Tuesday, July 29th, 2014

Here We Go Again

12

The Atlanta Journal Constitution has a story that describes the lawsuit filed by the owners of the Atlanta Thrashers against their own lawyers. Setting aside the merits of the case for a moment, a court case – and this one does seem likely to go to court – will provide the same sort of fodder for the media as the Phoenix Coyotes have for the past couple of seasons. In other words, Gary Bettman is bracing for another series of embarassing disclosures about the financial viability of another one of his zombie franchises.

So far we have learned that the Thrasher ownership group has been forced to pour $130 MM in cash into the franchise since the lockout ended. We’ve also learned that the ownership group believes that the franchise value has plummeted in the past few years. Finally, we learned that the owners have lied to the fans about their plans from the time they bought the Thrashers. Apparently, they always planned to sell (or “otherwise dispose of”) the team after the lockout, basically as soon as Gary Bettman’s CBA drove up the franchise value.

The Spirit filed a $200 million malpractice lawsuit against King & Spalding Friday, saying the law firm’s negligence cost them millions of dollars and made them “unable to sell or otherwise dispose of the Atlanta Thrashers.” King & Spalding’s contract caused the buyout process to “quickly break down into chaos,” costing seven of the partners $14.5 million in legal fees and forcing them to shovel more than $130 million into the Thrashers to keep the franchise afloat, the lawsuit says.

“(The) Plaintiffs inability to buy out Belkin’s interest in a timely manner and the resulting cloud on their title created by the Maryland litigation interfered with operation of the franchises and specifically prevented Plaintiffs from selling the Atlanta Thrashers,” the filing says.

…The seven owners wanted to sell the Thrashers after the 2004-05 lockout was over, the new lawsuit says. According to the document, the labor contract after the 2004-05 lockout would be to the “financial benefit of smaller market franchise such as the Thrashers and thus increase their value. Plaintiffs expected that once the new labor agreement was finalized there would be substantial interest from potential buyers and that they would be able to sell the franchise.”

The seven partners talked with potential buyers while they were entangled in litigation with Belkin, the lawsuit says. Because Belkin still owned 30 percent of the teams, the seven other partners “could not convey free and clear title to the franchise and thus were not in a position to sell,” the lawsuit says.

As to the merits of the case itself, the usual caveats apply. I’m not a lawyer so I can only apply my common sense (and common sense is seldom applicable in a court of law). It certainly appears as if the law firm bungled the case if only because the objective was to arrive at an amicable parting of the partnership and the result achieved was anything and everything but that objective.

Still, I find it hard to believe the damage claim. Unless the partnership can produce somebody who wanted to buy the team but was blocked by the ownership mess, I don’t buy their claims. What prevented a sale? Why wouldn’t Belkin (the disgruntled minority owner) entertain an offer? The ownership issues mess would probably become easier to sort out if the Thrashers were sliced out of the pie and sold.

The Thrashers could have been sold in 2005? Show me the buyer.

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Comments

12 Responses to “Here We Go Again”
  1. Boxcar says:

    I am not fully up on the legal issues in Atlanta, and like most everyone else in the hockey world I really don’t care. What does scare me though is the fact cities like Winnipeg and Quebec are going to get sucked into putting up a whack of taxpayer’s money to provide homes for these orphan franchises.
    I was watching the Moose play on tv and couldn’t help but notice all the kids at the game. If the NHL was in town the Moose would be gone and the amount of kids at the game would be drastically reduced as people aren’t as inclined to drop $200 or $300 to take the kids to a NHL game. At least not more than once or twice a year anyway.

  2. Tom says:

    I am not fully up on the legal issues in Atlanta, and like most everyone else in the hockey world I really don’t care.

    I don’t care about the case either. I’ll be interested in the Atlanta financials though.

    What does scare me though is the fact cities like Winnipeg and Quebec are going to get sucked into putting up a whack of taxpayer’s money to provide homes for these orphan franchises.

    I’ll believe it when I see it. As long as there is somebody halfway credible who is willing to own these teams, they will survive. Going back to Quebec or Winnipeg isn’t a good thing for the league or the business of hockey. Both places would turn better revenues than far bigger markets like Phoenix or Atlanta, but they would still be near the bottom of the pack. Trading an Atlanta for another Buffalo doesn’t help the league much.

  3. Gerald says:

    Tom, contrary to your suggestion, this case is one which will almost surely settle.

    Over and above the fact that the overwhelming number (>90%) of cases settle, this is an E&O case. It will be defended by insurers. Insurers are even more likely to settle cases than the normal +90% level.

    I doubt we will ever hear anything. Given the circumstances, the insurers and their client law firm will push for private mediation to keep this out of the papers.

    On a side note, no one could entertain offers at the time because they were in a dispute which effectively put into question the ability to control the sale of the shares.

    • Tom says:

      On a side note, no one could entertain offers at the time because they were in a dispute which effectively put into question the ability to control the sale of the shares.

      Why?

      • Gerald says:

        Why what?

        Why were they unable to entertain offers, or why were they in a dispute, or why did it put into question the ability to control the sale of the shares?

        • Tom says:

          They claim they had potential buyers. Why couldn’t they entertain offers? Why couldn’t they take an offer to Belkin or his lawyers?

          • Gerald says:

            THey could not entertain offers because the dispute was over who would effectively own the shares when all was said and done AND, even more importantly, at what price.

            As part of the “shotgun” arrangement between the shareholders, the idea was that the shares would be valued by expert third parties, and then the sale transaction (between Belkin and his other shareholders) would take place at that value.

            Without being able to agree on what that price was, then it would be impossible to determine who would either receive (or cover) the difference between that price and the price paid by a subsequent buyer.

            For example, if the expert third party said that the value of the Thrashers was $150M (and the variosu shareholders’ portions were priced accordingly), and a third party came by and offered $160M (or $140M, if you prefer), without the ownership settled it would be impossible to figure out who covers(or receives) that $10M difference. sure, they could have split it somehow, but that is what they were suiing each other over; if they could have arrived at such a settlement, they would not have been in litigation in the first place. They differed as to what the price would be.

            As well, from a buyer perspective, you are never going to buy anything unless you know that the seller has title to the asset. It’s as simple as that, from the buyer’s POV.

  4. snafu says:

    If a third party offered $300m (insane, I know), these guys would have fallen all over themselves to accept the market’s decision on the value of the team. I could just see Belkin holding out, saying, nope, my estimate came in at $170m, and I’m going to hold out.

    I think the truth is that they had no one interested, and won’t have anyone interested, because they already have the arena lease/rights and a co-tenant. If they can’t make money, what makes anyone else thing they’ll have a shot? Maybe Atlanta (the city) will float a CFD fearing the loss of business to the downtown area if the Thrashers left so they’ll foot the bill. :)

    • Gerald says:

      Nope, you’re missing the point. In the above scenario, the question is who gets the balance of the money.

      If they can’t make money, what makes anyone else thing they’ll have a shot?

      By that logic, no one would ever buy a business that loses money. But they do so. Every day, on innumerable occasions. For businesses that are much bigger than a pro sports team. Surely an explanation as to why that is so is unnecessary.

      • Tom says:

        Nope, you’re missing the point. In the above scenario, the question is who gets the balance of the money.

        The balance of what money? If the Thrashers were sold – at any price – Belkin gets 30% of the sale price, the Spirit gets 70%.

        Well, Tom, if nobody was interested, then there are no damages, are there? Are you seriously suggesting that the Atlanta Spirit counsel are unfamiliar with the law of damages? You must be suggesting that in order to advance that argument.

        Aside from the legal fees, I don’t buy the damage claims. Would the Atlanta Spirit counsel be beyond wildly inflating a damage claim? That doesn’t happen in civil suits? Or are you suggesting that they have too much integrity to do what happens in every civil suit I’ve ever seen?

  5. Tom says:

    If a third party offered $300m (insane, I know), these guys would have fallen all over themselves to accept the market’s decision on the value of the team. I could just see Belkin holding out, saying, nope, my estimate came in at $170m, and I’m going to hold out.

    This is the way I see it, too. If they had a legitimate offer for 100% of the team and took it to Belkin and Belkin killed the deal, fine. I can see damages in this case. But otherwise? I’d call bullshit. There was nobody interested.

    • Gerald says:

      Well, Tom, if nobody was interested, then there are no damages, are there? Are you seriously suggesting that the Atlanta Spirit counsel are unfamiliar with the law of damages? You must be suggesting that in order to advance that argument.

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