Are the Devils in bankruptcy trouble? UPD: Chambers to pay $25m to exit?

[ponder]

http://www.nypost.com/p/news/business/devilish_deal_in_nj_KmuYDayXtRes0wWHLYVCHN

Just to be clear, what exactly is the situation? Is it:

a) He pays $25 mil for the right to sell the team, then goes and sells it for more than that, coming out with money in his pocket
OR
b) He is literally giving away his 47% of the team, and has to tack on a further $25 mil just to make someone take such a toxic asset (i.e. the team's debts exceed its worth, and it loses money on a yearly basis, so it's not even worth having for free)?

If it's "b)" then the Devils are in an unbelievably horrendous financial situation. If a business has more debt than it's worth AND loses money, there's no reason for it to exist. If it's "a)", then the situation is not so bad.

 

[htpwn]

http://www.nypost.com/p/news/business/devilish_deal_in_nj_KmuYDayXtRes0wWHLYVCHN

Am I reading this right? Is Chambers paying someone $25 million to dump his shares?

 

[ponder]

Am I reading this right? Is Chambers paying someone $25 million to dump his shares?

That's how I read it too, I hope for the sake of the Devils that we're reading it wrong? If their liabilities actually exceed their assets, and they lose money every year, well . . . almost any business would simply declare bankruptcy and fold in this situation.

 

[Devils Mike*]

If this is such a problem then why has Vanderbeek not said anything and continues to own the 53%? Chambers is simply sharing his shares, nothing new here.

The Devils are in a better financial situation then half of the teams in the league.

 

[knorthern knight]

That's how I read it too, I hope for the sake of the Devils that we're reading it wrong? If their liabilities actually exceed their assets, and they lose money every year, well . . . almost any business would simply declare bankruptcy and fold in this situation.

No two ways about it. It's like the old joke about the actress who had multiple accidents while shooting her scenes, and said "Who do I have to sleep with to get out of this movie?"

In a stunning development, New Jersey Devils co-owner Ray Chambers has agreed to pay $25 million to unload his 47 percent stake in the team, sources close to the situation told The Post.

Yes, Chambers is paying for the stake to be taken off his hands. Why, you may ask?

Under National Hockey League rules, Chambers is on the hook for any cash infusion the Devils might need as long as he’s listed as the owner, sources said.

It appears that Chambers fears that there may be big losses and cash calls in the Devils' future.

Everybody expected Phoenix Coyotes to go to Winnipeg, but Atlanta Thrashers went instead. Then everybody was expecting the Coyotes to go to Quebec. Could it be New Jersey instead?

 

[TheDevilMadeMe]

Everybody expected Phoenix Coyotes to go to Winnipeg, but Atlanta Thrashers went instead. Then everybody was expecting the Coyotes to go to Quebec. Could it be New Jersey instead?

NJ's debt problem is almost entirely because of the arena they just built. So.... does it make sense for a team to go into huge debt building an arena, then leave the arena?

 

[Fugu]

This development is not particularly "stunning."

Why do you say that, CB? It does give the appearance that one owner wants out badly enough that he'll throw in even more money just to leave.

If this is such a problem then why has Vanderbeek not said anything and continues to own the 53%? Chambers is simply sharing his shares, nothing new here.

Vanderbeek is one of the reasons Chambers wanted out, no? Also I think they owned an equivalent number of shares, but Vanderbeek had the controlling shares. He will still need to refinance but he can't refinance until there's an agreed upon valuation of the team.

The Devils are in a better financial situation then half of the teams in the league.

I'm not sure if that's as reassuring as you meant when you typed that out.

 

[azrok22]

NJ's debt problem is almost entirely because of the arena they just built. So.... does it make sense for a team to go into huge debt building an arena, then leave the arena?

I don't see any scenario where the Devils leave Newark.

However, under your hypothetical scenario, it would absolutely make sense for such a hypothetical team to leave that "new" arena if they continued to lose money, didn't project that changing, and thought they could turn a profit elsewhere.

 

[kdb209]

However, under your hypothetical scenario, it would absolutely make sense for such a hypothetical team to leave that "new" arena if they continued to lose money, didn't project that changing, and thought they could turn a profit elsewhere.

However, they likely couldn't leave the arena without a bankruptcy - even if they leave, they still owe the remaining $180M in arena debt plus any damages in their agreement with the city.

It is not clear what the NJ ownership structure is - and the legal relationship between the Devils and the arena operator Devils Arena Entertainment. It appears that both owe money on the Rock.

Unless the arena debt is owned by a separate entity that could go bankrupt without entangling the franchise - similar to the bankruptcy of Paul Allen's Oregon Arena Corp - it is unlikely that the team could move without the lenders foreclosing and forcing a bankruptcy and sale.

 

[saskganesh]

Yes, it is.

The joke out here is "G&M - Toronto's national newspaper".

hmm. So do you also think the National Post is Don Mill's National Newspaper or ... do they get a pass because they have half the readership?

G&M has the largest national circulation of any paper in Canada. They print in every region and maintain regional news bureaus. Toronto Star has the largest circulation, but they don't have a national distribution service and national printing deal.

 

[danishh]

that's wild.

$25M to run away and cut ties completely.

although, considering they owe more than their assets, i can see why he'd just give up.

 

[guyincognito]

I don't see any scenario where the Devils leave Newark.

However, under your hypothetical scenario, it would absolutely make sense for such a hypothetical team to leave that "new" arena if they continued to lose money, didn't project that changing, and thought they could turn a profit elsewhere.

Someone's still gotta pay that debt. You don't pay debt off on something you're not going to use. That would be pretty stupid.

If this is true (and keep in mind the last story got backtracked on), Chambers' payment for the sale was debt freedom, hypothetical money instead of real money. He's a shady ownership type, a "pump and dumper" and when I heard it was actually him holding ownership, that was kind of an "oh crap" moment.

I guess he took all he could take and just wanted to be free, but in some aspects, it's kind of gratifying to see that kind of person take a bath.

 

[guyincognito]

Ah, nobody actually explained the transaction. Not totally surprised, but hey...

What this supposed transaction is, Chambers pays $25M as an "out", to the lender for a re-finance downpayment. Thus surviving the first balloon payment.

In "return" for his shares, he's absolved of any debt. The amount of money loaned was $187M between both the 2011 and 2014 balloons. + interest. This first loan was booked as $80M. So if reports were true, interest on it was $20M. To make $100M total.

The second loan is $107M. Don't know how the interest works on this except that this is the building loan, so the "points" may be treated differently.

It's a pretty safe estimate that this loan debt between the two loans is $230-240M. Chambers is on the hook for roughly half of that, + he has to kick in money every year to run the franchise.

He didn't pay $25M to dump his shares. More or less he was forgiven of probably around $120M of debt, thus making the payment for his shares $120M, and possibly more if you think of how much debt the Stars ended up in before going under.

 

[azrok22]

Someone's still gotta pay that debt. You don't pay debt off on something you're not going to use. That would be pretty stupid.

If this is true (and keep in mind the last story got backtracked on), Chambers' payment for the sale was debt freedom, hypothetical money instead of real money. He's a shady ownership type, a "pump and dumper" and when I heard it was actually him holding ownership, that was kind of an "oh crap" moment.

I guess he took all he could take and just wanted to be free, but in some aspects, it's kind of gratifying to see that kind of person take a bath.

Right, but under the hypothetical (again I don't think this applies to the Devils situation, just the hypothetical described above), the two options would be:

(a) Play in new arena that has not been profitable while projecting continued losses in said arena

or

(b) Move somewhere else where projections suggest at least the chance for profitability

Under either scenario you have the $180m in debt. However, under the second option there's a greater chance of paying that debt down and breaking into the black.

All I was saying is that just because a company has a new asset they invested significant capital into does not mean they would never walk away from that asset if they project greater profitability elsewhere.

 

[Marv4Life]

(a) Play in new arena that has not been profitable while projecting continued losses in said arena

or

(b) Move somewhere else where projections suggest at least the chance for profitability

Except the arena has been profitable. It's ranked 3rd in the world in ticket revenue for a reason. It's the team itself who hasn't been gaining money due to its own failures like postseason issues, poor marketing, high prices that aren't justified by the product, etc.

 

[azrok22]

Except the arena has been profitable. It's ranked 3rd in the world in ticket revenue for a reason. It's the team itself who hasn't been gaining money due to its own failures like postseason issues, poor marketing, high prices that aren't justified by the product, etc.

Seriously. How about reading the line right in front of what you quoted:

Right, but under the hypothetical (again I don't think this applies to the Devils situation, just the hypothetical described above), the two options would be:

(a) Play in new arena that has not been profitable while projecting continued losses in said arena

or

(b) Move somewhere else where projections suggest at least the chance for profitability

Under either scenario you have the $180m in debt. However, under the second option there's a greater chance of paying that debt down and breaking into the black.

All I was saying is that just because a company has a new asset they invested significant capital into does not mean they would never walk away from that asset if they project greater profitability elsewhere.

 

[njdevsfn95]

If the report is right and $25M is being paid towards one of the loans, does that payment get the Value/Debt of the team closer to 1:1 or perhaps even slightly more favorable than that?

 

[Colin226]

Ah, nobody actually explained the transaction. Not totally surprised, but hey...

What this supposed transaction is, Chambers pays $25M as an "out", to the lender for a re-finance downpayment. Thus surviving the first balloon payment.

In "return" for his shares, he's absolved of any debt. The amount of money loaned was $187M between both the 2011 and 2014 balloons. + interest. This first loan was booked as $80M. So if reports were true, interest on it was $20M. To make $100M total.

The second loan is $107M. Don't know how the interest works on this except that this is the building loan, so the "points" may be treated differently.

It's a pretty safe estimate that this loan debt between the two loans is $230-240M. Chambers is on the hook for roughly half of that, + he has to kick in money every year to run the franchise.

He didn't pay $25M to dump his shares. More or less he was forgiven of probably around $120M of debt, thus making the payment for his shares $120M, and possibly more if you think of how much debt the Stars ended up in before going under.

Exactly.. He paid a little now to absolve himself of a much larger debt in the future.. And I'm happy to have JVB owning more shares

 

[guyincognito]

Right, but under the hypothetical (again I don't think this applies to the Devils situation, just the hypothetical described above), the two options would be:

(a) Play in new arena that has not been profitable while projecting continued losses in said arena

or

(b) Move somewhere else where projections suggest at least the chance for profitability

Under either scenario you have the $180m in debt. However, under the second option there's a greater chance of paying that debt down and breaking into the black.

All I was saying is that just because a company has a new asset they invested significant capital into does not mean they would never walk away from that asset if they project greater profitability elsewhere.

Yeah, but what you're missing is that the debt is in the price, or if it's extreme, the refinance is in the price. You pay it off and the original owner takes the bath on the debt.

What it is.... is a sunk cost. Why would you pay the sunk cost to move. It's stupid. You could buy something else with very little strings attached and very little value (debt value is still value even though it's -).

It would be like paying a ton of money to refinance the Stars and take off when let's say in theory, if a new arena plan doesn't work out, you could have the Islanders for far more limited obligations and a lower price?

And in that case you don't have to fight the league and the leaseholder (at least when it ends). A motivated leaseholder can keep a team around even when there's no sound logical reason for it... see: Phoenix.

A leaseholder that wants the team the hell out can cause a quick relocation... see: Atlanta.

Just to kill two birds with one stones, if it's true that the sale went through, it's hardly a long-term good development, they're in a world of ****. It's not a good thing when the value in a % sale is found in "being cleared of debt."

They'll end up like the Stars, probably not as belly up, but does it really matter. If they get through the next balloon without going bankrupt, I'd be utterly stunned. They need to make ALOT of changes in the way they do business after this year when money starts coming clear. And I don't just mean on ice. They waste money like the world's coming to an end tomorrow. Maybe they know something we don't.

 

[Colin226]

Yeah, but what you're missing is that the debt is in the price, or if it's extreme, the refinance is in the price. You pay it off and the original owner takes the bath on the debt.

What it is.... is a sunk cost. Why would you pay the sunk cost to move. It's stupid. You could buy something else with very little strings attached and very little value (debt value is still value even though it's -).

It would be like paying a ton of money to refinance the Stars and take off when let's say in theory, if a new arena plan doesn't work out, you could have the Islanders for far more limited obligations and a lower price?

And in that case you don't have to fight the league and the leaseholder (at least when it ends). A motivated leaseholder can keep a team around even when there's no sound logical reason for it... see: Phoenix.

A leaseholder that wants the team the hell out can cause a quick relocation... see: Atlanta.

Just to kill two birds with one stones, if it's true that the sale went through, it's hardly a long-term good development, they're in a world of ****. It's not a good thing when the value in a % sale is found in "being cleared of debt."

They'll end up like the Stars, probably not as belly up, but does it really matter. If they get through the next balloon without going bankrupt, I'd be utterly stunned. They need to make ALOT of changes in the way they do business after this year when money starts coming clear. And I don't just mean on ice. They waste money like the world's coming to an end tomorrow. Maybe they know something we don't.

I would assume that they know a ton more than you.. Do you work in the finance department? Do you know anyone who works for the team in an upper management role? I've read your posts and you infer a lot based off the few things said in articles and the things you see them spend money on, and then make inferences based off of that limited knowledge.. They wasted money? You see them spend it on things but you have no idea about their finances or the reasoning behind expenses

 

[MJB Devils23*]

So Chambers was pretty desperate to unload his share of the team. I still have no idea if I should be panicking or not.

 

[Colin226]

So Chambers was pretty desperate to unload his share of the team. I still have no idea if I should be panicking or not.

Where does it say he was desperate? He spent a while looking for a buyer.. When one did not come for the price he wanted, he decided it would be better to pay the $25 million now and absolve himself of the debt, than to have to pay $100k+ in a few years for the debt.. What would you choose?

He never owned the team because he was a Devils fan.. He is part of an investor group looking to gentrify Newark, and now he's decided he's done all he wanted to do with the Devils (helping bring them to Newark) and now he'd like to invest in other things within the city.. So now the Devils have pretty much a sole owner who loves the team, and a very wealthy many looking to invest in Newark.. Seems win/win to me

 

[Fugu]

Where does it say he was desperate? He spent a while looking for a buyer.. When one did not come for the price he wanted, he decided it would be better to pay the $25 million now and absolve himself of the debt, than to have to pay $100k+ in a few years for the debt.. What would you choose?

He never owned the team because he was a Devils fan.. He is part of an investor group looking to gentrify Newark, and now he's decided he's done all he wanted to do with the Devils (helping bring them to Newark) and now he'd like to invest in other things within the city.. So now the Devils have pretty much a sole owner who loves the team, and a very wealthy many looking to invest in Newark.. Seems win/win to me

He will pay $25 million now to avoid paying $100K in a few years?

 

[Colin226]

He will pay $25 million now to avoid paying $100K in a few years?

Exactly (and actually I think it's more like $120k, but you get the point).. That's why he's doing it.. He told Jeff "I'll give you my 47% stake in the team and $25 million towards the debt, if you take on the rest of the team's debt and I no longer need to pay my share when it's due".. And it allows him (and his investor group) to be able to go and invest in other things right now.. His investor group is people looking to improve Newark, not run a hockey team.. They just saw the team as a way to help start the gentrification process in Newark's downtown area

 

[GentlemanOfLeisure]

Just to be clear , The Devils deal with MSG network (20 year deal signed in 2004), and their Radio deal with WFAN generates more income for them than the Florida Panthers and Columbus Blue Jackets' TV and radio deals combined.

If there are teams to be moved, they Devils wouldnt even make the top ten list.