Lawsuit: Thrashers' value dropped $50M
ATLANTA -- The owners of the Atlanta Thrashers claimed Friday to have lost more than $130 million since 2005 and at least another $50 million on the plummeting value of the NHL franchise because of a bitter dispute that ruined their plans to sell the team.
The ownership group, known as Atlanta Spirit, revealed its financial woes in a lawsuit against one of the city's most prominent law firms, claiming faulty legal work is largely to blame for its predicament.
The lawsuit filed in Fulton County Superior Court claims the owners have been negotiating to sell the Thrashers over the last six years, only to be thwarted by a contentious split with Boston-based co-owner Steve Belkin. That legal tussle was finally settled in December when his shares were bought out.
The team's remaining owners contend that the dispute would have ended in August 2005 if the Atlanta law firm King & Spalding hadn't negotiated a "fatally flawed contract." The suit claims the firm's attorneys doled out advice that was "poorly considered, self-interested and, in many cases, blatantly wrong."
It's the latest round of courtroom wrangling involving the Atlanta Spirit, the seven-man group that owns the Thrashers, the NBA's Atlanta Hawks and the operating rights to the Philips Arena where the two teams play. Co-owner Michael Gearon said in a statement that the lawsuit will have no effect on either of the teams.
"My partners and I regret having to file a lawsuit," Gearon said. "But King & Spalding made egregious errors that caused us to be tied up in litigation for five years and cost us an enormous amount of money, time and anguish."
The firm promised a vigorous defense.
"King & Spalding and its lawyers acted appropriately, and the lawsuit is without merit," said Steve Collins, an Alston & Bird attorney representing the firm. "We look forward to presenting the firm's substantial defenses to the court at the appropriate time."
The malpractice suit recounts a split that occurred in 2005, when Belkin objected to the Hawks' trade of Boris Diaw, two first-round draft picks and a $4.9 million trade exception to the Phoenix Suns for guard Joe Johnson, who had agreed to a $70 million contract.
The other owners sought to buy Belkin's 30 percent stake in the venture and assigned King & Spalding to negotiate an appraisal process that would give the disgruntled shareholder a "fair and reasonable" value while protecting the other co-owners' interests, the lawsuit said.
But the suit claimed King & Spalding flubbed its responsibilities with, among other things, a loose definition of "fair market value" that gave Belkin an inflated stake. It then tried to conceal the truth and minimize its legal exposure after discovering the malpractice, according to the suit, leaving the other owners bogged down in litigation.
"Instead of quickly buying out their co-owner's interest for a fair price in the fall of 2005, plaintiffs were tied up in litigation for five years, operation of the Atlanta Hawks and the Atlanta Thrashers was impaired and title to the franchises was clouded," it said.
The revelation of heavy losses will undoubtedly stoke the speculation about the Thrashers' future in Atlanta. Numerous reports from Canada claim the team is on the verge of relocating to a more hockey-friendly city such as Winnipeg, Hamilton or Quebec City.
The owners have repeatedly denied any plans to sell or move the team, instead trying for the past two years to find investors who want to keep the team in Atlanta. So far, no one has stepped forward.
The lawsuit reveals Atlanta Spirit's intent to sell the hockey team shortly after it completed a $250 million deal for the Thrashers, the Hawks and arena operating rights, capitalizing on a new labor agreement that was reached after the NHL suspended the 2004-05 season.
"Plaintiffs expected that once the new labor agreement was finalized there would be substantial interest from potential buyers and that they would be able to sell the franchise," the suit says. "As plaintiffs anticipated, the value of smaller market franchises increased and potential buyers came forward."
The suit points to the sale of three franchises: the St. Louis Blues for $150 million in 2006, the Nashville Predators for $172 million in 2007 and the Tampa Bay Lightning for $204 million in 2008. But the owners of the Thrashers said they couldn't sell because of the dispute with Belkin.
"Regardless of the lawsuit that has been filed, we have always been committed to finding solutions that keep the Thrashers here in Atlanta," Gearen insisted in his statement.
The NHL clearly wants the Thrashers to stay put in one of the biggest U.S. television markets but acknowledges that it might have to look at other options if the team's financial situation does not improve.
"I can't tell you how close or how far away we are collectively from having to consider alternatives and make a decision," NHL deputy commissioner Bill Daly told The Associated Press last month. "But it has not been the best situation for [the owners] and as a result it has not been the best situation for the franchise or for the National Hockey League."
The Thrashers' attendance has steadily dropped. Many fans have been turned off by a penny-pinching franchise that has made the playoffs only once since entering the league in 1999 and generally has one of the lowest payrolls.
With a new coach and general manager, the Thrashers got off to a strong start this season but attendance has continued to drop. They rank 28th in the 30-team league with an average turnout of 12,848 -- a 3 percent drop from this time a year ago -- and most nights it appears far fewer fans are actually at Philips Arena.
The team's performance has slumped in recent weeks, with only four wins in its last 14 games. The Thrashers are now clinging to the final playoff spot in the Eastern Conference, just two points ahead of the Carolina Hurricanes after a 3-2 shootout loss to the Lightning on Thursday night.
Atlanta already lost one NHL franchise. The Flames became the South's first major-league hockey team in 1972, but financial problems resulted in the team moving to Calgary eight years later.
Copyright 2011 by The Associated Press