Judge focuses on potential relocation fee as key to solving Coyotes bankruptcy case

Judge focuses on fee in Coyotes bankruptcy case

PHOENIX — A relocation fee imposed by the NHL could ruin Canadian billionaire Jim Balsillie’s bid to buy the bankrupt Phoenix Coyotes and move them to Hamilton, Ontario.

The potential fee was a consistent topic during a 6½-hour hearing on the team’s fate in U.S. Bankruptcy Court on Tuesday.

Judge Redfield T. Baum said his reading of case law shows the NHL owns the right to the Hamilton region and would be entitled to a fee if a team is located there.

NHL attorneys told Baum that it would be difficult to come up with a proposed number for the fee because it is determined by the board of governor’s as part of the relocation process.

The judge, who would have to approve the fee, said he might force the NHL to come up with a number by ordering an auction of the team on June 22, the date Balsillie wants.

If Balsillie faces a big fee to move the team, though, he could withdraw his bid, leaving the NHL to try to sell to someone who would keep the Coyotes in Arizona.

Any fee might be too big for Balsillie, who has offered $212.5 million to buy the franchise contingent on moving it to the southern Ontario city and completing the deal by the end of June.

“I did have a brief discussion with Jim about it this morning,” Balsillie’s representative Richard Riordan said after the hearing, “and the contract gives us the right to walk away if there’s any transfer fee at all.”

He declined to elaborate.

Deputy commissioner Bill Daly said that if the judge forces the league to determine a fee, “Obviously we respect the decisions of the court and we work within the legal process to do what we need to do to do what’s best for the league.”

Baum had tough questions for all sides.

“I’m not some juror who’s never been in a courtroom,” the judge said. “I’ve been doing this for 20 years and I’ve tried a lot of cases all over the country.”

Daly acknowledged the judge is hard to read.

“I can’t really draw any conclusions,” Daly said. “The judge has a certain style and I think we saw that style today. He’s obviously got a difficult decision ahead of him and he committed to us that he will make that decision.”

If Baum approves a fee that Balsillie doesn’t like, the judge would be able to avoid aspects of the case that would set legal precedents — such as antitrust issues or whether he can order the team moved over the NHL’s objections.

“He’s obviously struggling with the issues,” Daly said. “I think he openly admitted that it’s an unprecedented case and there are difficult legal issues and a lot of different areas of law that are conflicting and he’s got to work that out.”

Coyotes owner Jerry Moyes filed for Chapter 11 bankruptcy protection on May 5, taking the NHL by surprise. League officials say commissioner Gary Bettman was in a car on his way to deliver a letter-of-intent for a group including Jerry Reinsdorf to buy the team when word came of the bankruptcy filing.

The Coyotes have never turned a profit since moving from Winnipeg in 1996, with total losses exceeding $300 million.

The NHL has agreed to fund the team for the coming season while the ownership issue is worked out. The league says four prospective buyers who would keep the team in Arizona, including Reinsdorf, have filed preliminary applications.

But Baum said he wasn’t impressed by would-be buyers, saying the only bid he knows about for sure is the one before him that would move the team to Canada.

Bettman attended the morning session, then left for Pittsburgh, where the Penguins played Detroit in Game 6 of the Stanley Cup playoffs on Tuesday night.

“We believe the judge is extremely well informed,” Bettman said as he climbed into a car. “And my hope is he comes to the right conclusion.”

The judge said a second case involving the Oakland Raiders from the early 1980s, known as Raiders II, indicates the NHL owns the Hamilton, Ontario, location that would be the Coyotes’ new home. The league, therefore, would have a right to impose a relocation fee on Balsillie.

Balsillie’s attorney Susan Freeman said that if there is a fee, it should be minimal, limited to the “goodwill” that the NHL has spent in the Hamilton region.

“We think it’s going to be far less than the numbers that have been bandied about here,” Freeman said.

But the league obviously has a much larger fee in mind. Some in court have mentioned $100 million or more.

After the hearing, Daly said only it would be “a big number.”

The total fees charged when Colorado moved to New Jersey in the early 1980s was “well in excess of the value of the franchise,” Daly said.

Baum gave little credence to arguments from the NHL and other professional leagues that an adverse ruling would wreak havoc on their ability to function. Among other instances, he cited the middle-of-the-night departure of the Baltimore Colts to Indianapolis in 1984, saying that move didn’t seem to cause the NFL problems.

The city of Glendale, which spent $183 million to build an arena for the Coyotes, argued it would suffer more than $500 million in lost potential revenue if the team is allowed out of its lease.

Glendale supports the NHL proposal for an auction in September that would sell the team to someone who would keep it in Arizona. If no such buyer is found, the NHL says it then would look for a purchaser who would move the franchise.

Jordan Kroop, an attorney for Moyes, didn’t dispute Glendale’s claim of huge losses, but said bankruptcy law requires any losses to a lease holder be capped at a far smaller amount.

Glendale attorney William Baldiga argued that the $212.5 million offer isn’t so attractive once various items are deducted, including the fee to the NHL and $22.5 million to Wayne Gretzky, the Coyotes coach and owner of 1.5 percent of the franchise.

In fact, Baldiga said, there may be no money left for unsecured creditors other than Moyes, who would get $100 million of the $380 million he says he has invested in the team.

“I think it’s inappropriate for this court to consider trampling on the legal rights of the NHL and the city of Glendale,” Baldiga said.