Thursday, October 07, 2010

Coyotes Ugly – same old song and dance

The Phoenix Coyotes begin their 2010-11 National Hockey league season Saturday in Prague with the first of two games against the Boston Bruins. The Coyotes will return home for their home opener on October 16. While the Coyotes may be competitive on the ice this year (the Coyotes made the playoffs last year), a year after the NHL took control of the franchise, the league still owns the franchise. NHL commissioner Gary Bettman has set a December 31, 2010 deadline for new “local” ownership to be in place or the league will ‘seriously’ consider relocating the team. What has not changed in the last decade is the Phoenix Coyotes are the NHL’s version of a ‘money-pit’, bottomless money losing NHL franchise and a blight on what is an evolving sports league.

A year ago “Diamond Jim Balsillie” gave up his battle to buy the team and move the franchise to Southern Ontario, a tale worth revisiting to understand how seriously wrong the situation in Phoenix truly is.

The Coyotes, filed for bankruptcy in 2009 after incurring several hundred million dollars in losses since their move to Phoenix. In December 2008, the media became aware that the Coyotes were losing money at a high rate and were being funded by the NHL directly. The media reports were minimized by the NHL president Gary Bettman and vice-president Bill Daly, but secretly the NHL had taken over operations of the Coyotes. In May 2009, the owner of the team Jerry Moyes put the team into bankruptcy hours before receiving Bettman, who was to present a potential offer to purchase. Moyes intended to sell the team to Blackberry billionaire Jim Balsillie whose sole goal was to buy the team out of bankruptcy and move it to Hamilton, Ontario without being restricted by the NHL's rules on relocation.

From May until September 2009, hearings were held in Phoenix bankruptcy court to determine the fate of the Coyotes and the holding company. Two potential bidders for the team surfaced. Chicago White Sox owner Jerry Reinsdorf and Ice Edge Holdings, Inc. but neither group put in a bid for the team at the bankruptcy hearing. Instead, the NHL put in the only rival bid to Balsillie for the team, while they fought Moyes' plan to sell the team and move it to Hamilton against the NHL rules. Ultimately, the Phoenix court ruled that the team could not be sold to Balsillie, as the judge held that bankruptcy could not be used to subvert the league's rules.

The NHL's bid was also insufficient for the bankruptcy judge, but Moyes and the NHL settled with the NHL buying the team and assuming all debts. The NHL negotiated a temporary lease with Jobing.com Arena owner, the City of Glendale, Arizona. The NHL then proceeded to work with the two potential bidders of Reinsdorf and Ice Edge to work out a deal with Glendale. Ice Edge signed a letter of intent to buy the team from the NHL, while Reinsdorf had won the approval of the City of Glendale. In June, negotiations were not completed between the City of Glendale and Reinsdorf and for at least the second time Reinsdorf dropped out of the bidding. Glendale once again began negotiating with Ice Edge. The NHL, which had threatened to move the team to Winnipeg for the 2010–11 season, agreed to keep the team in Glendale for the season after Glendale agreed to fund all losses. The Ice Edge bid which has died at least once or twice appears to be dead for the third time. The Canadian based group who were interested in playing at least five of the teams’ games in Saskatoon, Saskatchewan have not been able to reach a lease agreement they can operate under with the City of Glendale, the owners of the Coyotes Jobing.com Arena.

As August came to an end Chicago businessman Matthew Hulsizer, co-owner of trading firm PEAK6 Investments became interested in buying the team. The City of Glendale released the following statement regarding the proposed sale to Hulsizer on September 17 (without ever mentioning Hulsizer by name)

“The City of Glendale is moving forward with a prospective buyer for the purchase of the Phoenix Coyotes, subject to negotiation and approval of the prospective buyer and purchase price by the NHL. As the City and the prospective buyer work toward finalizing documents, in a show of good faith, the prospective buyer has deposited $25 million dollars into escrow. This shows the City has met the NHL deadline for finding a qualified buyer, who will keep the team here, a requirement to release the City’s $25 million currently in escrow. Glendale and the NHL will continue to move forward to work with the prospective buyer to facilitate a purchase of the team that will keep the Coyotes in Glendale for the long term. At this point, the prospective buyer has requested confidentiality with the City due to the fact that negotiations are ongoing. This statement is all we can provide at this time.”

The $25 million Hulsizer reportedly placed in an escrow account as an act of good faith bargaining on his part, one would believe is to offset the $25 million Glendale taxpayers could be forced to pay if the team loses at least that much money playing in Glendale this year. Given how much money the Coyotes have lost in recent years (much of this reported in the bankruptcy filing) makes it highly questionable as to why the Glendale City Council would have ever agreed to continue this financial debacle in the desert.

The Phoenix Coyotes were reported to lose as much $35 million on the 2008–09 season. It was revealed during bankruptcy proceedings that the Coyotes averaged 5,450 season tickets per season for the four seasons from 2005–2009 among the lowest totals in the NHL.

In the documents filed with the Phoenix bankruptcy court, the NHL admitted that the league took official control of the team on November 14, 2008. The league then began advancing money to the club from league revenues and made a loan to the club in February 2009 for a combined estimated total of $44.5 million over the full season. The league fired the Coyotes CEO Jeff Shumway and laid off 18 Coyotes employees.

Coyotes owner Jerry Moyes' documents filed with the court documents that indicated the team had lost $73 million over the last three years, and that the projected loss was $45 million for 2008–09.In the September 2009 bankruptcy hearings, it was noted that an audit had shown that the team had never made a profit since moving from Winnipeg, and lost $54.8 million in 2008 alone.

Canada’s Globe and Mail reported in December 2008 the team had lost an estimated $200 million since 2001 and in recent years posted heavy losses, including $41.6 million in 2006-07, $37.3 million during the 2007-08 season, and $54 million in 2008-09.

Season ticket sales for the 2009-10 season (after a summer plagued by the spectre of the bankruptcy hearings and reported move to Southern Ontario) peaked at 1,800, clearly the bottom had fallen out of what was an economically bankrupt business. With no buyer in place as the 2010-11 season begins and the very real possibility the NHL will move the team in a year’s time season ticket sales for the 2010-11 season are again at around 1,800, embarrassingly low by any recognizable standard.

Now much is known about the latest potential Coyotes owner Matthew Hulsizer. He has reportedly been negotiating an arena lease agreement with the City of Glendale the same stumbling block both Ice Edge and the Jerry Reinsdorf bid never were able to overcome.

"He has an unbelievable financial mind," one source who has known Hulsizer for years told ESPN.com. "He's exactly the kind of guy that the league needs. He's a legitimate hockey guy with a lot of money."

Another source familiar with the situation in Arizona said: "He dwarfs [Jerry] Reinsdorf when it comes to personal net worth. He's the real deal."

Answering questions earlier this week at a press conference, NHL commissioner barely touched upon the Coyotes future in Phoenix saying: “"The process is ongoing, no new headlines."

That may be true but the league has made it clear, an agreement must be in place no later than December 31, 2010 or the league will ‘seriously’ consider moving the team. Is it hot air, are the ‘threats empty’? Yes and no, this is certain Glendale taxpayers (the city council) is not in the business of owning an NHL franchise, and league owners a year from now will not move into a third year owning one of their team members.

For SportsBusinessNews.com this is Howard Bloom. Sources used and cited in this Insider Report: Wikipedia and the City of Glendale

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