When John Rigas becomes majority owner of the Buffalo Sabres next week, he'll get a National Hockey League team that is losing more than $1 million a month and is wallowing under $80 million in debt.
Because the team has lost roughly $15 million during each of the last three years, the deal requires him to pay only $5 million cash to the team's existing owners. Rigas also has pledged to pay another $10.5 million, plus interest, over the next few years.
But a review of the Sabres sale document and its audited financial statements -- which a source allowed The Buffalo News to examine -- reveals that Rigas, who already has invested $38.1 million to own roughly 50 percent of the team, is taking over a franchise facing a host of serious problems.
Despite the opening of Marine Midland Arena, the team has lost about $46 million over the last three seasons, largely because of the franchise's ballooning debt load. Another $6 million was lost in the first four months of the current fiscal year.
The Sabres are saddled with total long-term and short-term debt that amounts to nearly $81 million, forcing the team to pay $9 million in interest last year alone on the debt. That's more than the franchise will pay Dominik Hasek in a season, even under his new contract that makes him the highest-paid goaltender in the league.
The team's season-ticket base shrank by 1,600 this season to 8,634, almost 16 percent less than last year. The drop, following the controversial departures of head coach Ted Nolan, general manager John Muckler and center Pat LaFontaine, wiped out almost all of the increase during the 1996-97 season that resulted from the arena's opening.
The financially strapped team has regularly faced cash shortfalls, requiring Northrup Knox and Rich Products Corp., two longtime owners, to pump in almost $1 million to meet payrolls in December and February.
Persistent shortages of cash to fund the team's operations also have forced the franchise to raise another $26 million during the last three seasons, with 82 percent of the money coming from Rigas, chairman of Adelphia Communications Corp. in Coudersport, Pa.
While it has been known for years that the Sabres were losing money, the sale document paints a much more detailed portrait of a small-market franchise mired in debt, one that had to have the sort of cash infusion and debt takeover that Rigas and Adelphia can provide.
"In the present season, without a prompt infusion of cash, the partnership may not be able to continue operations, and there can be no assurance of such a cash infusion from sources other than Adelphia," the sale document said.
"The partnership cannot become profitable without a substantial reduction of its debt and debt service," the document said.
Sabres President Lawrence Quinn was out of town Wednesday and could not be reached to comment. Rigas did not return telephone calls seeking his comment.
Because of the Sabres' financial problems, Rigas has been able to hammer out a deal that will leave him solidly in control of the franchise by putting a fairly small amount of money up front.
The purchase of the Sabres gives Rigas a valuable source of programming for Adelphia's Empire Sports Network, which currently pays the team a minimum of $1.6 million a season to broadcast 70 of its games. The deal also gives Rigas and Adelphia the chance to use the Sabres' losses to offset other income and reduce taxes, a source said.
The value of the Sabres has soared, from the $6 million expansion fee the Knox family and other investors paid to obtain the franchise in 1969 to the $92 million value the Rigas deal places on the team. But the sale has not been a windfall for the organization's limited partners.
For instance, an investor who put up $50,000 for an original stake in the team almost 30 years ago, will receive about $54,000 under the Rigas deal, or a return of less than 1 percent a year. After inflation, that's a loss of about 75 percent.
"Considering the economics of the NHL, the extreme pressure of salaries, the high cost of operations, the problems of the Western New York market and the very substantial cash losses that the franchise has incurred in recent years, this is a fair and reasonable deal," said one principal Sabres investor, who declined to be identified.
"You have nearly $50 million in losses that have eaten into the value of the venture," the investor said.
Some other Sabres investors, who also spoke on the condition they not be identified, said they were disappointed by the way the deal ended.
With the soaring value of hockey franchises, some investors had hoped to make a substantial profit from their stake. That likely would have required the team to be sold several years ago, and possibly to owners interested in moving the team out of Buffalo.
Buffalo is the second-smallest U.S. market with an NHL franchise, and several other small cities -- Quebec City, Hartford and Winnipeg -- all have lost their teams in the last three years. But Sabres officials decided instead to join with local and state governments to build a new arena here to bolster the franchise.
Yet the mounting losses, caused by rising player salaries, stagnant ticket sales and the lack of extra revenue in the outdated Memorial Auditorium, combined to reduce the profit for investors.
"The original investors invested as a civic duty," one said. "It went from a civic duty investment to an investment of grand proportion and ended up back as nothing."
Although the move to Marine Midland Arena last season gave the team about $1 million from its share of the facility's profits, it wasn't nearly enough to overcome the debt load.
And rising player salaries, including the new $32 million contract awarded earlier this month to Hasek, will make it even tougher to push the Sabres back onto sound financial footing.
For instance, Hasek's $7 million salary next year will eat up about 39 cents of every dollar that the team now takes in from net ticket sales at each home game.
Tickets sales are more crucial to survival in hockey than pro football, largely because of the relatively meager television revenues in hockey.
And unlike the Buffalo Bills, which can count on an average of $73.3 million per year in network TV revenues, the Sabres receive less than $4 million a year from the National Hockey League's television deals with ESPN, Fox and Canadian networks.
Still, cost-cutting by the Sabres, which has pared the team's payroll to the low $20 million range, has helped reduce the franchise's operating losses -- which excludes depreciation and non-cash interest expenses. The team's operating loss narrowed to $3.5 million last fiscal year, down sharply from the $11 million to $12 million range of the three previous years.
The Sabres also are trying to renegotiate their 30-year lease at the arena in a move that team officials said could save the team about $6 million per year.