Wednesday, May 13, 2009

Sports and the Law: The NHL, Phoenix Coyotes, and Antitrust Laws

While last week's bankruptcy filing by the NHL's Phoenix Coyotes got all the headlines, the team is now suing the league, arguing that antitrust laws were violated when the NHL refused to allow the team to relocate to Ontario.

Craig Harris of the Arizona Republic reports that:
As part of the team's bankruptcy filing, the Coyotes on Thursday sued the NHL and alleged the league has engaged in a "conspiracy" to unlawfully attempt to take control of the franchise and prevent the sale to Canadian billionaire Jim Balsillie, who wants to move the team to Hamilton, Ontario...

...The suit against the NHL alleges Phoenix is not a viable hockey market, and that the Coyotes have one of the worst home attendance records and have failed to build a large fan base. During the past three years, the team lost $73 million.

SportsJudge founder and Professor Marc Edelman was also quoted in the report and shed light on the slippery slope that the US Bankruptcy Court will face:
"There always has been a conflict of the powers of an individual team and the power of a league. To the extent a court would overrule this, it would open up the door where an owner could sell to the highest bidder irrespective of how other teams in the league feel about it."

While it may seem odd that the Bankruptcy Court would handle an anti-trust case, in a recent article on here on SportsJudge (Q&A on the Phoenix Coyotes Bankruptcy), bankruptcy expert Tim Cedrone alluded to the fact that "the reason the Bankruptcy Court can hear the antitrust claims is that bankruptcy courts have jurisdiction to hear all civil proceedings arising in or related to cases filed under the Bankruptcy Code. Although the antitrust claim could be removed to the District Court, the Bankruptcy Court has the power to hear the antitrust claim because the claim is related to the outcome of the case and has an effect on administration of the team."

This is not the first antitrust challenge in the NHL's recent past. In late 2007, Madison Square Garden LP, the unit of Cablevision that runs the New York Rangers, found itself in a squabble with the league over rights to team websites, broadcasting agreements, and other areas of business. According to the complaint filed in New York Federal Court, "the NHL has unreasonably restricted a team's ability to distribute its own live games through the team's Web site and/or the Web site of its local television holder.''

Throughout the summer of 2008, the NHL threatened serious fines and penalties on MSG unless the parent of the Rangers complied with league rules and requests, and at one point in June, even discussed suspension or termination of ownership. In October of last year, SportsJudge reported (The Real World of Sports Law: Madison Square Garden v. NHL) that the NHL's motion to dismiss MSG's antitrust lawsuit was granted in part, and rejected in part, allowing MSG to continue with their challenge.

For further information on the single-entity defense in professional sports leagues, check out our recent report on American Needle Inc v. National Football League (Supreme Court Seems Close to Taking NFL Antitrust Case).

Marc Edelman also discusses antitrust basics in his published articles, which can be found here.

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Tim Cedrone said...

Great post...

Marc - any insights on how the court may rule on the antitrust claim?

Marc Edelman said...


I am on vacation in Nicaragua this week and will post more on the issue upon my return. However, there is some case law pointing in both directions. If the Coyotes are able to make this case about a restriction on the sale of ownership, there is some Second Circuit case law favorable to the Coyotes.