SBJ/February 23 - 29, 2004/Finance

Cowen: Levitt wrong about NHL lending

What would you say if one of the most revered chairmen of the Securities and Exchange Commission basically said you were nuts?

While Arthur Levitt did not utter that word, he did suggest banks should not be lending to the NHL. And there are a handful that do lend.

After releasing a report on NHL finance detailing $273 million of losses during the 2002-03 season, Levitt told reporters, "I would not underwrite as a banker any of the ventures, nor would I invest a dollar of my own personal money in what appears to me a business going south."

Coming from Levitt, that is strong stuff.

Randy Campbell, managing director of SG Cowen, which has loans outstanding to roughly six NHL clubs and for the last several years has been the only bank to lend consistently to hockey, retorted that he respectfully disagreed with Levitt, Bill Clinton's SEC chief.

"There continues to be significant value in NHL franchises from a lender's perspective, as long as deals are well-structured," he said. "There continues to be good investment opportunities for the right franchises in the right markets with the proper structure."

By structure, Campbell means, at the heart of it, an NHL loan carries relatively high interest rates, promises from the owner to cover debt payments, and pre-funded reserves in the event of a strike or lockout.

SG recently lent to the Minnesota Wild and the Detroit Red Wings, despite the threat of a labor disturbance this September, when the labor pact between the league and its union expires.

Levitt's point about the NHL's unfeasible economic model is accurate, however, Campbell said.

"His most telling point is that 75 percent of total revenues are going for player compensation," Campbell said. "No league, nothing in entertainment, is going to work over a long period of time if that sort of imbalance stays."

The Levitt report, commissioned by the NHL, reported that last season teams paid $101 million in net interest costs, on top of the $273 million operating loss.

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