The Washington Post
Navigation Bar
Navigation Bar

Related Items
 From the AP
  • A court approved Mario Lemieux's purchase of the Penguins on Sept. 3.

    On Our Site

  • Resources on the Pittsburgh Penguins are available in Sports Across America.
  • NHL schedule
  • NHL statistics
  • Team index
  • NHL Section

  •   On Thin Ice, Penguins Saved

     Mario Lemieux, right, jokes with current Penguins star Jaromir Jagr. (Associated Press File Photo)
    By Thomas Heath
    Washington Post Staff Writer
    Thursday, October 7, 1999; Page D7

    National Hockey League icon Mario Lemieux was dining with advisers at a Morton's of Chicago steakhouse in downtown Pittsburgh last October, contemplating a dilemma. His former team, the Pittsburgh Penguins, had been placed into bankruptcy days earlier by owners Howard Baldwin and Roger Marino, and no one was sure how Lemieux could collect his more than $26 million in salary owed him. More importantly, no one wanted to see the team sold and moved from Pittsburgh.

    Gradually, the table grew silent.

    Lemieux and his guests exchanged stares over their Porterhouse steaks and Caesar salads, and then it became obvious everyone was thinking the same thing.

    "The thought surfaced that the team was going to be liquidated or leave town," said Lemieux, who retired after the 1996-97 season. "I didn't want that to happen. We decided that I would buy it myself with some investors in town."

    Lemieux's purchase of the Penguins last month was a watershed in professional sports, marking the first time a former professional athlete has exchanged a portion of his salary for ownership of a team. It also is a fascinating tale of how a man with neither a high school degree nor much business experience used his connections, fame and fortune to rescue a franchise for which he won two Stanley Cups and earned distinction as one of the greatest hockey players ever.

    "The bankruptcy process was a great learning experience, but it was a tough process to go through," Lemieux said. "There was a lot of frustration day-to-day. I surrounded myself with smart people.

    "You're going to see a lot more players in the future getting involved in their sports," he said. "It's healthy. That's good for the sport."

    Taking over the Penguins would mean a new path in life for the Montreal native, who had settled into a comfortable retirement with his wife, four children and golf clubs in a leafy Pittsburgh suburb – never dreaming of having to return to the sport that had made him its most recognized presence since Wayne Gretzky.

    "I played golf for a couple of years and I was hoping for something else, so I might as well do something that's been in my blood since I was 3 years old," Lemieux said.

    The reticent superstar had weathered a serious bout with Hodgkin's disease and two back operations before he retired in 1997, with two years remaining on his contract. He was the biggest superstar in Pittsburgh since Roberto Clemente, having delivered back-to-back Stanley Cups to the city while amassing 613 goals and 881 assists in 13 years with the Penguins.

    Lemieux believed it was time to give something back to the fans. Converting his salary into a lead ownership in the team would prove to critics that he was committed to keeping hockey in the city and was willing to put his personal wealth at risk to see the deal through.

    "The fans have been very loyal to me over the years, supporting my career," Lemieux said. "They were there for some tough times, too – two back surgeries, cancer. So the relationship has only improved throughout the years. To lose hockey here would be devastating not only for the hockey side but for the city. Now we have some stability with the franchise."

    A Downward Spiral
    The Penguins were in trouble for much of the 1990s. Baldwin had bargained away several of the team's vital revenue sources, such as luxury boxes, advertising and television and radio rights, to lenders in return for financing the purchase of the Penguins and for ongoing working capital. Things spiraled down from there, with player salaries increasing from an average of $271,000 in 1990-91 to $1.3 million in 1998-99. The Penguins' payroll went from $9 million to $34 million in that time.

    A league lockout for more than three months at the start of the 1994-95 season brought a halt to revenues while expenses continued to mount. The Penguins also had one of the most expensive players in the league in Lemieux himself, who signed a seven-year, $42 million contract in 1992. He missed one full season and parts of others because of disease and injuries. Lemieux agreed to repeated deferrals of payment on his salary to help the team.

    Despite a financial reorganization and investment from Marino, a computer storage company executive from Boston who entered the scene in 1997, the Penguins' fate already was sealed. Lemieux's retirement at the end of the 1996-97 season was the final nail in the coffin. Penguins season ticket sales dropped from 12,000 in Lemieux's last year to 8,300 last season, according to team spokesman Tom McMillan. By December 1997, the team needed an infusion of $2 million every two weeks.

    "To lose hockey here would be devastating not only for the hockey side but for the city," Mario Lemieux said. "Now we have some stability with the franchise."

    "We just kept wiring money out," said Harry Mannion, Marino's Boston attorney.

    In January 1998, the Penguins defaulted on Lemieux's playing contract. Without assurances that he would receive his more than $26 million, Lemieux declined to make further concessions.

    Marino had had enough, having thrown $42 million at the Penguins in a year's time. The team filed for bankruptcy on Oct. 13, 1998.

    Within days of the bankruptcy, Lemieux and his brain trust gathered at Morton's to map strategy. Shortly after the dinner, Lemieux's personal attorney, Chuck Greenberg of Pepper Hamilton, and Lemieux's agent, Tom Reich, put together a business plan based on paying off most of the $114 million in debt and raising $50 million from outside investors. The plan called for paying off most creditors and returning the team to profitability – a challenge in today's National Hockey League, in which 2O of 26 teams lost money in the 1997-98 season (the NHL added a 27th team, the Atlanta Thrashers, this season).

    Lemieux's plan would compete for the approval of the U.S. Bankruptcy Court against other plans by Fox Sports Network and SMG of Philadelphia, which managed the Civic Arena, where the Penguins played their home games. The Public Auditorium Authority of the city of Pittsburgh and Allegheny County, which owned the arena, allowed SMG to run the building in return for a payment.

    SMG was key. Skeptics told Lemieux and his advisers that until they settled "the SMG thing," investors wouldn't come. That's because SMG received a large percentage of revenue streams from the arena's luxury suites, advertising, parking and concessions in return for the financing to Baldwin when he bought the team back in 1991. Most successful professional sports franchises, such as the Washington Redskins, receive most or all of the revenues from their arena/stadium operations.

    Signing over the revenue from the arena to SMG had starved the Penguins of millions of dollars annually throughout the 1990s.

    Pittsburgh attorney Douglas Campbell was drafted to help Lemieux and his advisers navigate the tangled jungle of bankruptcy. To simplify the task, he drew himself a pinwheel, with Lemieux in the middle and spokes radiating outward. Each spoke represented a problem that had to be solved: the former owners who had to be bought out; the NHL, whose approval was crucial; the investors that had to be attracted; and the Public Auditorium Authority that would have to restructure the debt at the arena, known as the "Igloo."

    Negotiations became renegotiations – followed by rerenegotiations. Lemieux's people came to call the settlement talks "Groundhog Day," after the movie in which actor Bill Murray must perpetually relive the same day over and over again. During one tough negotiation with Fox Sports, the bankruptcy judge brought the lawyers bottles of Guinness beer to ease the tension.

    "Every deal we struck, somebody would wake up the next day and want to redo it," Campbell said.

    Solution in Sight
    One by one, the contracts were solved and the spokes on Campbell's pinwheel began to disappear. SMG dropped its rent and agreed to give the Penguins more than $3 million a year from suites, advertising, food and television hookups – which made it thinkable for Lemieux that the Penguins could one day turn a profit. SMG also agreed to relinquish management of the arena to the Penguins in 2004, eight years sooner than what the SMG lease with the auditorium authority called for. The Penguins also signed a TV deal with Fox Sports for $9 million a year.

    Greenberg, Tony Liberati, the former chief financial officer of the Edward J. DeBartolo Corp., which had owned the Penguins in the 1980; and Tom Grealish, a Pittsburgh businessman who is executive director of the Mario Lemieux Foundation; put together two lists: One list had the names of about a dozen friends of Lemieux, called "FOMs," who would contribute an aggregate of about $2 million. The FOMs still is a working list. The other list suggested a group of much heavier investors that could invest about $50 million.

    One of the major investors was recruited in a conference room at a private airport in Palm Beach, Fla., last March when his private jet landed on its way from London to California. Ronald Burkle is a billionaire grocery store magnate from California and business associate of Liberati. Liberati and Greenberg were helping Lemieux round up investors, and Burkle had agreed to meet with the hockey star and his advisers over breakfast. After the three-hour meeting Lemieux had a $20 million investor and instant credibility.

    "We were able to build from that," Lemieux said.

    Investors came forward in increments of a few million each. Some commitments were withdrawn and had to be replaced, including one for $7 million.

    "We overcame it," Liberati said. "We had a nice running account of less than a dozen investors."

    Around this time, Pittsburgh began to ring with whispers that the superstar's motive for leading the investment group was so he could collect the $26 million owed him. Part of his plan included upfront payments to him and installments in subsequent years, but he always had planned on putting his own money in the venture as well, according to advisers.

    As the whispers became more public, Lemieux took action. He phoned Greenberg around 7 a.m. on a Sunday in early June. Greenberg was still asleep when the phone rang, and when he answered it, he heard Lemieux's voice on the other end, filled with conviction. The hockey star had decided to silence the critics.

    "I was thinking the whole weekend to try and make [the purchase] work," Lemieux said. "I decided to wipe everything clean and roll [the $26 million] into equity that would give the franchise a chance to survive."

    Lemieux agreed to convert all of his more than $26 million claim from debt to a future interest in ownership in the club worth $20 million, erasing $6 million in claims that was owed him. He also invested $5 million of his own cash in the new enterprise. Under the plan, he would agree to a salary of $750,000 a year as the team's chairman, president and chief executive officer.

    Lemieux's move turned into the single, most dramatic event of the process.

    "It set the tone that he was willing to make enormous concessions to the success of the restructuring," said Campbell.

    On June 24, the bankruptcy judge ruled in favor of Lemieux's reorganization over Fox, SMG and the NHL's doomsday plan to relocate the franchise, probably to Portland, Ore. With the judge's approval in hand, Lemieux and his advisers moved quickly, recruiting former NHL chief financial officer Ken Sawyer to run the team finances and Pittsburgh native Tom Rooney, cousin of NFL Steelers owner Dan Rooney, to be chief operating officer. A private-public partnership is moving forward on a new hockey arena for the Penguins buoyed by a $60 million commitment from the state of Pennsylvania.

    Lemieux already has moved to make the team more accessible to fans, lowering ticket prices for 3,500 seats between $5 and $9 per game. He has also created alcohol-free family sections, where parents can purchase tickets for $25 each and up to six childrens' tickets for $10 a piece on an individual game basis.

    On Sept. 1, as his lawyers were negotiating the final deals with creditors, Lemieux flew in his private Hawker jet to New York City, where his group received approval from the NHL Board of Governors to take ownership of the franchise. After he returned, Lemieux, Liberati and Grealish drove to a bar down the road from the airport and hoisted three bottles of Iron City beer to celebrate.

    Next to the highway on the way from the airport to Pittsburgh stands a billboard with a photograph of Lemieux dressed in his new uniform – a business suit. He is wearing skates and standing in front of a hockey goal, as if he were the goaltender.

    The message on the billboard is simple: "613 goals. 881 assists. 2 Stanley Cups. 1 Save."

    © Copyright 1999 The Washington Post Company

    Back to the top

    Navigation Bar
    Navigation Bar
    WP Yellow Pages