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Wednesday, July 29, 2009

10 Years Ago... The Battle Concludes

We are fast approaching the ten year anniversary a hugely important legal battle that concluded with Mr. Mac holding control of what was to become the CBJ. Famous sports owner Lamar Hunt, the challenger, began the process of bringing a team to the city as the face of Columbus hockey but ended it as an ardent adversary of a McConnell-lead ownership group.

On August 31, 1999, an Ohio Appeals Court affirmed a lower court decision stipulating that Mr. McConnell had not violated any obligations to a previous ownership group (with Hunt) when he decided to form a separate, competing group of owners. Upon this decision (found as McConnell v. Hunt Sports Enterprises, 132 Ohio App.3d 657, 725 N.E.2d 1193), the path was officially cleared for a McConnell-owned professional hockey team in Columbus.

Setting The Scene:

In early 1996, Commissioner Gary Bettman and the NHL determined that it would accept applications for new professional hockey franchises. Contrary to what many think, in April of '96 the NHL actually approached Mayor Greg Lashutka to gauge Columbus' interest in brining a hockey franchise to the city. Mayor Lashutka asked several community leaders who had been involved in exploring professional sports in Columbus to pursue the idea. Two of those addressed were Mr. John McConnell and Mr. Ron Pizzuti.

In an effort to recruit investors, Pizzuti approached Lamar Hunt (with his Columbus ties as opperating owner of the Crew) and Wolfe Enterprises. This group, named CHL, saw each investor put forward an initial $25,000. On November 1, 1996, the group filed a formal applicaiton and submitted the $100,000 application fee to the NHL.

Included in the application was a plan to get around the facility problems in Columbus. With no arena sufficient for NHL play, the application included a proposal that such a facility would be built from public money via a 3 year, 1/2% sales tax. On May 6, 1997 the sales tax failed.

The next day, Mayor Lashutka met with Hunt, and spoke with Commissoner Bettman regarding whether the city could come up with an alternate plan for an arena. Later in the day, Nationwide CEO Dimon McPherson asked to meet with Hunt to discuss building the arena privately. In court McPherson stated that he chose Hunt because "he was the visible, obvious, only person that was involved in trying to bring NHL hockey to Columbus. There was really no one else to turn to."

On May 28, 1997 Nationwide presented Hunt with a plan to finance an arena. On the 29th, Hunt rejected the proposal, stating that the team would lose millions from the plan.

Into The Void Comes Mr. Mac:

On May 30, McPherson placed a fatefull call to Mr. McConnell, requesting that they meet to talk about "where [they] were on the arena." McPherson stated that he "could see that the situation . . . was slipping away, and [he] didn't want that to happen." McConnell later testified that the call came "totally out of the blue. [McPherson] said that Nationwide was going to finance and build an arena, and that he had offered the Hunt group the opportunity to pick up the lease and bring a franchise in. That was news to me. It was out of the blue." McConnell told McPherson that if Hunt would not step up and lease the arena, McConnell would.

On June 3 or 4, 1997, in his first converstaion with the NHL, Mr. McConnell orally agreed to apply for a hockey franchise in Columbus. Later on the 4th, Bettman told the NHL franchise expansion committee that Nationwide would develop and lease a privately funded arena, and that Mr. McConnell was willing to move forward in bringing a franchise to the city alone. The expansion committee recommended Columbus to the NHL board of governors.

The Conflict:

On June 5, 1997, the NHL sent Hunt a note informing him that he had until June 9 to move forward with his application for a franchise. Early on June 9, a meeting between the original CHL group met at Mr. Pizzuti's office. At the meeting, Brian Ellis, the president and COO of Nationwide, presnted the arena lease terms to those present. Hunt indicated that the terms were unacceptable. Pizzuti and Wolfe agreed to go along with McConnell in accepting the terms of the lease. Later in the day, a representative of JMAC, Inc. (McConnell's personal investment company) informed Ellis that McConnell would accept the term sheet without Hunt. Still later, McConnell (as marjority owner), Pizzuti, and Wolfe signed the terms and stipulated that up to seven other members could join the group at a later date.

On June 17, 1997, Hunt sued McConnell for breach of contract and for breach of fiduciary duties owed to the initial ownership group, CHL. He stipulated that McConnell improperly established a competing ownership group in violation with the obligations he owed to the initial organization.

On October 31, 1997 the trial court granted summary judgment in favor of McConnell. The decision was based on the CHL operating agreement's language, particularly Section 3.3, which stated that:

"Members May Compete. Members shall not in any way be prohibited from or restricted in engaging or owning an interest in any other business venture of any nature, including any venture which might be competitive with the business of the Company."

On September 2, 1998 the trial court granted McConnell and Wolfe Enterprises $920,244 plus interest for attorney's fees.

On August 31, 1999, the court of appeals affirmed the trial court’s decision. McConnell no longer faced legal challenge to his ownership, and the franchise no longer faced barriers to its existence.

7 comments:

Matt said...

Take it for what it's worth:

"Hunt rejected the proposal, stating that the team would lose millions from the plan."

snappy said...

Great summary of the events leading up to bring the CBJ franchise to Columbus, "PuckLaw".

A bit of history that some folks may not know about... There was a prior effort to bring the NHL to Columbus. The owner of the then Hartford Whalers, Peter Karmanos, actively pursued moving that franchise to C-bus sometime around 1997. The Whalers were not doing well in Hartford, a small market and, as I recall, Hartford rejected calls from Karmanos to build a new and bigger arena. So, he started courting other cities including Columbus. Of course, there wasn't a suitable arena here and plans to finance and build one would take some time. However, there was some talk (don't know how serious it was) of converting an old airplane hanger at Port Columbus into at least a temporary home for that team. Temporary bleachers would be set up, etc. Deparate times for bring the NHL to this city, it seems!! I have often thought about the image that would have been projected to the hockey world if THAT had happened. Argghhh. C-bus had a cowtown reputation as it was and an ugly old hanger with steel bleachers as the home of its only major professional sports franchise would have been a PR nightmare. Of course the Whalers move to Raleigh and became the Hurricanes. But, an interesting bit of history

So, kudos once again to Mr. Mac and stepping up to the plate to bring the Blue Jackets expansion franchise to this great city!!

It is also interesting that Hunt saw at the get-go that the proposed lease with a privately built arena was a money loser. Now, nine years later we see he was correct (i.e. $80 million losses). But, Mr. Mac and COHOC got it done and hopefully this lease can be straightened out soon.


(P.S. PuckLaw {See mistaken date in following sentence in your article: "On June 3 or 4, 2009, in his first converstaion with the NHL, Mr. McConnell orally agreed to apply for a hockey franchise in Columbus." Not 2009)

LTL said...

Fantastic write up Pucklaw!

Surprised we haven't seen any "I told ya so" quotes from Hunt yet. I'm sure those are locked and loaded.

-LTL

JAL said...

Great stuff, Pucklaw. BTW, Hunt passed away in 2006.

The Karmonos thing was particularly damaging because of the timing. It came to a head in April 1997, right in the middle of the campaign for the public financing of the arena. It left a sour taste in everyone's mouth.

Also, with Hunt, the problem was not so much that he turned down the deal, it was that he delayed so long before rejecting it.

What the public saw was two outsiders -- Hunt and Karmanos -- appearing to toy with the Columbus market. This boosted the opposition to the public funding, particularly when there was only 11 weeks between the decision to put the Arena on the ballot and the vote.

Also, remember that the Arena was combined on the ballot with a soccer stadium for the Crew (at the present Huntington Park location).

--JAL
A Shot From The Point

Michael said...

random.. but on nhl.com under saves of the year they have a mason's best video. gave me chills you guys should check it out before it gets taken down.

snappy said...

Thanks, JAL, for adding your comments about the overlap between Karmanos and Hunt in their efforts to put an NHL team in Columbus. You are very correct in that the Karmanos' offer did complicate the arena sales tax vote. I do recall that lots of folks were very excited about bringing the Whalers here because, of course, Columbus had yet to be awarded an expansion NHL franchise (this wasn't announced until late June, 1997 [Interesting side note: Karmanos announced the "Whalers" move to Raleigh in July of that year, I believe.). The old bird in hand deal...... Interesting stuff. And then there is the whole Columbus Chill story. That was a great ECHL franchise as well, playing the old Colesium at the state fair grounds. Lots 'o fun was had there in that old barn, let me say that! Great in-arena marketing and activities in addition to the hockey. What a show! Loved those Chill sweaters, too!

LTL said...

@JAL -- well that wouldn't certainly explain the lack of quotes.

Oops. RIP.

Michael - I'll get that video posted. Thanks for heads up.

-LTL