Why Balsillie went ballistic - Macleans.ca

Why Balsillie went ballistic

RIM’s billionaire boss has been shut out of the NHL. Is the league to blame—or is he?


Why Balsillie went ballisticCraig Leipold is not the sort of man who shoots off his mouth. Even before he joined the cloistered ranks of the National Hockey League as owner of the Nashville Predators, the sandy-haired entrepreneur from Racine, Wisc., had carved a reputation for discretion—a virtue no doubt learned from his in-laws. Leipold’s wife happens to be Helen Johnson of S.C. Johnson & Company fame, and while her husband long ago proved his business bona fides, Leipold’s social station speaks for itself. You don’t gain entry into one of America’s most venerable families by waging unseemly personal battles.

But when the subject of Jim Balsillie comes up, as it did during a deposition hearing last month, Leipold’s customary reserve flies out the window. Now the owner of the Minnesota Wild, Leipold was testifying as part of the high-profile bankruptcy proceedings of the Phoenix Coyotes, recalling the six months of fractured negotiations in 2007 when he’d tried to sell the Predators to Balsillie. For two years, Leipold had kept his feelings about the quixotic Canadian billionaire largely to himself. Now, from his lawyer’s Main Street offices in Racine, he was about to pound a rhetorical stake through Balsillie’s reputation.

“He’s untrustworthy. He’s deceiving. He’s arrogant. He’s a person who doesn’t know how to be a partner in our business,” Leipold testified. “When there is someone that you have dealt with and that has lied to you continually, that has deceived you—knowing that he was going to deceive you at the end—that is a pretty good reason to dislike him. Yes, it is true. I do dislike the man.”

At some points his tirade turned ominous: “This is the way [Balsillie] operates. He operates by threats, by innuendos, by phone calls to people. Quiet phone calls, and you can connect the dots.” But mostly it revolved around what Leipold viewed as Balsillie’s rank capriciousness. “This is a person,” he said, “I could never support as an owner.”

How things have changed. This was the same Craig Leipold, recall, who’d gone to bat for the Research in Motion magnate back in 2007 in hopes of completing his deal, scrambling to assuage the suspicions of NHL commissioner Gary Bettman and coaching the Canadian on how best to navigate the Byzantine initiation process of league ownership. Initially, Leipold had even contemplated retaining a minority stake in the Predators so he could work with Balsillie. That the mild-mannered Wisconsian has since sunk so far into vitriol speaks to his disappointment at a failed mega-deal. But it also illustrates something many Canadian hockey fans are loath to consider: that Balsillie has fumbled three attempts to acquire an NHL franchise, and fumbled them badly.

Such a view diverges, of course, from a popular narrative here in Canada, in which the NHL’s resolute opposition to locating a second team in southern Ontario has driven Balsillie to ever more desperate measures. The multi-billionaire and his agents have fed that story with messianic enthusiasm, granting friendly reporters access to the dressing room for his pickup games, and launching a website aimed at stoking our offended patriotism. “My motivations are simple,” he proclaimed in a recent affidavit. “They are my love of the game of hockey, my repeatedly demonstrated commitment to Canada and southern Ontario, and my strong belief that the community of southern Ontario, the game of hockey and Canada will benefit from a seventh NHL franchise.”

But in recent weeks, another narrative has arisen from the mountain of court documents filed in Phoenix, pointing to something more visceral than mere jingoism, or passion for a game. What started five years ago as a sincere desire to join the club of NHL owners has mutated into full-blown obsession, prompting Balsillie to take actions no rational business person could imagine succeeding. To be sure, he’s been pushed. From the outset, the league and its combative commissioner, Bettman, have treated the Canadian tycoon with suspicion; they’ve never been completely forthright about their reasons for resisting an NHL team in Hamilton (the prospect of confrontation with the mighty Toronto Maple Leafs). But the best deal makers learn from their mistakes, and in this case, Balsillie hasn’t. Far from building support among potential allies, he has left behind a list of powerful enemies who want nothing more than to see him fail. Again.

There was a time, believe it or not, when Jim Balsillie wanted nothing more than to keep his NHL fantasies a secret. Back in 2003, years before he tried to use a bankruptcy spat to smuggle the Phoenix Coyotes into Hamilton, he was the silent partner (i.e. driving force) behind another, much smaller enterprise: HHC Acquisition Corp. The company was created for one reason—to bring a National Hockey League franchise to Steeltown—but Balsillie, the man holding the purse strings, was anxious to avoid the spotlight. So anxious, in fact, that he set up a second company (2039802 Ontario Inc.) to funnel his investments to HHC. As one of his lawyers later wrote, the goal “was to keep Jim one step removed” and “to protect his privacy.”

There was also a time, believe it or not, when Jim Balsillie exchanged civil pleasantries—and cellphone numbers—with Bettman, now his arch-nemesis. At their first formal meeting, a New York sit-down on March 28, 2006, the BlackBerry boss shared his top-secret dreams for a hockey team in southern Ontario. Accompanied by his bulldog attorney, Richard Rodier, Balsillie told Bettman that HHC had already secured a lease agreement for Copps Coliseum, and that he was willing to reach into his own deep pockets to renovate the ill-fated arena. The commissioner, though, was not impressed. The region simply cannot support another franchise, he said, even if the rink does get a much-needed facelift.

Instead, Bettman looked across the table and suggested another option. What about Pittsburgh? The Penguins are still for sale.

And so it began: Jim Balsillie’s gradual, improbable plunge from wealthy, wannabe owner to NHL pariah.

Almost immediately, Balsillie’s camp began negotiating a deal to buy the Penguins from a group that included scoring legend Mario Lemieux. Later that June, while Bettman was in B.C. for the annual entry draft, he received a surprise phone call from his new friend. “I was actually in the lobby of the Sheraton Wall Hotel in Vancouver, and he was on his way to either a bicycle trip or a bicycle race,” Bettman recalled, testifying this summer at his own deposition. “And he said to me: ‘I need some advice. I’m not sure what to do about these negotiations.’ And I remember saying to him: ‘Jim, unless you’re prepared for the possibility that you will own the Penguins in Pittsburgh forever, you shouldn’t buy the team.’ And he said: ‘That’s really good advice, I appreciate it.’ And then he dropped out of the bidding.”

To Bettman, the message was crystal clear: Balsillie was still in love with his southern Ontario scenario—the same one they discussed on March 28—and he had no interest in owning a team south of the border.

Which is why, when Balsillie suddenly changed his mind and re-entered the Pittsburgh negotiations later that summer, Bettman became suspicious. “There was a real concern as to whether or not Mr. Balsillie was really going to try and work things out in Pittsburgh or try to figure out a way to extricate them and move them,” he testified. “This was an issue relating to Mr. Balsillie’s credibility. Did he mean what he said?”

What he said (or allegedly said, or allegedly didn’t say) is now the stuff of sworn affidavits. But this much is certain: when the Penguins were on the market in 2006, the team was in desperate need of a new rink. At the same time, the state of Pennsylvania was in the process of granting a slots licence for a casino development in downtown Pittsburgh, and one of the bidders, Isle of Capri, had pledged to fork over US$290 million toward a new arena—but only if it won the casino licence. Any potential buyer, Balsillie included, would have to honour that arrangement and keep the Pens in town.

Despite his Hamilton ambitions, Balsillie insists he was fully committed to staying put in Pittsburgh. On Aug. 29, 2006, during another sit-down with NHL brass, he threw his unequivocal support behind the Isle of Capri bid, and if that proposal fell through, he vowed to work diligently on a so-called “Plan B,” which would include an undetermined blend of private, government and out-of-pocket funding. As for what transpired during the rest of the meeting, it depends on which side you believe.

At the heart of the now-disputed storylines is the league’s so-called “seven-year” clause, a standard rule that prohibits a new owner from immediately relocating his team. Balsillie, concerned that the stipulation would handcuff him during arena negotiations, says he was under the impression that Bettman agreed to waive the requirement. Bettman says no such discussions ever occurred.

Amid those mixed signals, negotiations picked up steam. By Oct. 4—the day before the season began—Balsillie and the Lemieux group had reached a tentative agreement worth US$175 million. All that was left was a rubber stamp from the NHL’s other 29 owners. “I was thrilled and excited about the prospect of owning the Penguins,” Balsillie testified in August, noting that his private jet could whisk him to a game in 45 minutes flat. “Of all the ironies, I could get to Pittsburgh faster than I could get to downtown Toronto for a Leafs game from my home in Waterloo.”

To prove his commitment to the team, Balsillie even ordered HHC to cancel its lease option with Copps Coliseum.

But then came Dec. 4, 2006—the day of Balsillie’s face-to-face interview with the executive committee of the NHL board of governors. As Balsillie recalled in his deposition, he considered it more of a meet-and-greet than anything else. “I thought they were just trying to size me up, really,” he testified. “My sense of it is these people were just trying to get a sense of who I am, how I think, who they are dealing with, what kind of person I am.” After the meeting, Balsillie shook some hands and boarded a plane for China. “I walked out and thought: ‘What a nice bunch of people. I am excited. We are going to get this done. We are going to win a Cup.’ ”

It turns out that the executive committee had a much different recollection. According to numerous statements filed in court, Balsillie promised during the interview to agree to a long list of provisions, including a promise to allow Bettman to take charge of negotiations with local politicians if arena talks stalled. Balsillie, the owners say, also agreed to give the league the option to buy the Penguins back if he ever threatened to relocate. The kicker? When the NHL subsequently forwarded Balsillie’s lawyers a draft of the consent agreement, it also included the infamous seven-year clause.

Balsillie now says he agreed to none of those clauses. “Shock and surprise is an understatement,” he later testified. “I pride myself in being a clear communicator and a consistent person in my business dealings, and I just can’t see how I gave people representations that I was going to materially change my deal at the 11th hour for unnecessary reasons.”

The league offered a compromise: it agreed to cut and paste the contentious clauses into a confidential side letter—and not the publicly available agreement—ensuring that Balsillie would maintain his negotiating leverage for a new arena. During an emergency conference call on Dec. 11, Bettman also asked an aggravated Balsillie to wait until the state ruled on the slots licence. (Remember, if the Isle of Capri came out on top, the arena problem would be solved and the legal wrangling over relocation clauses would be moot.)

But a few days after that phone call, Balsillie lost his patience. Convinced that the owners had tried to sneak in a slew of last-minute conditions, he pulled his offer for the Pittsburgh Penguins. “I deal with leaders of companies around the world,” he would later testify. “And I have never in my business career had any experience remotely close to this where I had such a misunderstanding.” In the words of one of his lawyers, the side letter was “insulting and unnecessary.”

Mario Lemieux was equally appalled—“shocked and offended that Mr. Balsillie would back out of such an important deal.” His fellow owners were just as livid, furious that he refused to put his promises to paper.

One person, though, was anything but shocked: Gary Bettman. “The fact that he wouldn’t [sign on] to the various things he had agreed to with the executive committee told me two things,” the commissioner testified this summer. “One: our suspicions that he had no intention of trying to keep the team in Pittsburgh had foundation to them. And two: once again he was saying things that were untrue. He wasn’t standing behind his word.”

Anyone who figured the Pittsburgh experience had crushed Balsillie’s NHL dreams—and plenty of informed observers did—underestimated how long the RIM boss had been casing the league’s lame-duck franchises. Or the lengths he was willing to go to get one. In March 2005, more than a year before he made his offer for the Penguins, city finance officials in Nashville had received a mysterious call from a man identifying himself as Balsillie’s lawyer and making inquiries about the team’s arena lease. The caller’s name was Richard Rodier, and he said he wanted to know whether the Predators were in breach of an obscure clause in the deal requiring the team to maintain a net worth of more than $30 million—an amount intended to cover the city for money it had contributed for the Predators’ NHL expansion fees, and for improvements to the Sommet Center.

David Manning, then the finance director for the city, says he didn’t think much of Rodier’s calls at the time. “It’s my recollection that we were already aware of the net worth and lease issues,” he told Maclean’s in an email. Yet within weeks of the inquiries, the city embarked on a costly two-year legal battle against Leipold over the net worth issue, which saw the municipality withhold thousands of dollars that the club desperately needed. By early 2007, Leipold had lost $70 million operating the team, and was looking to sell. To the surprise of many, Jim Balsillie was on hand with a very generous offer.

Leipold knew nothing of the 2005 calls at the time. But he did know the Canadian billionaire would be a tough sell to Bettman and the rest of the NHL owners, with Pittsburgh so fresh in their memories. He also understood that Balsillie wanted to put a team in Hamilton. The Canadian’s opening offer in February 2007 put everything on the table. It not only required the Predators to relocate to southern Ontario the following season, but for Leipold to get NHL consent for them to do so. It was, in short, a non-starter: Nashville’s arena lease had a default provision allowing the city one season to try to boost average ticket sales back up to 14,000, which would keep the team in place. Any agreement to move the club before then would expose the league to severe criticism and probably legal action.

Yet there was too much money on the table for Leipold to walk away. “This $220-million offer is $50m MORE in cash at closing than Boots’ offer,” he wrote to Bettman in a late-night email, referring to a competing bid from Silicon Valley financier William “Boots” Del Biaggio. “I think it’s something I need to pursue for that kind of valuation.”

So Leipold set about trying to make both the offer and Balsillie acceptable to the NHL—if Balsillie was able to relocate the team after the deal closed, so much the better. For a while, Leipold seemed to be succeeding. By May 1, he says in documents filed in the Phoenix court, he’d persuaded Rodier to drop the demand to have relocation as part of the deal before closing; 11 days later, the Balsillie camp agreed to a new term sheet requiring them to sign the league’s dreaded seven-year non-relocation clause and to put $10 million in escrow as a non-refundable deposit.

Then, without warning, Balsillie changed his mind, and Leipold is still not entirely clear why. Balsillie has since said he feared what would happen if the city failed to reach the 14,000-ticket mark and the team found itself without an arena lease. “Before I wrote this $220-million cheque—and that’s a big cheque—I needed to know,” he said in his deposition. He also deemed the new terms to be last-minute changes all too reminiscent of his experience in Pittsburgh, according to Leipold, and was especially offended by the escrow demand (a spokesman for Balsillie said he was unavailable for comment).

The better question, however, is why the RIM CEO agreed to the terms to begin with. Because at this point Balsillie seemed to snap, turning to tactics that were clearly designed to inflict maximum embarrassment on the NHL. On May 24, he left Leipold sitting alone at a press conference in Nashville to announce the sale of the Predators, while Balsillie’s legal team set about rewriting the agreement on their own. The next day, Leipold received a revised purchase agreement from Balsillie’s lawyers transferring all financial risk back to the American businessman if the team wasn’t allowed to relocate. And that was just the beginning. One week later, at a meeting in Waterloo that Balsillie attended, Rodier began issuing veiled threats, Leipold alleges, suggesting the Predators’ owner would soon find himself answering to the Canadian Competition Bureau should he refuse to close the deal on Balsillie’s terms.

At the same meeting, Leipold testified, Rodier suggested that Leipold should sue the City of Nashville for bad-faith negotiating over their lease. Under the cover of this litigation, said Leipold, the Balsillie team could “bring in trucks in the dead of night and move [the Predators] out of town.” (Reached by phone this week, Rodier refused to comment on Leipold’s allegations, saying only that he addressed the claims in his own deposition; however, that portion of his testimony is not available in the public court file.) The competition bureau did open an investigation that fall, calling Leipold to testify before concluding the league had not engaged in anti-competitive activity.

The Balsillie camp’s most provocative move was yet to come. On June 14, the team began selling reservations for season tickets to fans in Hamilton, surpassing the Predators’ 9,000-subscriber base in Nashville within 12 hours. Balsillie has said he did so to demonstrate support for the team. It now seems more an attempt to inflict damage on the Predators. Leipold revealed in his deposition that he had personally called Balsillie four days earlier to tell him the deal was off. So why sell the tickets if not to scare off fans in Nashville? “He didn’t have an application pending to relocate,” Bettman fumed during his own deposition in August. “He didn’t even have a valid contract to buy the franchise. What he did here was completely out of line.”

Against this backdrop, it is hard to view Balsillie’s recent attempt to gain control of the Phoenix Coyotes as anything less than a frontal attack—an opportunity to put the NHL on the public hot seat for a change. But the process has laid bare the worst of Balsillie’s machinations, too. In Pittsburgh, he refused to put his signature where his mouth was. In Nashville, he used methods that seemed at best irrational, at worst underhanded. By the winter of 2009, when Balsillie first set his sights on the cash-starved Coyotes, even he realized there was only one real option left: getting a court to do what the NHL won’t. “I spent five years looking for a front door,” he told reporters in May. “I found a side door.”

Or is he hell-bent on blowing up the entire building? In April, Balsillie struck a secret deal with Coyotes owner Jerry Moyes, who agreed to file for bankruptcy and then sell the team to Balsillie for US$212.5 million—on the sole condition that the club be moved to Hamilton. As part of the pact, Moyes launched an anti-trust lawsuit against the league, claiming the NHL was an “illegal cartel” and that the Toronto Maple Leafs have conspired to preserve “market power” in the GTA. If the other owners didn’t despise Balsillie already, they certainly do now. “You’re trying to join a group, and you don’t join that group by making their life miserable,” says Gabe Feldman, a sports law professor at Tulane University. “Balsillie has more than shot himself in the foot. He shot his entire leg off.”

At least his intentions are clear this time around: Balsillie will buy the team only if he can move it north of the border. But after all he’s said and done, transparency may not be enough. Redfield T. Baum, the judge overseeing the Coyotes bankruptcy, has repeatedly voiced reluctance to force a new partner on an unwilling sports league—much less the relocation of one of its franchises. Meantime, the owners have every reason to doubt Balsillie. Why did he lead the owners in Pittsburgh and Nashville to think he was willing to purchase and try operating their teams where they were? Why did he turn to bully tactics against Leipold when he didn’t get his way? For NHL owners, it all comes down to the issue of trust. “We have just a tremendous amount of experience with Mr. Balsillie, and it hasn’t been good,” said Boston Bruins owner Jeremy Jacobs, testifying at his own deposition this summer. “His memory was very selective in how he construed things. He just wasn’t somebody that we felt was really truthful and acceptable as a future partner.”

A written declaration filed last month by the league is even more blunt: “There is something sad about Mr. Balsillie’s inability to grasp the plain fact that it is his conduct, insensitivity, perceived lack of trustworthiness and unwillingness to accept responsibility for his own actions over several years that has caused the NHL Board of Governors to wish to not be associated with him in the business of professional hockey.”

Such harsh words likely won’t be enough to scare away Jim Balsillie. He is committed to his dream, and consumed by the desire to best the NHL once and for all. So consumed, in fact, that he’s blinded to a paradox the rest of the world can see: the greater the lengths he goes to reach his prize, the further away it gets.

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