Bankruptcy Court Rejects Coyotes Bids, But Holds Out Hope For NHL

A U.S. bankruptcy court has rejected bids by both BlackBerry boss Jim Balsillie and the NHL for the financially ailing Phoenix Coyotes.

But Judge Redfield T. Baum was far warmer to the league proposal, suggesting it could be amended to make it palatable to the court.

“It seems to the court that the defect in the NHL’s bid could be easily cured by the NHL,” Baum wrote in his decision.

“In hockey parlance, the court is passing the puck to the NHL who can decide to take another shot at the sale net or it can pass off the puck,” he added.

Baum’s concern is that the league bid allows it to pick which unsecured creditors will be paid in full – a plan that apparently does not include former owner Jerry Moyes and former coach Wayne Gretzky.

Said Baum: “There has been no determination that the Moyes and Gretzky claims are not ‘legitimate creditors.’ It would be inherently unjust for this court to deprive them of their possible rightful share of any proceeds without first providing all involved a fair trial on their claims.”

Baum’s 28-page ruling says the Balsillie bid is denied “with prejudice.” The NHL offer was denied “without prejudice.”

A spokesman for Balsillie said his lawyers were reviewing the ruling and will comment later.

As the judge had suggested, the ruling comes on the eve of the NHL season.

It seems to be back to the drawing board for Balsillie, especially since the judge essentially said it would make no sense to move the team with the prospect of more litigation over the NHL’s rights to control its own membership, who owns its teams and where they play.

Balsillie, the co-CEO of BlackBerry maker Research in Motion, had offered to buy the Coyotes for US$242.5 million, contingent on moving them to Hamilton, over the objection of the NHL.

The NHL had bid $140 million for the team.

Those bids – a third interest from the Ice Edge group never made it to the finish line – and the lawyers representing them “inundated” the court with what Baum called “multiple motions, massive briefs and legal memorandums, numerous expert opinions on antitrust and other esoteric issues.”

But despite that mountain of paper, there was no immediate resolution.

Baum’s summary of the case starts with the massive red ink surrounding the Coyotes, the former Winnipeg Jets who flew south in 1996. The ruling cites total losses of $75 million in 2004, $50 million in 2005, $75 million in 2006, $117 million in 2007 and $72 million in 2008.

Financial statements “raise substantial doubt as to the company’s ability to continue as a going concern.”

The team was also a failure on the ice – “The Coyotes have not been a particularly successful team,” Baum wrote.

Money aside, Baum says other issues played into his decision – key among them the NHL controlling the right who to admit to its club, the right to control where its members play their home games and the right to a relocation fee if a team moves.

“This court struggles with how it can adequately protect the NHL’s membership selection right and control over home team location rights if the court were to allow PSE (Balsillie’s group) to move the Coyotes to Hamilton.”

Baum notes that if he were to allow the team to move and then the NHL was to win subsequent litigation over that, it would be akin “to the old adages about closing the barn door after the horse is long gone and how do you un-ring the bell.

“The obvious refrain to the first adage is it’s ‘too late,”‘ and to the second, ‘you can’t.”‘

The back-and-forth wrangling over the team’s future started when Moyes caught the NHL by surprise and filed for Chapter 11 bankruptcy protection on May 5.

More than 1,000 documents were submitted to the court in the ensuing months and several hearings were held in courtroom No. 703 – with Baum rarely tipping his hand about which way he was leaning. Commissioner Gary Bettman and Balsillie were among the occasional attendees, along with a large contingent of Canadian journalists.

The NHL contended all along that Balsillie’s bid was an attempt to skirt the league’s rules on the transfer of ownership and relocation, arguing attempts should first be made to sell the franchise to a buyer who would keep it in Phoenix, despite over $300 million in losses since the franchise moved to the desert.

Chicago sports mogul Jerry Reinsdorf and a group of Canadian and American businessmen called Ice Edge Holdings were among the others to show interest, but another firm bid never actually materialized.

That forced the NHL to put together its own offer to buy the franchise, with an eye on keeping it in suburban Glendale for at least this season while it sought out a local bidder.

In early September, Baum presided over two days of hearings that culminated with an auction for the team and saw both the league and Balsillie sweeten their bids. Even though the Canadian billionaire was offering $100 million more than the NHL, the largest unsecured creditor (SOF investments), city of Glendale and the committee of unsecured creditors all spoke up in favour of the league’s bid.

An emergency hearing on Sept. 23 gave Balsillie an unexpected chance to improve his offer even further. He agreed to keep the team in Glendale this season, pay the city a non-refundable fee of $25 million (with another $25 million promised if he was awarded the team) and sell the Coyotes to someone else if a local bidder emerged – “a fairly significant change,” according to Baum.

After that, everyone simply waited for the judge to file his ruling.

The drawn-out bankruptcy proceedings have been extremely tough on those employed by the team – everyone from Gretzky (who stepped down as coach last week), to the players, to the people in charge of selling tickets and trying to market the Coyotes.

All in all, it’s been a trying few years for the franchise.

The Coyotes finished 13th in the Western Conference last season, allowing Jobing.com Arena to become the only current NHL building to have never hosted a playoff game.

It’s been seven years since Phoenix was last in that position and a staggering 22 years since the franchise advanced past the first round, dating back to a series victory by the Jets over Calgary in 1987.