After weeks of denying plans to take control of the Phoenix Coyotes, the NHL moved yesterday to repossess the franchise and remove owner Jerry Noyes from the team manager. Not a surprise: NHL insiders had told us last week this was the game plan. But Noyes made a business decision that was definitely in his short-term best interest: he filed for Chapter 11 bankruptcy, putting control of the franchise basically in control of a U.S. bankruptcy court. The Chapter 11 protection, which gives a corporation leeway to reorganize, is the less severe form of bankruptcy and gives Noyes the power to sell the assets and renege on specific, existing contracts — like the team’s Jobing.com lease.
The future of the Phoenix Coyotes became both clearer and muddier after a series of legal actions put the status of the team in temporary limbo.
After weeks of denying plans to take control of the Coyotes, the NHL moved yesterday to repossess the franchise and remove owner Jerry Noyes from the team manager. Not a surprise: NHL insiders had told us last week this was the game plan.
But Noyes made a business decision that was definitely in his short-term best interest: he filed for Chapter 11 bankruptcy, putting control of the franchise basically in control of a U.S. bankruptcy court. The Chapter 11 protection, which gives a corporation leeway to reorganize, is the less severe form of bankruptcy and gives Noyes the power to sell the assets and renege on specific, existing contracts — like the team’s Jobing.com lease.
It is a route frowned upon by sports commissioners and owners. For starters, sports teams rely heavily on goodwill; i.e., businesses performing services in the hopes of being paid down the road. Without that goodwill, sports teams would need to play by the same cash-flow rules as everyone else.
But more importantly, it put a bankruptcy judge in ultimate control of the destiny of the business, and the judge’s only responsibility is to settle debts owed to secured creditors. The bankruptcy judge has no concern as to the rest of the NHL and its responsibilities, including television and sponsor contracts.
Which is why the NHL has already objected to the reorganization plan presented to the bankruptcy court: the plan would sell the team to RIM chairman Jim Balsillie’s PSE Sports & Entertainment LP, which would move the team to Hamilton, Ontario. Balsillie has never been shy about his desire to bring the NHL to Hamilton, first to Copp Coliseum and then to a new arena; in the past he’s made a strong bid for the Nashville Predators before the NHL brokered a deal with new owners and the city to keep the franchise in Tennessee.
But the other reason why the NHL is nervous: under bankruptcy, the team is basically a free agent. Someone else could swoop in and buy the franchise and move it pretty much wherever they want it, and the NHL wouldn’t see a dime. (Most famously, Bud Selig made a surprise bid for the MLB Seattle Pilots during spring training 1970 and gained control of the team just weeks before the start of the regular season, moving it to Milwaukee without MLB approval.) One possible scenario actually does involve the NHL bidding more for the team and down the road selling it to a group seeking a second Toronto arena. But raising more than $250 million for the franchise may be hard to do for the NHL.
Of course, this could all be resolved tomorrow, when the bankruptcy court will hear arguments from the NHL that Noyes did not actually have the authority to file for protection; we expect their argument to be that the NHL in effect controlled the franchise after lending it tens of millions throughout the season.
This has all the earmarks of being a very messy legal case. And it will surely cause ripple effects in the arena business world: as an unsecured creditor, Jobing.com Arena would be out any past monies owed and would lose the building’s main tenant as well as a $700-million fee for early termination of the lease. (We also expect it would lose the naming-rights deal as well; most are contingent on a high-profile anchor tenant.) Any future deal put together between an arena and an NHL team would come under greater scrutiny because of the default of the Coyotes. For the NHL, the stakes are high.
RELATED STORIES: Who’s in control of Coyotes? Glendale says NHL; team denies; Coyotes still millions in arrears on arena payments; Could Phoenix Coyotes end up in Toronto?; Financial woes continue for Coyotes; Coyotes now current on arena lease payments
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