Tuesday, August 11, 2009


Winning isn't everything

So I've just been doing some light reading, taking in the NHL's latest motion to the bankruptcy court (ÞMirtle), and I'm left with the same overriding thought as I was a couple of months ago: are they sure this is really what they want?

In particular, I'm referring to The Bankruptcy Code Cannot Be Invoked to Abrogate The NHL's Transfer Consent Rights (pp.6-16), but broadly, the 22 pages as a whole. I'm trying to think of this from the perspective of a banker who has been asked to lend, for example, $50M to the Columbus Blue Jackets, secured by the value of the franchise. How does the outcome of this motion affect my calculation of the risk?

Surely, if there is judicial precedent saying the NHL can veto the highest bidder (or bidders) for the bankrupt franchise for their own reasons, my risk is greater by some non-zero amount, true? I may charge more interest on the loan; I may decline to make it at all -- not sure.

Now that I know that my ability to recover my money if the BJs go tits-up is partially dependent on a vote of the NHL's Board of Governors, I have to make an assessment of how likely it is that the BOG will protect my best interests if my debtor files for bankruptcy. (That is, now that I know the BOG can shaft the secured creditors, will they?) I have one obvious precedent to look at: the Coyotes. And I know the major secured creditors got shafted there because the BOG wouldn't accept Balsillie as the buyer. And why?

Well, to assess why, I doubt I'll be parsing the motions and transcripts from the court case -- I'll be looking big picture. The NHL takes great pains in this motion (after arguing that they have no obligation to do so) to assert that the Balsillie rejection was in good faith, and that he really is a dingus of the greatest order. But from behind my desk at the First Ohio Bank six months from now, I don't think the legal merits of this section of the motion matter squat.

I'll note the compelling evidence that the NHL had a preferred buyer the whole time. I'll note that, however awful a shark Jim Balsillie is, he's the founder/head/whatever of a company built on millions of satisfied customers, and that maybe the NHL BOG isn't the greatest judge of who's OK to do business with. I'll note that the NHL was insistent on keeping the Coyotes in a market that is unprofitable in the good times, and shockingly unprofitable in the bad times.

I really don't know what issues I would weight most heavily and which I would mostly ignore, but there's a good chance that my general conclusion would be, approximately, These guys have an awful lot of priorities that come ahead of me getting my money -- and unlike many/most other ways for me to lend out this $50M, bankruptcy law isn't protecting me.

Is it a bit weird for a hockey blogger to weigh in on this situation on the basis of the marginal effect it will have on the price and availability of credit? I suppose it is. But on the other hand, when the league is bellowing in federal court about the supremacy of its internal procedures over the rights of their lenders, I don't think it's crazy to suppose that some of those lenders might hear the message and act accordingly. And even the successful NHL franchises aren't operating on a cash-in-the-bank basis, and they have their weaker financial stretches as well -- credit is important.

But most of all, I think it just serves to highlight that this battle that the NHL is fighting against Jim Balsillie has costs, both immediate and long-term. I certainly understand the league's desire to maintain some control over franchise transfers, but it sure doesn't look like they picked their best spot here. This is what winning looks like?
Not sure what else to say -- that just seems like kind of a shit deal. I think they would have been a lot better off if, as soon as the bankruptcy court asserted jurisdiction, they had gone to Balsillie and said, "Let's talk relocation fee." It would have sucked for Coyotes fans, and for the real estate developers around Something.com Arena, but that seems like the lesser loss at this point.

That said, having NHL lawyers stand in front of a judge and blast someone else's trustworthiness is good entertainment, assuming you like black humour.


Excellent post, Matt. Not sure if anyone else has looked at it from this point of view...and you are 100% correct (even if you are a dirty Calgary fan) ;)

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So, too many people are following the first admonition, therefore resulting in the second?

Seriously though, good post, Matt, but I think the specific case of the Coyotes might be starting to turn towards Reinsdorf. Getting SOF (the Dell people) to cut a deal is pretty big. Not as big as getting Glendale to make major concessions, but it seems Reinsdorf has an inside deal there absent other evidence.

Getting SOF (the Dell people) to cut a deal is pretty big.

No question, and it obviously takes some of the air out of my post (concerns). That said, I'm not real sure how much it alleviates the concern of prospective lenders about who the NHL is going to look after when push comes to shove (does that deal effectively raise the amount of Reinsdorf's bid, or is that money coming out of someone else's pocket?).

At any rate, I'll certainly stick with my take that there is a lot of earth being scorched here, and IMO it's not worth it in the big picture.

Matt, nice post.

If I'm the Bankruptcy judge (and I hope to never be), I think I would be telling the NHL that if they had wanted to exercise their right to control future ownership of the team, they should have exercised that right prior to Moyes filing bankruptcy, while the team was allegedly under NHL control.

Or, if they wish to continue to reserve that right throughout the bankruptcy process, they can buy the team, make the creditors "whole", and then sell the team at their leisure with BoG approval.

In light of the present credit market impairment, and CIT group going under (in July I believe), I think your comments on the risk assessment of future NHL loans and even future rollovers of existing loans, are dead on.

There may even be an effect on the credit default swaps being written to insure the commercial paper.

Likely, this isn't going to affect the big, solid operators, but the guys in those markets just making it by the skin of their teeth may find rollovers either difficult, or onerous in their terms.

Unfortunately the effect you are describing has a time lag, and if true, the revolt against Bettman for not revealing this possible future problem will not come immediately.

And my advice to you, as manager of First Ohio, is dump your commercial real estate exposure. And fergawdsakes I hope you have no Nail Salon start-ups on your books.

My advice to Bettman is that the present economic problems are partly an over-capacity in all markets, caused in part by excessive lending. Perhaps it is time to take a lesson from other industries and reduce capacity, i.e., shrink the league.

How do we know that the "Dell people" didn't just take what they could as it's guaranteed, rather than wait out this nonense?

Either way, they get their mofo'in money.

Good one. Fresh perspective.

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