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Sunday, July 4, 1999

IceRays' success covered financial, management flaws
New owners tackling accounting problems that led to $250,000 debt
By Tom Whitehurst Jr.
Caller-Times Business Editor

George Tuley/Caller-Times

IceRays General Manager Bill Davidson helped put together the group that now owns the team.

To any potential buyer in the spring of 1999, the Corpus Christi IceRays might have looked like a can't-miss business deal - a constant sellout at Memorial Coliseum, a winning record, league leader in corporate sales.
   But the IceRays had a secret that threatened to undo all that.
   Despite huge revenues, the first-year team was leaking money. It had racked up as much as $250,000 in debt without cash to pay it back, according to the team's new general manager. It had the largest management payroll in the Western Professional Hockey League. Players' paychecks were consistently late. And those close to the company say it lacked the accounting procedures, inventory controls and accountability standards found in most properly-managed businesses.
   Some feared that the team, despite its fan support and winning record, was in such financial and management shambles that it might shut down. Changes were certainly afoot.
   Then a deal was announced in late May. A locally owned limited partnership had bought the team for more than $1 million from Canadian venture capitalist Rick Brezer. Though it was not announced at the time, a portion of the price paid down the team's debt.
   "I was always concerned that the team could fold," said local car dealer Bill McBean, one of the new owners, and an ex-hockey player who had been a volunteer adviser to the team.
   The solution for McBean and others in the new ownership group was to buy the team and revamp the management.
   Among the owners of the partnership are some well-known figures in Corpus Christi: former city councilman Ed Martin, chief executive of Bay Ltd., the largest private industrial employer in the city; Alex Harris, president of San Jacinto Title Co. and former chairman of the Greater Corpus Christi Business Alliance; and McBean, president and chief executive officer of Vista, one of the largest car dealerships in Corpus Christi.
   The owners also include the team's former marketing director, Bill Davidson, the league's corporate sales leader, and the team's coach, Taylor Hall.
   Initial changes
   Already, changes have been made. Team officials report that the front-office staff has been cut in half, top management duties have been consolidated, top managers' salaries have been reduced and the team is current on paying its bills.
   But the question remains: Why would prudent business people take the chance?
   Because, several have said, the management solutions are fairly simple, the team has demonstrated that it could produce healthy revenue even in adverse conditions, and they just love hockey and didn't want to see it go. They had seen the demise of the Barracudas minor league baseball team and semipro football and basketball, and the IceRays is where they drew the line.
   "There are a lot of non-economic issues that the investors are interested in," said John Bell, their attorney. "There's a strong desire to support a professional sports team in Corpus Christi. We've had a spotty record."
   Deal background
   The real story behind the sale can be traced to the team's beginning, before it ever took to the ice.
   Davidson and Hall were part of the first wave of IceRays leadership who showed up in Corpus Christi in June 1997, 16 months before the actual hockey playing started. They pursued an option to buy the team from its original investor group from the start. That effort failed, Davidson said, after he and Hall had a falling out with two other potential partners.
   The team's early commitment to the community made an impression on the current investors because it was a departure from the example set by the Barracudas and other unsuccessful sports forays. The IceRays came in "with our hats in our hands," Davidson said, making contacts, working with city officials, finding corporate sponsors and setting up hockey and skating clinics.
   They blended a Canadian style, laid-back and humble, with South Texas. If a sponsor wanted some hockey players at a function, Davidson said, he'd find a hockey player or two whose schedules were clear and send them on over, no big deal. And no extra charge. It was loose, but it worked - perhaps because of rather than despite the looseness, he said.
   Davidson alone accounted for $890,000 in corporate sales.
   McBean, a Canadian immigrant and former hockey player, acted as an informal, volunteer adviser to Davidson, Hall, marketing assistant Kevin Simpson, who now is also among the team owners, and ticket sales director Scott Brower, who died in a car crash in October 1998. The four would meet with McBean about once a week to discuss their plans.
   When Brezer came to town for the home opener in October, he and McBean talked casually about the possibility of including McBean as an investor. Then in late November, the two began to talk seriously.
   There was a reason for that, McBean said.
   "He realized he had some cash flow problems," McBean said. Davidson, Hall and Simpson didn't know about the cash flow problems and Brezer didn't want them to, McBean said.
   Brezer acknowledges that the IceRays had cash flow problems and that he found it difficult to monitor the team as an absentee owner.
   "I talked to my partners," Brezer said, "and we came to the decision that some of the problems were largely due to the fact that there wasn't an on-site owner to have a firm hand in how the team was run."
   Front office woes
   In January, Brezer gave McBean a look at the books. McBean said what he saw was a hot product with sufficient revenue but runaway expenses. What he saw also caused him to back out.
   "It always came down to I was uncomfortable with the financial statements," he said.
   The team led the league in consecutive game sellouts (36), and corporate sponsorship sales were in the neighborhood of $1.1 million.
   But the team also led the league in front-office staff in size and salary. Davidson now says that the salaries added up to $750,000 a year for 14 office employees, the highest in the league. The players' pay wasn't the problem, Davidson points out, because the league limits their salaries.
   "I just remember seeing a payroll," McBean said, "and being stunned at how many people were on it, and how much some of them were making."
   The league average for front-office payroll is $350,000-$400,000 for a staff of eight to 10, said league chief financial officer Dan Ciarametaro.
   The IceRays staff included a few of what Hall, the coach, referred to as "courtesy hires," foisted upon the management by the owner group.
   McBean saw other problems. There were no real accounting procedures. Merchandise such as boxes of T-shirts arrived at the IceRays store in the Padre Staples Mall without being inventoried properly. Instead of opening merchandise box by box, as needed, so surplus boxes could be returned to the manufacturer, all the boxes would be opened right away, McBean said.
   One of the worst examples, he said, was the supply of risers for seats at Memorial Coliseum. The IceRays had $50,000 worth, not being used, that could have been returned.
   And there was no accounting for the parking revenue, McBean said. The parking lot management was so sloppy, he said, that VIP parkers would arrive, only to find non-VIP parkers in their spots.
   Another problem, a chronic one, was the delivery of paychecks to the players.
   "Payday was Friday but we never knew when on Friday," Hall said. "Sometimes we were getting them the evening after the games. Sometimes a Saturday. It was a matter of courtesy, and some of these guys were living paycheck to paycheck."
   Hall and other team officials say the problem was sloppy management, not a lack of cash.
   Fiscally unfit
   But the team was running up expenses. The list of creditors included hockey equipment suppliers, merchandise vendors, a local hospital, a rehab clinic, an advertising agency, and the league.
   By late February, the IceRays were behind in their league dues. Each team must pay the league 5 percent of gross revenue. Ciarametaro wouldn't reveal the amount that the IceRays owed, but said it "exceeded my comfort level." He reached a payment plan with the team, which he said the team has met consistently, both before and since the sale.
   By the time the team was sold, that debt was in the neighborhood of $250,000, Davidson said.
   "We were carrying accounts payable. Your vendors have to get paid, especially the local ones," Davidson said. "You can't have people running around town saying you're not paying them."
   Turmoil within the IceRays organization began to be played out in the public eye. March ended under a cloud of reports that Brezer had decided to fire general manager James Garino.
   By early April, Garino was out and Stu Kehoe, a former minor league baseball and Canadian Football League front-office employee, was in. Attempts to reach Garino for comment last week were unsuccessful.
   In the background, Davidson revived his earlier sale talks with Brezer. This time, Davidson had some important backing. McBean and Martin, who had been an ally of the IceRays on the City Council, were advising him every step of the way.
   Diverse investors
   Davidson had new motivation for pursuing the sale. He didn't like the changes that were afoot under the new general manager, changes that he thought would undermine his previous successes in marketing the team. He and McBean both say those changes included a possible price list for player appearances, and sponsorship and ticket price hikes. He and McBean saw those plans as a public relations disaster.
   In mid-April, Davidson reached an agreement with Brezer to buy the team.
   Both Martin and McBean favored the idea of bringing together a diverse group of investors, rather than one or two big ones. Both of them helped Davidson find investors.
   McBean said he and Davidson each wrote a list of potential investors, then compared notes. The two lists had a lot of the same names.
   "My list basically came from the people I saw at the hockey games," McBean said.
   Martin approached Harris, who was chairman of the Business Alliance when the IceRays arrived.
   "I felt like I had played a role in getting them here," Harris said, "and I didn't mind putting up money to keep them here."
   Davidson and McBean planned from the outset for Davidson to be in charge, the general manager and managing partner, and for Hall and Simpson to be included in the ownership. Several of the new owners say Davidson, Hall and Simpson were the heart of the IceRays' successes.
   But Davidson and McBean also wanted investors whose experience and spheres of influence could help Davidson run the team. The result was a group with backgrounds in real estate, law, construction, finance and politics.
   Davidson put together the ownership group and met the May 15 deadline for showing the money. That feat impressed many of those involved.
   "He got people together," said Bell, the attorney, "some who didn't know each other."
   During the sale process, the review of the team's financial condition and its obligations moved at an accelerated pace, Bell said.
   "It's accurate to say there was not a lot of poring over the books or the finances," he said. "It was only in operation one year, so there weren't a lot of books to comb."
   'It was a fun deal'
   The new owners were anxious, Davidson said, to gain control of the team and start cutting expenses right away. The longer the previous owners controlled the team, he said, the longer they could approve expenses and cut the checks.
   Also, some have professed that they weren't all that interested in the bottom line. Harris said he never inquired about the team's debts, partly because he trusts Ed Martin, but also because he enjoyed last season so much.
   "To me it was strictly an investment that would be based upon something that would be fun," Harris said. "I never looked at the normal business side of it because to me it never was that sort of a deal. It was a fun deal."
   In looking toward the season, the IceRays already have made some strides in reorganizing the operation. In addition to trimming management staff and salaries, including Davidson's and Hall's, the team has met its revenue projections for June, McBean said. The team also has established a clear chain of command, with clearly defined job descriptions, which wasn't the case before, Hall said.
   Future concerns
   Other issues that owners say will be addressed include:

More public access to the ice rink, which is a revenue source.

Better control of the parking lot and its revenue.

Customer service concerns, such as a system of offering rain checks to fans if a game is sold out, and better game security to deal with unruly fans and protect a family atmosphere.
   "There are a lot of practices that work in our business, even though it's specialized, that work in all the other businesses that these owners run," Hall said.
   Davidson and Hall are pulling the team back together, after it unraveled in the playoffs. On June 23 the IceRays announced the signing of two key players from last season - Chris Robertson, the league's most valuable player, and Geoff Bumstead, the league's best fighter. Bumstead said Davidson's control of the team was one of the reasons he signed.
   At the announcement, Rick Kozuback, the league president, said the league encourages local ownership but that it's difficult sometimes to find local backers in places that never had hockey before.
   In this case, the new owners had seen the product and liked it.
   McBean was among those in attendance at the announcement of player signings, where Bumstead, the enforcer, teased Robertson, the golden boy, saying that he came back because of sleepless nights imagining Robertson unprotected.
   McBean was enjoying the proceedings.
   "Now," he said, "they're selling winning."



Business Editor Tom Whitehurst Jr. can be reached at 886-3619 or by e-mail at whitehurstt@caller.com

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