Monday, June 1, 2009

Q&A Part 2: Revisiting the Phoenix Coyotes Bankruptcy

[Editor's Note: Today's post is the second in a two-part series addressing the Phoenix Coyotes recent bankruptcy filing. Part 1 discussed some of the legal issues surrounding the case. Part 2 reflects on some of the hockey-related issues that have arisen. For previous posts regarding the Phoenix Coyotes and bankruptcy, click here, here and here. For a more detailed background on the legal history of bankruptcies in professional sports, you can also check out Tim Cedrone's full law review article here.]

A lot has happened since we last discussed the Phoenix Coyotes bankruptcy here at Sports Judge Blog. To catch you up to speed a bit, here's a quick run down of the major developments. First, after being ordered to mediation to resolve the dispute over who controlled the franchise, Jerry Moyes and the NHL agreed that the existing ownership would continue to run the day-to-day aspects of the franchise. Second, Judge Redfield Baum sped up the pace of the proceedings, scheduling a hearing for June 9 to resolve the issue of whether the team can be relocated without the NHL's consent. Judge Baum also laid the groundwork so that new ownership could be in place by June 22. Third, prospective owner Jim Balsillie has secured funding to upgrade Copps Coliseum in Hamilton, Ontario - the city to which he hopes to move the Coyotes. Finally, two rival bids have emerged to compete with Balsillie's: one from a Coyotes minority owner and one from Jerry Reinsdorf, majority owner of the Chicago Bulls and Chicago White Sox. With that said, we now turn to some of the hockey-related issues stemming from this bankruptcy.

1. How does this case affect the Coyotes players? As a general matter, the Coyotes players will still be around next season (or at least those under contract anyway). Although player contracts are treated as executory contracts in bankruptcy proceedings, and can thus be rejected by the debtor, it is highly unlikely the team would reject any contracts. After all, if they rejected any contracts, they would still have to sign new players. Furthermore, it does not appear that they are saddled with any Stephon Marbury-like contracts. What should be of greater to concern to the players is if they are owed any deferred salary. Mario Lemieux serves as a good example. When the Penguins filed for bankruptcy in 1998, Lemieux was owed $32 million in deferred compensation. Lemieux ended up being paid only $21 million after he and investors brought the team out of bankruptcy. So, if any players are owed deferred salary, they may end up not getting all of it.

2. What happens if Judge Baum rules for the Coyotes and allows them to move without the NHL's consent? The short answer: the Coyotes move to Hamilton, Ontario. The long answer is much more involved. (Isn't it always?) Legally, such a ruling would effectively rewrite the NHL Constitution, something even Judge Baum recognized he may not legally able to do. If he does, however, teams will effectively be able to relocate without NHL consent, despite current rules requiring approval by the league and other owners. This would also impact relocations in leagues with similar rules, which is why the NFL, MLB, and NBA filed motions in support of the NHL's position. A ruling for the Coyotes would essentially mean teams could use bankruptcy to blackmail other owners: Let us move, or we'll file bankruptcy and move anyway. From a hockey standpoint, a move to Hamilton, Ontario, would mean that a team in the Pacific Division would be in lower Ontario. That makes for a lot of travelling for San Jose, Anaheim, Dallas, and Los Angeles whenever the teams play each other. All you fantasy hockey fans may want to keep that in mind when drafting Shane Doan next year.

3. Where does Wayne Gretzky come out in all this? As a minority owner of the Coyotes (Gretzky owns about 1.5%) and coach of the team, the Great One obviously has a lot at stake. One certainty right now is that if Jim Balsillie's plan goes through, Gretzky will no longer be a minority owner of the team, but he could receive as much as $22.5 million. The large uncertainty, however, is whether Gretzky will remain the team's coach. According to one report, Gretzky will not return as coach if Jerry Reinsdorf gets the team. Jim Balsillie has not discussed the issue publicly; however, one would not be surprised if he kept the Great One behind the bench if the team ends up in Ontario. Hamilton is only a half hour from Gretzky's boyhood home of Brantford, and having Gretzky front and center for every game may not be a bad idea. It is for that reason that you can expect to see Gretzky remain as coach next season if the Coyotes relocate to Hamilton.

4. What's in a name? If the Coyotes move to Hamilton (a BIG if right now), one can't honestly think they'll keep the Coyotes moniker. The Hamilton Coyotes just doesn't cut it. So what should the name be? How about the Hamilton Tigers? That was the name of the NHL franchise that resided in Hamilton from 1920-1925. While the trademark rights to the name would have to be obtained from their current owner (unless that owner is the NHL), it probably wouldn't be that difficult. If the case ever gets to this point, Balsillie surely wouldn't let that stand in his way. And besides, Hamilton Tigers sounds better than Hamilton Coyotes.

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