Carolina Hurricanes Caught in Storm

Peter Karmanos Jr., the principal owner of the National Hockey League‘s Carolina Hurricanes, has become part of an episode of “My Three Sons” that no father ever wanted to be involved in.

Karmanos is being sued by his three adult sons; Jason Karmanos, Nick Karmanos and Peter Karmanos III, for the sum of $105.7 million according to Luke DeCock of the Charlotte News-Observer. The lawsuit alleges that Peter Karmanos Jr. borrowed funds in 1999 against a family trust that all four family members had partial ownership of. In 2014 and 2015, Peter Jr. failed to make interest payments on the loan, and is now in default on the loan.

But there’s more to this story than a spat over money inside of the Karmanos family. This situation affects the stability of the Hurricanes, as well as raises questions about the NHL‘s current path of expansion.

It’s no secret that for over two years, Peter Karmanos Jr. has been trying to sell his majority stake in the Hurricanes or bring in a partner. One of the reasons why he has been unsuccessful, however, is because he has yet to find an investor willing to meet his asking price or demands. If he is to take on a partner instead of sell, he wants a partner who will let him retain a position of autonomy over the franchise. Finding someone who is willing to invest at that level and essentially be a silent partner is difficult, especially for a failing franchise.

Carolina ranked dead-last in the NHL this past regular season in average attendance and total attendance, barely eclipsing the 500,000 mark in total attendance over the 41 home games. The average of 12,203 is just 65 percent of PNC Arena’s capacity, again last in the NHL.

While on-ice performance has certainly attributed to those low figures, it can’t be blamed entirely. The Hurricanes accumulated five more points than the Buffalo Sabres did in the 2015-16 regular season, but the Sabres’ 97 percent capacity average attendance was 10th-best in the NHL. Obviously Buffalo and Charlotte are different markets, but simply attributing the Hurricanes’ poor performance in the box office to the corresponding poor results on the ice does not tell the whole story.

The lawsuit reveals a much more grim picture for the financial well-being of the Hurricanes. The suit states that Karmanos Jr. has also used the trust as collateral for loans from banks and advances from the NHL to keep the franchise running.

To compound this issue, minority owners in the Hurricanes will have a decision to make this fall of whether to receive their initial investments (an estimated $22 million) plus interest back from Karmanos Jr. or have their minority stakes converted to full partnerships.

Neither choice looks that attractive if you are one of those nine minority owners. Becoming a full partner means that they would be partially responsible for any debt that the franchise has outstanding. At the same time, whether or not Karmanos Jr. would be able to make the payments if the minority owners elect to call in their debts is questionable at best right now.

Meanwhile, the spin out of the league office is interesting. NHL Commissioner Gary Bettman insists that the Hurricanes are sound, and that’s obviously a message that he needs the league’s ownership at large to believe right now. An announcement regarding expansion is expected to be forthcoming, and the last thing a league that is looking to add teams needs is an existing franchise that is in the midst of a tempest.

The Hurricanes appear to be caught just such a tempest, as inconvenient as that may be. If Karmanos Jr. is truly using advances from the league and loans borrowed against a trust that he is already behind on making payments toward to keep the doors open, then the prospects of improving the product on the ice look limited.

Further poor results in the standings will keep revenue low, thus leaving Karmanos Jr. with fewer and fewer options as far as finding the funds to pay the bills goes. It’s a death spiral that will only be fixed by getting Peter Jr. out of the picture and finding new ownership for the Hurricanes. That might prove difficult when the league is already trying to put together new ownership groups for expansion franchises.

Unfortunately for Hurricanes fans, this is no TV sitcom. This episode of “My Three Sons” is reality.

 

TORONTO, ON – NOVEMBER 08:  Peter Karmanos Jr. (l) receives his Hockey Hall of Fame blazer from the Chairman of the Hockey Hall of Fame Lanny McDonald prior to the Legends Classic game on November 8, 2015 at the Air Canada Centre in Toronto, Ontario, Canada. The Hall induction ceremony is slated for November 9.  (Photo by Bruce Bennett/Getty Images)