Lawyers expected to grill Bettman

David Shoalts
PHOENIX — Globe and Mail Update
Last updated on Friday, Sep. 11, 2009 10:12AM EDT

The showdown between Jim Balsillie and Gary Bettman is now a one-man show.

Only Bettman, the NHL commissioner, will take the stand today when the U.S. Bankruptcy Court hearing on the Phoenix Coyotes will conclude with the auction of the team. Balsillie was let off the hook at the end of yesterday’s hearing when lawyers for the NHL and the suburban city of Glendale, where the Coyotes play, told Judge Redfield T. Baum they did not need to cross-examine the would-be buyer of the Coyotes.

Bettman is sure to face a rough ride from Balsillie’s high-profile anti-trust lawyer, Jeffrey Kessler, and Tom Salerno, a lawyer for Coyotes owner Jerry Moyes. He will face questioning over whether the NHL’s decision to reject Balsillie as an owner was made in good faith or as a pretext for the league to avoid a legal war with the Toronto Maple Leafs over relocating the Coyotes to Hamilton.

Kessler or Salerno will almost certainly bring up the NHL’s dual role as a bidder for the Coyotes and the gatekeeper that wants to deny Balsillie’s bid for the team.

However, Judge Baum raised a third possible outcome early in yesterday’s hearing – no sale at all.

“I would say that’s more than a possibility,” the judge added, as an audible stir went through the courtroom. That came out in the morning while one of Moyes’s lawyers, Jordan Kroop, was arguing that the financial penalties owed to Glendale if the arena lease was terminated should be capped under bankruptcy law.

If there is no sale, presumably the Coyotes would remain in Glendale indefinitely with the NHL continuing to pay the losses, which were in excess of $60-million (all figures U.S.) last season.

“We heard him say it,” Bettman said of the judge’s pronouncement. “We’ll have to see what happens.”

Balsillie declined to comment as he left the courtroom.

Ice Edge still around. Page 11What will be argued this morning before the sale in the afternoon are the issues of relocating the team (Balsillie wants to move it to Hamilton), a relocation fee and the question of whether the NHL is acting in good faith.

Bettman said he was not worried about facing Kessler, who has been involved in some of the biggest anti-trust cases in sports.

“It wouldn’t be the first time,” Bettman said. “He took my deposition and we’ve crossed paths before.”

Some previously confidential information came out during the day’s testimony. The information with the most direct bearing on the case was that the NHL set a value between $271-million and $279-million on a franchise in Hamilton. That was almost $100-million more than the estimate of Balsillie’s own economic expert, Andrew Zimbalist, who pegged a Hamilton team at $174.9-million.

This made it appear the NHL was contradicting itself over its opposition to a move. That valuation would place a Hamilton franchise among the most valuable in the NHL while the Coyotes are currently among the league’s least valuable teams.

Bettman, though, said no one should jump to conclusions. “This is not like covering one of our games,” he said of the case. “This is a lot more complicated than that.”

However, the commissioner did confirm a Globe and Mail story from last fall that was widely denied by league officials. That was that some NHL governors have informally discussed adding a second franchise in Hamilton or Southern Ontario.

“It’s not a question we haven’t considered, wouldn’t consider,” Bettman said. “It hasn’t been right.”

The hearing opened with NHL lawyer Gregory Milmoe facing some tough questions from Judge Baum about the league’s $140-million bid for the Coyotes. The judge said his reading of the offer showed that once all of the major creditors such as SOF Investments and the NHL were paid, there could be as little as $2-million left for the estate, or the Coyotes, to pay a large number of unsecured creditors. He raised an issue that has been hammered at by Moyes’s lawyers, that the NHL was trying to pick and choose which creditors got paid.

“One of the fundamental principles in this process is the equality of treatment of the creditors,” Judge Baum said. “That seems to run smack into that fundamental principle.”

The judge also rapped the NHL for dismissing Moyes’s claim as a creditor. While Balsillie’s offer initially set aside $104-million for Moyes, which could drop to $84-million if Glendale takes a $50-million payment in lieu of damages, the NHL made no provision for him. The league and Glendale’s lawyers say Moyes’s claim is equity in the team not a loan, so he is not a creditor.

Judge Baum will not rule on Moyes’s status until after the sale, but he told Milmoe that if Moyes wins the decision, it would mean a lot less money would be available for the other creditors.

The first witness of the day was former CFL commissioner Tom Wright, who wrote Balsillie’s relocation application to the NHL. Shep Goldfein, one of the NHL’s lawyers, tried to take issue with Wright’s assertion that the Coyotes would never be successful in Glendale. He tried to get Wright to admit that if the Coyotes, who have missed the NHL playoffs for six consecutive seasons, were a consistent winner on the ice, they would be successful financially.

Wright replied that any team that relied on making the playoffs and winning the Stanley Cup every year was not using a sound business plan.

“So teams with losing records can make money?” Goldfein said.

“Given the city I live in, I can state that with confidence,” said Wright, who lives in Toronto, home of the Maple Leafs.

Wright later scored some points when he pointed out a contradiction in the two reports commissioned by the NHL about the Coyotes’ financial prospects in Glendale. He said one report said it was possible to make more revenue by marketing Coyotes head coach Wayne Gretzky more aggressively. But a few paragraphs later the same report said one way to save at least $16-million a year was to drop Gretzky’s contract, which pays him $8-million annually.

“It didn’t pass muster with me,” Wright said.

The afternoon was taken up with the NHL and Balsillie’s lawyers pounding away at the other side’s economic experts.

Zimbalist made a report for Balsillie on the value of an NHL team in Hamilton ($174.9-million) and projected revenues of $83.74-million in the first season, rising to $116.4-million in the sixth season. He also said a reasonable fee for relocation would be no greater than $12.9-million.

Goldfein questioned everything from Zimbalist’s methodology to his competence, which resulted in some testy moments between the two. But the most Goldfein could get Zimbalist to admit was that a team could be viable in Glendale but only, Zimbalist insisted, if the city gave it an annual subsidy of at least $15-million.

Franklin Fisher was the first of the NHL’s three economics experts, who produced two separate reports on relocation, to testify. He was put on the defensive by Kessler. Kessler tried to get Fisher to admit the Coyotes would be worth more in Hamilton than they ever could be in Phoenix.

After Kessler pointed out that the NHL’s other report said a team in Hamilton would be in the top five in the NHL in revenue, Fisher agreed such a team would be successful.

But, he insisted, it “well may be advantageous for the team to move but it’s not established that it’s appropriate for the league.” Later, on redirect, Fisher said leagues need to act as regulators in a sense to prevent teams from moving any time they felt like it. He said a team changing cities may leave a league with long-term problems concerning fan loyalty and its commitment to all cities.

Kessler also took issue with the relocation fees suggested by the NHL reports, which were $101-million and $195-million. He noted that previous relocation fees were $4-million (to the Hartford Whalers in 1997) and $8-million (to the Quebec Nordiques in 1995) and that expansion fees were always the same to all teams no matter where the team was based.

So, Kessler wondered, why would the NHL have wildly different relocation fees for Hamilton. Fisher did not have an immediate answer.

Kessler then clashed with a second NHL expert, Michael Rapkoch, over his numbers. But he got him, like Fisher, to admit a franchise in Hamilton would rank in the top five in the league in revenue.

The NHL’s third expert, Daniel Barrett, was the one who originally said the revenue would be in the top five. He projected revenue of $93-million in the first year for a team in Hamilton.

Kessler also spent a lot of time going over with Fisher the issue of whether or not the NHL constitution grants each team a veto over someone moving a team into its home territory, which is a radius of 80 kilometres from the city limits. That was a precursor of an anti-trust argument that the NHL is blocking Balsillie only because it does not want to get into a legal war with the Maple Leafs, who asserted in a letter to the league that they believe they have a veto and are prepared to fight hard to protect it.

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