Coyote Ugly
James Mirtle is all over the Phoenix Coyote story with several posts that collect every detail that’s been made public. It basically adds up to “The courts are going to decide it.” I’m not going to even try to make sense of the legal issues.
For what its worth, my common sense tells me the Balsillie bid will fail. It seems to be a transparent attempt get around both the terms of the Glendale lease and the NHL rules. It enriches Balsillie and Moyes at the expense of Glendale and the league. If Arizona bankruptcy law allows a judge to force a Coyote relocation to Ontario, then the law is an ass.
So what’s going on? Why is Balsillie (or Moyes) poking Bettman in the eye with a sharp stick? Because its there? More likely, they wanted to throw a wrench in the Bettman plan to rescue the team. The team is trying to sell tickets and sponsorships in this environment. Any new owner faces a more difficult task marketing the team, particularly if the lease is loosened as part of the sale.
Balsillie seems to have given up on the idea that Bettman (and the league) will ever voluntarily let him have a team in Ontario. He’s trying to get public opinion in Canada to force the issue. Its hard for me to see how this strategy can work. The league will eventually put a second team in Toronto, but that will involve expansion – and a whopping expansion fee – not relocation.
Its a mess but if Bettman has found a buyer, I think the team stays in Phoenix.
Postscript: However it works out, its delightful to watch Bettman squirm. I’m sure he will have to answer some tough questions from the Board of Governors about his handling of the problem. He should have bounced Moyes when the team ran out of money in February and none of this would have happened. Instead he pretended the team was not bankrupt and he opened the door for the game Moyes and Balsillie are playing.
Furthermore, the entire mess is an embarassment to the league and to Bettman’s southern strategy. An NHL hockey team is bankrupt in one of the league’s largest American markets? Didn’t the NHL shut down the game for a year to ensure teams like Phoenix could be healthy?
I like the poking the eye with a very sharp stick comment.
Unlike Leipold, there’s no reason for Moyes to take one for the team here, so to speak. He’s losing money by the minute, probably on all sides, so why not try to fight for every penny of it– especially with JB bankrolling the fight.
Mirtle certainly is all over it. He is doing a bang-up job. If you are interested, Tom, I have put together a pretty lengthy summary of many of the issues set out in the actual bankruptcy documents.
Did anyone catch Bill Daly acting like a second rate Mafia goon yesterday? “We don’t pick fights, but we end them.” He looked like an angry bully, and also offered clear evidence that this is personal – they don’t like Balsillie because he refuses to play by treehouse rules. I would think that a comment like that might hurt the NHL in a court room whenever the League tries to claim that this is about “rules”. (Rules, BTW, that were changed after the fact when Balsillie entered into an agreement to buy the Penguins.)
Please do Gerald.
It would make a funny editorial cartoon to see Bettman in the role of Wolf from Pulp Fiction, as ‘The Fixer‘. “Ok, this is how it is boys, we have to clean up all this blood before anyone notices, and then get the body out of here before anyone sees what happened.”
It looks like the same show we saw when Balsillie made the Pittsburgh offer. The NHL went to great pains to even publicly outline how relocation was a BOG decision. And even appeased Canadian Competition bureau by suggesting that relocation was a majority decision of the Board, no veto. Arent the NHL’s ducks in a row here?
If a bankruptcy judge were to decide in favour of Balsillie’s anti-trust complaints, (almost seems out of his purview), wouldn’t that be a major shakeup to the fundamental business model of professional sports? It must be a court case the nhl is relishing, if it can win it. Wouldn’t the other major leagues be watching closely?
I saw the summary, Gerald, via a Mirtle link.
Dennis, I agree that the NHL looks really bad right now, but I don’t think we can describe it as personal. They’d take on anyone who refused to play by the rules.
I think Stephen is right about the implications of an anti-trust decision going against the NHL, but if that becomes the issue, it won’t be decided for years.
I think the NHL is banking on the fact that they took control of the team last summer and formalized the arrangement in November. If as one report indicated, Moyes signed over proxies that included a cluse that forbade a Moyes declaration of bankruptcy, can he win? If the NHL wins on that point, everything else goes away.
I’d like to see the financial statements of the team for interest sake. I’d also like somebody in the media to call Bettman on his lies throughout the fall and winter about the health of the league and the health of the team. If Bill Daly was really acting as the owner of an NHL team, the fans should know it.
I also wonder if we are seeing the first of several shoes dropping.
How does the NHL possibly square its claims that it has been running the team since November with its ongoing claims to the contrary? They are either lying now, or they were lying to fans for months. Either way, it’s a fairly large blow to the League’s credibility.
If all Balsillie wants is an NHL located in Southern Onatrio, why doesn’t he simply use his financial power to persuade the other owners that it’s in their best interest to let it happen? Is it because he can’t afford the expansion fee? If he can afford it, why doesn’t he simply say to the other owners, “I’m willing to make this relocation as beneficial to you as an expansion, because I’m going to pay you, right now, more than you would have received in expansion fee.”?
The other owners benefit financially by not having to prop up the Coyotes directly, and by having one less low revenue franchise that requires annual welfare payments. Add in the extra TV and merchandising revenue that the Coyotes would generate in Southern Ontario, and the owners would very quickly have the equivalent of an expansion fee payment, and then some.
Kel, that could cost him upwards of another $400-million.
If Balsillie can’t pay that, maybe he should stop dreaming about owning an NHL team (and stop wasting money in doing so).
By the way, the figures I could find online says that the most recent expansion teams each paid only $80 million in expansion fee. Where did you arrive at that $400-million figure?
How does the NHL possibly square its claims that it has been running the team since November with its ongoing claims to the contrary? They are either lying now, or they were lying to fans for months. Either way, it’s a fairly large blow to the League’s credibility.
No kidding. If we go through this again with, say, Tampa, will anyone believe Gary? I never believe him anyway, but lots of people do.
The other owners benefit financially by not having to prop up the Coyotes directly, and by having one less low revenue franchise that requires annual welfare payments.
This probably isn’t true. THe owners are committed to 4.5% (about – I didn’t look it up.) of revenues in sharing. If Phoenix doesn’t get any, the others will get more.
Add in the extra TV and merchandising revenue that the Coyotes would generate in Southern Ontario, and the owners would very quickly have the equivalent of an expansion fee payment, and then some.
I can’t see it. The only revenue jump is the difference between Hamilton and Phoenix locally and that would go to Balsillie. There may be a little extra merchandising off the NHL site, but that’s about it.
This is why the NHL doesn’t care very much about another team in Ontario. It doesn’t generate any more league revenues. The hope with Phoenix et al is more eyeballs on American TV broadcasts and improving that revenue stream.
By the way, the figures I could find online says that the most recent expansion teams each paid only $80 million in expansion fee. Where did you arrive at that $400-million figure?
If they conduct an open bidding process for another team in Southern Ontario, including a payoff to the Leafs and Sabres, what do you reason the final bid would be? Significantly more than what the Predators paid to play in Nashville?
If you’re looking at $80-million, we’re talking about $2.75-million a team. Who’s that going to placate exactly?
In this economic environment, I doubt that there are many bidders, if any. If someone is going to spend $400-million on expansion fee alone to own an NHL team in Canada, he should just buy the Canadiens, estimated at $344-million by Forbes, if not the Leafs, estimated at $448-million in late 2008. Interesting, $448-million is still less than 1% of Research In Motion’s market cap.
Okay, but your premise is as such:
If he can afford it, why doesn’t he simply say to the other owners, “I’m willing to make this relocation as beneficial to you as an expansion, because I’m going to pay you, right now, more than you would have received in expansion fee.”?
(a) Why pay this fee if he can attempt to get the team for far less through the courts?
(b) The fee the NHL would ask for would potentially be astronomical.
(c) Given Bettman’s reaction to his previous two purchase attempts, I highly doubt Balsillie throwing cash at the BOG was an option.
How much do you think the TV package would be worth with another Canadian team in the mix? You have to think that TSN and CBC would both be willing to pay significantly more for their respective packages, and Rogers Sportsnet would bid huge in order to broadcast a regional package of games on Sportsnet Ontario.
I wonder if CBC might be tapped out on that front. But it does make sense that the networks would be willing to pay more given the ratings for that new team would likely be better than a lot of the existing Canadian teams.
(a) Because the chance of success in courts is low. Maybe his lawyer “friends” have convinced him otherwise, but a lot of experts are saying that the chance is slim that they gain a team this way.
(b) They can always negotiate and the owners would not to so quick to turn down free money in these days. They have to realize that no one else with this much money to spend is as interested as Balsillie is.
(c) Given the outcome of his previous attempts, I highly doubt that the relocation approach by throwing cash at a single owner has any chance of success.
The local TV revenue would be huge, but that goes to Balsillie. I agree that CBC and TSN ratings would go up somewhat but I don’t think it will be enough to make a huge difference to the package.
The CBC can only show one game at a time and we see the Leafs almost every Saturday. TSN would probably gain more.
Tom is correct about the 4.5% for revenue sharing. It might make an impact to the team that gets bumped out of the top-10 revenue sharing obligation and to the team that would get into the bottom 15 (assuming Hamilton was a top-10 revenue team), but those are transitory positions anyway.
Kel, how much of anything is compared to RIM’s market cap is irrelevant. RIM is not Jb’s company. He owns a small but lucrative chunk comprising the vast majority of his net worth. Frankly, I am a little puzzled as to how he is going to pay for it. CEO’s usually don’t dump $400 million of their company’s stock (1/6 of his holdings) in one fell swoop ($200 million for the price and $200 million to pay the cap gains tax for selling). If JB pulls off the seemingly impossible, it might be a good idea to short RIM, with all those shares in the market. Then there is the working capital for the team ($75-80 million minimum), the $150 million or so to fund arena refurbishment, etc., all of which need to be doubled to pay JB’s capital gains taxes on the sale of RIM shares to fund it. He may have $60-70 million sitting around to use, but that is but a small dent in this tab. [as an aside, the reason for the big tax bill for RIM stock is because he has owned it since RIM was small and worth n more than a few bucks a share. In that scenario, most of the proceeds are capital gains. He might be able to get away from some of the taxes by having used holding companies for his shares, but that does not by any means deflect the fact that he wold face a huge bill.]
The TV contracts are locked in for years, so the NHL would have to wait several years for any fee increase (unless they had an inkling and wrote a “new CDN team” proviso into their TV contracts).
Most, if not all, of the owners have several hundreds of millions of dollars in net worth. They generally don’t get too excited unless a cheque has eight digits to the left of the decimal.
As for Bettman’s credibility, he is a canny wordsmith, a proposition with which even Tom would agree. I seem to recall that, at some point Bettman started to couch his answers slightly differently, along the lines of “challenges yes, but we will overcome”. I suspect that, if one goes back over his public pronouncements one will find plausible deniability. I am not saying that is good or honest. I’m just saying it would not surprise me.
Tom is correct about the 4.5% for revenue sharing. It might make an impact to the team that gets bumped out of the top-10 revenue sharing obligation and to the team that would get into the bottom 15 (assuming Hamilton was a top-10 revenue team), but those are transitory positions anyway.
To be fair to the point Dennis made, if enough of the welfare cases fall by the wayside, teams may not qualify for enough money to use up the entire 4.5%.
As for Bettman’s credibility, he is a canny wordsmith, a proposition with which even Tom would agree. I seem to recall that, at some point Bettman started to couch his answers slightly differently, along the lines of “challenges yes, but we will overcome”. I suspect that, if one goes back over his public pronouncements one will find plausible deniability. I am not saying that is good or honest. I’m just saying it would not surprise me.
I suppose, but I don’t think it helps him very much. When bearded about stories that claimed the NHL was pumping money into the team, he dismissed them as unfounded rumours and grossly exaggerated speculation. If we parsed every statement he made, it might add up to deniability, but it isn’t plausible.
It was too dishonest to call disingenuous. The league has been lying about the siruation in Phoenix all season.
I think the best way for the NHL to beat this is to win the point that Moyes was no longer in control of the team when he declared bankruptcy. It doesn’t help that case when last week the Coyote president flatly denied that, declaring that he still reported to Moyes.
rankly, I am a little puzzled as to how he is going to pay for it. CEO’s usually don’t dump $400 million of their company’s stock (1/6 of his holdings) in one fell swoop ($200 million for the price and $200 million to pay the cap gains tax for selling).
He won’t have to sell a material amount of his stock. I imagine there are more than a few banks that would be more than willing to lend him the money with his stock being used as collateral. This is the financing avenue of choice for most people who have a majority of their net wealth tied up in their own business.
As for Bettman’s credibility, he is a canny wordsmith, a proposition with which even Tom would agree. I seem to recall that, at some point Bettman started to couch his answers slightly differently, along the lines of “challenges yes, but we will overcome”. I suspect that, if one goes back over his public pronouncements one will find plausible deniability. I am not saying that is good or honest. I’m just saying it would not surprise me.
You know, I actually started doing this last night, and Gerald’s absolutely right. All there is Daly saying the report about the NHL being in control of the team contained “some inaccuracies.”
Bettman said all along that there were issues, but they were being overblown, that they were close to getting a new owner, etc. There were never any bold-faced lies, merely half truths (quarter truths?). He even admitted they were advancing them revenue-sharing funds early on.
Have some great quotes though, probably for a post Monday.
He won’t have to sell a material amount of his stock. I imagine there are more than a few banks that would be more than willing to lend him the money with his stock being used as collateral. This is the financing avenue of choice for most people who have a majority of their net wealth tied up in their own business.
That is spot on, of course, particularly regarding any construction financing. That being said, the NHL has limitations to the effect that teams cannot carry more than a 50% debt load. Accordingly, he would still have to insert hundreds of millions of equity. In theory, he could undertake all the debt personally (and pledge his shares), even in a difficult debt market, but that would then mean he would be carrying a $400-500 million debt load, with a $60-70 million carrying cost.
As well, if one thinks that the banks would give him much leeway by pledging his shares in this stock market, when values can plunge 10-20% in a day, and RIM shares are ~50% of what they were a year ago, one may need to reassess that view.
To be fair to the point Dennis made, if enough of the welfare cases fall by the wayside, teams may not qualify for enough money to use up the entire 4.5%.
True enough. However, if there is a shortfall, the first $10 million of the shortfall then goes into a joint marketing fund. It is only if the shortfall is greater than $10 million that anything goes back to the teams.
But Balsillie’s net worth in the 3 billion range, and $400 million would be less than 15% of his net worth. Would it be reasonable to assume a person with this level actually has more than 15-20% of his wealth not tied to a single company stock? I honestly don’t know much about the personal finance of the wealthy. (By the way, I was fully aware that he doesn’t come close to owning 100% of RIM, but was simply pointing out how NHL franchises compare with other better known businesses like RIM).
You would think so, but not according to my research. JB has a huge percentage of his net worth in RIM stock (and a smaller amount in unrealized gains on options). His holdings are public information (as are the holdings for any public co insider) and can be ascertained on the net. I did it a while ago. I have not updated it lately, but I would be surprised if he has done a lot of selling; insider sales get reported by law and are often commented on by the business press if significant. Like I said, you would be stunned at the lack of diversification.
And now we have reports that another group wants to move the Thrashers to Toronto. I’m starting to buy into the theory that JB’s goal is not to own a team but do the dirty work to bring the team to Canada. He’ll be just as much of a folk hero without having to assume the risk of owning a team.
Conspiracy theory time.
Tom once suggested that Balsillie was playing the part of villain to help the NHL. In exchange, he’d ultimately get an expansion franchise, and the NHL would have help putting pressure on local government to get a better arena lease deal.
What always amazes me is that owners who “know” exactly how the league views a would-be rogue owner then are so quick to jump in bed with the guy. Did Moyes sleep through the Pittsburgh and Nashville moves, then wake up one day and find a billionaire on his doorstep?
I know, I don’t put too much stock into that seeing how much of the court’s (or courts’) time will be consumed by this escapade. Still, you have to wonder about members of the BOG who apparently keep going behind Gary’s back to cook these things up.
Tom once suggested that Balsillie was playing the part of villain to help the NHL. In exchange, he’d ultimately get an expansion franchise, and the NHL would have help putting pressure on local government to get a better arena lease deal.
I think this idea is gone. There is no way Bettman wanted this to happen. Moyes is definitely off the reservation, but he’s in big trouble personally. Maybe he’s setting himself up to sue the league.
And now we have reports that another group wants to move the Thrashers to Toronto. I’m starting to buy into the theory that JB’s goal is not to own a team but do the dirty work to bring the team to Canada. He’ll be just as much of a folk hero without having to assume the risk of owning a team.
Me, too, sort of. I think he’d like a team but this is nearly as much fun for him. He doesn’t like Bettman, he does like the limelight and this is costing him what he considers chump change. His expensive hobby. Some guys like big yaghts, he;s a Canadian hockey fan who likes to rattle Bettman’s cage. Hell, if I had $3 billion, I’d happily spend money to make Bettman miserable too.
Moyes is definitely off the reservation, but he’s in big trouble personally. Maybe he’s setting himself up to sue the league.
Given his history, I definitely see this coming.
I might be mistaken but I seem to remember the NHL loaning money to the Senators before they filed for bankruptcy protection. If Rod Bryden was able to file for bankruptcy protection after his club was loaned money by the NHL, why would the NHL have put those restrictions on Moyes?
Did Bettman just not try as hard to ensure Ottawa kept its team as he doing with Phoenix?
Or is Bettman doing a little creative interpretation with the conditions of the league’s loan to the Coyotes to suit his purposes?
I have read the documents, BRG. There is no creative interpretation on the league’s part. Moyes signed an irrevocable proxy. Just from a legal POV, the machinations that Moyes is trying to put on the proxy are, to use a technical legal term, comical.
Regarding Bryden, there is no indication that he did not also sign a proxy. Even if he didn’t, that is really neither here nor there.
You would think so, but not according to my research. JB has a huge percentage of his net worth in RIM stock (and a smaller amount in unrealized gains on options). His holdings are public information (as are the holdings for any public co insider) and can be ascertained on the net. I did it a while ago. I have not updated it lately, but I would be surprised if he has done a lot of selling; insider sales get reported by law and are often commented on by the business press if significant. Like I said, you would be stunned at the lack of diversification.
Tough for an officer of a company to sell a large portion of his holdings, without it having adverse effects on the stock price. All such transactions are monitored closely by the SEC and the market in general. Explanations such as ‘portfolio diversification’ don’t carry much weight with investors.