Judge Breaks Pens Lease

May 12, 1999 / 9:58 PM EDT / CBS/AP

A federal court judge Friday removed an obstacle to the Pittsburgh Penguins' financial reorganization by canceling their lease with the Civic Arena.

U.S. Bankruptcy Judge Bernard Markovitz said he was invalidating the lease in the best interest of the team and its many creditors. SMG Inc., the team's landlord, had argued for keeping the lease until 2007.

Markovitz heard painstakingly detailed testimony about the lease, which Penguins owner Howard Baldwin signed five years ago to get quick cash. Breaking the lease had been considered by many the lynchpin of the team's financial recovery, but it is only part of the team's fate.

The NHL has said it intends to either dissolve the franchise that started in the late 1960s; move it, perhaps to Portland, Ore., where billionaire and Microsoft co-founder Paul Allen reportedly wants to run it, or sell off players such as Jaromir Jagr and Tom Barrasso piecemeal.

The Penguins' creditors will vote June 24 on three plans: the NHL's, one submitted by former Penguins star Mario Lemieux to keep the team in Pittsburgh and one by SMG and Penguins broadcaster Fox Sports Net Pittsburgh. Since last fall, the team has been operating with court protection from creditors including banks, bond holders, the league and former players such as Ron Francis and Luc Robitaille.

The SMG-Fox plan includes Lemieux - who is owed more than any other creditor - but with a smaller stake and less control.

On Friday, SMG objected to characterizations of the lease as the worst in the NHL and the reason for the team's financial problems. SMG attorney Daniel Shapria suggested high player salaries as a more likely cause.

William Daly, the NHL's vice president for legal affairs, agreed that salaries are a major problem in the NHL. He said 20 teams in the then-26-team league - including the Penguins - lost money in 1997-98 season, the most recent figures available.

Daly said the Los Angeles Kings and Carolina Hurricanes have troublesome leases like the Penguins' but will get out of them next year by moving. He said the Penguins lease costs 25 percent more than any other team that does not own its own rink.

The Penguins argued that the lease is more like a loan.

Breaking the lease lumps SMG in with unsecured creditors like businesses that supply the team with pucks and towels. That group that will get the least percentage of debt back once the case is resolved.

"The only thing that makes it a lease is the use of the word `rent,"' Penguins attorney Robert Sable said.

Shapira has suggested that if the lease was broken, SMG would then be free to schedule wrestling, concerts or other events on days that had been reserved for Penguins homgames.

Penguins attorney Greg Cribbs said the Penguins made the request to break the lease with the assumption that a new deal would be struck with the same dates reserved.

It was not immediately clear how that issue would be resolved.

James L. Ruane III, a managing director at the KPMG Peat Marwick accounting firm, analyzed the lease and side agreements on how the Penguins and SMG divide revenue on everything from parking and nachos to Zamboni advertising and Jagr No. 68 souvenir jerseys. The deal was compared with leases at six other teams, he said.

The lease will cost the team $40 million by 2007 and is "onerous," Ruane said. Under questioning from Shapira, however, he acknowledged the Penguins would be losing money even without the lease.