In the summary of the loan the Penguins received as part of the Paycheck Protection Program, the big number stands out: $4,821,785.
That’s how much the franchise’s owner, Lemieux Group LP, received in emergency relief from the federal government in early August. The group is, as reported by the New York Post on Sunday, the only North American major pro sports team to receive a dime.
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The other 122 members of the cohort, depending on whether you count the LA Lakers’ whoops-nevermind attempt at getting in on the first round of action, all seem to have said, “Nope, we’re good.”
Why, and how, the Penguins wound up alone on PPP island is anyone’s guess. Could they need the money that badly? Did the PR red flags raised elsewhere get lost, or ignored? Did they go up at all? Are they smarter and cannier than the rest of the pro sports ownership caste?
Could be some of those things. Could be all. But if you’re the type of person who gets mad about this stuff, or sad, or curious, the ordeal is an ammo cache. From the dirt to 10,000 feet up — far beyond any space where it’s worth blaming a $650 million sports franchise with a billionaire owner for identifying as “a small business” — it illustrates the ongoing issues, outright failure and contemptible success of the Treasury Department’s $522 billion plan.
The Penguins’ reasoning for applying, in a vacuum, is easy to understand. They make money to spend on their hockey team largely on hockey games. They haven’t hosted one since March.
They make money for their owners — primarily Ron Burkle and Mario Lemieux — largely on everything else associated with running an arena. Again, March.
And under the terms of the PPP, as run by the Small Business Administration, they were eligible for a loan. So, after months without real revenue, the team says it requested that the PPG Paints Arena landlord, the city-county-run Sports and Exhibition Authority, consider a temporary deferral of its annual $6.1 million rent payment due in September. The request was denied.
From the Penguins’ statement: “Accordingly, we borrowed $4.8M under the CARES Act program in mid-August and applied the funds to our $6.1M September rent payment to the SEA, which was used by the public agency to make its required bond payment. The SEA indicated it is facing similar financial difficulties due to the closure of the SEA-owned Convention Center, and we are pleased that these funds were used to support an important public agency during these challenging times.”
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The Steelers and Pirates are also tenants in SEA-owned facilities. Neither franchise, according to representatives, requested or received rent deferral. Neither franchise, according to both SBA data and team representatives, requested or received PPP money.
The Penguins’ other option? Scrounging up that $4.82 million in rent/SEA “support” somewhere else. The obvious method — diverting some of the $22 million Burkle recently committed to buying yes-that-same-one Neverland Ranch — isn’t necessarily the only method. Burkle alone is worth an estimated $1.4 billion. Building a successful hockey team and controlling the vast bulk of concert revenues has made the Lemieux Group plenty of money. If tapping into that wasn’t an option, normal, private loans still exist, even for franchises that could be wary of past brushes with bankruptcy.
Those loans, though, don’t come at the PPP-sanctioned rate, which is much, much lower.
No option — tapping into the owners’ cash on hand and/or equity, applying for a normal loan, or asking for PPP money — was used to protect employee salaries in the summer. In May, about two weeks after the second PPP funding round began, and like scores of their peers, the team announced furloughs for about three dozen employees until Sept. 1. Most have returned to work, and all, according to the team, kept their healthcare in the interim. They were also eligible for unemployment. No paychecks, though.
By August, though, with workers set to return and the arena’s rent coming due, the Penguins were willing to tap into the PPP funds. They requested and received a loan worth roughly the cost of one season of Mike Matheson. (They’re currently on the hook for six years of the actual Mike Matheson.)
“Basically, what they’ve done is gone out and gotten a $4.8 million, two-year, 1 percent business loan,” Hannah Smolinski — a CPA, the founder of Clara CFO Group and a PPP expert with Upside Financial — told The Athletic.
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Another, even more team-friendly, pennywise option would’ve been to angle for forgiveness on the PPP loan from the outset. To do that, though, the Penguins would’ve needed to spend some portion of the $4.8 million on employee payroll. If they dropped 60 percent into that bucket ($2.88 million) and the remaining 40 percent on rent, the loan would’ve been forgiven in its entirety. Those are the terms for other PPP recipients (all of which are not major pro sports franchises).
The team did not answer specific questions from The Athletic on whether it plans to pursue any form of forgiveness. It did, though, again publicly state how it is using the money. The 1 percent interest, $4.82 million, it appears, will suffice — and it’s good for the Penguins that it will.
“If they go to their bank and say they spent $4.8 million on rent, they’re not going to be able to get any of it forgiven,” Smolinski said. “They probably should not have ever taken a PPP loan out to begin with.”
On one hand, it’d be foolish to expect wealthy people — the kind who amass sports-owner money — to turn down free food, let alone a 1 percent, taxpayer-funded loan. On the other? The score is currently 122-1.
“(The Penguins) knew what they were doing,” Smolinski said. “That might be why they’re publicly also saying, ‘Hey, we’re using this money for rent,’ knowing that they’re not going to get it forgiven, so maybe people don’t get upset about it.”
That, you’d imagine, is part of the justification. You could say the same about the date the loan was approved: Aug. 6, two days before the deadline and months after the outrage over luxury hotel chains, national restaurant groups and, yes, the Lakers (who returned $4.6 million) raiding the first round of funds.
“That indicates to me that maybe (the Penguins) were trying to let everybody else have the first go at it,” Smolinski said. “There’s no doubt that they knew about this the whole time. It’s not like, ’Oh, all of a sudden we found out about this program.’
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“They had enough smart people in their finance department to know that there was still money in the coffers. ‘Hey, why not? If everybody else has gotten a loan, we could get a loan too.’”
How full the coffers were, though, and the spots where they’d been emptied even after the Aug. 8 deadline is a problem unto itself. There are 30 million small businesses in the United States. Five million applied for PPP relief. More than $134 billion of PPP funds went unused. Why?
“You can see right there the number of people that did not apply for loans was very large,” Smolinski said. “But also, a lot of businesses didn’t qualify because they were sole proprietors that had losses in the prior year. There were people who didn’t have employee costs. There were people who were running their business without employees. … The misinformation and people being unclear on exactly how to get it forgiven, there was a lot of fear around that.”
And to get forgiveness, 60 percent of each loan needed to be spent on payroll in two months (down from Congress’ initial 75 percent bar). Businesses that couldn’t hit that mark — maybe due to operating costs beyond payroll, like utilities and rent — aren’t forgiven and, of course, go further into debt. That seems to be a feature, not a bug; the stated goal of the PPP, from its Congressional sponsors on down, was to keep people off unemployment, not simply to save small businesses from ruin.
This was Congress’ chosen route, rather than enacting meaningful, continual payouts to both individuals and businesses, or increasing UI benefits; they involved banks, whose net government payoff would increase along with the size of the individual loans they funded, and passed the same flaws of the current, stacked-deck U.S. economic system to the PPP process.
The result: more than half of the dispersed $522 billion went to 5 percent of the recipients, according to a Washington Post analysis of data on more than 5 million loans. About 600 companies, mainly large national chains, received the $10 million maximum. Twenty-eight percent of the money was distributed in amounts of less than $150,000. The top 1 percent of all loans account for a quarter of total loan value. The top 5 percent accounts for more than half.
That information was released in early November in response to a Freedom of Information Act request and lawsuit by multiple media companies and paints a far more lopsided picture than earlier Treasury news releases.
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It also doesn’t account for the businesses that were rejected — or, according to Smolinski, those that didn’t apply at all.
“A lot, though, was that people just didn’t know,” she said. “They didn’t know how to get it. They didn’t have people in their court to help them. And they probably just didn’t know what they could do.”
Know who did?
Now, another round of PPP funds is on the way. This one is worth about $284 million, with new rules and theoretically increased protection against abuse of the system by well-heeled corporations with easy access to other lines of credit. Applicants cannot have more than 300 employees (which would’ve excluded the Penguins) or receive more than $2 million (which is $2.82 million less than $4.82 million).
Also in place: the SBA’s 3509 form, which assesses the liquidity of the organization that received the PPP funds.
“One of the things (the SBA) did ask on that form is what the ownership structure looks like, if you’re a subsidiary of a larger company, if you’re publicly traded, what’s the cash and cash equivalents on hand, things like that,” Smolinski said. “They’re really trying to assess whether these funds were needed.”
That form has been in place since November. The Penguins got their money in August.
PPG Paints Arena will host NHL games in January. That, at least, is the plan. Whenever fans return — in June, September or 2022 — they’ll be able to enter through the First National Bank gate and watch the game from the First National Bank club. The sides announced a new partnership on Sept. 10.
It’s not the first time they’ve done business. About a month earlier, First National would’ve received a little more than $48,000 in “processing fees” from the government for approving the Penguins’ loan application.
(Photo: Joe Sargent / NHLI via Getty Images)
