November 04, 2011
According to both Forbes and the Globe & Mail, creditors of the New Jersey Devils and the Prudential Center are desperately trying to sell the team's debt at a discount, which the Globe & Mail places at 75 cents on the dollar.
Both publications report that owner Jeff Vanderbeek missed a principal payment on a loan in early September. This was also reported by the New York Post at that time, which also floated the idea that lenders would help force the team into bankruptcy. The Devils, in a statement, called that notion "patently untrue."
And yet ... here we are.
I can tell you the Devils have over $250 million of debt piled on the team and arena, which they control. The debt is growing because Vanderbeek, unable to make interest payments, is capitalizing the interest.
If this all sounds familiar it is because it should. This is what Hicks Sports Group went through when its $525 million of debt, stacked on baseball's Texas Rangers and hockey's Dallas Stars, grew to $600 million because HSG owner Tom Hicks could not make interest payments, ultimately defaulting. [...]
NHL commissioner Gary Bettman needs to step up and get Vanderbeek out. The Stars are being sold at a cheap price with creditors taking a steep haircut. The same thing is almost certain to happen with the Devils. All this is bad for business, bad for the league's brand and bad for NHL team values.
So what's going to happen to Jersey's Team?
The Devils have always battled financial issues. Their attendance in a crowded sports market has remained challenged, for a number of reasons. Their move to Newark was supposed to help boost attendance and revenue, given all of the arena's amenities and the control the team had over its revenue streams.
One problem: In order to make the arena happen, Vanderbeek and the team assumed a massive amount of debt, and that's just crushing the team right now, especially considering the economy's impact on gate and its owner.
Mike Colligan of The Hockey Writers was one of the first to focus on the debt in an August 2010 piece, following the Ilya Kovalchuk(notes) contract debacle:
It's probably fair to assume that Vanderbeek's group needed additional help to make this a reality as Forbes now has the team at $250m in franchise and arena debt. [THW was unable to acquire details behind this number] In fact, the Devils rank first at 112% on Forbes' list of highest Debt/Value % teams in the NHL. (By comparison, Phoenix is second at 101% and Dallas is third at 81%)
The impact of over-leveraging can be beneficial in good times but devastating in bad times, as Vanderbeek knows well. His former firm Lehman Brothers declared bankruptcy in the midst of the recession after suffering massive losses due to the subprime mortgage crises. Vanderbeek insisted the Devils would not be affected by Lehman's demise, but that doesn't mean his wallet remained intact. How far he was financially invested in the firm remains uncertain, but he filed a $61.1m claim against Lehman as an unsecured creditor arguing he was owed the money under a 2004 separation agreement.
Last year's Forbes "Business of Hockey" feature had the Devils with a Debt/Value percentage of 115 percent, which was the highest in the NHL — even above the Dallas Stars.
Vanderbeek has been trying to buy out co-owner Ray Chambers, but to no avail. It was the reason he was given an extension on the September loan payment; he wasn't given another one last month according to the New York Post, which quotes a source as calling this situation "the calm before the storm."
So what's the fate of this franchise? The Globe & Mail explains the process:
Even if the loan is sold quickly, the Devils will not be pushed into bankruptcy during the coming NHL season because of a so-called stand-still clause in their lending agreement.
The NHL puts the stand-still clause in every loan made to one of its teams. This forces the banks to wait a minimum of 180 days after they declare a team in default on its loan before moving to take over the team and place it into bankruptcy. If the 180 days end during the NHL season, as they would in this case, the banks are bound to stand still until the day after the last game of the Stanley Cup playoffs.
After that … who knows? Does the owner of the debt own the team? Will anyone ride in and rescue the franchise from Vanderbeek in bankruptcy, like the Tom Gaglardi and the Dallas Stars? Was this arena the boondoggle many predicted?
Devils fans have faced uncertainty before; hell, they won the Cup in 1995 under a cloud of relocation to Nashville. All they can do now is hope this process plays out in a way that makes the franchise financially stable and keeps the team in Jersey.
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