No end to NHL ownership scandals

Trouble can be a funny thing, but in the National Hockey League these days, no one is laughing. A "new breed" owner, Henry Samueli of the Anaheim Ducks, has

Trouble can be a funny thing, but in the National Hockey League these days, no one is laughing.

A "new breed" owner, Henry Samueli of the Anaheim Ducks, has signed off on a plea deal that will see him get five years probation and $12.2 million in fines and penalties for lying to federal investigators who were looking into a scheme that tied him to an options backdating scandal in his company, Broadband. In the plea deal, Samueli will avoid jail time, but may still face other charges in state court.

There's a similar case being built by the U.S. Securities and Exchange Commission and its counterpart in Canada against Ottawa Senators owner Eugene Melnyk. Itcharges that he and others who ran the pharmaceutical company Biovail, which Melnyk founded, improperly pumped up earnings, overstated revenues, minimized liabilities in contravention of accounting rules, failed to correct entries related to foreign exchange losses and, not least, misled securities investigators.

Melnyk recently stepped down as Chairman and CEO of Biovail and has vowed to fight the charges and clear his name. If he fails, he too might join Samueli on the league's suspension list.

Also in June: William "Boots" Del Biaggio, once a rising star in the investment world, who recently provided cash to help secure the sale of the Predators to a local group intent on keeping the financially troubled franchise in Nashville, was discovered to be under federal investigation for a slew of financial fraud allegations. Del Biaggio recently filed for bankruptcy protection and is being sued by a variety of banks, one of which his father co-founded.

If you toss in another serious scandal that popped up earlier in Bettman's tenure as NHL boss -- the 1997 purchase of the New York Islanders by John Spano, who was shortly thereafter found to be a fraud who almost totally misrepresented his wealth, and was eventually sent to prison -- you have to wonder exactly what's been going on in NHL financial circles.

The Spano case was thought to be a turning point in the NHL -- an embarrassment in which the league fell flat on its face regarding its "due diligence" process. After that debacle, the NHL announced a series of stringent conditions for passing economic muster into its ownership ranks. New processes were put into place and there was much talk about the character of individual partners undergoing intense scrutiny as well. A major investigative firm was hired and all relevant safeguards were said to be in place.

It was under those standards that another pair of would-be NHL owners, the father and son team of John and Tim Rigas of Adelphia Communications, were vetted. Not long after they were approved, the two were convicted of fraud in federal court regarding billions in off-the-books loans, a ruling that plunged both Adelphia and the Buffalo Sabres into bankruptcy, and put both Rigas in jail.

In the Samueli case and, perhaps Melnyk's as well, one could argue that these things happen in the world of big business and high finance. The NHL has a long list of owners and even a former commissioner who have done jail time for business-related activities after they purchased or obtained their franchises. Among them are the Rigas, former New Jersey Devils minority owner Dennis Kozlowski, former San Jose Sharks owner Greg Reyes, former New York Islanders co-owner Sanjay Kumar and former Los Angeles Kings owner Bruce McNall.

Those are only the ones who had problems under Bettman's watch. The overall historical list is considerably longer. Still, there was never supposed to be another Spano.

There are a variety of opinions why these things keep happening to the NHL, seemingly more so than any of the other major sports league. The best explanation may reside in economics. If you're looking to buy into the NFL, you can figure on spending near (and in some markets more than) a billion dollars for a franchise. Major League baseball teams have gone for considerably less, but it wouldn't cause anyone to blink if the Chicago Cubs sell for somewhere between $600 million-$800 million. The NBA, a league more in line with the NHL in terms of winter sports, indoor play and the like, can command near $500 million for a team like the Los Angeles Lakers, according to a recent Forbes Magazine report.

Contrast that with the NHL. A few years before the lockout, a franchise could be had for somewhere around $80 million. Although they increased in value after the 2004-05 lockout, established franchises have struggled to hit the $200 million mark. Many are considered worth a great deal less.

In truth, the NHL is viewed as an entry-level league for people with some cash to spend. Unfortunately, that can attract folks who may not have the wherewithal to make a purchase, but try with what may fairly be termed "creative accounting" to get their cheaply shod foot in the door.

To drive franchise values higher, the NHL seems more intent on getting the money rather than scrutinizing where it's coming from. Couple that with what appears to be a far too cozy "old boys" club regarding the way the NHL tends to steer business among favored partners -- and sometimes even against long-time partners who stand up to its rulings (see the court battle between the NHL and New York Rangers owner James Dolan as Exhibit A) -- and, well, the league's somewhat nefarious history speaks for itself.

So how does the NHL now explain Boots Del Biaggio?

Well, so far, it hasn't and there's the rub. Del Biaggio was supposed to have undergone a fiscal examination so intense that some who have been through the process have described it as a fiscal colonoscopy. Financial records had to be examined. Stock ownership had to be proven. Any loans involved in the purchase had to be examined, verified and signed off on by the lending partners. The lenders had to be of the highest corporate reputation before the NHL gave its approval.

Yet, Del Biaggio secured in excess of a quarter of the ownership of the Predators, and within months the federal government was investigating a paper trail seemingly littered with fraud and non-existent assets. That's now reflected in Del Biaggio's bankruptcy filing in which he has claimed $88 million in debt and only $53 million in assets (and some of those assets are not fully determined).

Worse, $17 million of the near $27 million that Del Biaggio is said to have put up to secure his portion of ownership in the Predators apparently came from loans made by two NHL owners -- loans that were never made known to Bettman, the NHL's Audit and Finance Committee or, apparently, whoever conducted the "due diligence" of Del Biaggio's fiscal wherewithal.

Just from reading the accounts of Del Biaggio's paper trail en route to filing for bankruptcy protection, it appears the Californian who describes himself as a "venture capitalist" borrowed money just days before the sale was closed, much it from men who stood to profit from the deal: former Preds owner Craig Leipold and current Los Angeles Kings owner Philip Anschutz. Leipold is listed in the bankruptcy filing as being owed $10 million in unsecured cash while Anschutz's AEG Facilities is listed as having provided $7 million. Modern Bank, also listed as a debtor in the bankruptcy papers, is listed as having loaned the other $10 million.

That's raised a few eyebrows in NHL circles as Anschutz, whose AEG Facilities is the principal owner of the Kings, and Leipold, now a principal owner of the Minnesota Wild, both sit on Bettman's executive committee. According to a report in the Toronto Star and my source, who asked not to be identified but who has witnessed the NHL investigative process in the past, Bettman was never made aware of the loans from his two committee members.That revelation has dumbfounded many, given what is supposed to be a "due diligence" process beyond reproach.

"If you are [really] a billionaire, you don't have trouble getting $25 million in time for a closing," said my source. "Right there, someone should have raised a red flag."

If someone did, it apparently went unheeded.

If Del Biaggio is convicted of fraud, Bettman can make a strong case for having been unaware and that his investigators were fooled just like the banks and other investors, but there are still problems.

For starters, common sense would seem to compel Leipold and Anschutz to explain the nature of their loans to Del Biaggio. After all, Bettman is reported to have brought Del Biaggio to the table for Nashville in an attempt that many believe was to find a money source that would keep Ontario billionaire Jim Balsillie from buying the team and moving it to Hamilton, Ontario. Just last year, Balsillie had announced an agreement in principal with Leipold to buy the Preds and had already started selling tickets in Hamilton, a market that has been claimed by NHL franchises in Buffalo and Toronto. This would have led to a major court battle for the NHL regarding territorial rights.

Many in hockey were perplexed when Leipold agreed to take less money from a group of locals, funded in part by Del Biaggio, than from Balsillie. Leipold is said to have accepted $193 million (although there are reports that it was considerably less) instead of Balsillie's offer of $220 million -- a curious decision, especially in light of the fact that Leipold had to float a loan to Del Biaggio while Balsillie was offering a cash deal.

Another issue that has raised concern is the arrangement between Anschutz and Del Biaggio. When Del Biaggio initially bought in, there was talk that if the Predators failed in Nashville, they might move to the Sprint Center, a new building in Kansas City that had also been cited as a possible home for the Pittsburgh Penguins. Anschutz's AEG has management rights for a major sports league tenant in that building, good for two years as of this October. According to published reports, Del Biaggio had a contract with AEG and the Kansas City venture to land a hockey team for the Sprint Center in 2006.

That effort fell through, but there was suspicion in Nashville that Del Biaggio wanted in with the Predators for the purpose of their eventually moving to Kansas City. And some may argue that AEG had pressure to get the sale of the Predators closed when it did, hence the loan to Del Biaggio, because if AEG does not acquire a team for Kansas City within the time allotted in its agreement, it loses several huge revenue streams in the Sprint Center. Del Biaggio has said that he cut formal ties with AEG before buying into the Preds.

The same pressure argument can be made for Leipold, who -- with Balsillie out of the picture via a letter he wrote to Bettman and made public in Nashville -- had no other suitors for the Predators other than the local group headed by David Freeman and Del Biaggio. It's not surprising that a loan to Del Biaggio secured the deal in time for Leipold to close and move on to his purchase of the Minnesota franchise.

There was such a rush to closure that all parties signed off on the sale before the new group had concluded a lease agreement for the Sommet Center, the Predators' arena in Nashville. There was so much concern about this that one of the lenders in the purchase deal withheld money from a loan it had agreed to until the lease was approved.

All of this is now an unflattering problem for Bettman and the NHL. They are the ones who brought Del Biaggio to the table in Nashville and, apparently, pushed Balsillie out of the picture. Now, with the Del Biaggio portion of the ownership becoming available in Bankruptcy Court, Balsillie or any other interested party looking for a piece of an NHL franchise at what may well be a bargain price can make a bid. The court, by law, must accept the bid that does the most to satisfy the creditors.

If Balsillie is the bid winner, he's got a piece of an NHL franchise that has contractually written clauses for a move -- which is what Bettman and the NHL were attempting to block in the first place.

Worse, the NHL again moves to the forefront of sports leagues when it comes to the public perception of loose standards and a flawed process regarding the scrutiny of prospective owners.

Funny, but that doesn't appear to be a good thing for the Commissioner, a good way to do business, or good for the game itself. But in the long history of the NHL, incidents such as these are not all that uncommon.

That, in fact, is the most troubling thing of all.

(Send comments to siwriters@simail.com)