In a development that is entirely unsurprising, Atlanta Spirit is suing King & Spalding for malpractice, alleging that K&S made massive mistakes in drafting the agreement by which the entity would buy out Steve Belkin’s shares and then compounded the error in its representation of Atlanta Spirit in the litigation in Maryland against Belkin. The suit is unsurprising because the source of the litigation was an ambiguously drafted provision in the sale agreement that allowed Belkin to try to control both of the appraisals for the value of his interest. Atlanta Spirit ultimately prevailed on appeal in Maryland by convincing the Court of Appeals there that the appraisal provision was unenforceable. The moment that happened, a malpractice claim was likely. (Note: K&S will have plenty of defenses to the claim, one of which will be that, as the Maryland opinion notes, they had 30 hours to prepare a complex commercial document. Another caveat: I’ve only followed this dispute through the media, so take my thoughts with a pound of salt.)
Atlanta Spirit’s Complaint makes for fascinating reading as a history of the legal wrangling regarding the ownership of the Hawks, Thrashers, and Philips Arena (albeit from the perspective of ownership). One of the big issues that Atlanta Spirit faces is establishing damages. OK, so K&S drafted a document with an imperfect provision regarding the determination of fair market value for the teams; what did that mean for you in terms of actual dollars and cents? Atlanta Spirit’s claim is that they wanted to sell the Thrashers after the resolution of the 2004-05 lockout, at which point the competitive landscape would be better for a team like the Thrashers and the franchise’s value will be greater, but they were unable to do so because of the uncertainty as to who actually owned the teams: Belkin or the rest of Atlanta Spirit. This is a somewhat embarrassing argument for the owners of a major pro franchise to make, but this is what happens when you air your grievances in the public litigation process. Atlanta Spirit faced the same issue when it was litigating against Belkin in Maryland and had to put forward evidence regarding the vast sums that the teams were allegedly losing. (Unrelated issue: this dispute illustrates the value of an arbitration clause in certain commercials contracts. Atlanta Spirit would have been much better off if it could have fought with Belkin behind a wall of confidentiality.)
Naturally, Jeff Schultz has latched onto this argument to complain that we’ve been swindled by Atlanta Spirit. Here’s his opening flourish:
They told you they cared. They lied.
They told you their biggest concern was putting out the best product for you, the fans. They lied.
They told you not to pay attention to any of those rumors of the Thrashers being for sale, although they eventually admitted begrudgingly that, yes, they were looking for “investors.” They lied.
The Atlanta Spirit is not looking for investors. They’re looking to sell the Thrashers. They’ve been looking to sell them for — ready for this? –six years.
Six . . . years.
Those are the caretakers of your franchise. Those are the ones who’ve pleaded with you since 2005 to support a mostly inferior product — and now they can’t figure out how they’ve burned so many bridges in this town why fans still feel too angry or worn down to show up for a pretty decent team. Reality never has been their strong suit.
This is hopelessly naive. A decision to buy or sell a franchise is one of those topics about which we can fully expect owners to lie and with good reason. If a team’s owners admit that they are looking to sell, then they immediately start to look desperate and their price goes down. This is negotiation 101. If I’m going to scalp tickets outside of a game, I want to create the impression that I’m not committed to getting into the stadium. If I show up in team gear reeking of desperation, then a scalper is going to fleece me. The apparent decision by Atlanta Spirit to lie about its intentions to sell the team is no different than a college coach denying that he’s considering leaving his program, a presidential candidate denying that he’s considering ending his campaign, or a president lying about surveillance flights over the Soviet Union. If Schultz wants to be mad, then he ought to be mad at himself for assigning weight to the self-interested answers of Atlanta Spirit to questions that they could not answer honestly for perfectly legitimate reasons.
Schultz is absolutely correct in the conclusion of his column: “If Atlanta loses its second NHL franchise, it won’t be because the sport failed here. It will be because ownership and management failed.” The reason why he’s correct has nothing to do with Atlanta Spirit claiming that it was trying to sell the team when it was, in fact, trying to do exactly that. Rather, if hockey fails again in Atlanta, it will be because the team didn’t win nearly enough games to generate interest. Atlanta fans will respond to a winner. We turned out for the Hawks in the 80s, we turned out in droves for the Braves in the 90s, and now we’re selling out the Georgia Dome for every Falcons game. Atlanta fans, unlike some fans elsewhere, will not pay for a bad product. (This does not extend to our affection for our college football teams, whom we’ll pay to see even when they are 0-11.) The Thrashers have made the playoffs once in eleven seasons and were promptly swept. Let’s go out on a limb and say that that qualifies as a bad product. Indeed, one of the first defenses that K&S will make regarding Atlanta Spirit’s damages is that its alleged malpractice didn’t cause a diminution in the value of the franchise; Don Waddell’s fumbling of the on-ice product is the proximate cause of the loss. (K&S would also point to larger systemic factors, like the economic downturn and the NHL’s descent into irrelevance. That said, they’ll try to resolve the case on legal grounds if at all possible. They won’t want 12 jurors trying to make these complex analyses of market value.) At this point, we would all be happy if Atlanta Spirit sold the team, but it’s not because they had the temerity to claim that they had no interest in doing so.