The outcome of the NHL’s battle in the desert over the ownership of the Phoenix Coyotes could send a cold shiver through other major professional sports leagues in North America.
The right to retain the final say over who can, and maybe more importantly, who cannot own a team is something the people running pro hockey football, basketball and baseball are loath to relinquish, according lawyers and sports insiders.
“The sports leagues are sort of a self-selected, closed group,” Eric Schaffer, a senior bankruptcy partner at the Pittsburgh law firm Reed Smith, said this week in an interview. “They decide who is going to be admitted to their league, they police themselves.
“They also want to make sure they retain the ability to be the exclusive arbiters of who is going to be in their membership.”
Canadian billionaire Jim Balsillie, co-CEO of BlackBerry maker Research In Motion, has offered US$212.5 million to buy the Coyotes but the deal is contingent on moving the team to Hamilton.
The NHL wants to keep the team in Arizona and favours a US$148-million bid from Jerry Reinsdorf, who owns baseball’s Chicago White Sox and the NBA’s Bulls.
The NFL, NBA and Major League Baseball have all filed documents asking the court to respect the NHL’s authority over ownership transfer and relocation.
“All the leagues are vitally interested in this,” said one former longtime sports executive. “I think (baseball commissioner) Bud Selig would be apoplectic if he didn’t have the right to reject an ownership bid, as would (NFL commissioner) Roger Goodell.”
The NHL owners voted 26-0 to reject Balsillie as an owner, saying he was perceived to be untrustworthy.
Bankruptcy judge Redfield T. Baum has scheduled a hearing for Sept. 2 in Phoenix to determine whether to uphold the NHL’s rejection of Balsillie. If Baum decides to ignore the vote, Balsillie could participate in a Sept. 10 auction for the Coyotes.
Schaffer said if Balsillie is successful in taking control of the Coyotes and move them to southern Ontario, it would put a huge dent in the armour professional leagues have coated themselves with.
“If someone can force his way in through the bankruptcy process, it goes to the fundamental nature of the league and how it governs itself,” said Schaffer, who was involved in the Pittsburgh Penguins bankruptcy case.
“What is potentially at risk here is the ability of an outsider to force his way in. Or the ability to turn a sport franchise into just another commodity that can be bought and sold without the control of the league.”
While the NHL is adamant it does not want Balsillie as an owner, a bankruptcy judge may be more interested in which potential buyer can satisfy the team’s creditors, said Schaffer.
“The bankruptcy courts don’t really care about a third party,”he said. “If a third party is going to try and tamp down the value (of the team) and thereby restrict the ultimate distributions to the creditors, the courts have got an inherit basis against that.
“From the league’s perspective, this is their nightmare.”
Reinsdorf may have gained the upper hand in this area by reaching a deal to pay a large portion of the US$80 million owed to the Coyotes’ largest secured creditor.
Schaffer said the judge may also have concerns that Balsillie’s purchase hinges on relocating the team.
Time is running out on moving the team for this season. Also, if Balsillie does win this court fight, it sets the stage for more litigation.
“At some point that is a problem Balsillie has,” Schaffer said. “The test that is applicable under the bankruptcy code is, what is the highest and best offer.
“The highest is usually the best but not always. If the highest is an offer that can’t close, or it can’t close without a year or two of litigation, it may not be the best.”
News of the court case has even reached Australia where it came up as part of a sports law class being taught at the University of Sydney by visiting Penn State professor Stephen Ross.
Ross, a sports law and antitrust scholar, said a victory by Balsillie would be a good thing because the major professional sports leagues have too much power over ownership.
“Sports leagues have illegal monopolies by preventing new entry from deserving clubs,” he said in an email to The Canadian Press. “Sports leagues harm consumers by being run by the clubs themselves, in their own self-interest, instead of the best interests of the league as whole.”
Many Canadian hockey fans would probably be thrilled if the Coyotes are reincarnated in Hamilton.
But they may want to be careful what they wish for. If leagues lose their power over franchise ownership, teams could begin switching cities like cars changing lanes on the freeway.
“It takes away one of the anchors a league has,” said the former sports executive, who preferred to remain anonymous. “It’s really to protect the interest of the league as whole.”
Schaffer sees a scenario where even a flagship team like the Montreal Canadiens could move if another city waved enough money and incentives in front of owners, and the NHL could do nothing to block the transfer.
Ross said Balsillie wouldn’t be in this fight if the NHL used a system of promotion and relegation, like European soccer leagues.
“Balsillie wouldn’t have to fight to buy Phoenix, but could just enter a Hamilton franchise in the second-tier league and invest in player and coaching talent so they could win the league and get promoted to the NHL,” he said. “If the NHL were a corporation run by a board of directors solely concerned with the total profitability of the league, they would surely prefer a team with higher live gate and higher TV ratings in Hamilton than one in Phoenix.
“Only because the NHL is a ‘closed’ league that is run by owners in their parochial self-interest do we find ourselves in this situation.”