Phoenix Coyotes…The Ontario edition

Posted on May 6th, 2009. Written by Emmett Jones.

The Phoenix Coyotes debacle is reminiscent of a watered down version of the Baltimore Colts move to Indianapolis, but with bankruptcy law thrown in.  For those not in the know,

The Coyotes’ ownership group yesterday filed for Chapter 11 bankruptcy to implement a court-approved sale of the franchise to RIM co-CEO Jim Balsillie’s PSE Sports & Entertainment. The group would pay $212.5M for the franchise, contingent on its relocation to southern Ontario. The money would help pay the franchise’s secured creditors in full, as well as $97.5M to its unsecured creditors. Balsillie also has agreed to post debtor-in-possession financing of $17M to allow the team to continue operating through the bankruptcy proceedings.

Okay…hockey franchise files Chapter 11 bankruptcy because they can’t afford to pay their creditors back  (the Coyotes have been dealing with this problem for awhile) and in the meantime, they’ve found someone to buy the team and pay off their creditors.  Sounds okay, right?  Oh, the NHL didn’t know about it? Oh…

In Phoenix, Harris & Watters report the bankruptcy filing came “less than an hour before” NHL Commissioner Gary Bettman “planned to broker a deal to sell the [Coyotes] and strip team owner Jerry Moyes of his duties.” The NHL and the city of Glendale, which leases Jobing.com Arena to the Coyotes, “have objected to Moyes’ tactics,” and other investors still “could outbid” Balsillie’s group. Moyes’ financial adviser Earl Scudder said that Moyes “has no option but to file for bankruptcy because that was the only way to void the team’s lease with Glendale.” Harris & Watters notes the move “shocked Glendale, which contributed $180[M] for the $220[M] arena that opened in 2003.” NHL VP/Media Relations Frank Brown said that the NHL “must approve all sales and relocations.” However, attorneys involved in the bankruptcy filing said that a bankruptcy judge “could overrule the NHL if the court finds the sale is in the best interest of creditors.”

Awesome. I’m guessing that Jerry Moyes knew that Bettman was planning to sell the team and strip him of his duties, so he filed bankruptcy, which  invoked the automatic stay; a bankruptcy provision which freezes an sales of property or any actions any creditor could bring against you.  The result? Bettman can’t sell the team unless its through the bankruptcy court, and the court itself will go with the “best deal”; the deal that pays out the most to secured and unsecured creditors.  So, like the article says, other investors could outbid Balsillie’s group, but they’re now on a deadline because a.) the Coyotes have already filed bankruptcy b.) their chapter 11 bankruptcy plan already looks fairly feasible with over $97 M going to pay off unsecured debt, and 100% payment to secured creditors.

This should be interesting.  The NHL does have to approve the relocation of a team (how ballsy is the move by Balsillie?) but if the very likely bankruptcy court approves the sale of the team to Balsillie scenario occurs…what happens then?  Balsillie is only buying the team if he’s allowed to relocate it, and if that’s the best offer that pays back the largest portion of the teams unsecured debt…then the question of whether or not federal bankruptcy law can trump the NHL’s collective bargaining agreement will come into play.

From Bettman’s side though…when should you fall on your sword?  Is it even worth trying to save a Phoenix franchise that lost almost $45 million this season?

SportsBusinessDaily — Coyotes file for Chapter 11, reach deal to sell team to Balsillie

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