Technically, the Washington Capitals would have been in a default situation if they had not accepted a loan from Capital Centre in April 1982, Edmund Stelzer, the comptroller of the hockey team and the arena, said yesterday.
However, observers cautioned that default almost certainly would not have occurred even if the loan had not been made, considering the stature of the arena and the teams. The loan was one of several the Centre made to the Capitals and Washington Bullets basketball team, usually within days after the arena received payments from the clubs.
It also was disclosed in Prince George's County Circuit Court that Abe Pollin, principal owner of the Capitals, the Washington Bullets and the Centre, had lent the hockey team more than $3.1 million of his own money in fiscal year 1982, which ended in June. During the summer of 1982, Pollin said repeated losses would force him to move the Capitals unless he got certain financial breaks from the county council. He did, and the team stayed.
Pollin is being sued by Arnold Heft, a limited partner in the Centre, who contends his partner diverted money without his knowledge from the profit-making arena to the teams, which, according to a statement Pollin made in December 1983, had lost $27 million in 10 years. Heft is asking that Pollin either be removed as general partner of the arena or that a receiver be appointed to manage it; Pollin has called the suit "groundless."
Testifying on the third day of the trial, Stelzer acknowledged under cross-examination that the Capitals needed the $250,000 from the arena on April 1, 1982. Otherwise, he said in answer to a question from one of Heft's attorneys, they technically would have been in a default situation with the Equitable Life Assurance Society of America, the lender in a $20 million bond that financed construction of the Centre.
Under the bond agreement, the Washington National Arena, Ltd., operator of the Centre and its "affiliated entities" -- which include the sports teams -- cannot have money owed of more than $400,000 -- and older than 90 days -- at the end of a quarter at any fiscal year.
Stelzer had testified Tuesday that on three occasions, the Bullets and Capitals each wrote checks for payments to the WNA at the end of one quarter, then received the same amount back as a loan days later, at the beginning of a new quarter. He said it was the WNA's contention that these transactions constituted new loans, not additions to existing ones, and thus a default situation would be avoided.
Yesterday, Stelzer testified that the loans were made quickly "as a matter of convenience for all of us," because other matters might distract him from making the loans a week or so later. "We knew that in a short period of time, the teams ultimately needed the funds," he said.
Stephen Grafman, one of Heft's attorneys, then cited financial statements admitted as evidence that indicated the Capitals wrote on March 31, 1982, a $250,000 check to the WNA when they had only $31,000 in their account. Records showed they received the $250,000 back in the form of a loan on April 1.
Grafman asked that, had the loan not been made to the Capitals, would they have been in a default situation.
"That is absolutely correct," Stelzer replied. He said the WNA never considered asking Equitable for a waiver on the default because it was satisfied the loan would cover the shortfall.
Miles introduced a paper drawn up by Stelzer that itemized Pollin's loans totaling $3,177,500 to the Capitals during fiscal 1982. Neither side pursued the subject further.
Responding later to questions from Grafman, Stelzer indicated that loans from WNA to the Capitals and Bullets were interest-free, and that WNA often made interest-free loans to nonaffiliated entities as well. Cellar Door Productions, which promotes many of the Centre's rock music concerts, has received at least two dozen of these loans in the last seven years, Stelzer said.
He said some of those loans would be for as much as $150,000 to be used to secure top performers who wanted money up front.
No interest was charged, he said, "because of the great benefit" the concerts brought Capital Centre. "We couldn't advance the money for 30 or 60 days and then say, 'You owe me a grand,' " Stelzer said. "That's not the way I want to do business or the way Mr. Pollin wants to do business."
Stelzer said the loans generally were paid back from within two weeks to 90 days.