- Lester Munson, Legal Analyst
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A bankruptcy judge in Phoenix has rejected a proposed sale of the NHL Coyotes to Jim Balsillie, a Canadian billionaire who planned to move the team to Ontario. The ruling by Judge Redfield T. Baum raises questions about the future of the team and the authority of the NHL over team owners and team locations. Here are some of the questions and their answers:
Is the battle over? Is it a complete victory for the NHL and commissioner Gary Bettman in their effort to keep the team in Phoenix?
No. Although it is a victory for the NHL and Bettman, the war is far from over. Coyotes owner Jerry Moyes and his attorney, Thomas Salerno, want to sell to Balsillie and were bold and creative in their attempt to use the bankruptcy court as leverage in the deal that would allow Balsillie to move the team to Hamilton, Ontario. Their effort was clever enough to cause serious concern among the commissioners of the other three major sports. All three filed papers objecting to what Moyes and Salerno were trying to do. The Moyes-Salerno bankruptcy efforts included an attack on the team's stadium lease, an attack on commissioners' authority to govern the movement of teams, and an attack on league attempts to govern sales of teams. It would have established a level of free agency for owners, the kind of free agency that makes commissioners and other owners very nervous. But Moyes and Salerno were asking too much and moving too fast for Judge Baum, who rejected their requests for a sale and a move. But a close reading of his 21-page opinion shows that the judge wanted to know more about the issues before he would consider the transaction and relocation. He rejected it for now, but he also suggested that the NHL and Moyes try to settle things.
How can a bankruptcy judge decide what's best for the NHL?
Bankruptcy courts in the U.S. are making all sorts of big decisions these days. The Chrysler case initiated what might be a sea change in the rules that govern American businesses and their investors. The General Motors case will undoubtedly contribute more changes in the rules. Several major news organizations are being reorganized by bankruptcy judges. If a bankruptcy judge can decide what's best for automakers and newspapers that employ hundreds of thousands of people, it can certainly decide what may be best for an organization made up of a relatively small number of billionaire owners and millionaire players.
Why does the NHL want to keep the team in Phoenix, where it loses money every year?
Bettman and the NHL hope that there is someone who can find a way to make money with the Coyotes in Phoenix. Wayne Gretzky takes $8 million each year as a coach and minority owner. Is he willing to take less to keep the team in Phoenix? The lease of the arena in Glendale could be renegotiated. Other costs could be reduced. But a profitable franchise in Arizona might be a Bettman fantasy. More importantly, NHL owners, as well as owners in other professional leagues, have for generations profited from the sale of expansion franchises. If there is going to be a team in Hamilton, the owners want to collect a fee from the sale of a new franchise. They would collect nothing if the Coyotes moved into the markets now controlled by the Maple Leafs and the Sabres.
What's next? What can the Coyotes' ownership do now?
Owner Moyes and attorney Salerno are considering various options. They can try to negotiate with the NHL, hoping to use more of Balsillie's money to appease Bettman and the owners. It is their best option, but there are already hard feelings about the Moyes-Salerno bankruptcy gambit. They can appeal Judge Baum's ruling, of course, but that would be time consuming with no guarantee of success. Their most significant leverage is a second legal action, known as an adversary proceeding, that they filed soon after they filed the bankruptcy. It is based on American antitrust law and claims that the NHL is a cartel that is using its monopoly to restrain Moyes from running his business. It is a powerful argument, and it is the kind of case that drives commissioners and owners to distraction. It is similar to the antitrust cases that led to free agency for players in the NFL and revenue sharing in the NBA. Bettman, a former antitrust lawyer, will assert that there is no merit to their claim, but he knows better. A combination of the mediation requested by Judge Baum and some saber rattling on the antitrust case could produce a settlement.
How important is this situation to the NFL, to MLB and to the NBA?
A ruling by a bankruptcy judge does not set any precedent that would affect the other leagues. But if the ruling is appealed into the higher courts, including the U.S. Supreme Court, it could become important. Al Davis established some fairly significant precedents as he moved the Raiders to Los Angeles and then back to Oakland. But the U.S. Supreme Court has recently considered only one of the many sports antitrust cases that reached its level. Even that opinion, written by Justice Stephen Breyer, is so muddled that it has not really settled many of the antitrust issues that arise from the four sport monopolies. Judge Baum is right when he noted in his opinion that "none of the leagues has suffered when one of its members made a quick and unapproved move" such as the Colts to Indianapolis, the Clippers to Los Angeles, or the Rams to St. Louis.
Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.