Monday, May 11, 2009

NHL, Balsillie Litigate Phoenix Coyotes' Future

The battle between the National Hockey League and Canada's Blackberry billionaire, Jim Basillie, over the future of the Phoenix Coyotes franchise is shaping up as one of the most interesting - and important - professional sports litigation cases in recent history.

While its current venue is an Arizona bankruptcy court, the case may ultimately break now ground in establishing the conditions under which professional sports leagues will be permitted to limit the mobility of their franchises and protect the territorial exclusivity of member teams.  

Sports writer Howard Berger provides his take:
The battle for control of the Phoenix Coyotes has simmered for the moment, but will pick up with a vengeance when the opposing sides re-convene in the United States Bankruptcy Court for the District of Arizona on May 19th. If Judge Redfield T. Baum rules that the Coyotes belong to Jerry Moyes, and can therefore file for Chapter 11 bankruptcy protection and be sold to the highest bidder [Jim Balsillie], the NHL will surely appeal the decision, delaying not only the potential movement of the franchise, but the timely completion of a schedule for the 2009-10 season.

It’s anyone’s guess as to how the dispute will be won, but I am most intrigued by
Balsillie’s accusation in a separate claim that the NHL is running an “illegal cartel”. For many years, I have wondered about the unilateral declaration of territorial claim that is common in all professional leagues, but doesn’t appear to be constitutional. In a free-enterprise system, competing factions are encouraged to exist in proximity to one another; it’s the reason a Burger King restaurant can set up shop across the street from an existing McDonald’s franchise. Such an arrangement satisfies anti-trust regulations by discouraging monopolistic tendencies.

Professional sport, however, is largely built on monopolizing lucrative territory; its clubs command astronomical indemnification from groups that wish to invade turf that is already “owned”. It is believed that team and league executives liberally collude to prevent competition – a charge, in the NHL, that is frequently brought against the Maple Leafs and the commissioner’s office. This appears to contravene the rules the rest of our society lives by and it
isn’t clear how it might withstand a vigorous legal challenge. What is clear is that such a challenge could be fashioned by money-bags Balsillie, and there’s no telling how it might impact the accepted rule in pro sport. 

The reversal of such a long-term practice could affect the most routine elements of sport – those which are overlooked in legal circles for being internally policed...
The Burger King-McDonald's analogy doesn't quite hold up - while McDonald's franchisees may well bear the risk of competition from other arm's-length businesses, they typically have contractual protection from the possibility that the franchisor will open another McDonald's outlet across the street.'s John Mackinnon worries that Balsillie's alleged end-run around the NHL's procedures could cause "untold damage" to the NHL boardroom:

It's a Canadian conceit that placing franchises in Winnipeg, Quebec City and southern Ontario is a patriotic imperative, while hoping the sport will bloom in the Arizona desert or flourish under Florida palm trees is outright lunacy.

...Permitting an undeniably bright, deep-pockets entrepreneur like Balsillie to dictate his own terms of entry and set up shop where he darn well pleases could do untold damage to the dynamic around the board table. It beggars common sense to think the governors are anxious to welcome a partner whose approach to franchise ownership is Robert Irsay meets Al Davis.

Irsay was the man who literally packed up the assets of the Colts in Baltimore back in March 1984 and executed the old midnight move to Indianapolis.

Davis ("Just win, baby") successfully used anti-trust legislation to move his Raiders from Oakland to Los Angeles and back again.

There was nothing the NFL could do about it.

Irsay and Davis succeeded, all right, but that sure doesn't make them role models.

Perhaps, but isn't it clear that the real reason for Mr. Balsillie's aggressive tact is that he's become justifiably convinced the NHL will never, under ordinary circumstances, award a franchise to Hamilton.  Plainly, the unbending and long-established territorial-exclusivity claims of the Toronto Maple Leafs and Buffalo Sabres organizations are not far beneath the surface of this litigation. 

The pending Coyotes litigation will likely put these territorial rights - and the NHL's ability to protect them - to their ultimate, and perhaps overdue, legal test.

- Garry J. Wise, Toronto

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