As has been widely reported since the league's bid became public, the NHL is prepared to offer up to $140-million for what is the battered carcass of the Phoenix Coyotes. What hasn't been widely reported is just what else is in the bid, and how we arrive at that figure.
Two key things to get into here: (a) the structure of the purchase agreement as it relates to the dollar figure and (b) how the league will attempt to deal with a lease that very well may need to be broken nine months from now.
Part 1: Where the $140-million figure comes from
- "Payment or other satisfaction of all indebtedness" to SOF Investments (largest creditor) of approximately $80-million
- $37-million owed to the NHL itself as a secured creditor
- "payment of cure costs relating to assumed contracts" which include the lease agreement and "Glendale contracts" but only "to the extent they become assumed contracts" (more on that in a second)
- "payment of approximately $7.5-million in designated unsecured liabilities at closing"
Up front, in cash, the NHL will contribute only $2-million. More cash will be paid out after the 2009-10 season in mid-June that is equal to the lesser of $138-million minus the payments above ($124.5-million plus the "assumed contracts") or the total remaining unsatisfied claims (likely all of unsecured creditors) not including any payments to Jerry Moyes.
In addition to those terms, which are highly likely to reach that $140-million, the league will kick in another 20 per cent of the net profit of the sale of the team, not to exceed $20-million, as long as the franchise is sold within two years. So, for example, if the team sells for $240-million next summer to other interests, there'll be a profit of about $100-million for the league, $20-million of which goes to the remaining unsecured creditors.
There is no cash available to Moyes or to Wayne Gretzky, who the NHL will either kick out on the curb or drastically rework his contract. Whether the court determines Moyes is a creditor or not could be a big factor at the Sept. 10 auction.
Part 2: The AMULA (Amended and Restated Management, Use and Lease Agreement)
This is potentially a big hurdle for the NHL (and really any purchaser) to work around, as Glendale's lease agreement on Jobing.com Arena is designed to be a difficult one to skip out on. As deputy commissioner Bill Daly told Damien Cox yesterday, however, "The club cannot survive with the current lease."
We haven't yet heard a ruling on what the bankruptcy court will do with the lease, but here's how the league will deal with what it calls the AMULA:
- Prior to closing, the NHL and Moyes will enter into a "partial lease assignment agreement" that will "terminate on the day after the last day of the 2009-10 season." Essentially, the league will pay the rent, etc., associated with that lease agreement for nine months after the purchase date
- Moyes will "agree not to reject the AMULA prior to th elatest date on which they are required to make such determination under the bankruptcy code and to use their reasonable best efforts to obtain an order extending such date until th last day of the 2009-10 season." If Moyes rejects the lease, he will agree to ensure that doesn't take place until June, 2010
- The NHL will do whatever it can to negotiate with the City of Glendale "an amendment to the AMULA" which will see the league assume the new agreed upon lease and "withdraw any motion to reject the AMULA"
In other words, the league has no intention of assuming this lease (for obvious reasons) and is apparently using a "transition services agreement" in order to leave it in Moyes's hands for up to nine months after closing. Prior to the termination of that TSA, the league "may elect in their sole discretion to treat any Glendale contract as an excluded contract" and "the sellers [Moyes] shall be entitled to reject such a contract."
The issue here for the judge will be that the NHL's bid could easily become a relocation one by June, 2010, depending on how negotiations go with Glendale. What the league's really after here is to buy time to find more suitors for the team and put pressure on the city to capitulate to its demands.
What the language on this lease agreement will allow is for the NHL to continue to use the notion of relocation to extract concessions, something we have seen in the past. Gary Bettman has experience in these situations and generally gets his way.
Complicating things will be Jim Balsillie's bid for the team, obviously. You better believe his side will argue the NHL's bid is essentially a relocation bid designed to cut him out of the process, and the legalities on that are well beyond my expertise.
Two weeks until the auction.
A couple more quick notes:
- Included in the bid is the assumption of the suite licenses, of which there are only apparently 35 out of 99 for the coming season. Season's ticket sales likely look worse than that.
- Yes, the Ice Edge boys remain one of the bids, but for how long remains to be seen. Their offer is contingent on negotiations with the city, and given they've been in the picture several months less than Jerry Reinsdorf and he couldn't make any progress there, it seems doubtful they'll get what they want by Sept. 10. In other words, they very well could be the next party to walk.