NHL In Conflicting Positions

It sure does not look like the NHL is used to being in a situation where it is not in control. With their bid for the Coyotes they are now in several positions of conflict of interest and have an unfair advantage over other bidders.

First of all the NHL is the second largest secured creditor of the Coyotes. As a result they have a right to help determine which bid is most acceptable to the creditors. The NHL is also in charge of approving proposed owners, so they believe they have the right to determine who is in the auction. Now, the NHL is also a bidder for the Coyotes. This would mean that one bidder believes they can control who the other bidders are and also have the right to help determine who the winning bidder is.

According to the NHL, a bankruptcy judge isn’t really required is it?

One of the interesting elements here is the Ice Edge bid and how they have no problem with the NHL now being a bidder. This speaks to both the credibility of the Ice Edge bid and also to the backroom discussions that must be in place between Ice Edge and the NHL. The NHL Board of Governors has yet to formally accept Ice Edge as approved owners and they have yet to approve Ice Edge’s plan to play five home games a year in Saskatoon. If Ice Edge were truly an independent bidder they would have a major problem with the fact that a competing bidder will be the one that approves their suitability for ownership and their business plan.

When we take this a step further, we look at the NHL’s motion to vacate the Balsillie bid. With the NHL now in the role of a bidder in the auction, they are asking that the judge to vacate a competitive bid. This may well give Balsillie’s team further ammunition in its attempt to invalidate the NHL’s vote of him being an unacceptable owner, and therefore bidder.

Since the NHL’s bid states that the Board of Governors has approved their bid, the question that begs to be asked is; when did they approve this strategy? The bid is very detailed so the strategy was not approved yesterday. Was this in fact a strategy when they voted to reject Balsillie as an owner? Is that not a further conflict of interest and grounds to invalidate the vote?

From Judge Baum’s perspective this could well be viewed as an attempt to pre-empt a fair and competitive auction. The NHL launched its bid only after Reinsdorf pulled out and is basically stating that their bid is there just in case a bid that they don’t like may win. The NHL also expects Judge Baum to be fine with the NHL being the entity to approve who can bid in his auction (their claim that only NHL approved owners can bid), help determine a winner (their status as a secured creditor), and be a competitive bidder all at the same time.

The NHL’s bid only contains a one year commitment to Glendale and the comment that the Glendale lease is not workable for a local owner. They further state that they may have to sell the team to a relocating buyer in a year with a percentage of those gains going to the NHL. Why would this be acceptable to the bankruptcy judge since his job is to secure the best deal today for the creditors, not to approve a deal to a party that plans on selling the asset in a year at a profit when there already is such a relocation bid on the table?

The judge may well ask himself the following questions. Is the NHL truly committed to Glendale as they originally stated? Was the NHL truthful in its claim of having numerous local buyers? Is the NHL trying to prevent a relocation bid today which would provide more money for the creditors and current owner, with the intent of selling to a relocation bidder a year down the road when they will reap a profit? In view of the preceding, was the NHL acting impartially when it voted against Balsillie being a suitable owner?

It will be very interesting to see how Judge Baum reacts to the NHL’s bid when the hearings resume next Wednesday.