Another Domino Falls

The news out of Dallas yesterday is not good. In the same week that rumors floated that the New Jersey Devils have missed a loan payment and are possibly insolvent, their opponents in the 2000 Stanley Cup finals, the Dallas Stars filed for bankruptcy. This is the second team owned by former billionaire Tom Hicks to visit bankruptcy court following the Texas Rangers last year. Just as with the Rangers, this bankruptcy action is part of an orderly process to effectuate the sale of the team through an auction. The lead bidder in the auction has already been identified as Dallas Sports & Entertainment, L.P., a holding company for Vancouver-based businessman Tom Gaglardi who has already agreed to purchase the team.

On the face of it, this action seems like a fairly routine ‘prepackaged’ reorganization. Hicks will be able to sell the team and divest himself of the debts for which he is currently responsible. A new owner with fresh capital will keep the team in Dallas and allow them to continue to play games in the American Airlines Center. As far as the players and fans are concerned, this should be a seamless transition although the Stars will likely have a challenging season given they missed the playoffs last year and made no significant changes to their roster. Given their ample cap space, however, a new owner willing to spend could make the team a significant player in the UFA market next July 1.

Nevertheless, this is hardly good news and once again shows the weakness of the NHL’s business model. Since the franchise’s move from Minnesota in 1993, the Dallas Stars have been one of the most successful teams in professional hockey. Along with 14 straight winning seasons, the Stars have been a fixture in the playoffs and won the 1999 Stanley Cup. Some of the League’s biggest superstars including Brett Hull, Mike Modano and Joe Nieuwendyk enjoyed their best years in Dallas. During the team’s glory years, the Stars routinely sold out their games and made Dallas one of the strongest franchises in the NHL. This started to change towards the end of the last decade when the club’s declining fortunes on the ice combined with economic recession led to fairly dramatic attendance declines with the team falling to fifth from the bottom League-wide last season.

With the NHL being more dependent on gate receipts than the other three major sports, Hicks began to experience problems servicing his huge debt load. His holding company for the Rangers and Stars owed $525 mm in loans outstanding by 2010 according to Bloomberg. How much of that can be attributed to the hockey team is difficult to determine, but the bankruptcy filing shows that the Stars owe $58.5 mm to unsecured creditors including the New York Rangers, Marc Crawford and several former players through deferred compensation. Interestingly, the largest creditor is an entity called CFV | LLC which is owed $51.7 mm. There is not much information available on this company, but it is associated with the NHL and William Daly, the League’s Deputy Commissioner. It will be interested to see if the bankruptcy will wipe out the claims of these unsecured lenders. Put another way, did the NHL have to forgive the Stars a substantial loan as a condition of Gaglardi agreeing to assume ownership of the team?

As I have stated, the Stars are going to survive this and, given the size of their market and its proven willingness to support a winner, could even return to its former status. But, what does it say about the current financial condition of the League that one of its stronger franchises has to declare bankruptcy and may not pay back a loan to the other owners? Do these financial problems extend to other teams like Columbus, New Jersey and Florida that are also struggling with attendance? As I stated in my article on the Devils, the rising salary cap and floor are forcing costs up. Can the revenues from the new TV deal offset this together with weak attendance? I doubt it, and that begs the question whether owners will opt out of the current CBA as they are entitled to do after this season.



Categories: L.A. Kings News

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7 replies

  1. Hicks tried to destroy my Soccer team (Liverpool FC), but thankfully the owners of the Red Sox were able to sweep in and take over. As for Hicks, it seemed to me that his business model is to collect debt. Maybe the NHL needs to be a little more selective of who it allows to own these teams.

  2. Howard, will Mr Howard pick up the white courtesy phone……

    I wonder if we would have done better had we gone with ESPN’s offer and then allowed local markets to develop their own networks ala the yankees/msg/rags. This seems to fall right into GB’s lap.

    In for a penny in for a pound eh BETman?

  3. Interesting stuff. Especially that part about the biggest portion of the Star’s unsecured debt being to what appears to be a shell company of the league. I’m guessing the NHL is going to eat that debt, which is part of the terms of the “bankruptcy”.

    • I suspect you are right. This shows how desperate the NHL is for new ownership. They approved a move to Winnipeg after there were no suitors in Atlanta. Likewise, it took two years to find a new owner in Phoenix. St. Louis has been for same for a long time. One partner in NJ wants out. Balsillie wants a team, but only in his backyard. This is not a business model wealthy investors want any part of.

  4. Thank you for the educating article. We are in scary times. Really better try to appreciate every moment of this season.
    Question ..$$ owed to N.Y. Rangers ..for what?
    GO KINGS GO!!!

  5. I understand that the owners and players alike would like to treat pretty much all revenue as profit, but individual teams ought to maintain significant league-mandated reserve funds. I do believe that a league-wide fund exists, but that individual franchisees are not required to maintain similar funds, or that it/they are not intended to cover/mitigate gate loss during recessions. I understand that this is of secondary importance to the looming CBA/payroll issues, but it is also true that unemployed people with no savings lose their homes – this is not news (though very much in the news – at all levels and in every conceivable debt situation at this time in our country).

    Howard, do you know what reserve fund(s) the league maintains and what, if any, teams must maintain and for what?

    Thank you for the interesting information on the various unsecured creditors of the Stars, in particular the large debt related to the league.

    I would like to add that there was no good reason why the North Stars could not make a long-term living in Minn. – where hockey is as football is to Texas.

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