by Forechecker on 10/08/08 at 01:39 PM ET
For Jim Balsillie to obtain the minority position in the Nashville Predators that Boots Del Biaggio bought into, bankruptcy court appears to offer a potential “back door” into NHL ownership, as he could simply outbid other parties for the shares. Since the bankruptcy trustee is bound to obtain top dollar for Del Biaggio’s creditors, this offers a potential legal end-run around the NHL’s process, which kept Balsillie from buying the Predators in 2007. For instance, the Globe & Mail’s Stephen Brunt wrote the following last week:
If Balsillie is indeed interested, he must have similar views [regarding Del Biaggio’s relocation schemes] – minus the Kansas City part – and he understands that by working through the bankruptcy courts he can’t be derailed by NHL politics or the legal butt-covering that prompted Bettman to twice make sure a sale to Balsillie was never consummated.
But it may turn out that this back door is closed, as well. One intrepid Nashville fan has dug up a legal presentation entitled “Sports Franchises and Bankruptcy Law”, which appears to shed some light on this question of whether the Del Biaggio minority position can simply be auctioned off to the highest bidder, regardless of NHL rules.
The following is an excerpt from the presentation, which dates from 1999 when the Pittsburgh Penguins were on the financial ropes:
The NHL Constitution, exhibit “A,” expressly prohibits the transfer of membership in the league or of any ownership interests except pursuant to its approval process. Citing an 1876 Supreme Court case, Hyde v. Woods, 94 U.S. 523, 24 L.Ed. 264 (1876), the NHL’s position was that membership in a voluntary association may be transferred only pursuant to the association’s rules, even after an individual member’s bankruptcy. The Hyde v. Woods case involved the transfer of a seat on the San Francisco Stock Exchange Board and the use of proceeds to pay debts of the exchange memberships. The Supreme Court in Hyde v. Woods held that:
“A seat in this Board is not a matter of absolute purchase. Though we have said it is property, it is encumbered with conditions when purchased, without which it could not be obtained. It never was free from the conditions of (the rule requiring such payments at transfer), neither when the debtor bought, nor at any time before or since. That rule entered into and became an incident of the property when it was created, and remains a part of it in to whose hands soever it may come.”
Similarly, the portion of the Nashville Predators owned by Forecheck Holdings (Boots Del Biaggio’s holding firm) is governed by the terms and conditions outlined in the ownership group’s operating agreement. That includes the right of the majority ownership group to approve (or disapprove) of any new partners, as noted by David Freeman.
Now, there are a couple caveats to consider; first of all, this presentation is nearly a decade old; that said, the current situation doesn’t appear to bring anything new to the legal arena, so it’s likely that it remains relevant today. Secondly, the bulk of the document discusses the possibility of the Pittsburgh Penguins having their NHL franchise revoked due to team bankruptcy. The topic of ownership transfer outside of the NHL approval process is a secondary issue.
Nevertheless, it’s pretty clear that the NHL has some legal backing to ensure that any franchise ownership transfer abides by its regulations. If Balsillie still wants to join the NHL club, he’ll still have to walk through the front door to do so.
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