significant one), it amounted to a rout of JB for the NHL.
I am doubtful whether at this point Moyes is prepared to close his transaction with JB.
Perhaps not. But right now he is out $300 MM. If he wins outright he is out $200 MM. If Balsillie drops his offer to Moyes by $50 MM and offers that money to the NHL, would Moyes take it? I suspect the answer is yes.
I would also strongly caution against reading into the judge’s suggestion as much as you (and others) may be. The relocation fees may in fact suppress bidding for the franchise, as Moyes has effectively tried to attain an $80 million premium that related to the relocation of the franchise. It would seem apparent that JB will be reducing his offer to moyes by a substantial amount if he has to pay that premium instead to the rightful owners of that franchise opportunity.
True, but suddenly bidders aren’t going to be buying the Phoenix Coyotes. They will be bidding to buy the Hamilton Coyotes. I don’t think Balsillie cares whether Moyes gets the money or Bettman gets it.
If JB drops his offer by $50 mil, then Moyes is better off with the Reinsdorf offer, or indeed any offer that involves the lease not being broken.
@Gerald – is that still in his hands? Or is it up to the court now? Of the three players here (NHL, Balsillie and Moyes), I like his position the least but then I thought that he had a bad hand from the very beginning. This was always a swing for the fences from him.
I think that, in order to assess Balsillie’s day, you really need to look at the bigger picture and define what you believe his goal to be. I think that it’s owning a team and putting it in Southern Ontario. Windfall profits are great but I don’t think that that’s what this was all about.
I would expect that Gerald is right, in that the relocation fee should depress the bidding. I’ve tried to work this through in my mind and I’ve basically come up with the following:
a) Relocation fee is determined by Value of Hamilton Opportunity – Value of Phoenix Opportunity that the NHL would be gaining. (Incidentally, I think that there’s a great argument to be made that the Phoenix Opportunity gained by the NHL would be more valuable than the Coyotes now, in that it would necessary involve getting a team that’s debt free, with rights to an area that includes a municipality with a modern arena that is in desperate need of an anchor tenant).
b) The bidding on the Coyotes would then involve people basically considering two options: a) the keep the team in Phoenix option, which costs you $X or b) the move option, which costs you $X + the relocation fee.
It’ll be interesting to see where the league sets the relocation fee. The NHL was getting $80MM for expansion teams 12 years ago; I don’t know where the centrally generated revenues have gone since then but I don’t know that I’d bet that they’ve outpaced inflation. Maybe $US110MM for an expansion team today?
If, for the sake of discussion, the NHL set the relocation fee at $200MM, which seems defensible to me on my back of an envelope math, what we should see is a very interesting auction. I would assume that the City of Glendale will work with anyone willing to keep the team in Phoenix and offer them considerable subsidies and breaks on the lease.
Really then, I think that this almost becomes an economics question. What has a higher net value?
a) The value of the Coyotes if they remain in Phoenix (taking into account any breaks that the City or other suppliers might offer) + the NHL’s relocation fee; or
b) The value of the Coyotes in Hamilton (taking into account any damages that might be payable to entities like the City), less the NHL’s relocation fee.
If a is higher, a buyer who will keep them in Phoenix should emerge. If b is higher, Balsillie should win. If Balsillie values owning an NHL team in Hamilton over and above the economic value of the team, he might win even if a exceeds b.
All of this of course assumes that the NHL can’t convince the court that it should be able to deny a transfer for other reasons, although my sense yesterday was that that didn’t seem to really be an issue.
As an aside, I would think that the relocation fee should include any indemnity that might be payable to the Leafs and Sabres. If the argument is that any indemnity would more than eat up the value of a new franchise in Hamilton, then that opportunity actually has no economic value to the NHL and the relocation fee should be set at whatever the appropriate indemnity to Buffalo/Toronto would be.
I got sidetracked, but I also want to make the point that the judge’s comments about the NHL applying its rules fairly is, I think, a success for Balsillie. If he takes a long view of this, he can continue bidding for teams in the future. At some point, Bettman won’t be able to pull a rabbit out of the hat by finding another purchaser and convincing the existing owners to take a lesser offer. What happens then?
It still seems to me that making peace with Balsillie on some sort of terms makes the most sense in this situation.
If JB drops his offer by $50 mil, then Moyes is better off with the Reinsdorf offer, or indeed any offer that involves the lease not being broken.
Gerald, please explain. If you listen to league lawyers they argued that the total debt is really $120 million because Moyes’ loans weren’t in fact loans but capital injections. So, everything above $120 million presumably would go to Moyes if the judge decides that all other creditors are owed first (over Moyes).
Now for the lease, the judge has already indicated that they are not likely going to get the ungodly sum of $500 million they are asking for. The judge said that that money is actually owed to them between now and 2035 but he asked the lawyer for the city, what happens if the NHL pulls the plug on the franchise in November to which the the Cities lawyer apparently had no answer. So the judge doesn’t see the lease as a secured debt and may in fact not see it as worth all that much.
So, in theory Balsillie could offer $300 million for the team, $100 million could go to the NHL for relocation fee and the remainder would be way more than enough to pay off the remaining creditors in full, except maybe Moyes. But unless another offer to purchase the team is on the table, which there is not one, that does make the creditors whole then needing a Balsillie bid that does make the creditors 100% whole is a moot point.
it amounted to a rout of JB for the NHL.
How do you figure? The judge basically dismissed the legitimacy of the other local offers to buy, he ordered the NHL to come up with a relocation fee, he made some comments about how relocation has’t harmed other leagues, and he made a comment along the lines of the league’s rules had to be applied fairly. JB’s odds of success in this thing have never been good, but they’re a whole lot better today than yesterday.
That’s exactly the way I see it, Raj. Until now, I gave him zero chance. Today I see it about the way Tyler sees it. Balsillie may be willing to pay fair market value for a team in Ontario. He may even be willing to pay more than that if owning a team there is worth more than money to him.
Balsillie’s chance of success zoomed up yesterday.
N.B. The judge didn’t order the NHL establish a relocation fee, but it sure seems that’s the way he’s leaning. I believe he did say something about mediation to get to a figure between the parties, which struck me as odd as the NHL really only wants a fee that is high enough such that JB is not willing to pay it, and JB only wants a fee low enough that he is willing to pay (how do you mediate a zero-sum game with only binary outcomes?) In any case, it would seem that the relocation fee issue is the judge’s attempt to not have to actually rule on the bigger relocation issue. If it is high enough that JB lowers his bid such that it starts looking less attractive than Reinsdord’s, or at least squeezes more concessions out of Glendale, than this whole thing beings to go away. I think Tom’s right, the idea that a judge can tell them they have to set a reasonable price on an unwanted relocation, rather than directs its timing, process, and substance unilaterally, is anathema to how the NHL views its operations.
Oh, how the little weasel must have squirmed on his way to the airport. Knowing that alone was worth the price of admission for me, and for that I am thankful to the batshit crazy duo, Balsillie and Rodier.
I see that the judge also said that he’s not convinced that the NHL doesn’t have the right to veto, so long as they don’t act arbitrarily or unreasonably. I don’t know how far down the line that gets them. I don’t think that JB’s litigation, the Hamilton tickets fiasco or walking away from the Pens transaction is something that hte judge would be impressed with.
…as a reason for denying him. That could have been clearer.
I don’t think “because some day we want to get even more money from a second teamm in toronto, plus expansion fees from kansas city” will go over that well either.
Nope. The judge is only interested in one thing. Paying back the creditors of the Phoenix Coyotes and right now he has only been presented with one way of doing so and that is the Balsillie bid. As a bankruptcy judge he doesn’t care about preserving the Coyotes or protecting future expansion markets. Judge Baum has given the NHL a carrot in the form of a relocation fee and I suspect he won’t take too kindly to the NHL if the NHL tries to use that carrot to hinder the process by demanding an unreasonably sized carrot.
By asking about the relocation fee, I thought it was setting in motion that for the right price the team could move anywhere – i.e. the team is movable. This means Hamilton is in play; however, presumably it would encourage others in other cities – Vegas, Kansas City, Seattle, etc. – to enter the Coyotes sweepstakes.
Accordingly, I wondered how the relocation fee would be determined. Is it dependent on the value of the new market? Could the board of governors dissuade certain bids tied to certain markets by assigning different fees to different markets?
How would that alter any auction process on the Coyotes? For example, if Kansas City is an $50 million relocation fee whereas Hamilton is a $100 million relocation fee, this could mean that KC Somebody could pay more for the Coyotes in the auction but pay less to the league and ultimately end up getting a team cheaper than Balsillie would. Since the creditors presumably end up getting all of their money back, how would Judge Baum deal with differing relocation fees? Would this finally make the relocation fee an antitrust issue?
Lot of questions there, sorry.
If there are multiple offers that pay off all the creditors in full the judge will have to decide which one to accept. In making that decision he will factor in all stakeholders opinions. Presumably if one of those offers is from someone intent on keeping the team in Phoenix that would be the easy choice. If no such offer exists but there are multiple offers to relocate the team then likely the Judge will accept whatever offer the NHL prefers.
So, if Kansas City offers $212.5 million for the team plus a $50 million relocation fee that the NHL asks for and the Balsillie group offers $212.5 million plus a $100 million relocation fee, then likely the judge would accept the offer that the NHL prefers.
The NHL can probably get away with setting different relocation fees depending on the market but whatever ‘formula’ they used to calculate such fees would have to be similar across all locations or else you would have serious anti-trust issues.
Nope. The judge is only interested in one thing. Paying back the creditors of the Phoenix Coyotes and right now he has only been presented with one way of doing so and that is the Balsillie bid.
Except the Balsillie bid offers to buy something that Jerry Moyes does not own. Jerry Moyes does not have the right to sell a franchise in Ontario. That right belongs to the league. I think that’s the rub.
As a bankruptcy judge he doesn’t care about preserving the Coyotes or protecting future expansion markets.
True. But again Moyes doesn’t own those markets. Why should the creditors get anything from the sale of something the NHL owns?
Judge Baum has given the NHL a carrot in the form of a relocation fee and I suspect he won’t take too kindly to the NHL if the NHL tries to use that carrot to hinder the process by demanding an unreasonably sized carrot.
I don’t see it as a carrot. It is good news for the NHL in the sense that Baum is implicitly agreeing that the league as a whole owns the Hamilton market. The bad news is that he is saying “Okay, let’s forget about all this Balsillie crap and the lease and everything else. Lets pretend Moyes came to you and said that the Phoenix market was dead and he wanted to move to Hamilton. What are the criteria for Moyes to move? What’s the cost to him?
As long as a Balsillie bid (and the state of the Phoenix market) meets the league criteria for relocation and as long as Balsillie is willing to pay, I think Baum will force the sale and relocation. I didn’t see a path to the Hamilton Coyotes but I see one now. I think it now depends on whether Balsillie is really prepared to make it happen. Will he pay, say, $300 MM or $350 MM? I think if he will, he definitely gets the team.
I can’t see this development as anything but a huge blow to Bettman and Bettman’s position. He’s being dragged along a road that commits the NHL to selling Balsillie the Hamilton market for a reasonable price. Bettman doesn’t want to sell it at all.
I still don’t understand how Waldie could get it so wrong.
From the beginning I asked why Balsillie didn’t simply buy votes from the other owners with a relocation fee. It looks like he’ll have to do it anyway (if he wants to own a team in Ontario), even though he took the bankruptcy court route.
Why doesn’t the NHL just match Balsillie’s bid and buy the franchise back? Wouldn’t that solve most of the problems?
- The creditors would get paid the same amount under the NHL deal as the Balsillie deal, so there’s no issue there.
- The NHL could keep the team in Phoenix for a year in order to provide time for people to put up rival bids to relocate the franchise. They could then sell the Coyotes to an Ontario bidder, thereby generating a sizable “expansion” dividend for all owners, or sell it to Kansas City or something and protect the Ontario market. Either way, they would come out with a net gain.
- The NHL isn’t bullied into monetizing the second franchise in Ontario.
- The NHL isn’t bullied into letting Balsillie in.
The judge doesn’t want to touch the territory or franchise mobility issue. That’s why he came up with this relocation fee idea. It was a way to give everybody a little of they want without setting some dangerous precedent.
I imagine the NHL is hesitant about matching Balsillie’s bid because they don’t want to put up $200M for an asset that they know isn’t worth anywhere near that much. But they do have the ability to create money out of thin air (through expansion or relocation), so I’m not terribly sympathetic.
I’d also imagine they don’t want to set a precedent. Just in case another franchise ever gets in trouble.