Balsillie puts in $212.5 mil offer for the Coyotes

[LadyStanley]

http://slam.canoe.ca/Slam/Hockey/NHL/Phoenix/2009/05/07/9381051-sun.html

Garrioch update.

While sources told Sun Media that NHL officials were ready to sign a purchase agreement worth $150-$160 million with Chicago Bulls/White Sox owner Jerry Reinsdorf, NHL commissioner Gary Bettman was caught off guard Tuesday when Phoenix Coyotes owner Jerry Moyes filed for bankruptcy protection.

Speaking on condition of anonymity, a league governor said if Balsillie wants into the NHL, he's going to have to follow the proper channels.

Many believe he's trying to undermine the bidding process after attempts to buy Nashville and Pittsburgh backfired.

"This is just going to be one big legal battle," a league official said. "He will never own an NHL team if he keeps going this route."

 

[CapsWolverinesUSA]

Why did he attach a condition to his bid then? Can he drop the condition?

Very simple. Because he wants to move the team to Canada.

If the NHL were to take bids for an expansion team in Canada, I've heard estimates that the franchise would go for over $300 million. By purchasing the Coyotes with a condition to move them, he gets a $300 million franchise for only $212.5 million. That's why his offer is so much higher than any offer to keep the team in Phoenix could ever be.

If he were to remove his condition, suddenly he would be buying a MUCH MUCH less valuable franchise.

And yes, he is absolutely entitled to amend his offer. If he did remove the condition, you can safely assume he would cut his bid. Probably by $50m or more.

 

[roosterman]

This is 100% right. The bankruptcy court has no authority or jurisdiction to order the NHL to allow a franchise to be relocated. Because relocation is a condition of the Balsillie offer, the offer can't even be accepted by the bankruptcy court. Any attempt to accept a conditional offer minus the condition is viewed as nothing more or less than a counter-offer, which Balsillie won't agree to.

Balsillie's only real option is to either convince the NHL to agree prior to the sale (fat chance) or reduce his bid, buy the team as-is, and then fight for relocation once he owns the team. Like Al Davis has done in the past, going to court to try and move a team you already own has a much higher probability of success than trying to get a court to order the NHL to allow you to move it as a condition of purchase.

I thought along the lines of what you are thinking until I heard this interview. Now I'm not so sure.

Listen to the interview...

http://www.fan590.com/media.jsp?cont...07_105212_8440

 

[CapsWolverinesUSA]

Exactly.

What is JB trying to do? He can't possibly NOT know this. What is his end game here?

Is it a PR-stunt to try and rally the Canadian populace to somehow force the NHL & BOG to "monetize the asset" of the S.Ontario market and monetize it with JB?

I really don't know the answer to this. It's hard to imagine someone as savvy as Balsillie would make such an obvious mistake. But his trackrecord with the Pens and Preds suggests he may just be too damn headstrong for his own good.

 

[Brodie]

Very simple. Because he wants to move the team to Canada.

If the NHL were to take bids for an expansion team in Canada, I've heard estimates that the franchise would go for over $300 million. By purchasing the Coyotes with a condition to move them, he gets a $300 million franchise for only $212.5 million. That's why his offer is so much higher than any offer to keep the team in Phoenix could ever be.

If he were to remove his condition, suddenly he would be buying a MUCH MUCH less valuable franchise.

And yes, he is absolutely entitled to amend his offer. If he did remove the condition, you can safely assume he would cut his bid. Probably by $50m or more.

But if he cut his bid, he risks losing it to Reinsdorf... who as we now know was prepared to offer $160m. Wouldn't it make more sense to pay Hamilton money for Phoenix and hope to hell you win the anti-trust suit based on Davis v NFL?

 

[CapsWolverinesUSA]

I thought along the lines of what you are thinking until I heard this interview. Now I'm not so sure.

Listen to the interview...

http://www.fan590.com/media.jsp?cont...07_105212_8440

Can you confirm your link? I'm not getting any audio file. Hopefully it's not one of those Canada-only streams.

 

[Valic]

Why did he attach a condition to his bid then? Can he drop the condition?

Because why would anyone with half decent business sense buy a failing franchise in a failed hockey market.

Buying the Coyotes, even if they can get the lease problem resolved is still a major risk, and I don't see him wanting his play toy so far away.

He only wants a team, if he can put a team in Canada.

 

[CapsWolverinesUSA]

But if he cut his bid, he risks losing it to Reinsdorf... who as we now know was prepared to offer $160m. Wouldn't it make more sense to pay Hamilton money for Phoenix and hope to hell you win the anti-trust suit based on Davis v NFL?

Well, as far as I know, the bankruptcy sale process is not a blind auction. If Balsillie decides to bid $160 and Reinsdorf comes in at $170, Balsillie can comeback at $175. The goal of the court is to get the most money for the assets being assigned. So, it's in their interest to allow back-and-forth bidding. It's not a guessing game, I don't think.

 

[Fugu]

Why did he attach a condition to his bid then? Can he drop the condition?

If I had to put myself in his shoes, it's a way of saying IF the court rules that I can't move the team, I'm no longer a bound to the purchase agreement. I believe these things can be changed is the buyer and seller agree.

I don't see your point. Whatever anti-trust issues would arise around the relocation of the franchise would only come up AFTER Balsillie has bought the Coyotes minus the relocation condition. Right now, he has made no indication that he is willing to do that.

Assuming that the Moyes bankruptcy filing is deemed legit (and I think it probably will be), the Bankruptcy court must dispense with the assets. But you can't just dispense the assets on a whim. You need concrete purchasing procedures to be followed. The whole point is that Balsille's offer CANNOT be accepted as currently composed. The court cannot accept the conditional offer when it has no authority to impose the condition. It would be a legally invalid acceptance. So, until Balsillie amends his offer and buys the team without conditions, there is no anti-trust issue to be had, because Balsillie has no stake in the direction of the franchise.

If the move is legal (bankruptcy) and the court rules that Balsillie will be the owner, I'd presume he becomes the owner. He probably already knows that he CAN move the team if there are no obstacles to the ownership itself. That's the problem for the NHL. It is far better for them to prevent the transfer of ownership to JB than it is to try to fight him on a move.

I'm not sure you can really say how they would view the condition. It's only there until he needs to close. It's also possible that Moyes accepted the condition as a way to get more money out of the NHL. Anyone else can put in a higher bid. Moyes basically just set the bar at a far higher point than Reinsdorf, Bettman et. al. were willing to pay.

 

[roosterman]

Can you confirm your link? I'm not getting any audio file. Hopefully it's not one of those Canada-only streams.

Let's try this again...

http://www.fan590.com/media.jsp?content=20090507_105212_8440


If that doesn't work go to http://fan590.com and hit the Jerry Reisman on demand link on the right.

 

[BogsDiamond]

I thought along the lines of what you are thinking until I heard this interview. Now I'm not so sure.

Listen to the interview...

http://www.fan590.com/media.jsp?cont...07_105212_8440

My apologies, I don't have sound at work.
Could you paraphrase what was said in this interview?

 

[CapsWolverinesUSA]

Let's try this again...

http://www.fan590.com/media.jsp?content=20090507_105212_8440


If that doesn't work go to http://fan590.com and hit the Jerry Reisman on demand link on the right.

Thanks. Listening now.

 

[mouser]

Purchase Agreements:
http://multimedia.thestar.com/acrobat/6e/71/a9f645864415819eb433ce5d112a.pdf
http://multimedia.thestar.com/acrobat/3f/8d/33555e1449e2aae4e0be159eb84a.pdf
http://multimedia.thestar.com/acrobat/6e/b4/92a5fdd047af9fcbad7e8e87687e.pdf


They reveal unsurprisingly that Balsillie/Moyes plan to request that the bankruptcy court overrule any objections by the NHL to change in ownership and relocation of the franchise.

Here's the relevant section requesting (requiring as a condition of purchase) the Bankruptcy court to:
- Overrule any NHL objection to ownership change and relocation
- Block the NHL from imposing any additional compensation payment to the NHL/member clubs, which would include items like territorial infringement payment to Toronto or Buffalo.

(b) Sales Approval Order. If the Buyer's bid is approved by the Bankruptcy Court, the Sale Approval Order by the Bankruptcy Court shall by acceptable in form and substance to Buyer in Buyer's reasonable discretion, which Sale Approval Order will be deemed to be acceptable if it includes the following provisions, without other provisions unacceptable to Buyer in its reasonable discretion:

...

(iv) holding that, if NHL and those of its constituent members that have, or claim to have, consent rights pursuant to the last two sentances of Article 4.3 of the NHL Constitution, does not consent in writing to transfer and/or assumption and assignment (as applicable) of the Franchise to the Buyer to be performed by Buyer with its home games to be played at the location of Buyer's choice in Southern Ontario, Canada subject to terms and conditions no less advantageous than those currently enjoyed by the Toronto Maple Leafs hockey team (which, for greater certainty, shall not include any obligation of Buyer to provide any payments or other consideration to the NHL or any of its constituent members), (1) such written consent was deemed given, or objections to such operations were waived, and/or (2) the restrictions on assignment to Buyer do not bar transfer, assumption and assignment under Bankruptcy Code 363(f)(4) and 365(b)(2), (c)(1), (f)(1), and they are transferred and assigned free and clear or any such claim, rights or objections as set forth in the Order and as set forth in subsection (viii) below,

 

[LeftCoast]

There are a lot of interesting story lines here.

Gary Bettman doesn't want Balsillie to dictate to him where an NHL franchise can be located. Fair enough. But Balsillie is betting that the owners (not Gary Bettman) faced with the options of contraction, perpetually propping up a debt ridden, losing team, or consenting to relocation to Southern Ontario will choose the latter. The league still has the leverage because I doubt the court can force the league to approve the relocation of the team.

The owners of the wealthier teams certainly can't love the prospect of propping up Phoenix indefinitely while a hockey passionate billionaire is standing there with an open cheque book.

The league (Bettman) also maintains that Jerry Moyes didn't have the authority to file chapter 11 because the league has/had taken over operations (but not ownership) of the team. This argument is not going to fly because of the obvious conflict of interest. It the bankruptcy proceedings, the NHL is trying to play the roles of a creditor, debtor and trustee simultaneously. It would be preposterous for the court to allow one minor creditor to dictate to the other creditors what/how/if they get a return on their money while rejecting out of hand an offer that would maximize the return to the creditors.

As I understand it, the bankruptcy filling all but takes the City of Glendale out of the picture as it allows the court appointed trustee to break the lease. So unless the city of Glendale and the NHL can work together to come up with a new offer that includes a new lease and a new majority owner without the relocation condition, there is little to no chance that the team remains in Phoenix.

If Wayne Gretzky accepts the fractional ownership offer - how would the league look in rejecting an ownership group that includes it greatest star?

 

[Brodie]

Reisman's credentials:


Education: Queens College (B.A., 1963): Syracuse University (LL.B., 1966); Official Observer to the Drafting Committee to Revise Uniform Commercial Code Article 9. Deputy Mayor, Village of Great Neck, 2000-2002; Chairman, Zoning Board of Appeals, Village of Great Neck. Trustee, Village of Great Neck, 1998-2002. Acting Village Justice, Village of Great Neck, 2002-____; Member: Nassau County Member: Corporation Law Committee, 1982-____; Banking Law Committee, 1982-____; Bankruptcy Law Committee, 1982-____, New York State and American Member, Business Law Section Bar Associations; Association of Commercial Finance Attorneys; Commercial Law League of America.

 

[LadyStanley]

http://vyous.com/sports/nhl/coyotes...sale-could-make-gretzky-rich---globe-and-mail

Gretzky could be getting a pretty penny from Balsillie....

Gretzky owns 1.5 per cent of the Coyotes and serves as head coach and "managing partner."

Court filings show Balsillie's offer includes an immediate payment of $8-million to Gretzky to cover compensation he is owed. He is also entitled to an additional $14.5-million payment as part of the change-in-control provisions of his employment contract.

Gretzky's employment contract allows him to walk away from the team if the club is sold and still collect whatever is owing on his contract, court filings show.

 

[davemess]

Would the fact that the Coyotes would be moved from the US to Canada have any implications or put any restrictions on the US Court?

 

[LadyStanley]

Here's the relevant section requesting (requiring as a condition of purchase) the Bankruptcy court to:
- Overrule any NHL objection to ownership change and relocation
- Block the NHL from imposing any additional compensation payment to the NHL/member clubs, which would include items like territorial infringement payment to Toronto or Buffalo.

So instead of $300m for expansion team in Ontario plus perhaps $75m to Toronto and $50m to Buffalo ($425m for those keeping score), he's asking for the whole kit and caboodle for $212.5m, or half.

Cheeky *******.

 

[kdb209]

What people are missing is that antitrust laws would come into play, not the bankruptcy court. The latter would decide how best to dispense with the assets to recover as much money as possible for the creditors. If you assume that Moyes can sell the Coyotes to Balsillie, the NHL then would have to challenge an owner on his ability to move the team. See Davis vs NFL. (kdb209 has posted here on numerous occasions on this very topic)

The question then becomes a matter of jurisdiction - would anti trust issues be subject to review in US Courts under US law or in Canadian Courts under Canadian law. Just where is competition being restricted?

The basis of Davis' claims (actually the LA Memorial Coliseum Commission) was that the league's denial of his request to move to LA violated anti trust law because it reduced competition in the LA market.

The Canadian Competition Bureau has already investigated the NHL's relocation policies several times, and has issued rulings that they do not present anti-trust issues under Canadian law (assuming that only a simple majority vote of the BoG is needed and no teams hold veto power). While the CCB ruling does not mean that no anti trust challenges could be made, I would guess that the CCB's determination will hold significant sway with the courts.

 

[shureshot66]

I really don't know the answer to this. It's hard to imagine someone as savvy as Balsillie would make such an obvious mistake. But his trackrecord with the Pens and Preds suggests he may just be too damn headstrong for his own good.

but he wasn't particularly headstrong with his bid for the pens. there were certainly people who suspected he would try to move the team, but he never once came out and announced it. certainly he didn't have web sites about it nor did start taking deposits for season ticket plans in hamilton.

i would imagine he changed his strategy -- such as it is -- after being shut out by bettman that first time. in balsillie's mind, he played by the rules the first time and was cut off at the knees, so why play by the rules the next time(s)? and if he can aggravate bettman in the process, he's going to.

 

[Fugu]

Quick hits from the Fan590 interview:

*Bankruptcy court can deem the NHL by-laws as restraining trade if they try to block the sale based on the move (per the Davis case)

* The court can void the arena lease agreement

* Other bidders can enter the process

*The court can take everything into consideration, including the team's ability to make money in the future in the current location, but ultimately it has to take care of the creditors (the best offer doesn't necessarily mean the most money, but of course that has to be a factor)

*Moyes is himself listed as a creditor to the tune of $103 million

 

[Brodie]

The question then becomes a matter of jurisdiction - would anti trust issues be subject to review in US Courts under US law or in Canadian Courts under Canadian law. Just where is competition being restricted?

The basis of Davis' claims (actually the LA Memorial Coliseum Commission) was that the league's denial of his request to move to LA violated anti trust law because it reduced competition in the LA market.

The Canadian Competition Bureau has already investigated the NHL's relocation policies several times, and has issued rulings that they do not present anti-trust issues under Canadian law (assuming that only a simple majority vote of the BoG is needed and no teams hold veto power). While the CCB ruling does not mean that no anti trust challenges could be made, I would guess that the CCB's determination will hold significant sway with the courts.

It's an interesting case because the NHL is a Canadian organization, technically headquartered in Toronto... would American anti-trust laws even apply?

 

[CapsWolverinesUSA]

I thought along the lines of what you are thinking until I heard this interview. Now I'm not so sure.

Listen to the interview...

http://www.fan590.com/media.jsp?cont...07_105212_8440

Very interesting. Essentially the point he is making is that the court will cut through the two-tiered process and deal with both levels of the dispute at once. In other words, instead of (1) dealing the the bids, making an award of the franchise based on the best viable bid, and only then (2) having the owner sue for the right to relocate in a new (antitrust-based) legal action, the judge would consider all the issues simultaneously.

I can see why a judge would do this for judicial economy purposes, but it seems to me that he'd be doing it at the expense of basic common law principles. Maybe the trumping factor is that the best interest of the creditors is to determine the anti-trust issues up front, because if they are NOT a hurdle, the creditors would be better off with Balsillie's $212.5m bid over whatever lower unconditional bid would be accepted (from Reinsdorf, Balsillie or whomever).

In practical effect, it's not much different than Balsillie removing his condition, lowering his bid, and then fighting the NHL to move the team after the purchase goes through. His chances of winning that relocation dispute are no better or worse depending on the stage at which those arguments are heard. The bonus of doing it this way -- and this would explain WHY he's doing what he is doing now -- is that he can get the merits of his anti-trust claim decided before he commits to buying the team. So, while he could potentially buy the team condition-free for $50-70m less than his current offer and move them after winning in court, if he were to lose, he'd be stuck having paid $140-160 million for a dying franchise he doesn't want to own.

Essentially, he is willing to sacrifice the potential savings of $50-70m in order to learn the fate of his anti-trust claims before he goes through with the purchase. Considering his $212.5m price is still well less than the estimated value of a Canadian NHL franchise, this makes good business sense. The moment he wins, his value of his investment increases something like 50%. And if he loses, all he has wasted is legal fees and he can walk away from the Coyotes with his $212.5 million safe and secure.

 

[MayDay]

Larry Quinn said 20% I believe. However, with all the Leaf fans, Hab fans, and to a lesser extent, Ottawa fans who come down... it is easy to skew the numbers to where you see fit. Those fans will still come down: Hamilton or no Hamilton.

20% of revenue. The actual percentage of tickets sold in the course of a season is less.

The disparity arises from the fact that a good chunk of Canadian ticket purchases at HSBC Arena are the eight times a year the Sabres host the Leafs and the Habs, which tend to be platinum or gold-level (i.e. high-revenue) games.

 

[roosterman]

Very interesting. Essentially the point he is making is that the court will cut through the two-tiered process and deal with both levels of the dispute at once. In other words, instead of (1) dealing the the bids, making an award of the franchise based on the best viable bid, and only then (2) having the owner sue for the right to relocate in a new (antitrust-based) legal action, the judge would consider all the issues simultaneously.

I can see why a judge would do this for judicial economy purposes, but it seems to me that he'd be doing it at the expense of basic common law principles. Maybe the trumping factor is that the best interest of the creditors is to determine the anti-trust issues up front, because if they are NOT a hurdle, the creditors would be better off with Balsillie's $212.5m bid over whatever lower unconditional bid would be accepted (from Reinsdorf, Balsillie or whomever).

In practical effect, it's not much different than Balsillie removing his condition, lowering his bid, and then fighting the NHL to move the team after the purchase goes through. His chances of winning that relocation dispute are no better or worse depending on the stage at which those arguments are heard. The bonus of doing it this way -- and this would explain WHY he's doing what he is doing now -- is that he can get the merits of his anti-trust claim decided before he commits to buying the team. So, while he could potentially buy the team condition-free for $50-70m less than his current offer and move them after winning in court, if he were to lose, he'd be stuck having paid $140-160 million for a dying franchise he doesn't want to own.

Essentially, he is willing to sacrifice the potential savings of $50-70m in order to learn the fate of his anti-trust claims before he goes through with the purchase. Considering his $212.5m price is still well less than the estimated value of a Canadian NHL franchise, this makes good business sense. The moment he wins, his value of his investment increases something like 50%. And if he loses, all he has wasted is legal fees and he can walk away from the Coyotes with his $212.5 million safe and secure.

That's my understanding as welll... If the judge can truly overrule the NHL on relocation (WITHOUT a BOG vote) at the sametime as awarding the franchise to JB, then it becomes clear why JB put the conditional offer based on relocation as well.

It should be very interesting to see what happens. If JB is sucessful I wouldn't be surprised to see this happen again with other teams. LOL