Are the Predators Moving? Not Likely

The Tennessean's Nate Rau penned an article titled "Sports Authority Members Worry that the Predators Could Leave Town" and cited several factors that could precipitate that action. Cited in the article as concerns were the bankruptcy of Predator lender CIT Financial; the bankruptcy of former part owner William "Boots" Del Biaggio; and a tax lien filed against David Freeman, the majority owner.

There is no doubt that each of these issues are problematic for the Predators in varying degrees, but how much so? It would have been instructive for the reporter in the article to dig a little deeper into these issues to discover how much of a problem they could become. Since he didn't, I will attempt to do so.

CIT Financial was a major lender in the sports world, providing financing for various sports venues and team needs in all the major sports. CIT has filed for a Chapter 11 bankruptcy reorganization. Simply put, this means that CIT is still in business, but is attempting to restructure its debt and find new sources of funding for continued business operations. As regards the loan to the Predators, or any other entity to which CIT has loaned money, those loans remain unaltered as long as payments are made on time and the borrower is in compliance with all loan covenants. There is no indication that the Predators have missed payments or are in non-compliance with any loan covenants that may be in place. The CIT bankruptcy is, as far as the Predators are concerned, a non-event as long as the team is not in default.

Where the CIT bankruptcy could become a problem is if the loan matures and CIT were to ask the Predators to move the debt to another lender. It is unknown the maturity date of the debt, but should this action occur, it would be incumbent on the Predators to find another lender or a way to pay the loan. At this time, it appears that CIT will successfully emerge from the bankruptcy reorganization to continue in business. Whether the firm will continue to be active in sports lending is unknown. What is known is that the market for these types of loans to sports entities is much tougher today than it was in 2007 when the Predators initiated the loan.

The Del Biaggio bankruptcy has no effect on the day to day operation of the Predators from a cash outlay perspective and does not effect their operating profitability. At this time, the bankruptcy trustee in the Del Biaggio case is attempting to recover funds and assets from Del Biaggio and sell those assets for recovery to the lenders. At stake for the Predators is the 27% ownership interest in the team that Del Biaggio fraudulently obtained. There are no payments required on that ownership interest, rather, the trustee is going to attempt to sell that interest in the team for maximum value to return as many dollars as possible to creditors. The problem for the trustee- and for a potential buyer- is determining the value of a minority interest in a NHL hockey club, especially a club in a "non-traditional" market. 27% of the Nashville Predators is decidedly worth less than 27% of the Toronto Maple Leafs due to market conditions, longevity of the franchise, and other factors.

Where the bankruptcy does impact the Predators is that an owner, in this case Del Biaggio, is unavailable to fund any losses or owner contributions that might be necessary. Additionally, the current ownership group has claimed to the bankruptcy court that they have a right of refusal as to any potential new owner. Obviously, the current owners would like to have a say on any potential new owner that might join the group. I'm certain, for instance, that they would be reluctant to have Jim Balsillie buy this interest given his past maneuverings. It is my understanding that the ownership group has made an offer for the Del Biaggio interest, but no decision from the trustee has been made.

David Freeman, majority owner and governor of the franchise, has announced that he has a $3MM federal tax lien that has been filed by the IRS relating to his 2007 tax filing. Freeman states, without giving details, that this is related to a short term advance he made to Del Biaggio to assist with his acquisition of part of the team. Freeman has also gone on to state that he is working out an arrangement with the IRS to settle this claim. In the interim, the IRS has filed a lien on his property. Unfortunately, this creates a aura of financial instability in the ownership group, and it merits attention. While I do not know the details of the lien or of Freeman's personal financial situation, these types of actions are not uncommon. Tellingly, Freeman is not in arrears on his 2008 taxes, which leads me to believe that this action by the IRS has occurred because of a restatement or reclassification of certain filings or claims on his 2007 return. Given the curveball that Del Biaggio threw the owners, this is not surprising.

The NHL requires owners to be of good character and have the financial wherewithal to purchase and operate a franchise. One would hope that the current owners were properly vetted by the League, although given the NHL's past history, this could be in question. A reasoned observer may have concern about this lien and the effects on the financial condition of an owner, but it is my belief that this is a situation that Freeman will be favorably resolved.

Which brings us to the Nashville Sports Council and, according to the headline in the Tennessean, their concern over a possible relocation of the franchise. A reading of the lease states that the team can move the franchise in two years if attendance fails to meet a minimum average of 14,000. Since the team met that target last season, it would be 2011 at the earliest before that out clause would be effective. The lease also allows for movement of the franchise if losses exceed $20MM cumulatively since the lease was signed in 2007. The Predators operated at a breakeven position last season, according to the team. Losses are not anywhere near a $20MM cumulative total since 2007. A reasoned person might question the concern for the exercise of the opt out clauses cited by Sports Council members Rusty Lawrence and Steve North since it appears that neither condition has been triggered.

The Sports Council has a duty to observe keenly the financial condition of the Predators since there is taxpayer money involved with the lease on the Nashville Arena. The Council also has a duty to understand the lease and the clauses that pertain to the ability of the owners to move the team. To state that the Predators could "soon move the team" and that the Council is "held hostage" to another city with a better offer shows disingenuousness at best and a basic lack of knowledge about the terms of the lease and facts surrounding their major tenant at worst. The Council also seems to ignore the fact that any move by the Predators would have to be approved by the NHL. Given the recent history of the League to work to keep franchises such as the Coyotes in Phoenix, a move seems unlikely.

Should the Sports Council, and Predator fans be concerned about losing the franchise? It would seem that this possibility is virtually non-existent.

There is no doubt that the Council has a responsibilty to monitor the Predators financial situation closely. The Council also has a responsibility to be honest in their statement of the facts and not speculate about a situation that is not happening. The City of Nashville, and Predator fans, deserve better than that.