Penguins Seek Way Out of 'Lease'
Jun. 07, 1999
PITTSBURGH (AP) _ It looks like a lease, acts like a lease and even is described as a ``lease'' 17 times in documents provided by the Pittsburgh Penguins.
But the financially troubled team today asked a judge to reclassify its deal with sports facility manager SMG Inc. of Philadelphia as a $24 million loan.
Reclassifying the lease potentially would reduce the amount SMG _ the Penguins' longtime landlord at the Civic Arena _ will be repaid when the team returns to normal business operations.
Last Friday, U.S. Bankruptcy Judge Bernard Markovitz invalidated the lease, which was negotiated in 1991, renegotiated in 1994 and runs through 2007. It has been described in court as the worst lease in the NHL.
The rent has varied over the years with various payment factors such as SMG getting 10 to 14 percent of ticket revenue. SMG was paid $2.274 million by the Penguins in 1996-97.
But before the deal was signed in 1991, Penguins owner Edward DeBartolo was paying $600,000 in annual rent to the Public Auditorium Authority.
Markovitz's decision would allow for penalties to be paid to SMG if he decides the lease was really a lease and not a loan. If the judge decides the lease was substantially a loan, SMG could be lumped in with the businesses that have the least rights in the case _ the unsecured creditors, including the companies that supply the Penguins with pucks and towels.
The Penguins asked Markovitz to rule that the multipart deal is not a lease. The judge gave no indication when he would make a decision.
``At all times, these documents have been described as leases, signed as leases, recorded as leases and held out to various third parties that they are in fact leases,'' SMG attorney Daniel Shapira said. ``There is nothing to show that they are anything but leases.''
But the Penguins arranged for Antonio G. Tavares, the former SMG executive who is now president of the company that runs the Mighty Ducks and Anaheim Angels, to testify that the deal was unusual for a lease.
The $24 million up front was atypical for the industry, Tavares said.
That money guaranteed SMG percentages of revenue from parking, jerseys, food and other items at the Civic Arena. Also, the Penguins had to repay SMG for expenses such as the Zamboni and the ticket office staff.
``The indications are that it doesn't look like a lease,'' Tavares testified from suburban Los Angeles by a video connection.
The lease was valuable to the Penguins over the years. Team attorney Greg Cribbs said it was used as collateral to get loans from banks.
SMG and NHL Hall of Fame member Mario Lemieux each have offered competing plans for running the team and are negotiating to try to resolve their differences. The Fox Sports Net Pittsburgh broadcast company is backing SMG's plan.
The NHL offered a backup plan that would shut the team down. League officials said they want Lemieux, who as the Penguins center led the team to two Stanley Cups in the early 1990s, to run the team.
Also Monday, Pittsburgh business leaders unveiled a marketing campaign aimed at helping the Penguins sell season tickets.
``This is my 10th year here. Any time we've had some adversity, we've always come back stronger,'' Penguins general manager Craig Patrick said. ``This is the biggest hill we've had to climb. Once we get to the top, we'll be a really strong franchise.''