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Dissolve Penguins, NHL to ask court

Friday, April 23, 1999

By Ann Belser, Post-Gazette Staff Writer

The National Hockey League today was expected to seek permission in U.S. Bankruptcy Court to dissolve the Penguins franchise.

For now, the request is being viewed as an attempt by the league to accelerate the slow-moving efforts to complete a financial reorganization of the team. If the NHL petition is approved, the league could impose a do-or-die deadline for reorganization.

Some observers believe U.S. Bankruptcy Judge Bernard Markovitz, who also has expressed displeasure at the slow-moving case, will approve the NHL's request.

The league does not want uncertainty hanging over the franchise through July, when it must draft a 1999-2000 schedule. Without a completed financial reorganization plan, there appears to be little likelihood that the team could operate next season.

Two groups -- one headed by former player Mario Lemieux, the other by Florida investment banker Chip Gesner -- are working on proposed reorganization plans. But both face substantial obstacles.

One obstacle to Lemieux was removed yesterday when the team's current co-owner, Roger Marino, said he would not oppose Lemieux's reorganization plan, even though it makes no provision for repaying Marino's $42 million investment in the team.

If Lemieux's plan is approved and he takes control of the team, "we've kissed $42 million goodbye," said Marino's attorney, Harry L. Manion III.

Manion said Marino decided not to challenge Lemieux's plan because he did not want to see the Penguins dissolved by the NHL.

Others saw the decision as a signal that Marino wants to cut his losses and get out of the franchise without incurring any additional costs.

Not only does Lemieux's plan call for no repayment to Marino, it envisions Lemieux collecting $5 million in deferred salary payments from him. But another buyer could try to saddle Marino with all of the team's debt to Lemieux -- $32.5 million.

Neither Lemieux nor Gesner has made substantial headway in resolving the franchise's biggest financial concern -- its lease to play at the Civic Arena.

The team has estimated that SMG, the private firm that operates the arena, gets $6 million to $7 million per year in hockey revenues under the current lease. Both suitors for the team say the lease must be cancelled or renegotiated.

One option Lemieux has proposed is for Pittsburgh and Allegheny County, which co-own the arena, to buy SMG out of the agreement. That could cost $20 million or more.

The NHL threat to dissolve the Penguins could lend urgency to the financial reorganization efforts, one analyst said.

The Penguins' creditors likely would suffer losses under any financial reorganization plan. But if the NHL dissolved the team, they would get nothing, said Dean Bonham, a Denver-based sports marketing consultant.

Stephen Leeper, executive director of the Public Auditorium Authority, the city-county agency that owns the arena, said he didn't think such a dire threat was necessary.

"Everybody's moving, everybody's talking," he said. "It's just that those talks aren't happening in view of the public."

Bonham said he believed an agreement must be reached by the end of May to head off dissolution of the franchise.

The NHL has not given a specific deadline but has said that its scheduling for next season must be done in July.

Many attorneys, creditors and others involved in the Penguins bankruptcy agree that the proceedings need a swift kick.

Manion said the NHL's threat to dissolve the team has sparked some life into parties in the case.

"Where it's going to have the most effect is on the secured [creditors] and SMG," he said.

The secured creditors are the banks and insurance companies that hold liens on the franchise.

To date, many of the parties have been so focused on what they might lose in bankruptcy that they have overlooked the possibility of losing everything, said Marc Ganis of Chicago, a sports franchise consultant.

Ganis said the groups that wanted to buy the team could use the NHL's threat to gain leverage in negotiations with various creditors. But he said the league was simply recognizing the reality the Penguins would face if reorganization isn't completed soon.

The team would have to shut down because it would be out of money.

"This situation is completely untenable. It never should have been allowed to get to this point," Ganis said.

Penguins attorney Robert G. Sable said SMG had to realize that the arena would be empty without the Penguins.

"Up until now they felt that every day they kept their present deal was another $20,000 in their pocket," Sable said.

SMG President Wes Westley said it was only within the last few days that he even heard from representatives of Lemieux and Gesner.

"I'm willing to sit down with anyone and talk. All we want is to be treated fairly," Westley said.

But Sable said talking to SMG and negotiating an agreement were two different things.

"Their idea of talking to people is listening and saying 'no.' At least, that's been my experience," Sable said.

Up until now, Sable said, SMG has had no good reason to rework the Civic Arena lease.

"SMG is owned by two very large organizations who are used to being landlords and used to being very tough negotiators," he said.

Westley said any deal between SMG and prospective buyers would not be negotiated in the newspapers.

"We want to keep the Penguins," Westley said. "We're going to do everything we possibly can. It's just a matter of working out the business terms."

Leeper echoed those sentiments and said there was a "strong desire" on the part of both the city and the county to save the franchise.

"That's our goal -- no pun intended," he said.

Today is the deadline for filing objections to Lemieux's plan, which was submitted to Bankruptcy Court in March. Gesner has not yet filed a plan.

A hearing on Lemieux's plan is scheduled for next Friday.

So far, one creditor -- National City Bank -- has filed an objection. The bank's filing was not available yesterday.

"We're starting to run out of time, and I think the judge will be saying that [next Friday] if not before," Sable said.

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