Turning blind eye leaves NHL with another shiner

[Lil Bit Special]

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"That men do not learn very much from the lessons of history is the most important of all the lessons of history."

- Aldous Huxley

Once upon a time, John Spano owned the New York Islanders.

Until the cheque bounced.

Spano's dalliance with the Islanders during the 1996-97 season is one of the most embarrassing incidents in National Hockey League history, but recent events show that the NHL didn't learn much from its dealings with the convicted swindler.

Eleven years after Spano was exposed as a fraud, the folks in the NHL front office are maintaining a low profile as they deal with another business deal that has gone terribly wrong.

William (Boots) Del Biaggio III was one of the investors who helped keep the Nashville Predators in Music City and out of the predatory hands of Jim Balsillie. When the local investors came up short in their bid to buy the team from Craig Leipold, Del Biaggio came to their rescue and paid $60 million for a 27-per-cent stake in the team.

It seemed like a strange marriage. While the NHL was determined to keep Balsillie from buying the team and moving it to southern Ontario, Del Biaggio had expressed interest in buying a team and moving it to Kansas City, where he held the option to run an NHL team out of the city's new arena.

Any fears that Del Biaggio would act as a Trojan Horse and gain control of the Nashville franchise evaporated last week when the high-flying financier from the Silicon Valley filed for bankruptcy. The filing came amid a flood of lawsuits from Del Biaggio's creditors.

At least four of the suits claimed that Del Biaggio had failed to repay loans that were backed by faulty collateral. Del Biaggio, whose family is well-known in San Jose for its philanthropic activities, listed debts of $70 million and assets of $50 million.

Three investment firms associated with Del Biaggio also filed for bankruptcy and there's little optimism for the firms' clients. They owe creditors $23.2 million and have assets of less than $3 million.

On Wednesday the FBI, which is investigating Del Biaggio, subpoenaed documents from Metro Council and the Metro Sports Authority. Metro, which acts as landlord on behalf of the city at its major-league sports facilities, was ordered to hand over documents concerning the California businessman and his role in the purchase of the Predators.

The Del Biaggio case bears some resemblance to Spano's difficulties. Del Biaggio has a better pedigree, coming from a family with solid business connections dating back to his grandfather, the original Boots Del Biaggio.

A football star at Santa Clara University, he established a successful beer distributorship. The sale of the family business provided the seed money for succeeding generations to branch into the banking and investment businesses.

While Del Biaggio had a more solid base for his venture into sports ownership than Spano, his dreams were greater than his assets. In an attempt to play with the big boys, he appears to have cut corners.

His personal collapse is a tragedy, but the sad part of this story is that many innocent investors were caught in the wake of his actions.

The other common thread is that both men had NHL commissioner Gary Bettman's blessing.

In 1996, the Islanders were long removed from their glory days. The team had missed the playoffs two seasons in a row, the Nassau Coliseum was in need of renovations, there was talk that the franchise would move and owner John Pickett had a For Sale sign on the team since 1991.

Bettman introduced Spano to Pickett. Spano had passed himself off a trust-fund baby who ran a dozen businesses with 6,000 employees worldwide. The reality was that he ran a plane-leasing business in Dallas with a handful of employees and $3 million in assets.

But Spano managed to convince the NHL and a number of prominent banks that he was worth more. The NHL board of governors welcomed him as the owner of the Islanders in February 1997, but his scheme came undone two months later when he failed to make a $16.5-million payment to Pickett.

Spano was quickly revealed to be a fraud and was sentenced to nearly six years in prison for bank and wire fraud. The fact he was approved by the NHL governors revealed serious flaws in the league's policy of due diligence.

A year earlier, Spano had reached an agreement to buy 50 per cent of the Dallas Stars from Norman Green, but the deal collapsed because Spano came up with another of many minor complaints that held up the completion of the sale. Spano's difficulties in Dallas should have raised a red flag, but instead the fact he had come close to buying half of the team gave him a measure of unwarranted credibility.

It was later revealed that the NHL spent less than $1,000 to vet Spano's bona fides. In the wake of the Spano fiasco, the NHL established new guidelines for examining potential owners, but they failed to prevent the embarrassment surrounding Del Biaggio.

While the majority of the NHL owners are solid, respectable businessmen, there's

something about the league which seems to attract rascals and scalawags.

James D. Norris, whose family once controlled three of the Original Six NHL teams, ran the International Boxing Club in the 1940s. IBC promoted most of the world championships fights until it was declared a monopoly and disbanded. Norris's silent partner in the IBC was mobster Frankie Carbo.

Shortly before his death, Norris set the wheels in motion for St. Louis to receive one of the first NHL expansion franchises even though nobody from that city bid for a franchise. It seems Norris just happened to own the arena in St. Louis.

Over the years, four NHL owners have done hard time in prison and others, including three current owners, have come under the scrutiny of regulatory bodies in Canada and the United States.

The late Harold Ballard went to jail for using Maple Leaf Gardens cash for improvements to his personal property. His partner, Stafford Smythe, faced the same charges, but died before he could be brought to trial.

The most colourful miscreant in NHL history was Bruce McNall. As owner of the Los Angeles Kings, the engineered the blockbuster deal that brought Wayne Gretzky to Hollywood. McNall, who got his start selling ancient coins of dubious provenance, rose to be chairman of the NHL board of governors, owned the Toronto Argonauts and produced movies. But he also went to jail after pleading guilty to defrauding six banks of $236 million.

McNall triggered salary inflation in the NHL when he tripled Gretzky's salary, which might be one of the reasons why The Great One considers McNall a friend to this day. When the Kings decided to retire his No. 99 jersey, Gretzky asked the ceremony be delayed until McNall was released from prison.

Sanjay Kumar, who was a co-owner of the Islanders, is serving a 12-year sentence for a massive accounting fraud while he was the CEO of Computer Associates.

John Rigas, who owned the Buffalo Sabres, and two of his sons are in federal prison after looting the Adelphia Communications Corporation, one of the leading cable-TV providers in the U.S. They were accused of treating the company as a personal piggy bank, helping themselves to billions in unreported loans.

There are three current owners who have been the subject of investigations by the Securities and Exchange Commission, a regulatory body in the U.S.

Phoenix Coyotes owner Jerry Moyes paid $1.25 million and stepped down as CEO of Swift Transportation to settle an

insider-trading complaint. He later bought Swift back and regained control.

Ottawa owner Eugene Melnyk and Anaheim owner Henry Samueli are both subjects of ongoing SEC investigations.

The NHL has also had to deal with owners who have either been incompetent or have lacked the wherewithal to stay afloat. Los Angeles and Buffalo both went through bankruptcy as a result of criminal acts, but the league has also had to deal with bankruptcies in Ottawa and Pittsburgh.

The Del Biaggio situation should prompt the NHL to take another look at how it scrutinizes potential owners. There are reports that at least 10 teams are on sale either because the current owners want to cash out with team values at an all-time high or they want to avoid further losses in the league's weak markets.

If the league cares about its image, it has to be ready to say no if a potential owner can't prove he belongs.