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Absurd battle for Coyotes raised huge questions for sports

Glendale, Arizona, is a lot of things. This sprawling Phoenix suburb is home to the Arrowhead Towne Center mall, the Thunderbird School of Global Management and The Bead Museum. It's Arizona's Antique Capital, the Los Angeles Dodgers' and Chicago White Sox' spring training headquarters, and the site of an annual chocolate festival.

Glendale is not, however, a hockey town. Its NHL team, the Coyotes, reported an average attendance of 11,197 fans last season, more than 2,000 fewer than the New York Islanders, who had the league's second-lowest total. In September, preseason games unfolded before fewer than 5,000 spectators, and the the team's 2009-10 season ticket base is about 4,000 -- among the lowest in league.

After slashing tickets for their October 10 home opener to an unheard of $25 for any seat in the lower bowl (at New York Rangers games in Madison Square Garden, for example, comparable seats ranged as high as $275.50) and $15 in the upper bowl, and thus attracting a sellout at Jobing.com Arena, the Coyotes hosted the St. Louis Blues five nights later in front of 6,899 fans. In one lower bowl section that seats 352, there were 57 fans.

"But they're all paid tickets," Coyotes President Doug Moss says. "We're not going to paper the place by giving out free tickets, out of respect for our season ticket holders.... We're going to do it the right way."

The vast pasture of empty seats, the weak response to pleas for noise over the PA, and the absence of anything resembling enthusiasm until the waning minutes of a tight 3-2 overtime win against the Blues, were manifestations of one of the strangest and richest stories in contemporary sports, a twisting narrative that has involved a BlackBerry billionaire, a mega-millionaire pleading poverty, and a criminal named Boots. The saga caused hockey's singular iconic figure to unceremoniously quit his job, and it has challenged NHL officials to maintain a straight face while asserting, "Hockey belongs in Arizona."

For all its theater-of-the-absurd touches, the story pivots around fundamental issues. Who can own a pro sports team and under what conditions? Why did the NHL, which could surely use the money, thumb its nose at both a billionaire's rich offer and a potentially viable market? And why has the league fought so hard to keep this lightly loved and highly unprofitable team in the desert?

The tale really begins in the mid-1990s. The NHL had recently appointed a new commissioner and damned if Gary Bettman didn't have an idea for how to grow the league. Teams in Canada and the northern United States were fine. But if the NHL wanted to flourish and capture bigger television audiences (and, therefore, rights fees), it needed a presence in the growing, demographically-desirable, sports-minded markets of the Sun Belt. Hockey may not be embedded in the culture, but, the thinking went, it would catch on once there was a local team to support.

So it was that franchises arrived -- sometimes by expansion, sometimes by relocation -- to outposts where ice tends to come most often in cube form. Under Bettman, new teams appeared in, among other places, Anaheim, Miami, Dallas, Phoenix, Raleigh, Nashville and Atlanta.

While the teams in these markets have sometimes been quite strong -- Dallas, Tampa Bay, Carolina and Anaheim have each won the Stanley Cup -- hockey proved to be an acquired taste. Sun Belt franchises often sputtered financially. Ownership changed hands. Arena leases were renegotiated. Attendance was generally bleak. In contrast to the NBA, NFL or MLB, there was little league-wide TV revenue to cushion operating losses. And for these new teams in so-called "non-traditional hockey markets," there wasn't much in the way of regional TV revenue, either.

No team struggled more than the Coyotes, which had moved to Phoenix from Winnipeg in 1996. From the start, they had a tough time drawing fans, and the team was renting space at the US Airways Center, which closed off revenue streams associated with owning a building. Hemorrhaging money, neither moving in 2003 into a brand new arena in Glendale, 18 miles west of downtown Phoenix, nor bringing in Wayne Gretzky as a minority owner, figurehead, and later, coach, enhanced the financial picture.

In fact, the move to Glendale took the team further from its base in suburban Scottsdale, which is a 40-minute drive east of Phoenix. The team signed a misguided 30-year lease that gives Glendale a portion of every ticket sold, and prevents the club from charging for parking, which can be a lucrative revenue stream for suburban sports franchises. According to court documents, the team has never turned a profit.

"[The move] was kind of a shock because I was there the day that we knocked the mall down at Los Arcos in Scottsdale, [where the Coyotes had first planned to build their arena]," says captain Shane Doan. "It was a big move. I mean, you move 35-40 miles, you'll lose some people, for sure, and when you haven't won since you moved, it's going to make it that much harder."

Last season, with the team in dire financial straits -- during the past three years, according to audited filings, the Coyotes lost more than $264 million, much of that debt service owed to creditors -- the NHL began aiding the team. The league scrambled to find someone to buy the franchise from trucking magnate Jerry Moyes.

As the NHL quietly pursued potential ownership groups, Moyes, desperate to unload the team, began meeting secretly with Canadian billionaire Jim Balsillie.

On May 5, the Coyotes filed for Chapter 11 bankruptcy. That same day, Balsillie made a $212.5 million offer to buy the team, conditioned on his ability to move it to Southern Ontario, Canada.

In the fairy tale version, Balsillie would emerge as the hero. The son of a Canadian electronics technician, Balsillie went to the University of Toronto (he studied commerce) and then Harvard Business School. He served as chairman of Research in Motion, the Canadian tech company that developed the BlackBerry. He is currently the single wealthiest Canadian and a billionaire almost twice over according to Forbes.

Balsillie, 48, has an impressive record of philanthropy. His passion for hockey is such that the RIM executive offices are named for NHL legends. He calls his campaign to bring a team to Canada "Make it Seven" -- a reference to the six NHL franchises that are already there. Specifically, he's set his sights on planting the team in Hamilton, an industrial exurb of Toronto where, he maintains, it would turn a profit.

Real life is considerably more complicated.

For one, the Toronto Maple Leafs and Buffalo Sabres, draw fans from Hamilton, and the notion of a new team siphoning their market shares is unappealing. Both teams make the case that one of the benefits conferred on professional sports franchises is exclusivity over their turf and, if any sports nut with bottomless pockets could plant a team anywhere he wanted, it could change the sports landscape as we know it.

The other and even more complicating factor: the same traits that served Balsillie so well in business -- ambition, cunning, brash audacity -- have made him a highly polarizing figure in hockey circles. Inasmuch as the NHL owners club is an exclusive coterie, Balsillie isn't simply an outsider. He's Rodney Dangerfield in Caddyshack crashing the clubhouse ball and mocking Judge Smails' wife. And he admits as much, fashioning himself as the independent outsider fighting the "entrenched" (his word) powers and interests of the NHL. He also portrays himself as the champion of hockey-mad Canada, doing battle against American capitalists.

Balsillie's legion of critics paint him as someone else entirely: a ruthless operator trying pass himself off as Robin Hood.

"He's really just trying to own a team through the back door." says a lawyer on the case. Or as Scott Rosner, associate director of the Wharton Sports Business Initiative puts it: "The guy playing the white knight is also wearing a black hat."

Balsillie sees it differently: "There is no front door here," he told reporters earlier this year. "We had to [use] the side door. I could think of no other way to get this on the agenda."

The relationship between the NHL and Balsillie first strained in 2006 when he made a $185 million bid to buy the Pittsburgh Penguins from a group headed by Mario Lemieux. Balsillie wouldn't rule out moving the team, particularly if the Penguins didn't receive outside funds for the construction of a new arena in Pittsburgh. Bettman and the NHL stepped in and added contingencies to the deal, including a stipulation that Balsillie had to keep the team where it was, regardless of the arena situation. Balsillie promptly withdrew his bid and the Penguins, after receiving arena financing from the state of Pennsylvania, were never sold.

Undeterred, Balsillie attempted to purchase the Nashville Predators in 2007. He reportedly reached a deal in principle with incumbent owner Craig Leipold. This time, Balsillie was bolder, not only expressing a desire to relocate the team to Ontario, but -- prior to any sale and against Bettman's express orders --accepting "Hamilton Predators" season ticket deposits for games to be held in the city's 17,383-seat Copps Coliseum. Leipold would claim that this had the effect of depressing the Predators' value. He broke off negotiations with Balsillie and sold the team to another ownership group.

In the interim, Balsillie, among several other RIM executives, was accused by the Ontario Securities Commission of backdating stock options. As part of a settlement, three RIM executives paid a fine of roughly $80 million and Balsillie stepped down from his role as chairman while retaining his title as co-CEO. As business transgressions go, this was relatively minor; but it armed Balsillie's critics in the NHL Owners Club.

Earlier this year, Balsillie took his third slapshot, applying to buy -- and move --the Coyotes. When a preliminary change of ownership vote was put before the NHL Board of Governors on July 29, it voted 26-0 (with three abstentions and one team, Phoenix, absent) to keep Balsillie out of their inner sanctum. A statement read in part: "Balsillie is not qualified as a matter of character and integrity to be the owner of an NHL team." Observers created a shorthand to describe the NHL's strategy of screening the Coyotes new owner: ABB -- Anybody But Balsillie.

Particularly in Canada, the resistance to Balsillie struck an ironic chord given how many notable NHL owners have done perp walks. Former Kings owner Bruce McNall was sent to jail for financial fraud. Former Sabres owner John Rigas is currently in jail for embezzlement. Ducks owner Henry Samueli is on probation after lying to securities regulators and suspended indefinitely by the NHL. John Spano briefly owned the Islanders, before it was revealed that he had grossly misrepresented his net worth and, shortly thereafter, was sentenced to 71 months in prison on various fraud charges. Another former Islanders part-owner, Sanjay Kumar, is currently serving a 12-year sentence for securities fraud, conspiracy and obstruction of justice.

And in Nashville, where Balsillie was rejected as an owner, the Predators were sold instead to a group that included William J. "Boots" Del Biaggio III. Last summer, Boots pleaded guilty to securities fraud in conjunction with the loans he received to buy the Predators and was sentenced last month to eight years in prison.

Balsillie considered the board's lack-of-integrity claim against him to be hypocrisy and was, characteristically, bold in expressing his outrage. In particular, he noted that Ottawa Senators owner Eugene Melnyk had been cited by the Ontario Securities Commission for misleading investors. Melnyk -- who, perversely, some had considered a rare Balsillie ally to that point -- responded with a statement: "I'm comfortable in my own skin, Jim. You should look around at the friends you are losing and the damage you are causing to yourself, the NHL and all Canadians."

After the Coyotes filed for bankruptcy -- a move that Moyes made against the NHL's wishes -- the league had visions of an auction, a bidding war among prospective owners groups. Chicago Bulls and White Sox owner Jerry Reinsdorf expressed interest but pulled out. Rumors that movie and TV producer Jerry Bruckheimer was interested in buying the team proved false. In the end, only two credible bidders emerged. Balsillie at what eventually became $242.5 million, and the NHL itself, which bid $140 million.

The NHL, however, called Balsillie's offer "an illusion, at best," contending that Moyes had no right to condition a sale on a move to Ontario. Balsillie contended that when the NHL became a bidder for the Coyotes, it was a glaring conflict of interest for the league to determine the fairness of his bid.

Before Judge Redfield T. Baum, a U.S. Bankruptcy Judge in Arizona, Balsillie expressed a theory that the Maple Leafs -- one of the teams that abstained in the change of ownership vote -- are holding the equivalent of veto power over a team relocating to their market, which violates anti-trust law. The NHL, meanwhile, continued to stress the argument that its owners have a right to determine who joins their private club; something sacrosanct would be destroyed if Balsillie were to prevail.

Baum appeared to be pinned against the boards. A decision against the NHL could have created a striking precedent. Citing this case, struggling owners in any sport might make an end-run around league relocation rules and territorial exclusivity agreements simply by filing for bankruptcy. On the other hand, a bedrock principle of bankruptcy law is to maximize the financial benefit to all stakeholders. As such, it could be problematic to reject a $242.5 million offer in favor of a bid more than $100 million less.

On Sept. 30, Baum issued a 28-page ruling, awarding the team to . . . neither bidder. "This court struggles with how it can adequately protect the NHL's membership selection right and control over home team location rights if the court were to allow [Balsillie] to move the Coyotes to Hamilton," Baum wrote.

Yet, the NHL's bid was unacceptable as it deprived Moyes and Gretzky (who had stepped down on Sept. 24 saying "both remaining bidders have made it clear that I don't fit into their future plans") of proceeds they may be rightfully owed. (The NHL asserted that Moyes, not the Coyotes, is personally responsible for the Great One's $8 million salary for this season.)

The NHL resubmitted its bid, and Moyes, with few options, agreed to sell the team to the league. Upon court approval, the NHL will buy out the claims of the unsecured creditors for $11.6 million, which will be taken off the purchase price. That in effect reduces the bid to $128.4 million. That money will be allocated at the discretion of the court with about $127 million going to the team's main creditors, the NHL, and SOF Investments, and $12 million going to other claims, such as those of Moyes and Gretzky.

"It remains the NHL's intention . . . to stabilize the club's operations and, as quickly as possible, to re-sell the club to a new owner who is committed to operating the dlub in the Glendale/Phoenix market," NHL deputy commissioner Bill Daly said in a statement.

The team -- which won six of its first 10 games this season -- has been operating as normally as it can, but Moss admits that he and GM Don Maloney have been working on a lean budget. There are now weekly conference calls with the league and Moyes' attorney, and they've cut back in areas such as scouting while trying to be creative in advertising and marketing.

Balsillie has no plans to appeal Judge Baum's decision, but in a statement said that he believes his battle was the first step to adding another team in Canada. Hamilton remains eager for one, as does Quebec City, where Bettman met in October with Mayor Regis Labeaume, former Nordiques GM Marcel Aubut and Pierre Karl Peladeau, the CEO of Quebecor, the giant Canadian media conglomerate. Since then, Quebec has announced tentative plans to build a new arena that could house an NHL team.

For his part, Peladeau has said that he is actively exploring the option of bringing a team back to, but that he is doing it with an attention to decorum.

"You have to respect the NHL institution," Peladeau told Canada's QMI news agency. "We saw what happened with Jim Balsillie."

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