NHL Bids For Coyotes

With the spotlight shining bright on lease negotiations between Reinsdorf and Glendale the talks fell apart and Reinsdorf pulled out of the auction for the Coyotes. At the same time the NHL jumped in with an offer to purchase the team. No details of the NHL bid have been released, but their stated intent is to try and sell the team to a third party that will keep the team in Glendale.

The reality is that such a buyer will not be found. When this bankruptcy was declared the NHL stated they had four interested parties. The reality is that with the possible exception of Ice Edge, no bidder could be found with a long term commitment to Phoenix. Reinsdorf was likely fronting a bid to keep Balsillie out of the game, but he was not willing to risk real money on this venture, or to accept a lease with Glendale that was not more favorable and did not come with an out clause. The Glendale council met on Monday to review the lease negotiations and on Tuesday Reinsdorf dropped out of the bidding.

This left the NHL with the possibility that the only bidder standing at the time of the auction could be Balsillie. There was real concern that Balsillie may have been successful in challenging the NHL’s position that he could not be allowed to purchase the franchise. That possibility became more real with Reinsdorf dropping out. If Balsillie did succeed, the only way the NHL could block him would have been through launching an appeal. That process would have unknown costs and may have exposed them to liability in regards to the other creditors that were denied payment. The NHL’s solution was to launch bid themselves and pull the team out of bankruptcy.

Where the NHL has an unfair advantage, and where Glendale is exposed, is that NHL is in a conflict of interest. They are the second largest creditor. They are the organization that approves potential owners. They are the organization that derives revenue from expansion. Now, they are also the bidder for the franchise.

All other bidders must be relatively honest in their bids. If they desire to operate the team in Glendale they must negotiate a lease with Glendale that they can live with. If they want to relocate the team they must do that as part of the bankruptcy process so that they know what their liability to Glendale is. The NHL has to do neither.

What the NHL can do is purchase the team in bankruptcy and state their goal is to find a local buyer. If this is impossible, the NHL can walk away from Phoenix by declaring Chapter 7 bankruptcy after this season. Sure any other buyer can do that as well, but then that buyer would lose their investment. What the NHL can do however is auction off a new expansion franchise to recover their Phoenix costs while using Chapter 7 to shield them from ongoing liability towards other creditors and Glendale’s lease.

The “cover story” for this will look quite pretty for the NHL. They will blame Balsillie and Moyes for poisoning the Phoenix market to the point that no buyer could be found. They will boast about how they stepped up to the plate and took losses for a year in an attempt to be loyal to Phoenix. Then they will reluctantly disband the franchise under Chapter 7 bankruptcy.

As a totally unrelated event, they will declare a new expansion franchise for the GTA with the full blessing of MLSE. MLSE will build and manage the new arena and surrounding development and welcome the new team with open arms and wallet. The NHL will then use the $400 million or so expansion fee to cover the Phoenix costs, provide indemnification payments to MLSE and Buffalo, and disburse the remainder to the other loyal governors.

All in all it’s a pretty interesting strategy. Will Glendale go along with this plan, or will they see that a quick deal with Balsillie in the $50 million dollar range may be the best way to protect their investment?