Tuesday, June 23, 2009

Sports and the Law: Update from the Desert

As any loyal reader of this blog knows, we have been following the Phoenix Coyotes Chapter 11 bankruptcy saga pretty closely in these parts. Now that Judge Redfield Baum has made some sense out of everything that is going on in the case, we thought it would be a good time for an update. (Click here for previous posts on the Coyotes.)

First, a quick update on where we are right now. On June 15, Judge Baum, in a 21 page opinion, rejected Jim Balsillie's proposed reorganization plan to buy the Coyotes for $212.5 million and move the team to Hamilton, Ontario. Judge Baum's basic reasoning was that Balsillie's proposed deadline for the deal - June 29 - did not provide the court with enough time to solve the complex legal issues in the case (including the controversial antitrust issue discussed by Marc Edelman here). After the judge rejected the plan, new bids for the team were solicited. That has resulted in Balsillie readying a new bid for the team (still contingent on moving the team) and a firmer bid emerging from Chicago Bulls and White Sox owner Jerry Reinsdorf that would keep the team in Arizona. Reinsdorf's bid is expected to be filed with the court Friday, June 26. Now, the next step for any other bids to keep the team in Phoenix is for such bids to be submitted to the court this week, with the potential for an auction of the team on August 5. For bids contingent on moving the team, the timeline shifts to a September 10th auction date.

So what does this all mean for the Coyotes? By all indications, if a bidder (i.e., Jerry Reinsdorf) can come forward with a bid that approximates Jim Balsillie's, but proposes to keep the team in Arizona, Judge Baum will likely approve the plan. Indeed, Judge Baum already indicated as much during a hearing on June 22. If, however, the court finds that Reinsdorf's bid does not adequately compensate creditors, look for Jim Balsillie to get back in the running with a more lucrative offer. After all, the judge in any bankruptcy case, including this one, has an obligation to ensure the reorganization plan is not only beneficial to the bankrupt debtor, but also that it enables creditors to recover at least as much as they would in a hypothetical Chapter 7 liquidation. If Reinsdorf's bid fails to meet that standard (unlikely, but possible), Balsillie will still have a shot. At the end of the day, expect to see Reinsdorf come up with the money, and for the team to remain in Arizona.

Stay tuned for more coverage on this case. If we have learned anything so far, it is that this is an unpredictable case where one should expect the unexpected.

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