David Freeman, the chairman and governor of the Nashville Predators, has a $3.35-million (all currency U.S.) tax lien on his house and admits to cash-flow problems but both he and the NHL claim there are no concerns about the financial health of his hockey team.
However, since the Predators owners have to maintain a guarantee of up to $50-million with the city of Nashville that is based on their net worth along with other obligations, the lien raises a number of red flags.
There is also the security that has to be maintained with the team's major lender, CIT Group, which is owed at least $85-million. CIT is in the middle of bankruptcy reorganization, which further complicates matters. Another problem is a drop in attendance this season, which could lower the amount the Predators earn from the NHL's revenue-sharing plan.
The news about the tax lien came out last week after the Predators took a hit in revenue in a dispute with the Sommet Group over naming rights to their arena. The Predators terminated the deal, which is thought to be worth $4-million annually, and filed a lawsuit against Sommet. A Sommet executive countered by revealing the tax lien on Freeman.
The lien was slapped on Freeman's Nashville home by the Internal Revenue Service for the 2007 tax year, the same year the venture capitalist put together a group of local businessmen to buy the Predators from Craig Leipold in order to keep them from being sold to BlackBerry billionaire Jim Balsillie. One of the members of the group was William (Boots) Del Biaggio, who owned 27 per cent of the team but went to jail this summer after being found guilty of fraudulently obtaining the money used to buy his shares.
Del Biaggio's stake in the team is still held by the U.S. Bankruptcy Court. Freeman said yesterday in an e-mail message to the Predators "senior staff" that he also forwarded to The Globe and Mail, that the bankruptcy case was behind his cash-flow problems.
Freeman said he lent what was supposed to be a short-term basis to finalize the sale. But when the Del Biaggio scandal hit, Freeman was forced to turn the loan into an unexpected equity investment in the team.
"Unfortunately, reacting responsibly to the acts of others in a manner most beneficial to the team created a short-term personal liquidity problem for me," Freeman said. "I am toward the end stages of liquidating additional assets and paying my tax obligations in full and with the knowledge and co-operation of the IRS."
Bill Daly, the deputy commissioner of the NHL, said the league is "not concerned" about the financial state of the Predators.
Freeman and others in his ownership group have said getting control of the Del Biaggio shares or seeing them sold to another investor is crucial to the future health of the team. Freeman's group has made a modest offer on the shares and Brett Wilson, a Calgary investment banker, is also interested in buying them. Wilson declined to comment.
However, the bankruptcy trustee in charge of the sale, Todd Nielson said yesterday in an e-mail message he does not know when the shares will be sold.
The Predators had a 15-9-1 record and were second in the Central Division in the Western Conference before last night's game but that has not helped at the box office. Attendance has been a problem throughout the team's 11-year history. The Predators' attendance has dropped 1,300 fans a game this season. which could lower the amount the team will receive under the NHL's revenue-sharing plan.
After 13 home games, not including last night's game against the Calgary Flames, the Predators had an average announced crowd of 13,712, which was 27th among the NHL's 30 teams. Last season, the Predators claimed an average crowd of 15,010, which not only prevented an escape clause in their arena lease from the city from kicking in but also resulted in a full revenue-sharing payment of $10-million. If teams do not meet targets for attendance and revenue growth, their revenue-sharing payments are docked by as much as 25 per cent.
The Predators did not make the playoffs last spring and claimed that resulted in a small loss on the 2008-09 and subsequent cash call on the owners. If the trend continues in attendance, the loss will be bigger this season, which raises questions about Freeman's ability to meet another cash call if his financial troubles are not settled.