NHL expansion: The formation of the Vegas Golden Knights

Published 06 February 2017 By: Ryan Lake

Ice hockey game from viewpoint of puck

For US sports, Las Vegas is generally regarded as one of the most intriguing new markets in the United States, and has long been one that leagues and teams have had their eye on.

The city of Las Vegas refers to itself as the Entertainment Capital of the World.[1] However, it is still without one of the world’s most popular entertainment platforms, major league professional sports. For years, several leagues in the United States have considered moving there, including the National Football League (which is currently considering moving the Oakland Raiders to the city[2]).

However, it was the National Hockey League (NHL) that made the first move. As is well known, on June 22, 2016, the NHL Board of Governors (the equivalent to a board of directors for the NHL) voted to expand the league and add a new franchise in Las Vegas.[3] On November 22, they and the new franchise’s owner, Bill Foley, announced that the new club would be named the Vegas Golden Knights. They will start playing in the city in the 2017-18 season.

The NHL and the Golden Knights face a variety of interesting legal and commercial issues that come with entering a new market and creating a new team. This article is the first in a series that will explore the most pressing of those issues. This piece begins by setting the scene, and will look at:

  • The NHL’s history of expansion - to provide a broader context to the history of expansion in the league and understanding behind the decision to move to Las Vegas;

  • The current Las Vegas expansion – a brief review of the NHL governing documents and the process that allowed Las Vegas Golden Knights to be established;

  • Allocation of the players – a brief explanation of the system devised by the NHL to allocate players currently under contract to NHL clubs to the new Vegas team.

 

BRIEF HISTORY OF THE NHL’S EXPANSION

The NHL has a long tradition of expansion. The league was founded in 1917 when its predecessor, the National Hockey Association, ceased operations.[4] The NHL competed with several other leagues including the Pacific Coast Hockey Association and Western Canada Hockey League.[5] 

The NHL was initially comprised of ten teams and started to gain an advantage over the other competing leagues.[6] In 1942, the league was forced to disband four teams due to the Great Depression and the start of World War II.[7] The remaining six teams included the Toronto Maple Leafs, Montreal Canadiens, Boston Bruins, Chicago Blackhawks, Detroit Red Wings and New York Rangers, these teams became known as the Original Six.[8]

The NHL remained comprised of six teams until 1967 when the league added six new teams and the expansion era was born.[9] The six new clubs included the Los Angeles Kings, California Seals, Philadelphia Flyers, Pittsburgh Penguins, St. Louis Blues and Minnesota North Stars.[10] The decision to double the size of the league and to open franchises throughout the United States was largely driven by the desire to obtain a national television agreement.[11]

By 1974 the league had grown to 18 teams.[12] In 1979 the league added another four teams to bring the total number of clubs to 21.[13] Throughout the 1990s and early 2000s, the league would add another nine clubs.[14] Prior to the addition of the Las Vegas team, the Minnesota Wild and Columbus Blue Jackets were the newest members of the league. These teams were added in 2000 and brought the total number of clubs to 30.[15]

The Las Vegas Golden Knights are the 31st club to join the league and might be the start of a new era of expansion. It has been wildly rumored that the NHL is looking to add clubs in Seattle, Quebec City, Toronto[16] and Europe.[17] 

 

LAS VEGAS EXPANSION

On June 22, 2016, the NHL Board of Governors voted to expand the league once again and add a franchise in Las Vegas.[18]

The NHL is governed by a body known as the NHL Board of Governors, as codified in the NHL Constitution.[19] The Board of Governors is made of up all 30 clubs, and each member of the Board appoints a Governor and two alternate Governors to sit on the Board. The Governor is typically the majority owner of each club. The main purpose of the Board is to develop and implement policies and regulations and uphold the principles of the constitution of the league.[20]

The Board is also responsible for the following:

  1. hiring and firing the commissioner of the league;
  2. approving the salary caps for the clubs;
  3. development of the game schedule;
  4. approving the purchase, sale, or relocation of any club; and
  5. approving the playing rules of the league.[21]

Section 3.3. of the NHL Constitution governs the admission of new members. The members of the NHL are the induvial clubs that have been voted into the league by the Board of Governors.

Section 3.3 articulates the requirements that must be met by any applicant wishing to become a member of the NHL. Section 3.3 of the Constitution states:

Section 3.3. Admission of New Members. Each applicant for membership shall make a written application to the League on the official Application Form approved by the Board of Governors. Such form shall designate the information and documents required to be submitted and the payments required to be made by the applicant. The form shall also include a statement that, upon and in consideration of election to membership, the applicant will subscribe to and agree to be bound by the Constitution and all amendments thereof, and all By-Laws, Resolutions, Agreements and Rules of the League. Upon receipt of any application for membership, the Commissioner shall conduct such investigation as he deems appropriate. Upon completion of the investigation, the Commissioner shall submit the application to the members for approval, together with his recommendations thereon and all such information that the Commissioner deems pertinent. A favorable vote of three-fourths of the members of the League shall be required for election to membership. The Board of Governors by majority vote shall determine from time to time the amount that shall be paid for a membership in the National Hockey League, but no application for membership shall be considered unless the application be in writing on the official Application Form, and be accompanied by a deposit check payable to the League in such amount as determined by the Board of Governors, and such proof as the Governors may require as to the organization, financing, playing facilities, and personnel of the applicant. In addition to the amount fixed by the Board of Governors of the League as the price to be paid for a new franchise in the League, such new member shall pay, on demand, such further sum as may be determined by the Board of Governors as represented by each member's interest in the assets, surplus, if any, and reserve accounts of the League.[22]

On June 22, 2016, the NHL Board of Governors were presented with an application, in accordance with the terms of Section 3.3, submitted by Black Knight Sports and Entertainment LLC, a consortium led by Bill Foley. Upon review of the application, the NHL Board of Governors voted to expand the league and add a franchise in Las Vegas.[23] The creation of the new franchise is contingent upon the transfer of a $500 million expansion fee that is to be paid by Foley to the NHL. According to Pierre LeBrun of ESPN, “the plan is for Vegas to complete its final payment around March 1 [2017].”[24]

On November 22, 2016, the NHL and Bill Foley announced that the new club will be named the Vegas Golden Knights. The name chosen by Bill Foley and the NHL has become somewhat problematic due to trademark issues around the name.

Prior to the announcement of the new name for the Las Vegas franchise the NHL and Bill Foley, and his Black Knight Sports and Entertainment LLC, the company that owns the franchise, filed trademark applications with the U.S. Patent & Trademark Office (USPTO). The USPTO subsequently rejected the applications for the name Golden Knights based on the likelihood of confusion with a mark owned by the College of Saint Rose. Ryan Hilbert has provided an in-depth review of the reasons behind the USPTO's denial of the applications, in his article Trademarks in US sports: a review of the Vegas Golden Knights & Milwaukee Bucks applications. [25] 

While the USPTO office action on the mark may appear to be the result of poor planning and name choice, this type of action is actually fairly common when registering marks, especially in the sports industry. Moreover, these issues can be overcome in a variety of ways, easiest of which is entering into coexistence agreements.

Despite the rejection of the applications, it is likely that the team and the NHL will be able to enter into coexistence agreements with the owners of the similar marks. Typically, when two marks are confusingly similar, but the owners of the marks agree that they believe they can coexist without confusion, the USPTO will allow the applied-for mark to become registered, subject to the coexistence agreement. Therefore, if the NHL and Black Knight Sports and Entertainment LLC, are successful in getting coexistence agreements with the College of Saint Rose and any other owners of registered marks that may be confusingly similar to the Golden Knights mark, the USPTO will likely approve the application and allow the Golden Knights mark to register. 

The trademark issue is not the only interesting aspect of the new club. Once the Board of Governors voted to add a new franchise, the NHL and the NHL Players Association ("NHLPA") also had to determine how the new club would fill its roster.

 

ALLOCATION OF PLAYERS TO THE GOLDEN KNIGHTS

The NHL and the NHLPA have stated a goal of having parity in the league and have taken actions to ensure each club is able to be competitive in the league.[26] Both the NHL and the NHLPA has made it clear, from the system of player allocation that they created, that they want to allow the Las Vegas franchise to have the ability to field a competitive roster in their first year. 

In order to accomplish this, the NHL and the NHLPA had to come to an agreement on how players who are currently under contract to an existing NHL club will be allocated to the new franchise.

The parties came to an agreement on an Expansion Draft, which is a special draft that will allow Vegas to acquire players currently under contract to other NHL clubs. The NHL announced the rules that would govern the Expansion Draft when the Board of Governors decided to award a franchise to Las Vegas.

Note: for more on how the acquisition of players is regulated in a non-expansion year, please refer to this author’s LawInSport articles: How Free Agency Works In The National Hockey League, and Signing New Talent: How The Entry Draft System Works In The National Hockey League.

Under the Expansion Draft rules, the current clubs have two options to protect players from being chosen by Las Vegas in the draft. The available options are as follows:

  1. clubs will be allowed to name seven forwards, three defensemen and one goaltender; or
  2. the club can select eight skaters (forwards and defensemen) and one goaltender.[27]

The NHL has also required that players who have "currently effective and continuing 'No Movement' clauses at the time of the Expansion Draft (and who decline to waive such clauses) must be protected (and will be counted toward their club's applicable protections limits)."[28]

No-movement clauses[29] provide players with protections against being moved to another team without their approval.[30] Section 11.8 of the current CBA codifies the rights provided to players who has such clauses included in their contracts.[31] 11.8(c) of the CBA states in part "A no-move clause may prevent the involuntary relocation of a Player, whether by Trade, Loan or Waiver claim.[32] 

Additionally, the NHL stated that all first and second-year professionals and all unsigned draft choices are exempt from the expansion draft and do not count against any one clubs protected player list.[33]

The NHL provided minimum requirements for players that must be made available to be selected in the Expansion Draft. The minimum requirements are as follows: 

  1. One defenseman who is (a) under contract in 2017-18, and (b) played in 40 or more NHL games the prior season OR played in 70 or more NHL games in the prior two seasons.

  2. Two forwards who are (a) under contract in 2017-18 and (b) played in 40 or more NHL games the prior season OR played in 70 or more NHL games in the prior two seasons. 

  3. One goaltender who is under contract in 2017-18 or will be a restricted free agent at the expiration of his current contract immediately prior to 2017-18.[34]

The NHL also carved out special rules for players who have suffered an injury and missed the last 60 games of the 2016-17 season.[35]

Moreover, the NHL has provided regulations regarding the players that must be selected by the Las Vegas team. These regulations include the following:

  • The Las Vegas franchise must select one player from each presently existing club for a total of 30 players (not including additional players who may be acquired as the result of violations of the Expansion Draft rules).[36]
  • The Las Vegas franchise must select the following number of players at each position: 14 forwards, nine defensemen and three goaltenders.[37]
  • The Las Vegas franchise must select a minimum of 20 players who are under contract for the 2017-18 season.[38]
  • The Las Vegas franchise must select players with an aggregate Expansion Draft value that is between 60-100% of the prior season's upper limit for the salary cap.[39]
  • The Las Vegas franchise may not buy out any of the players selected in the Expansion Draft earlier than the summer following its first season.[40]

In addition to the Expansion Draft, the Golden Knights have been given a high position in the NHL Entry Draft. In each round, with the possible exception of the first round, Las Vegas will make the third selection.[41] The order of the first-round however, is determined by a weighted lottery system. The Las Vegas team has been given the same odds in the lottery as the team that finishes with the third fewest points in the regular season, and will not select any lower than the 6th overall selection.

As above, for more on how the Entry Level Draft works please see: Signing new talent: How the entry draft system works in the National Hockey League.

 

COMMENT

The addition of a new franchise is an exciting event for the league, and will hopefully grow the popularity of the sport. This development further sheds light on many aspects of the inner workings of the league that are typically not witnessed.

That concludes the first blog on the NHL’s expansion and the Las Vegas Golden Knights. Watch out for the next installment in which we will explore:

  • how the NHL’s revenue sharing system is effected by the addition of a new club and increasing the number of players affiliated with the league by a maximum of 80;[42] and 

  • how the gambling culture of Las Vegas impacts the fan experience and the sponsorship strategy of the Golden Knights.

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Author

Ryan Lake

Ryan Lake

Ryan is an American attorney at Lake Law Group, LLC and a sports consultant at Beyond the Playbook. He works extensively on ice hockey, soccer, baseball, basketball and Olympic movement issues. Ryan is also an Adjunct Professor at St. John’s University School of Law.

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