Commissioner says he was unaware of 'Boots' backing
Story note: This two-day series examined the fraudulent sale of Nashville's NHL hockey team. Secret loans by NHL owners were key to help close the sale. The league later changed its rules forcing more disclosure among owners. Story link.
By BRAD SCHRADE • Staff Writer • July 30, 2008
The Preds Sale: First of two parts
Two NHL owners who stood to gain if William J. "Boots" Del Biaggio III bought a stake in the Nashville Predators lent the California financier and the team a total of $27 million to help close the deal in December, according to court records, interviews and confidential internal documents obtained by The Tennessean.
The two lenders — sports and entertainment giant AEG, which owns the NHL's Los Angeles Kings, and then-Predators owner Craig Leipold — were in the inner circle of NHL Commissioner Gary Bettman. However, Bettman says he knew nothing about the loans to Del Biaggio at the time the Predators' sale was finalized in December.
With Del Biaggio in bankruptcy and accused of fraud in several lawsuits, the loans from the NHL owners raise potentially embarrassing questions about how well the National Hockey League screens potential owners, and the integrity of that screening process.
It also raises the question of whether Bettman or the NHL would have been alerted to Del Biaggio's cash problems had the commissioner been aware two of the league's owners were lending Del Biaggio millions of dollars.
"If you're involved with somebody who, on a broad scale, is involved in fraudulent conduct, the ability to pick that up in advance is something that's difficult for anybody, including law enforcement," Bettman said in a telephone interview Friday, emphasizing he was speaking hypothetically.
Leipold, the Wisconsin businessman who bought and founded an NHL expansion franchise in Nashville a decade ago, lent a total of $20 million in selling the Preds, $10 million to Del Biaggio and another $10 million to the team. Both loans were crucial steps in sealing Leipold's deal to sell the team to Del Biaggio and a group of local Nashville businesspeople.
The sale allowed Leipold to break with the Preds and with Nashville, and opened the door for him to buy the NHL's Minnesota Wild franchise earlier this year.
The announcement of that purchase came Jan. 10, a little more than a month after the Preds deal was finalized.
Meanwhile, AEG lent Del Biaggio $7 million late last October to be used specifically toward the Predators' purchase.
AEG also stood to benefit. It has made no secret of its desire to have an NHL team as an anchor tenant at Kansas City's gleaming new Sprint Center, which AEG manages and in which it owns a stake. The firm had previously had a contract with Del Biaggio to try to get an NHL team there.
The loans from Leipold and AEG total approximately 15 percent of the $176 million in cash and financing in the Predators' purchase.
Del Biaggio is a minority owner in the team, but he is the second-largest single investor in the ownership group.
Leipold has declined requests for interviews, and did again last week through a spokesman.
A company spokesman for AEG declined an interview request to speak with AEG CEO Tim Leiweke.
Unaware of loans
With his 27 percent stake in the Predators, Del Biaggio's recent financial and legal troubles have made headlines across the nation and in hockey-loving Canada.
The San Jose, Calif., businessman filed for bankruptcy last month and faces a federal investigation, along with a handful of lawsuits claiming he defrauded lenders. Leipold and AEG are listed as creditors in the bankruptcy. AEG also is suing him for damages related to the $7 million loan.
Bettman told The Tennessean that he learned of the two NHL owners' loans to Del Biaggio only within the past two months, as Del Biaggio's financial and legal troubles started to become public.
Del Biaggio didn't disclose the two loans on the ownership application papers he filed last year with the league, the commissioner said, and neither Leipold nor AEG disclosed the loans to Bettman.
Bettman said it was Del Biaggio's responsibility to disclose the loans to the league.
"To the extent somebody has loans, they should be disclosed in their application," the commissioner said.
Asked whether Leipold and AEG should have disclosed that they were lending Del Biaggio money to help with the purchase, Bettman said: "Not necessarily."
Asked to elaborate, the commissioner declined.
Bettman, who has been NHL commissioner since 1993, said the league plans to review its procedures to see whether a "higher level" of disclosure among its owners should be required. Up until now, it hadn't been an issue, he said.
Leipold and AEG CEO Tim Leiweke have been on the NHL's executive committee, which helps evaluate applications for franchise ownership.
Leipold, though, was not involved in the evaluation process for the Predators sale because it involved his team, the commissioner said.
"Mr. Leipold had no role since it was his transaction and he was leaving," Bettman said. "Mr. Leiweke was one of the 10 members who considered it. His input in voice and vote was no more or less than anybody else on the committee."
Leiweke promotes center
With its 18,500 seats and 72 luxury suites, the $276 million Sprint Center opened in October as the cornerstone of Kansas City's downtown revitalization efforts.
Los Angeles-based AEG invested $54 million in the public/private deal, giving it management rights at the building for 35 years.
Leiweke promotes the building with a passion that has helped make him one of the most powerful men in professional sports.
He was listed No. 42 in last September's Business Week "Power 100" list detailing the most influential people in sports.
AEG is a sports and entertainment management giant, owning teams and managing facilities across the world. His boss, AEG owner Phil Anschutz, is No. 21 on the list, six places ahead of Bettman.
In addition to owning the Kings, AEG runs the Staples Center, where the Kings and the NBA's Los Angeles Lakers play.
Likewise, Leiweke has expressed confidence from the beginning about landing a major-league tenant for the Sprint Center. In fact, part of AEG's responsibility and exclusive rights until 2010 is to land a major tenant for the building, according to its management agreement.
"I'm fairly optimistic you're going to have one or the other, the NHL or the NBA, playing here the day you open your doors," Leiweke was quoted in a May 2004 article in the Kansas City Star.
It hasn't worked out that way. And it's not because Leiweke hasn't been trying.
The company signed a contract with Del Biaggio in November 2006 to own and operate an NHL franchise in the building, according to an article in the Pittsburgh Post-Gazette.
Del Biaggio made a play for the NHL's Pittsburgh Penguins in 2005, and in early 2007, Kansas City had offered the Penguins free rent and other inducements to move there.
When news of Leipold's interest in selling the Predators broke last year, Del Biaggio made an offer to buy a majority stake and Kansas City saw Nashville's club as the next likely tenant for its building.
Even after Del Biaggio had agreed to become a minority partner in the Predators, he owns a 27 percent share, Leiweke viewed his role in the Nashville venture with optimism.
"Either they'll stay in Nashville or not," Leiweke was quoted in The Star on Aug. 2. "The fact that Boots is on the inside with the NHL will help us with relocation or expansion, going forward. To us it's not a bad thing at all."
Loan was to be a secret
No one was ever supposed to know about AEG's $7 million loan to Del Biaggio. It only became public knowledge through the unraveling of the Del Biaggio financial enterprise in recent months.
The initial lawsuit AEG filed against Del Biaggio does not outline the details of why the company made the loan, only that it was to help Del Biaggio purchase the Predators.
The loan was arranged in late October at the AEG-run Los Angeles Staples Center during a Predators game with the Kings, according to testimony given earlier this month in California in a lawsuit involving another company suing Del Biaggio.
Like Bettman, David Freeman, the Nashville businessman who is managing partner for the Predators, said he didn't know about AEG's loan to Del Biaggio until recently.
Freeman said the same is true regarding Leipold's loan to Del Biaggio.
Freeman said he doesn't think the local owners would have cared about the loan from AEG if it had been disclosed and explained by Del Biaggio.
"If the explanation made sense then, I'm sure we would have said, 'OK, if the league's fine with it, I'm sure we'll be fine with it,'" Freeman said. "The league never knew, and we never had that opportunity."
Del Biaggio, however, had told his Nashville partners that he had broken off his previous business ties with AEG last year before the Predators purchase, according Freeman.
Meanwhile, Del Biaggio was marketing shares of his Predators holding firm, Forecheck Holdings, to potential investors. A confidential document he used in his sales pitch, reported on by The Tennessean earlier this month, said Del Biaggio expected the Predators to fail financially in Nashville, and it touted a scenario in which Del Biaggio and his investors could seize control of the team and move it.
That digital presentation also mentions Kansas City as having already made "a very compelling offer" to lure an NHL franchise to town.
The document, characterized as "strictly confidential," also mentions several other cities as possible places that "will bid hard to attract an NHL team."
Freelance writer Nate Tabak contributed to this story. Reach Brad Schrade at 615-259-8086 or bschrade@tennessean.com.
Sidebar:story link
NHL commissioner says Del Biaggio was given no breaks
NHL Commissioner Gary Bettman said William J. "Boots" Del Biaggio III received no special treatment in the league's scrutiny of his finances and background leading up to the Predators sale last December.
Bettman, in an interview with The Tennessean last week, disputed an earlier report quoting California entrepreneur Doug Bergeron.
Bergeron told the newspaper that Del Biaggio said the NHL allowed Del Biaggio to skirt some of the financial background checks it normally requires of prospective team owners, including showing audited financial statements.
"We were extremely thorough in our review of the ownership group, and Mr. Del Biaggio was not treated any different than anybody else in the process," Bettman said.
Recollections differ
Bettman's recollection of a meeting with Bergeron in New York also differs from Bergeron's account. Bergeron said in a meeting with Bettman last October the commissioner told Bergeron that he helped come up with and arrange the preferred equity deal Del Biaggio had in the Predators sale.
That arrangement gave Del Biaggio and his company, Forecheck Holdings, little or no risk. The commissioner took credit for drawing up that structure, according to Bergeron.
"That is not consistent with my recollection of the meeting," Bettman said.
"And if you ask Mr. Freeman," speaking of David Freeman, the Predators' managing partner, "he will tell you that whatever arrangements and whatever deal he had with Forecheck, he's the one who negotiated it. Not me."
Del Biaggio is facing bankruptcy, a series of lawsuits claiming he defrauded lenders and a federal investigation.
Brad Schrade can be reached at 615-259-8086 or bschrade@tennessean.com.
Timeline:
Timeline of the Predators Sale
2004
MAY: Kansas City and Anschutz Entertainment Group cut deal to develop a downtown arena. AEG CEO Tim Leiweke quoted in Kansas City Star saying he is optimistic an NHL or NBA team will be an anchor tenant by the time the facility opens.
JULY 15: AEG commits $50 million to partner with Kansas City to build $270 million facility and manage it for 35 years.
JULY 22: Sprint signs on for a $2.5 million annual naming rights deal. The $2.5 million figure is tied to AEG enticing an NHL or NBA team to move into the facility.
2005
JUNE: William J. "Boots" Del Biaggio's name surfaces on letter of intent to purchase Pittsburgh Penguins. He says he intends to keep team in Pittsburgh. However, Kansas City's name circulates as a possible location unless a new arena is built in Pittsburgh, according to Pittsburgh Post-Gazette.
2006
NOVEMBER: Del Biaggio's name linked to AEG for signing a contract to bring an NHL team to Sprint Center, according to Post-Gazette article.
2007
MARCH: Kansas City's name again resurfaces as possibility to get NHL team as frustrated Penguins push to get new arena deal from Pittsburgh. AEG offered free rent and revenue sharing for Penguins in K.C., but Pittsburgh agrees to new facility for Penguins. AEG senior VP Mark Faber is quoted in The Star saying "there are other NHL teams that Boots Del Biaggio is currently talking with, as well as the NHL to move to Kansas City."
JUNE: Again Kansas City, AEG and Del Biaggio are linked to the NHL with reports of his bid to buy Predators surfacing as Canadian billionaire Jim Balsillie's effort to buy team starts to unravel.
AUGUST: Del Biaggio's name linked to local Nashville group led by David Freeman. On Aug. 31, Freeman signs purchase agreement to buy Predators from Craig Leipold.
SEPTEMBER-OCTOBER: Del Biaggio and Forecheck partner, Warren Woo, begin marketing shares in the Predators with a slide show that paints gloomy picture of Preds future in Nashville. Slide show mentions Kansas City and other city's wanting an NHL franchise.
OCT. 10: K.C. opens gleaming new Sprint Center managed by AEG. Clock starts ticking on AEG to locate a pro team for facility within three years or city can then take over search process and offer incentives.
OCT. 29: Del Biaggio signs promissory note related to $7 million loan from AEG to help buy Predators.
OCT. 31: Possibility that AEG in talks with Nashville group to help with some management or booking duties at Nashville's Sommet Center surfaces in The Tennessean. Deadline for local group and Del Biaggio to buy team is extended.
DEC. 7: Local group of investors led by David Freeman teams with Del Biaggio to finalize purchase of Predators from Craig Leipold. Sale finalizes for $193 million, with about $176 million in cash and financing needed after all the purchase price adjustments.
2008
JAN. 10: The NHL's Minnesota Wild announces that Craig Leipold will be their new owner.
JANUARY: Del Biaggio and Woo continue marketing slide show that paints gloomy picture for Predators and the portability of the team.
APRIL: Metro Council passes lease terms for Predators at Sommet Center, offering millions more in tax dollars to help the team. The new terms would allow the team to break its lease after 2009-10 season.
APRIL: Signs of Del Biaggio's distress begins trickling out to lenders as he begins defaulting on loans, including to AEG.
MAY: Del Biaggio's problems become public as lawsuits and reports of a federal investigation start to trickle out.
JUNE: Del Biaggio files for bankruptcy. Court papers show Leipold and AEG among creditors who lent him millions. AEG files a lawsuit against Del Biaggio. NHL Commissioner Bettman said he learned of the loans in this time period as they were starting to become public.
JULY: Tennessean reports on secret, confidential slide show Del Biaggio and Woo had been using since year before to market shares in the Predators. The document reveals Del Biaggio's plans to try to gain control of the team and move it, possibly to Kansas City.
SOURCES: Kansas City Star, Pittsburgh Post-Gazette and Tennessean reporting
