Bettman Did Boot It
On the Forechecker comments on the Boots Del Biaggio black eye:
Back to the Del Biaggio story; there are many out there jumping on Gary Bettman and the NHL for failing to perform due diligence and getting caught looking foolish, but if you go back to the initial stories in this drama, you’ll see that Del Biaggio’s brokerage is being sued right alongside him. While we have to wait for all the facts to come out in court, the appearance is that the lenders were trying to independently verify Del Biaggio’s collateral claims, and received documents that, while appearing genuine, where in fact falsified by an employee there. The responsibility lies with the guilty parties here, folks, not the victims.
Gary Bettman as victim in this fiasco? I’ve seen variations of this argument on the message boards and, frankly, I don’t get it. The best defense of the league boils down to “Gullible Gary got taken by a clever con man. Again.” I think I could find a way to assign some blame to Bettman even if we left it at that. This is a good defense? Bettman is a chump? That’s a pretty lousy excuse and I don’t understand why anyone would want to advance it. Somebody is surely responsible for the fact the league ownership looks foolish. Again.
Even Bettman as chump doesn’t really fly. The problem is that Boots was being touted as a potential owner of the Penguins before he committed any fraudulent act. He was also the owner in waiting in Kansas City. The NHL wasn’t fooled by the phony documents because they did not exist at the time the league should have been checking him out.
The actual facts that emerge as a result of the court cases will probably not tell us how the NHL was conned, but it is likely that nobody thought to check him out. My guess is that when Boots finally had to come up with some money, he convinced an employee at the brokerage firm to give him a list of his father’s accounts. Then he added one letter to the document and the accounts belonging to William Del Biaggio II appeared to belong to William Del Biaggio III. The son then proceeded to float loans against his father’s money.
Due diligence for the NHL is not just about “Will the first cheque clear?” Potential NHL partners should be investigated. Who is Boots? How much money does he have? How did he make his money? Does he have enough to own a team or is he merely a Rod Bryden like financial engineer? If the NHL actually did check him out very late in the game and were fooled by the same documents that fooled the banks, they deserved their fate. Even William Del Biaggio II is probably unsuitable as an owner because there is nothing in his background that suggests he has the kind of money to play in the big leagues either.
Boots doesn’t have any money. He never had any money. If the NHL had bothered to check him out, they would have learned this. A Google search turned up so little information on Boots I was suspicious of him in January 2007. My due diligence using Google was more thorough than the NHL due diligence?
There are only two options here:
1) Bettman is a chump who foolishly accepted the notion that Del Biaggio had tens of millions of dollars even though there is nothing in his background to suggest he has earned any money at all.
2) The league didn’t bother to check Boots out because Anschutz was his sponsor, because having Boots around as an owner in waiting helped Mario jerk an arena out of the people in Pittsburgh and because Boots helped Leipold sell his stake in Nashville.
I’m betting on on number two, but either way, Bettman booted it and the league richly deserves the Del Biaggio embarassment.
Postscript: Is anyone else confused about the Del Biaggio stake in the Predators? Why is his stake in the team worth only $25 MM when he reportedly owns between 25% and 31% of an asset that reportedly sold for $193 MM?
While we probably won’t learn more about NHL incompetence in this matter, I think we will learn a lot more about the real value of the Predators.
I look at it either as that the NHL, and all the other parties involved here, are chumps for not figuring out this ruse, or Del Biaggio is a mediocre con man who enlisted the aid of an insider to provide convincing, yet false, documentation.
I’d add a third option to your list; that the league did a reasonably thorough, conventional background check, and were defrauded by third party information (provided by the guy at the brokerage). It seems to be, by far, the most plausible scenario.
By the way, some of the San Jose Mercury articles point to Del Biaggio’s family history in the area; it sounds like he’s at least 3rd-generation money, originally made via a beer distributorship. I don’t know how it works in Canada, but here in the US, beer distributors are basically local monopolies that are veritable printing presses.
Your option is not plausible. The checks should have been done on Boots in 2006 or early 2007. The fraudulent documents were not produced until just before the Predator sale. (Unless you believe the banks would accept document that was months out of date for their collateral.)
Even if I can get around the time frames, any investigation of a prospective owner has to consist of a lot more than getting a peek at a bank account. In Del Biaggio’s case, a lot more. If he has the kind of money needed to own an NHL team, he stole it. If Daddy has that kind of money – I doubt it, but if he does – and he is prepared to bankroll an NHL team then the NHL should be dealing with William Del Biaggio II.
By far and away the most plausible explanation is that nobody really checked.
Boots did the league (and most particularly the Anschutz company) a lot of good as the man who was going to buy the Pens (Preds) and move them to Kansas City. If Boots didn’t have any money the NHL did not want to know about it. If it was not such a chummy club, Bettman should have investigated Boots when he signed the deal with the KC rink.
AEG certainly saw the phony documents before the Predator deal closed and the NHL probably saw them too. That’s due diligence? That’s enough to parachute him into the Predator sale? I certainly think not.
I would have to agree I dont think anyone took the time to check otherwise it would have been pretty clear
Boots doesn’t have any money. He never had any money.
Well, I’ve been waiting to post this information for a few days on HF Boards, but I might as well set it out here as well. It is all available on the public record, but waiting for the mainstream sports media to properly put the facts together is a frustrating endeavour, to say the least.
The fact of the matter is that Boots DID have money, and lots of it. He still does (over $50 million in assets, plus the value of his interest in his investment funds). Unfortunately for him, a couple of things have happened since his acquisition of the Preds that have made all his liquid assets go away:
1. He invested $30 million dollars in Onco Petroleum right around November of 2007, the same time as he was acquiring his stake in the Preds. For anyone who does not know, Onco is a natural gas field developer. It went public in November 2007 at $5 per share. It is currently valued on Del Biaggio’s statements at 20 cents per share ($1.2 million), although in fact it seems to be so thinly traded that even such a high number is questionable.
Let me make this clear. He has lost $29 MILLION in this investment, since November 2007.
2. Under both Canadian and US security laws, there are restrictions on the disposition of shares after an IPO (for obvious reasons); if memory serves, it is in the order of 60-90 days. Having evidently decided to invest $30 million in Onco for an IPO in November, he would have held an illiquid asset right around the time that his investment in the Preds would have been required.
Based on that information, the clear indication is that, as the Onco IPO investment opportunity (which interested Boots enough that he invested $30 million) arose at the time that his Preds investment was required, Del Biaggio required some bridge financing for his Preds investment right around that time until such time as his non-trading window for Onco expired in 60-90 days, and he obtained it from, among others, Leipold and AEG. The problem was, of course, that his investment in Onco nosedived right off the bat, making it practically impossible for Del Biaggio to take out his bridge financing, which is where he sits.
3. He had an investment of 3 million shares in St Bernard Software. The value of that stock is forty cents. While there is no clear indication of the price at which Mr. Del Biaggio bought his holdings, St. Bernard went public by merging with a Sand Hill acquisition vehicle (I strongly believe it is one affiliated with Boots) in 2006. St. Bernard has dropped over 60% in the last year alone, and evidently more before that. It can be inferred that he has lost millions in that investment as well. Due to St Bernard’s situation, it too is now a thinly traded over-the-counter stock and thus another highly illiquid investment that is worth far less than he put into it.
4. Since he closed his transaction with the Preds, the Dow has dropped from 14,000 to 11,300. That is just shy of a 20% drop. Mr. Del Biaggio is (was?) a venture capitalist. As such, he would have his assets invested as follows (the same as every venture capitalist):
(a) in assets in the stock market; and
(b) in investments in private companies for which there are plans to do an IPO at some point or other (“seed capital”, in layman’s terms) [NOTE: a review of Boots' bankruptcy filings indicates investments in a large number of real estate funds and other investment funds all run by his venture capital firm; it is because of the uncertain nature of these types of private company investments (which are among the investments that reside in such funds) that the value is left effectively blank; they could be worth a ton of money, but perhaps not today, or they are worth a fair bit but it will take a professional retained by the Trustee to evaluate them].
This drop has had a double whammy for venture capitalists – regarding (a), his investments drop dramatically in value, and regarding (b), the money that he has invested in private companies becomes completely illiquid, since companies will not want to do an IPO when the markets are down, even if they would prefer to get the money from an IPO. Assuming that Boots’ investments have merely tracked the market, his portfolio would be down 20%, but that is an aggressive assumption. Venture capitalists generally do not invest in listed blue chip companies. They invest in the companies that they have taken public and/or smaller companies where there is a potential of an outsized profit. In short, the recent stock downturn means that many venture capitalists like Boots have had their asses handed to them. The lucky ones are those who have assets in relatively liquid investments that they can use to cover margin calls, rather than illiquid assets like sports franchises.
5. One of the main creditors is a broker under a margin account ($6 million, if I recall). I don’t think one has to be an investment guru to know that, if you are a professional investor, one of the most problematic events is a margin call when the value of your investments drops steeply. That appears to be what has happened to Boots. When that happens, an investor has two possibilities, both of which involve getting the money to satisfy the margin call (which is pretty well not negotiable): one must raise money by selling one’s investments (a problem if one’s assets are illiquid) or borrowing money from someone else (like a bank). Judging by the number of banking creditors, Boots may have exhausted his avenues in the latter regard.
None of the above, of course, suggests that Boots was justified in what the lawsuits allege him to have done. However, to suggest that he never had any money is frankly more than a little ridiculous. What’s more, the above clearly indicates that, at the time that he joined the NHL ownership ranks, he was a lot more monied than he is now. Boots’ main problem appears to have been a classic blunder in venture capitalism – if you are going to invest in illiquid assets (like an ownership interest in an NHL team), make sure that you have enough liquid assets to get you through to the point of divestiture.
My due diligence using Google was more thorough than the NHL due diligence?
Evidently not.
Now, one can have a reasonable debate regarding whether a venture capitalist, even one worth a lot of money, is solid enough to be considered to join the ownership ranks, given the inherent boom/bust nature of venture capitalism. With the greatest respect, the Bettman character assassination to which my post is responding is not really a start to that debate, however.
Some of the more fanciful suggestions in the original post can be addressed below, but this is enough for one post.
What’s more, the above clearly indicates that, at the time that he joined the NHL ownership ranks, he was a lot more monied than he is now.
I suppose it depends on how you look at it. Having nothing – which is basically what he had – is a lot more monied than being $35 MM in the hole.
Except that he really is not $35 million in the hole. In looking at his bankruptcy filings, a number of his assets are in investment funds, all of which are unvalued. They are unvalued because they will require the services of a professional valuator to assess. There are some debts in that category, but unless the story that comes out that he is a huge problem gambler who is in deep with Harrah’s et al, they will not have anywhere near the same magnitude, and they are unvalued simply because he did not have access to his own records in preparing the filing.
Boots’ biggest problem (beyond the potential criminal fraud charges, of course) is not any difference between his assets and liabilities; it is his absence of liquidity – hence the application for restructuring under Chapter XI instead of the more direct route that would involve liquidation.