At Issue in NHL Case: Who Decides Who Can Own a Team?

Zach Lowe

The American Lawyer

It's complicated, it's happening all the way in Phoenix and it involves the least popular of the nation's Big Four pro sports leagues, but the Phoenix Coyotes bankruptcy case is shaping up to be the year's landmark sports law case. The big question hovering over the entire proceeding: Who ultimately has the authority to decide who can own a team and where that team plays -- a professional sports league or a bankruptcy court judge? 

The National Hockey League, represented by Skadden, Arps, Slate, Meagher & Flom, believes such power rests with the league, and it has taken the highly unusual step of submitting its own bid to purchase the Coyotes over a rival bidder who might relocate the franchise to Canada. Though the exact amount of the NHL's bid is undisclosed, it is widely assumed to be far less than the current high bidder -- Jim Balsillie, a Canadian businessman and hockey fanatic who has long desired to buy a U.S.-based NHL team and move it to Hamilton, Ontario, about an hour north of Toronto. Balsillie, who owns the company behind the BlackBerry, has bid $212.5 million for the Coyotes, an amount that would likely produce the best deal for the Coyotes' creditors. Phoenix-based Lewis and Roca is serving as Balsillie's bankruptcy counsel, but the firm recently retained Dewey & LeBoeuf sports law heavyweight Jeffrey Kessler to depose high-ranking NHL officials, court records show.

"Lewis and Roca is a great firm," Kessler says. "But this is now national litigation with Skadden on the other side, and I think it was the collective view that the [Dewey] team should be brought in."

The NHL wants no part of Balsillie, though it's unclear if that's because of his desire to relocate the team or -- as the league has suggested -- his previous run-ins with U.S. regulators over alleged options backdating at his company, Waterloo, Ontario-based Research in Motion. The league's owners have already voted 26-0 to reject Balsillie as an owner, and the NHL urged the judge hearing the Coyotes case to disqualify Balsillie as a bidder since, it argues, the league's owners have ultimate authority over who can own a team. Judge Redfield T. Baum of federal bankruptcy court in Phoenix so far has allowed Balsillie to remain in the bidding, but he is expected to make a final ruling on the issue during a mammoth Sept. 2 hearing. An auction for the Coyotes is scheduled for Sept. 10.

Balsillie and the NHL have accused each other of negotiating in bad faith. Balsillie claims NHL Commissioner Gary Bettman (a former Proskauer Rose lawyer) holds an unreasonable grudge against him, while the NHL has claimed Balsillie is hurting the value of the Coyotes by smearing greater Phoenix as a hockey market. (Balsillie and his lawyers deny that accusation.)

Kessler has already deposed Bettman, though he cannot go into details about what was said at the deposition. Skadden's team -- led by partner Shepard Goldfein -- deposed Balsillie earlier Wednesday, Kessler says. Kessler represented Balsillie during the deposition.

Meanwhile, two other bidders have emerged, court records show. A group of private investors known as Ice Edge Holdings (represented by Cadwalader, Wickersham & Taft) offered about $150 million for the Coyotes just before Tuesday's deadline to submit bids, according to this nice roundup in the Associated Press. Another group led by Jerry Reinsdorf, the owner of the Chicago White Sox and the Chicago Bulls, offered a slightly lower amount. Katten Muchin Rosenman advised the Reinsdorf group, which promised to keep the team in Arizona, and made its initial offer with the backing of the NHL.

The Coyotes current ownership, repped by Squire, Sanders & Dempsey partner Thomas Salerno, ripped the Reinsdorf offer in court papers, claiming Reinsdorf refused to include the required $10 million security deposit or sufficient details about his financing plans. The Reinsdorf group withdrew its bid Tuesday, forcing the NHL to enter the bidding at the last minute, according to the AP.

To summarize: We're down to three current bidders -- the NHL, Ice Edge and Balsillie. The creditors committee (and, to a lesser extent, the debtors) are backing Balsillie, but it's unclear right now whether Judge Baum will allow Balsillie to participate in the Sept. 10 auction. 

We have a feeling there are some interesting filings to come. Stay tuned.

This article first appeared on The Am Law Daily blog on AmericanLawyer.com.