Jerry Sachs, president of Capital Centre, testified yesterday that the arena made adjustments in its licensing agreements with the Washington Capitals and Washington Bullets without considering how they might affect the teams' financial obligations.
Testifying in Prince George's County Circuit Court, Sachs said the June 1982 adjustments, which in effect returned about $860,000 from Capital Centre to the teams, "had no bearing whatsoever" on their debts. The teams at that point owed collectively more than $1 million, well above the $400,000 limit established by the Centre's bond agreement with its lender, the Equitable Life Assurance Society of America.
Sachs said the impact of the adjustments "was never discussed . . . It was simply a matter of righting a wrong. Wherever the numbers were, that's the way it fell."
Abe Pollin, president of Capital Centre and owner of the Bullets and Capitals, is being sued by Arnold Heft, a limited partner in Capital Centre. Heft contends that the adjustments were made without his knowledge and that money was improperly diverted from the profit-making Centre to the teams, which Pollin said in late 1983 had lost $27 million in 10 years.
Heft is asking the adjustments be rescinded and a full accounting of their effects be made. The adjustments cover such areas as refunds to the teams for box-office and Telscreen user fees, as well as charging the Centre for season tickets that formerly were complimentary.
Sachs said in testimony yesterday that he, Pollin and David Osnos, who is counsel to the Centre and to the Bullets and Capitals, met on June 3, 1982, to consider ways to help the teams financially. This meeting followed more than two years of attempting to sell one or both teams, Sachs testified.
Sachs said yesterday that he and Osnos had begun to consider the idea of selling the teams early in 1980, about the time Pollin had quadruple bypass heart surgery.
"We had concern about his recovery . . . and the state of the organization," Sachs said. "It made sense, particularly given his health, to sell one or both teams. They were a tremendous drain on him financially, emotionally and, especially, physically."
He testified that in 1980, 1981 and 1982, he and Osnos collaborated on a series of working papers in order to establish licensing practices that had evolved between the teams and Washington National Arena, Ltd. (WNA), which operates Capital Centre.
Sachs acknowledged yesterday that the practices favored Capital Centre at the expense of the teams, but were written to show prospective buyers in order that they might continue, should ownership of the Bullets or Capitals change. "We would try, as best we can, to protect the Capital Centre," he said.
When Osnos told them in late May 1982 that the teams had no prospective buyers, Sachs testified, the three met on June 3 to discuss the working papers and perhaps make them more equitable for the teams.
"We had become perhaps the most profitable arena in the country regarding income generated by advertising," said Sachs under questioning from John Miles, one of Pollin's attorneys. "It far exceeded any of our expectations. We were coming on like gangbusters."
Sachs said he was referring to such arrangements as advertising on the Centre's Telscreen, the scoreboard beneath it and the scoreboards that list the results of out-of-town games. WNA receives all money for advertising within the Centre, he said, and "it was very clear that the teams were a part of that formula."
He said the three examined all licensing practices that had developed between the teams and WNA, and continued discussions until June 29, when two memoranda outlining the adjustments were released. Sachs said the adjustments were made retroactive to 1980 because that was when the practices had first been questioned and examined.
"They had been improper from Day One," Sachs said. "They were discovered in the 1980-81 period, so it was decided it was proper to go back to that time . . . that it was a fair and equitable way of handling it."