Thursday, May 07, 2009

Some More Stuff on the Coyotes' Bankruptcy Filing 

In Professor Vic's post yesterday afternoon, he had a few questions regarding the Phoenix Coyotes' filing for bankruptcy. You might recall that the Coyotes filed for bankruptcy shortly before the NHL was going to essentially take control of the team to prevent team owner Jerry Moyes from selling his franchise to Jim Balsillie who would then move it to southern Canada (here is my earlier post on the subject). Here's an important question that Vic asked:
Second, it's also unclear why the NHL would want to force a team to remain in an unprofitable market when it seems clear that fan demand in Ontario could easily support another franchise in the area.
Finance Professor writes:
As a Sabres fan, this also hits to home as the potential owner (Jim Balsillie) wants to move the team close to Buffalo (Southern Ontario). Which will likely hurt the Sabres as well as the Toronto Maple Leafs. From the Buffalo News:
"Buffalo Sabres minority owner Larry Quinn … who said 20 percent of the Sabres' revenues come from southern Ontario …."Obviously, the southern Ontario market is part of our [area of dominant influence]. It's very important to our fans. It's something we have the right to promote and market as only the Buffalo Sabres'. If we were to sell our team by promising somebody the rights in another market, we wouldn't be able to do that, so I'm assuming that other people in the league will follow those same rules.
I think this makes sense. Of the many things leagues (i.e. collections of individual teams) do is maintain league members' profits by helping enforce each team's exclusive territory. In so doing, they help enforce a cooperative solution to the cartel game, a type of prisoner's dilemma game, in which cooperation is very difficult to maintain.

Here's a WSJ article on the subject.

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Wednesday, May 06, 2009

Phoenix Coyotes Declare Bankruptcy 

The Phoenix Coyotes (the old Winnipeg Jets) have declared bankruptcy. From the Arizona Republic (HT Warren Meyer):

Less than an hour before the National Hockey League commissioner planned to broker a deal to sell the Phoenix Coyotes and strip team owner Jerry Moyes of his duties Tuesday, Moyes filed for bankruptcy to sell to his own buyer.

Moyes, as part of a Chapter 11 reorganization filing, agreed to sell the team for $212.5 million to a BlackBerry wireless magnate who plans to move the team to a yet-to-be determined location in southern Ontario, Canada.

The move is not a certainty. Already, the NHL and Glendale, which leases Arena to the Coyotes, have objected to Moyes' tactics. And other investors could outbid BlackBerry executive Jim Balsillie's PSE Sports & Entertainment LP.

But the Coyotes, who have played in metro Phoenix since 1996, habitually have lost money in the desert, first when they shared an arena with the Phoenix Suns in downtown Phoenix and most recently in Glendale.

Moyes, who since 2001 has invested more than $310 million in the team, declined to be interviewed. Earl Scudder, his financial and legal adviser, said Moyes had no option but to file for bankruptcy because that was the only way to void the team's lease with Glendale.

"He didn't have a lot of choices," Scudder said. "He had gone through extensive marketing efforts and was unable to get offers for the team that would take care of the creditors." The move shocked Glendale, which contributed $180 million for the $220 million arena that opened in 2003. For the city's hefty investment, the team signed a 30-year agreement with an early-termination penalty of more than $700 million.

I agree with this assessment from Meyer:

Several years ago, Phoenix suburb Glendale paid about $180 million to build a hockey stadium for the Coyotes. The Coyotes had already been in the Valley for several years, losing money all the while, and had shed one ownership team for another fronted by Wayne Gretzky. It was shear madness to build them a stadium, as their chances of financial success were almost non-existant. It was already clear at this point that hockey was not going to be a big draw in Arizona. For this reason, Scottsdale and Phoenix both ended up passing on subsidizing the team before Glendale, out to prove it was a “real” city, stepped up to the plate with a wad of taxpayer money.
This is one of the problems with using other people's money to finance risky projects: investors take risks that they otherwise would not. If the project doesn't pan out, it's the taxpayers who are on the hook.

Addendum: I see that Victor Matheson has posted on the bankruptcy as well. As I mentioned to him in an email, I think it's pretty clear that the Coyotes are not in danger of completely folding. Instead it seems that the bankruptcy filing is strategic - a way for Moyes to at least buy himself a little more time in his attempt to sell the Coyotes to Balsillie.

Another addendum: according to this AP update, the NHL questions whether Moyes has the power to file for bankruptcy.

Another addendum: The Chicago Tribune reports that White Sox owner Jerry Reinsdorf is working with the NHL on a deal to buy the Coyotes and keep them in Glendale.

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