Originally created 06/05/99

Penguins out of lease

PITTSBURGH -- A federal judge removed on Friday a major obstacle to the Pittsburgh Penguins' financial reorganization by canceling their lease with the Civic Arena.

Calling the Penguins "our team," U.S. Bankruptcy Judge Bernard Markovitz said he was invalidating the long-term lease in the best interest of the team and its many creditors.

The lease was a major obstacle to reorganizing the team and could have driven it out of business. Mario Lemieux, the Penguins' center and potential new owner, had been unable to renegotiate the agreement with SMG Inc., the team's landlord at the publicly owned Civic Arena.

The NHL had threatened to step in and close or move the team and was drafting schedules for next season with and without the Penguins. It is using the prospect of moving the team as leverage to push proceedings toward Lemieux, its preferred owner.

"You could move this team somewhere else, but this is a good hockey town as it is," Markovitz said. "The last thing anyone wants, including the NHL, I think, is to terminate this franchise and sell all its pots and pans."

SMG had argued to keep the lease until its expiration in 2007. Markovitz will decide on Monday the legal matter of whether the deal was a lease or an agreement, as the Penguins have alleged.

"The rejection of the lease was really a foregone conclusion," with federal law providing easy standards for the team to meet to escape the deal, said Daniel Shapira, the team's attorney.

SMG and Fox Sports Net Pittsburgh are competing with Lemieux to own the team.

SMG and team officials will negotiate through the weekend on a new lease. "If we feed you all coffee and lock the men's room door, we'll get it done," Markovitz said.

Markovitz heard painstakingly detailed testimony Friday about the lease, which Penguins owner Howard Baldwin signed five years ago to get quick cash.

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 Lemieux, the team's former star center to keep the team in Pittsburgh and a third plan submitted by SMG and Fox.

Since last fall, the team has been operating with court protection from banks, bond holders, the league and former players such as Ron Francis and Luc Robitaille.

The SMG-Fox plan includes Lemieux -- who is owed the most money by the Penguins of anyone -- as an owner 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 the team is failing. Shapira suggested high player salaries are a more likely cause.

William Daly, the NHL's vice president for legal affairs, agreed that salaries are a major problem. 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 Hurricane 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 be free to schedule wrestling, concerts or other events on days that had been reserved for Penguins home games.

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.


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