Monday, May 11, 2009

Gee, How Did That Happen?"

So what have we got here?

For starters, it’s a shame that this circus is deflecting attention from the most exciting NHL playoffs in years. The games have been amazing, the passion is incredible. I believe that each of the eight teams still alive really believe they can win the Stanley Cup this year and it’s making for a fabulous spring.

And in the middle of this great moment for hockey, the unthinkable has happened. The Phoenix Coyotes have dropped a turd in the punch bowl.

Well, let’s clarify that. It wasn’t the Coyotes as much as their past, possibly present and definitely not future owner Jerry Moyes.

Jerry celebrated Cinco de Mayo by tossing the Coyotes into bankruptcy court and compounded the issue by making a deal to sell the carcass to the NHL’s most arrogant suitor, Jim Balsillie.

Now on one hand, it’s easy to have some sympathy for Mr. Moyes. He’s got more money sunk into this team than most of us will ever see in our lifetimes.

But one comment from Jerry after last week’s hearing made me wonder whether his head was invested as much as his wallet. He told the world that he loaned (former owner) Steve Ellman $5MM “as a favor” to help him keep the Coyotes operating in 2001. Now, 8 years later he’s upside down for $300MM. Now I realize that $5MM to some people is like $500 is to you and me but we’re talking about big casino here. How did we get from $5 Million to $300 Million Dollars? Roll that one around in your mind for a few minutes.

Now under normal circumstances, this was a foreseeable conclusion to another disappointing season in the desert. The Coyotes missed the playoffs (again), attendance was soft (again) and interest from the local media was shall we say modest. However, little about the Coyotes falls under the category of normal circumstances. You see, in November, Mr. Moyes apparently forgot that he mortgaged the farm as well as the animals and the barn by signing a proxy agreement with the National Hockey League. He had to sign that agreement to get loans that kept the franchise afloat.

I’ll save you the pain of reading the entire proxy agreement. (It’s available on a number of web sites including the Toronto Star -- Here is the smoking gun.
The undersigned (Moyes and affiliated companies) hereby irrevocably appoints…the commissioner of the NHL as its’ true and lawful attorney and proxy in respect of all of the undersigned’s interests and rights in the club…including, without limitation the following.

(b) The voluntary or involuntary bankruptcy, dissolution, liquidation,
termination or reorganization of the club and/or any of its subsidiaries

I wonder which part of the proxy Mr. Moyes does not understand. I’m not a lawyer but that reads pretty clearly to me. Just to check my sanity, I talked with a bankruptcy attorney whom I respect greatly (my son) and he agrees that the proxy reads clearly.

Now I don’t know if Jerry’s attention span isn’t that great or deep, what are the chances are that he didn’t read or completely understand the proxy that he signed for the National Hockey League? I’m going to guess that he isn’t fully vested in the document and that the NHL may land a knockout punch during the first bankruptcy court hearing next week. His lawyers are well aware of the document but, hey, lawyers will go to court and fight any fight that a client wants. My son told me that too.

If the judge assigned to the case reads the proxy the same way I do, it will be game over for Team Moyes-Balsillie and over fast. The Coyotes will likely be sold to a group that includes local attorney John Kaites and Chicago White Sox owner Jerry Reinsdorf.

The first joust in the courtroom comes on Wednesday when the NHL gets to make their case why they control the Coyotes.

On May 15th we hear from Team Moyes.

And on May 19th (if necessary) – Everybody gets their day in court. I am guessing that May 19th won’t be necessary. For that matter, May 15th may also become available for other activities.

The NHL proxy is a compelling legal document. If somehow, Team Moyes can sidestep that bullet, there are two more cannons pointed in his direction.

He’ll have to deal with the City of Glendale. He would be asking the court to screw a city for generations and generations to come by voiding the 24 years left on the team’s lease and not enforcing the escape clause payment. And he’ll have to fight that battle in an Arizona court. That’s give Glendale a pretty big home field advantage. Bankruptcy proceedings allow companies to escape leases but it’s not a foregone conclusion. When the Pittsburgh Penguins tried to go that route several years ago, a well written arena lease was enforced by bankruptcy court. That ended that end run.

And if he gets this far, then we’ll deal with the thorny issue of selling the club to a (perspective) rogue owner who wants to skirt NHL rules, territorial rights and customs and ship the team off to Southern Ontario. Remember the Balsillie offer is a conditional offer based on moving the team. Those conditions, along with the forced sale would mobilize the legal might of the National Hockey League to preserve their rights to dictate who gets to be in their club and where the teams can set up shop. That would be a legal battle for the ages and one that would likely drag on for several years.

The Moyes to Balsillie pass will likely get broken up in its’ early stages. The chances are good that the Coyotes will get another chance to make Phoenix into a hockey town. Maybe the seriousness of this situation and an improved team will get the public's attention and start pointing the team towards a more successful future.

And depending on how long and far along this issue is litigated, it could drag on years. The people who will get rich on this deal will be the lawyers. All of the many lawyers who have been called into action. And that my friends is why I sent my son to law school.

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