NHL Geographical Expansion – Does Relocation Require Unanimous Consent?

November 23, 2015

regulation

By Aasim Hirji – Thompson Rivers University 3L JD Student

On June 24, 2015, Commissioner Gary Bettman announced that the NHL is officially exploring expansion plans. The window for applications was to be between July 6 and August 10 with the application fee being $10 million, $2 million of which was non-refundable. At the time, Bettman noted that the expansion fees would be at least $500 million.

The Board of Governors of the NHL control the expansion process in the NHL, as governed by the Constitution and ByLaws of the NHL. Article 3.3 of the Constitution states that there must be a vote of 3/4 of the Board of Governors in order to allow a new member into the NHL.

Only two markets sufficiently followed the NHL protocol to continue on to the next expansion phase, Quebec City and Las Vegas. Surprisingly, no expansion team was bid on in the Greater Toronto Area.

In the NHL Constitution, in Article 4.3, there is a “veto” right to member teams. “No franchise shall be granted for a home territory within the home territory of a member, without the written consent of such member.” The implications of this clause are very important. It would mean to infringe on the Toronto Maple Leafs’ rights, it would require the Maple Leafs consent for another team to come in that region. Article 4.1 defined the territorial rights as being within fifty miles of that city’s corporate limits.

In Re Dewy Ranch Hockey LLC, where Jim Balsille attempted to sidestep the process, Article 4.3 was challenged as a potential antitrust issue. Gary Bettman, Commissioner of the NHL stated that they are not enforcing that provision, rather relying on bylaw 36, which states that approval of 3/4 of the Board of Governors would ratify a transfer. Bettman also stated that there have been no objections to the league not enforcing Article 4.3, despite a letter dated November 29, 2006 from the Maple Leafs to the NHL stating that they believe a unanimous vote would be required, thus giving the Maple Leafs a veto.

The Canadian Competition Bureau (CCB) analyzed the NHL’s policies in 2008 regarding potential antitrust issues with the relocation policies. The Competition Bureau aimed to determine if the 50-mile home territory rule was an undue restriction of competition. The CCB believed that the veto rule has not been in effect since 1993, precisely what Gary Bettman had stated in Dewy Ranch. Without the veto rule, the CCB determined that there is no legal issue with needing 3/4 of approval from the Board of Governors.

The NHL has not been tested on enforcing Article 4.3 should 3/4 of the Board of Governors agree to relocate a franchise within the territorial rights of another. Relocation and expansion fees can be as high as $500 million, which gets distributed amongst the member teams. As a team in the Toronto region would be incredibly valuable, the fee could even be higher. There may be incentive for certain markets to vote in the affirmative due to receiving a share of the expansion or relocation fee (a 1/30th share).

In the United States, in LA Coliseum 1, the NFL was found to be violating the Sherman Antitrust Act by preventing the Raiders from moving to LA from Oakland. On appeal, the court vacated the damages and offered clarification on the result from Coliseum 1. The court stated that due to the unique nature of professional athletic leagues, territorial restrictions may be required. The court further stated that “objective factors such as population, economic projections and the like would be more likely to pass antitrust scrutiny”. These factors were included in the NBA franchise relocation rules after the San Diego Clippers moved to Los Angeles.

It is clear that infringement of territorial limits would likely lead to long and complex legal cases, whether it be for the Leafs or any other franchise. Since the 2006 letter, the Leafs have unequivocally stated that they believe infringing on territorial limits requires unanimous approval, thus giving every team a veto.

Should a franchise attempt to move into the Toronto area, based on precedent, the Leafs are unlikely to be pleased with the result. There is a significant benefit for other owners to allow a team into the GTA, as there is revenue sharing in the NHL. It is unlikely that the courts would allow the Leafs to exercise a veto, based on the US cases of Coliseum and San Diego Clippers. Even when looking at objective measures outlined in these cases, there is sufficient population, and strong economic projections to launch another team in the GTA.

 

 

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