New Developments in Phoenix

coyoteslogoThe owner of the Phoenix Coyotes, Jerry Moyes, filed Chapter 11 bankruptcy last spring.  Moyes bought the Coyotes in 2000 for $125 million.  The Coyotes had allegedly been losing money for years.  I write “allegedly” because professional sport income statements are notoriously easy to manipulate.  In any event, Moyes had many financial problems, and the Coyotes were probably one of them.

At the time ofthe Bankruptcy filing, Moyes announced that he had negotiated the sale of the Coyotes to Jim Balsillie, co-CEO of BlackBerry manufacturer Research in Motion, for $212.5.  The bombshell: Balsillie would be moving the team to Hamilton, Ontario.  The deal was negotiated in secret, and nobody in the NHL front office claimed to have any knowledge of the deal.  This is a big “no-no” in North American professional sports, because every North American league has  carved up every square foot of the US and Canada into territory in which some team has exclusive rights to operate as a monopoly.  The NHL went ballistic and launched a full-scale assault aimed at killing the deal.  Balsillie, the NHL claimed, was a Bad Person who has no business owning an NHL franchise.  He has many overdue library books, a large carbon footprint, and probably eats a diet high in saturated fats.  The NHL’s board of governors called him “untrustworthy.” Legal proceedings ensued.

Note that Moyes stands to make a significant capital gain from the sale of the Coyotes, even if the claims of operating losses are correct.  If you buy some asset for $125 million in 2000 and sell it for $212.5 million in 2009, and also gain considerable consumption benefits from owning the asset over that nine year period, you have Done Quite Well according to the Big Book of Investing.

Yesterday, some lawyers announced that a group of investors led by Jerry Reinsdorf, owner of the Chicago Bulls and White Sox (who lives in Phoenix, by the way), had reached a deal to buy the Coyotes for $148 million and keep the team in Phoenix.  Alert readers will notice that 148<212.5.  I am pretty sure that Jim Balsillie and his high priced lawyers have also noticed this.  How can the Reinsdorf group purchase an asset that someone thinks is worth $212.5 million for $148 million?  Unless the NHL is operating a “Cash for Clunkers” program, something else must be going on.  According to the news reports, the Reinsdorf group has reached some sort of agreement with the Coyotes’ main creditor in the bankruptcy proceedings, SOF Investments, who are owed $80 million.  SOF Investments, aka MSD Capital according to the SEC, is a front for PC magnate Michael Dell.  Under this agreement, the $80 million owed to SOF Investments by Moyes will go away, clearing the way for the Reinsdorf group to purchase the Coyotes and keep them in Phoenix.

The announcement is missing any details about how that $80 million in debt will go away. Under the Balsillie offer, SOF Investments gets $80 million.   Methinks this is a long way from over, so stay tuned.

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