Monday, June 8, 2009

Come Tuesday?

No one is really sure what to expect in tomorrow's bankruptcy court hearing.

The courts always look to past court decisions to see what precedent has been set in a specific type of court case. I remember asking one of my college professors (a long time ago in a land far, far away) exactly what happens when their is precedent supporting both sides of a court case. "That's when it gets interesting" he replied.

But in this case, it's not that easy. The NHL will cite the California Seals bankruptcy hearings from the early 1970s that sided with the NHL and the league constitution. The Moyes-Balsillie rebut will be what about the 1970 Seattle Pilots decision? The Moyes team is sure to invoke the Oakland-Los Angeles-Oakland Raiders journey through the courts. The NHL will counter with the aborted moves of the Ottawa Senators and St. Louis Blues, both of which were thwarted in the courts. And of course, the low profile player (with the most to lose here) Glendale, AZ will no doubt bring up the 1998 Pittsburgh Penguins bankruptcy where the arena lease was preserved much in the manner of a secured creditor.

The truth is that there is no absolute precedent so Judge Redfield T. Baum will be breaking new legal ground as he rules on the bankruptcy, probably later in the week.

There are many things to consider in advance of tomorrow's hearing. US Bankruptcy laws have undergone two major overhauls since the 1970s and the changes are so profound that older legal arguments may not be appropriate. All sports leagues revised their constitutions after the initial Raiders/NFL decision to close loopholes that might allow a team to move without league permission..

There are two key points that I expect will emerge as the focus of the hearing tomorrow.

The NHL constitution has all kinds of safeguards and legal remedies that the Coyotes ownership agreed to uphold as a member team. The constitution protects territorial rights, allows the league to control where teams play, seizes a team once the franchise is breached (as when the Coyotes were placed in bankruptcy) and gives the commissioner absolute power as the arbitrator of any disputes between member teams. If Judge Baum rules in favor of Moyes & Balsillie, he will essentially have to throw out the entire NHL Constitution. That's a lot to ask of a bankruptcy court and it will certainly trigger an appeal by the NHL that would be accompanied by injunctions against moving the franchise and appeals that would go on for months and possibly years. As Gary Bettman has been saying, "it's all about the rules".

And the second, less discussed key is the great city of Glendale, AZ. The city has brought in their own legal heavyweights to argue their position. They have quietly laid out a case that having the major tenant leave town would be a disaster for the arena, the city and the taxpayers. Don't forget the last point. Someone is going to foot a very large bill here if the Coyotes leave town. Judge Baum will get an earful about how local residents, his fellow Arizonans, will suffer if the Coyotes leave Phoenix. And he will be in the uncomfortable position of telling a lot of people that they will be suffering for a long time if he decides to maximize the return for the creditors.

On one hand, Judge Baum has said that the Moyes-Balsille deal is asking a lot (to throw out the structure of professional sports as we know it) of a bankruptcy judge. But he has also has noted that Balsillie is the only guy here who has showed up with real money.

When I first learned about casino gambling, I picked up a very important lesson. When given a choice, bet with the house,. not against the house. I think that taxpayers constitute the house here and I would bet that the NHL, with a very strong assist from Glendale prevails.

But I would also not be surprised in the least if the decision goes in favor of Moyes-Balsillie and legal process rocks on. And if that happens we'll be back to speculate some more.

Of course, with the draft 19 days away, we would prefer to turn our attention back to the rink.

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