There’s a few different factors here that need consideration. Let me see if I can break this down.
How bad is the situation?
It’s very bad. The Coyotes are not a sustainable enterprise.
It’s generally assumed that the Coyotes are a financial cancer. However, the NHL’s position is that this is not necessarily an irreversible condition, and to their credit they may not be wrong about this. The Coyotes’ position isn’t great, but it should be borne in mind that the team has put atrocious teams on the ice for years and years - they’ve been one of the NHL’s most dismal losers for a long time and it’s hard to get fan support. There’s no obstruction in Phoenix to a well run team making money; the arena, while not in a great location, isn’t in as terrible a location as you may have heard, and it’s very new. The city is big and so the POTENTIAL market is there.
The league has saved several franchises from death and/or moving recently - Pittsburgh and Ottawa being the two obvious examples, and both teams are now doing very well and making money. In each case the team was in a bad financial spot but the problems were fixable; in Ottawa’s case the owners quite literally never had any money to begin with, so finding a local owner with liquid capital solved all their problems. The NHL simply helped the team survive until that owner could be found.
a critical note here is that the Coyotes’ biggest creditor is the City of Glendale, with whom the team has a lease on their arena. The lease is valued at $700 million - far more than Balsillie or anyone else is offering. If a bankruptcy court allows the Coyotes to be sold to a buyer who intends to leave Glendale, the team’s largest creditor will be seriously screwed, and it’s entirely possible they will sue the NHL.
Okay, Glendale would be humped, but wouldn’t moving to Ontario solve the team’s problems?
Probably. Southern Ontario is an extremely under-served hockey market and could probably support 3 teams and possibly even 4. The established fact seems to be that a million Canadians can support a hockey team (as Calgary, Edmonton, and Ottawa do) and the Toronto metroplex has, depending on how you define it, between five and seven million people. There is some question as to whether Hamilton is the right place for it; to give Americans some idea as to the dynamics involved, it would be like electing to put a second NFL team in the “Chicago area” and then putting it in downtown Gary. Hamilton is in and amongst millions of hockey fans but itself is not a very rich city, and the proposed location is extremely hard to get to - harder than Glendale.
Many have argued that the expansion of hockey in southern Ontario should in fact take place in Toronto, preferably the north side of the city. Others have suggested Waterloo, the city Research in Motion is based in, which is small but amongst a great many other fast-growing cities and easier to get to. In any event, there are places you could put the team.
Okay, so why not do that?
- The NHL’s long term business plan is TV revenue. What they really want is expansion of the sport’s popularity and the resulting big dollars a US national TV contract could bring.
In order to establish the legitimacy for such a contract the league needs nationwide legitimacy in the USA. Abandoning Phoenix, a major media market, would not help that. The Canadian market is already about as lucrative is it could possibly be. Hockey is a national religion in Canada, a sport far more popular than any sport is in the USA. The NHL as a whole has nothing to gain from expanding the sport in Canada, aside from the fact that one out of 30 franchises will become profitable.
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The Toronto Maple Leafs and Buffalo Sabres oppose it and will likely demand compensation. The legalities of this are debateable but it’s a problem for the NHL no matter how you slice it.
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If you’re going to have a new team in southern Ontario, the existing NHL owners stand to gain far more by having an expansion team created there. Expansion teams pay expansion fees, and a team in Toronto would likely be asked to pay a truly exorbitant fee. A relocated team would not bring as much of a windfall.
But still… if a team in Hamilton or wherever would make money and the team in Phoenix loses $40 million a year, like, that adds up.
Yeah, it does, but there’s some personal issues here.
The CEO of RIM, Jim Balsillie, and the commissioner of the NHL, Gary Bettman, despise each other; they both deny it but it’s true. Both are stubborn. Bettman is a born asshole; Balsillie is a billionaire who, like a billionaire, feels he is entitled to buy anything he wants.
But perhaps more relevant is that Balsillie has tried to use coercion, legalities and threats to buy his way into what has always been held to be a personal club. It is fascinating to note that the other three big sports leagues went to court to support the NHL’s position. If Balsillie managed to swipe a franchise from the NHL by legal fiat, rather than by being accepted by the NHL, it creates a legal precedent the other leagues find terrifying; that they will be unable to exert control over who owns the franchises. Currently they control that absolutely; a ruling in favour of Balsillie undermines that. THAT, really, is why the NHL and the other leagues feel this battle has to be fought and won, even if it means bleeding money in Phoenix. $40 million a year is a small price for them to pay to prevent franchises from flying away from their control, not to mention avoiding a potentially horrible lawsuit that would undoubtedly be filed by the City of Glendale.
Who’s going to win?
I beleive the NHL will win this battle.
Balsillie’s case is based on very shaky legal ground; he really doesn’t have any case law supporting his claim that the NHL is forced to sell him a franchise. I cannot think of such a thing ever happening in North American pro sports, and leagues buying and running franchises when they’re in trouble has happened many times; the Philadelphia Phillies were league run as far back as the 1940s. Balsillie’s a nice guy in person - I’ve met him, and he’s very charismatic - but he’s been treacherous and deceitful in this mess, and sports league have always held the right to determine who can or can not be a member. Indeed, sports leagues have suspended EXISTING owners from being involved in the operation of their own teams.
Balsillie’s offer also looks impressive at first glance but it should be borne in mind that an extra $100 million in the offer doesn’t do a lot to make up for the $700 million still owed for the arena usage rights in Glendale. (Why the Coyotes agreed to such an exorbitant price - you could build two arenas of your own for that money - I do not know.) The bankruptcy judge on the case can’t just accept the $100 million extra and ignore than extra $700 million in liabilities Balsillie’s plan would create.
The fact also remains that the league’s owners are ferociously loyal to Gary Bettman, and support him to the mattresses. Bettman’s job is to make their franchises more valuable, and he has done that.
Then what happens?
Well, the NHL may win this battle, but they may lose the war in twelve months. "The NHL is facing financial armageddon in is sunbelt teams. While the league talks a good game and claims all is well, nobody - NOBODY - in the know believes it. The fact is that many of the southern franchises are in serious trouble. Phoenix is bleeding money, Nashville is bleeding money, Tampa Bay is bleeding money and has terrible, terrible ownership, Dallas is rumoured to be on the verge of bankruptcy, Florida is financially shaky and can’t draw flies, and the Atlanta franchise is in ownership chaos. And it’s not just down south; the New York Islanders are in horrible shape as a business unit and are being kept afloat with the owner’s money.
The question is whether these teams can be turned around. As pointed out, teams HAVE been turned around; Ottawa went from being unable to meet payroll to being a profitable outfit. Edmonton was saved from likely relocation. Pittsburgh was saved. But those teams played in more hockey-friendly environments; Edmonton is a hockey mecca, Pittsburgh has always been a good market and then got Sidney Crosby, and Ottawa was at the time one of the NHL’s most exciting teams. It’s not clear if the southern teams can draw on those strengths.
Furthermore, this is happening at exactly the same time we’re having an economic meltdown. The effects on 2009-2010 ticket sales will not be known until we get started but it’s safe to say they won’t be positive.
There is a very good chance Jim Balsillie’s error was in not simply waiting one more year. I think very soon there might be a LOT of teams for sale.
