The story of the Pittsburgh Penguins begins and ends with Mario Lemieux. From rookie phenom to Stanley Cup winner and, finally, owner, Lemieux has run the gamut of possible roles in the NHL while with the Pens.
This article is part one in a short series that takes a look at the Pens' off-ice dealings from the lean years of the late 1990s to their success in the present day. The logical starting point for our story, though, is the early 1990s, when a group led by Howard Baldwin took control of the Penguins from owner Ed DeBartolo Sr.
Baldwin wasn't an incredibly wealthy individual as much as he was a galvanizing one, able to rally others with real funds to support his various ventures. Baldwin had a plan for success, on and off of the rink. Some thought it would work and invested in his idea. As we now know, his plan was more than a little flawed.
But none of that was apparent at first. The Penguins looked as healthy as could possibly be. When Baldwin took over, the team had been quickly built to become one of the dominant forces in the NHL, featuring incredible talents like Paul Coffey, Ron Francis, Jaromir Jagr, Tom Barrasso and, of course, Lemieux.
The problem was that, despite Baldwin's obvious ambition, the franchise just could not realistically afford to keep all of the players it had on its roster. Eventually, the ownership group had to propose wage deferments, mainly to Lemieux, allowing the team's captain to still be paid for his play, but to put much of it off for several years. Unsurprisingly, the money never came.
As time went on, the club fell further and further into debt until Baldwin was forced to have the Penguins, with a long list of creditors and debt piling up near $100 million, declare Chapter 11 Bankruptcy.
In basic terms, a Chapter 11 Bankruptcy is a reorganization of a company so that it is able to properly function once more and work its way out of serious debt. As part of this reorganization, the debtor creates a plan, pending court and creditor approval, that attempts to pay off as many creditors as possible with available funds, though sometimes the return on the amount owed is far below optimal.
Now, here's where the deferred wages come into play for Lemieux. Basically, in bankruptcy there are two different types of creditors: the secured creditor and the unsecured creditor.
A secured creditor has some sort of interest in specific property of the debtor and, if the debtor fails to keep up with payments, can take that property back. A perfect example of a secured debt is the remaining money owed on an auto loan. Stop paying and the creditor's going to take your car.
If you're an unsecured creditor, you don't have that kind of leverage. An example of this is a credit card company. If you stop paying off your credit card, there's not much the company can do beyond harass you for the money, screw up your credit report or decide to waste money pursuing a judgment that they still wouldn't be assured of collecting on.
Now, in a Chapter 11, after about two months pass, any money owed to an employee as salary becomes unsecured debt. So, the estimated $20-30 million that the Penguins owed Lemieux? He could've been forced to settle for as little as 10-20 percent of that.
But Mario had a plan. That $20-$30 million still has value to the company and, if possible, they'd love to avoid bankruptcy. What if he could apply the millions he was owed towards purchasing the team and keeping it out of bankruptcy? It was a risky plan, for sure, and additional funding would be needed to get it off of the ground. That's where supermarket mogul Ron Burkle entered the picture.
Burkle's pockets were deep, to say the least. His impressive portfolio features significant investments in several major companies, including Barnes & Noble, American Apparel, and Yahoo! In 2005, Forbes ranked him the 112th-richest American, with assets over $2.3 billion.
Thus Lemieux found the muscle to support his plan. And, while Lemieux's contribution was estimated by the Tribune-Review to be $25 million, only $5 million of that came in an actual payment, not including his owed, deferred wages. Burkle, on the other hand, shelled out funds in the range of $20 million for a major stake in the Penguins and proved that, if needed, the organization would have solid financial backing.
But how could Mario convince someone with obvious financial acumen to invest in an organization that had been operating at a loss for years? Burkle, remember, was a California native with no connection to professional sports or the Penguins. So, while many could argue altruism as a motivator for Lemieux, it's hard to make a similar argument about Burkle.
There may not appear to be similarities in the way the Penguins and the Pirates are run, but there are more parallels between Burkle and Pirates principal owner Bob Nutting than a cursory glance would suggest. Gone are the days where sports ownership was merely a method of recreation and status for the elite. While sports were once the home of the working class, upswings in popularity have made it the courting place for the elite and an incredible source of revenue through the lower and middle classes. Where it once was expected that all finances generated by the team remain within the team, no longer is this the case.
Generations ago, no matter who the owner a of a team was at the time, a club was valued to a city or a region because it was a piece of that region. Going to games, buying tickets and merchandise, and even, in rare cases, raising money for the team were all considered ways for a fanbase to help keep their team competitive and/or afloat.
Salaries to full-time executives and taking dividends out for shareholders? That was akin to treason ... and judging by much of the reaction towards Bob Nutting (who apparently isn't even taking a salary) over the past few weeks, it still is. But in our modern corporate environment, investing in a team, regardless of what the owner says, is usually about profit. There are notable exceptions, but they are just that - exceptions.
Lemieux did not, to public knowledge at least, intend to purchase the Penguins until it became apparent that he might not receive much of what he was owed. There is nothing wrong with that -reacting to the threat of loss is only natural. But Lemieux purchased the Penguins with the motivations of a businessman, not a messiah.
For someone like Burkle to become interested in the Penguins, there had to be the potential for profit. Lemieux had to have some sort of plan in place to make a near-bankrupt franchise seem worth saving.
This was not to be done as a modern-day Will Kane, the hero heading into town to make things right. No, the plan had to come from a businessman, someone ready to show another savvy investor how to make a profit.
Loading comments...