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Hockey team bankruptcy has baseball implications

Thursday, May 7, 2009

Last week, Jerry Moyes, the owner of the Phoenix Coyotes, placed his team into bankruptcy, touching off a showdown between the NHL and the U.S. Bankruptcy Court.

As explained well in this WSJ Article by Matthew Futterman, the Bankruptcy Court is obligated to accept the highest bid for the team, regardless of the NHL's wishes. Unfortunately for NHL Commissioner Gary Bettman, the highest bidder is a Canadian gentleman named James Balsillie. Balsillie is the founder of Research in Motion, the company that makes Blackberrys.

Balsillie's plan for the Coyote's, like his plan for the Pittsburgh Penguins that he tried to buy several years back (which the NHL blocked), is to move the club to the Copps Coliseum in Hamilton, Ontario. In the past, Balsillie has gone so far as to sell 12,000 season tickets to prove that the team has a market and could compete with the Maple Leafs.

For various reasons, including the fact that the Coyotes currently play in a new taxpayer funded arena in Glendale, AZ, Bettman does not want the Coyotes leaving Phoenix. So, in an effort to stem the inevitable, Bettman is recruiting other potential owners to bid on the club, but none seem likely to top Balsillie's $212.5 million offer. (Jerry Reinsdorf included.)

Now, what does this have to do with Baseball? Can you think of any teams that might be subject to a bankruptcy judge's whims? Can you think of any other teams that are being sold? Can you think of any other teams where the seller, before going into bankruptcy, told the bidders that the best bid would be the one that maximized post-tax profit (rather than the largest bid wins)... but now that the parent company is in bankruptcy those considerations could be for naught? I'm really scraping my brain here... oh wait, there is that one ball club. What was it's name again? Oh, right! The Chicago National League Ball Club (dba Chicago Cubs).

No, I don't expect the Phoenix proceedings to have much of an impact on the sale of the Cubs. It would be quite late in the game to derail the Ricketts' purchase of our team (although if this had happened a year earlier, my guess is Mark Cuban would be the new owner), but the world should be watching with bated breath because the legal precedent that allows Leagues to determine who can be an owner and where those teams can play is shaky at best. If the Bankruptcy judge sides with Balsillie, that's just one more stone thrown at the window of League self-determination.

Where do I come down on this? Well, the WSJ gives us a nice peak into the debt structure of the Coyotes. The NHL is in the pole position and should receive the full $37 million it is owed, no matter who buys the club. Next is Michael Dell's private equity firm which would receive it's $80 million in most circumstances. And finally, the creditor who would be most sensitive to any price fluctuations is Jerry Moyes. He has $104 million of unsecured debt, so the club would need to sell for $221 million (plus legal fees) for him to receive payment on all of his personal loan to the club.

Normally, I would side with Moyes. It's his money that would be lost if the club sold for less, so he ought to be able to choose whom to sell it to, and he already has - in lining up a deal with Balsillie... but this isn't a normal situation.

Remember that part about the Coyotes playing in a taxpayer funded arena? The original lease, which gets torn up in bankruptcy court, called for a $700 million fee if the Coyotes left Phoenix, and so I am arguing that the party most harmed here is not Jerry Moyes, Jim Balsillie, or the NHL, but the taxpayers of Phoenix and Arizona. If I were Bankruptcy King, I'd call all of those gentlemen into my thrown-room and tell them that the highest bidder who intends to honor the original lease gets the club, otherwise I'll be cutting Jeremy Roenick in half.

Posted by Byron at May 7, 2009 8:03 AM | |

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