Bettman, Moyes and Balsillie Tug-o-war Continues

Part 1 of 2: Phoenix Fees

Judge Redfield Baum has been put in a very difficult position in the Phoenix bankruptcy case. He has been pressing all sides to come to a reasonable compromise instead of ruling and creating a new large precedent whichever way he rules. The effects of this new precedent are what he is most mindful.

If anyone thinks that these parties won't need the Judge to rule for them, they're Offside!

For those more familiar with Stanley Cup finals rather than legal processes, you need not apologize. (It is truly a shame that this saga blindsides a great edition of the NHL playoffs, but I digress.) Precedents seem to help guide a court in making decision. Legal precedents from past court rulings are quite important when the cases are similar. But when those are lacking the court then sees what precedents occur in similar past circumstances outside the court room. And the history of the NHL then plays a pivotal role.

Does Judge Baum take into account past NHL relocations and related fees when deciding what is fair for this relocation fee? Note that the last 3 movers (to Denver, Phoenix and Raleigh-Durham) didn't pay a nickel to the NHL for their moves. Now maybe paying nothing as a relocation fee for moving to Phoenix in hindsight makes sense? But real expansion opportunities were lost in the cases of the other two Stanley Cup winning cities. Go further back into NHL history with Kansas City, Cleveland and Denver’s first NHL experience with the Rockies and you’ll find that relocation fees weren’t an issue. These lack of fees then favours Balsillie.

Plus, the fact that Judge Baum has stated that he sees more value in the franchise being in Hamilton over Phoenix seems to indicate that there will be some sort of payoff for that difference. This might mean a gap of $100 to 200 million in value between cities that Balsillie would stand to gain at the expense of the other NHL owners.

Additionally, had the NHL expanded to Hamilton or any other Southwestern Ontario location just before this relocation attempt, the league would have stood to gain a expansion fee in the $300 million range. That is called “opportunity lost” should anyone move a team there instead. This opportunity cost will be taken to heart by the court. This is the reason why the NHL is fighting Balsillie. This is where the entrance of Jerry Reinsdorf’s $130 million bid allows the NHL to avoid this hap-hazard rush to relocation. Assuming Reinsdorf is still interested and the extra NHL-mandated fees scare off Balsillie, the White Sox and Bulls owner will end up with this team in Phoenix. For how many more money losing seasons is the next question.

Also here’s an interesting scenario to consider: It may even be that the NHL is providing Reinsdorf with the cash to buy and bailout the team, just to keep Balsillie out, and in say 2 years time, Reinsdorf will sell it to others who will then relocate them team completely free of interference of Balsillie and court-sanctions. While I have zero proof, I wouldn’t put this past the NHL to maintain control of their empire.

Now onto the very real territorial rights infringement issue that the Hamilton location in particular provides to Toronto and possibly Buffalo. This where Balsillie might head for the hills and wait for the next troubled team. Consider that Anaheim’s expansion was for $50 million and half of that entire expansion fee went to the LA Kings as territorial rights compensation. The remaining NHL owners divided up the other $25 million. NJ compensated likewise the Rangers, Islanders and Philly TV rights, even though Philly was technically outside of the catchment area. So there is also plenty of precendents on the issue of territorial rights compensation. If an expansion team in Hamilton is worth $300 million today (it may be worth even more) then very reasonably the Leafs and Sabres could argue for $150 million in total compensation for their territorial rights based on the Anaheim precedent, which is the most current.

So to summarize, NHL historical precedents may allow Judge Baum to rule to:
(1) negate a relocation fee,
(2) uphold a claim for lost expansion opportunity ($150 million US in value to 29 clubs)
(3) enforce territorial rights compensation. ($150 million in value to Leafs and Sabres)

However, where the real murky legal waters lie is the issue of a relocation requiring an owner to pay to the NHL for the increased value the club gains simply by moving. This may end up tipping the decision for lost expansion opportunity cost in the NHL’s favour.

So based on the historical precedents alone, the total fee to move the team from Phoenix to Hamilton (above and beyond the purchase price of $212.5 million US) is $300 million minimum.

Since Balsillie is getting an automatic cash cow with a modern arena upgraded mainly with tax dollars and a lease that gives him all revenues from all events at the arena, convention center and parking lots, I believe Balsillie will go ahead with this ruling and show Bettman the money. Why? Because he could turn around the very next day and sell the complete package and make at least $100 million dollars in profit.

End of Part 1