Devils again at a crossroads? - Sports Illustrated

Devils again at a crossroads?

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Devils owner Jeff Vanderbeek, here with Patrik Elias, has been on thin financial ice for some time. (AP Photos)

Devils owner Jeff Vanderbeek is in danger of defaulting on a $40 million loan.

By Stu Hackel

Is time running out for Jeff Vanderbeek's ownership of the New Jersey Devils? He owes his chief creditor something approaching $80 million, he's facing a deadline a week from now to fork over a big chunk of it -- about $40 million -- and, according to one report, he's only raised half of what he's promised to pay. Just like Greg Jamison, who is $20 million short of being able to afford to purchase the Phoenix Coyotes, Vanderbeek too may come up shy of what he needs to maintain control of his club. If that's true, the Eastern Conference Champions could be in for some troubled times.

According to a source who spoke with Josh Kosman in The New York Post, Vanderbeek doesn't have the money. He "had worked out a deal to raise a certain amount and has not been able to do that." Another source told Kosman that the Devils chairman and managing partner "has not given up,” and expressed confidence that Vanderbeek would come up with the $20 million and work out a solution to maintain control of the club.

Kosman's reporting on the Devils' finances in the past has been questionable; he wrote last September the team was either in or near bankruptcy after a source told him "The Devils are blowing up." Kosman was forced to backpedal after he overstated the team's plight at that time.

But that doesn't mean the Devils were -- or are -- financially robust. It can't be denied that they have walked a very thin financial tightrope during the last year.

Let's not minimize Vanderbeek's fiscal plight when it comes to having an impact on the ice. Had he raised the funds he's needed for quite a while, New Jersey's best player -- Zach Parise -- wouldn't have fled to Minnesota in July as a free agent. Parise would have been locked up long ago. The Devils were fortunate to hold on to Martin Brodeur and Bryce Salvador in free agency, but neither was a certainty as dark clouds began gathering over Vanderbeek's ownership.

A former member of the executive committee at Lehman Brothers Holdings Inc., Vanderbeek has lacked the resources to buy out the 47 percent share of the club that is owned by his estranged partners Ray Chambers and Michael Gilfillan of Brick City Hockey. He doesn't seem to have been able to find a new partner who has the money that would allow him to keep control of the Devils. And if Kosman is right, Vanderbeek has been unable thus far to raise enough to pay CIT Group Inc., the team’s lead lender, what he's promised by August 14.

What would happen if he can't pay? Well, CIT could declare Vanderbeek in default and he could be forced into bankruptcy, but that is a very complicated process. As David Shoalts of The Globe and Mail discovered last September, every NHL franchise that borrows money has in its loan agreement a “stand-still” clause that says lenders must wait a minimum of 180 days after declaring that a team is in default before moving to take over and place it in bankruptcy. Further, if the 180 days expire when the NHL season is underway, the lenders must wait until the season concludes before taking over the club. So unless that provision is not in the current loan agreement between the club and CIT, even if Vanderbeek defaults next week the Devils wouldn't be compelled to declare bankruptcy until February, which theoretically gives him time to continue searching for funding. If he still comes up short, CIT could not take control of the club until next offseason. Of course, if the 2012-13 season doesn't start on time, who knows what that means for this timetable?

There have been rumblings in recent months that Vanderbeek had, in fact, completed deals to get some or all of the money he needs. In June, Chris Botta in The Sports Business Daily wrote that a new unnamed investor had been found, but "The identity of the partner has yet to be announced because, according to the source, there has been an agreement to stay silent until the completion of the Devils’ season. A formal announcement of the deal is expected within two weeks of the conclusion of the Stanley Cup Final."

Kosman then reported that a handshake deal had been reached between Vanderbeek and ”an investor or investors to pump $200 million into Devils Arena Entertainment, which owns the team and operates the (Prudential Center) arena….In return for the cash, the investor would own a majority of the Eastern Conference Champions while Vanderbeek would maintain operating control, the source said.” It would be rather unusual for someone or a group to be majority owner and allow a minority owner to manage the franchise, but it seems to be a moot point now.

And Yahoo's Puck Daddy editor Greg Wyshynski wrote on his blog, “I’ve heard it’s a group based in Ontario that’s been in conversations with Vanderbeek and the NHL for some time. They would join as minority partners to Vanderbeek.”

Those reports came in the wake of  NHL Commissioner Gary Bettman proclaiming at a press gathering at the Prudential Center on the eve of the Stanley Cup Final that, “Jeff Vanderbeek is working on both refinancing the debt on the club, and an equity raise. He appears to be fairly confident that he can pull this off in due course in the next few weeks. Since I’ve been in touch with the banks on a regular basis, we seem to be on track.”

That was over two months ago and neither the refinancing or the equity raise, which were supposedly linked -- the new mystery partner providing the money to pay down the debt and refinance -- are known to have occurred. There's been no news ID'ing just who might be throwing in with Vanderbeek either.

We continually hear reports about troubled NHL franchises, how some mystery man with a bag of cash is prepared to ride in and save the day, and quite often these deals don't come to fruition. Now, when it comes to certain teams, it could very well be that potential investors are sincere but something -- like a look at the franchise's books or some arcane market research -- scares them off or, putting it more nicely, makes them reconsider. You hope that's the reason these would-be saviors vanish. You don't want to think that they don't really exist and we're all being misled with tales of big-money dudes who are as real as comic book superheroes. There's already enough make-believe and delusion in the world of pro sports.

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