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Report: New Coyotes ownership candidate could want an 'out clause'

James Mirtle Globe and Mail Blog Friday, August 12, 2011

There's a sliver of news out there on the Phoenix Coyotes' ownership front, and in mid-August, that's enough to cause a little bit of interest in NHL circles.

The Phoenix Business Journal reported yesterday afternoon that "there is a serious bid by a new Canadian-led ownership group to buy the hockey franchise."

Few details are available, other than the fact there is again talk that there "could be a seven-year out clause that would allow the new owners to sell and/or move the team out of Arizona if market conditions do not improve."

Given all that's gone on in Glendale the past two-plus years since the team went into bankruptcy in May, 2009, one would think some sort of "out" is a given.

The other tidbit of info in the report is that the new group would be willing to put up $100-million of the purchase price, which would seem to be a much better deal for the city than what Matthew Hulsizer had been offering before backing out to pursue the St. Louis Blues.

Optimism is in short supply when it comes to the Coyotes these days, as after losing $37-million last season and having Glendale put up another $25-million to keep the team there another year, mayor Elaine Scruggs has said publicly she doesn't "have a lot of confidence" the team will be staying beyond 2011-12.

"I have never supported having the team leave," Scruggs told NBC 12 News in July. "However now I believe that the only realistic thing to do, for all of us, is to take a look at what would like be like with no team in the arena.

"In many ways the city of Glendale has no control over our future. We have some but we don't have final control. The decision is with the NHL, the other, I think it is 29 other owners, who they want to be an owner of the team."

What's going to be interesting here over the coming weeks is if the identity of that Canadian bidder comes out, as if they want an out clause, presumably they have an idea of where they'd like to go. With Winnipeg getting its team back already, there are only two realistic options on that front, with Quebec City and Southern Ontario potential destinations in this country.

In the U.S.? Your guess is as good as mine, as there really don't seem to be any untapped markets that would guarantee success or where there are owners lining up to get a team.

Greg Wyshynski has a few more thoughts on the situation today. (BELOW)
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Fri Aug 12 11:16am EDT
Escaping the Phoenix Coyotes: New owners and the out clause

By Greg Wyshynski

On Aug. 12, 2008, Jerry Moyes was the owner of the Phoenix Coyotes, bleeding money and scheming behind the scenes for a way out. On Aug. 12, 2009, Jim Balsillie, Jerry Reinsdorf and Ice Edge Holdings were bidding for the Coyotes, now mired in bankruptcy court. On Aug. 12, 2010, the NHL owned the Coyotes, Ice Edge was moving on from the bidding and a "mystery buyer" was weeks away from revelation.

On Aug. 12, 2011, the NHL still owns the Coyotes. Last year's "mystery buyer," Matthew Hulsizer, threw up his arms at local politics and turned his attention to the St. Louis Blues. And now this year's "mystery buyers" are waiting for their turn in this three-year embarrassment for the National Hockey League.

According to the Phoenix Business Journal, a source told the "Roc and Manuch" sports radio show on KDUS-AM 1060 in Phoenix that there is a "serious bid" by a Canadian-led ownership group to buy the team. (More of that strong, local ownership Bettman always advocates.)

From the Journal:

The "Roc and Manuch" show reported today that the bid involves a minority owner involved with another National Hockey League franchise, and there could be a seven-year out clause that would allow the new owners to sell and/or move the team out of Arizona if market conditions do not improve.

The official familiar with the Coyotes situation said the unnamed Canadian group has plenty of cash to make the deal. That same source said the group could put up $100 million, with $40 million to $50 million coming from the city of Glendale via bonds. The NHL could give approval to the deal in the coming days, according to KDUS.

Operative phrase: Out Clause.

The out clause has been included in other bids for the Coyotes. (Besides Balsillie, who obviously would have backed up the U-Hauls the moment he purchased the team.)

Via the Associated Press, looking back at the Reinsdorf bid in 2009:

In the fifth year, Reinsdorf's group, known as Glendale Hockey, could give 180-days notice that it intends to sell the team. Glendale would have that 180 days to find a buyer who would keep the team in Arizona, with Reinsdorf guaranteed a minimum purchase price of US$103 million.

Ice Edge seeks no such "out clause" but would establish a ticket surcharge that could vary between Coyotes games and other events at Jobing.com Arena, a popular venue for major concerts such as the recent Paul McCartney appearance. The financial district would terminate after 10 years, with whatever money is left in it going to the city. Within five years, Ice Edge would enter into talks with Glendale to buy the arena.

Hulsizer also had what amounts to an "out clause" in his deal, but one that had less to do with market conditions and more with political turmoil. From Sports Business Daily in Dec. 2010, when the Glendale City Council approved $197 million in funding to keep the Coyotes in Glendale under Hulsizer:

Council member Joyce Clark cast one of the dissenting votes, and her main concern "centered on part of the agreement that would allow Hulsizer to terminate the arena lease before then if the city failed to meet its financial obligations to the team or faced a lawsuit that invalidated part or all of the deal."

Hulsizer in that case "would still be allowed to keep the money that the city provided through the deal." Hulsizer "told the council he was willing to allow 120 days for negotiation with the city if such a default or lawsuit judgment were to occur."

Glendale Mayor Elaine Scruggs after the meeting added that the NHL "had told Glendale it would not allow the team to move, even if there was a lawsuit judgment, for seven years."

So with this new bid for the team, we're still looking at the seven-year itch. One bidder in three years was willing to commit to the region: Ice Edge. And that might have just been to differentiate their bid from Reinsdorf's cut-and-run clause. No one is bidding for the Phoenix Coyotes again without an escape hatch. Ain't gonna happen.

According to the NHL's actions, they shouldn't need one, of course, because the market can work under the right conditions.

The company line for the NHL when Moyes put the team in bankruptcy was that he had just subverted an ongoing process between the League and Glendale to create more favorable market conditions for the franchise. Part of that equation was finding new ownership; the other part was extracting more money from the city and from the revenue streams around the arena.

The process nearly played out with Hulsizer until it became apparent that entities like the Goldwater Institute weren't going to allow the city to throw taxpayer money at the Coyotes without a hell of a fight.

The new bid, according to the Business Journal, asks for significantly less from the city than Hulsizer's did. But the devil's in the details.

Witness the situation with the Nashville Predators from a few years back, via the Arizona Republic:

After 2010, if average paid attendance drops below 14,000 per game and cumulative losses reach $20 million, the team could opt out of its lease. The team would have to pay Nashville an early-termination fee that ranges between $10 million and $25 million, depending on the year.

So will the market get seven years to make this work, and then have specific triggers in the deal to allow for relocation? Could relocation happen sooner for the new owners?

The NHL has come this far, danced with so many partners and fought so many battles that it's inconceivable they're going to let the Coyotes move. Bettman doesn't like to lose, and any scenario in which the Coyotes leave is a defeat, plain and simple.

Meanwhile, all the fans are doing is increasing the season-ticket base dramatically while the wait for this nonsense to reach its conclusion.

Dean
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