Otters, in bankruptcy, owe city of Erie nearly $20,000

April 20--When the Erie Otters are sold in U.S. Bankruptcy Court, most of the money -- as much as $4.7 million -- will pay off loans from the NHL'sEdmonton Oilers.

But a number of smaller businesses and organizations also will experience a windfall from the sale, as the Otters use the money to pay off other debts.

Among the major beneficiaries, according to bankruptcy records, will be the city of Erie, which the Otters owe nearly $20,000 in unpaid amusement taxes.

The debt -- one of the Otters' largest, after the millions of dollars owed the Oilers -- illustrates how the Ontario Hockey League franchise's tenuous finances have affected smaller creditors, such as the city of Erie.

The amusement tax, which City Council passed in 2006, imposes a 3 percent charge on any amusement for which the admission price is $5 or more. The bankruptcy records show the Otters, which filed for Chapter 11 reorganization on April 8, owe the city $19,658.25 -- a figure consistent with the city's records, said Paul Lichtenwalter, the city's finance director.

The bankruptcy records do not list how long the Otters have been in arrears, but the team started to get behind around 2012, said the city's coordinator of special events, Dave Rocco, who oversees the tax.

Rocco said he has worked with the Otters management to reduce the amount of back taxes. So far this year, according to city records, the Otters have remitted $28,560 in amusement tax revenue -- though the arrearage of nearly $20,000 remains.

"They have made good strides in getting up to date," Lichtenwalter said. "They were a little behind."

The city for the past several years has collected a total of more than $200,000 from all the organizations subject to the amusement tax, and budgeted $255,000 in revenue from the tax in 2015, according to city records.

Erie can continue to expect amusement tax revenue from the Otters this season as long the team continues its OHL playoff run. The Otters are in the league's Western Conference finals, which open Thursday in Ontario at the Sault Ste. Marie Greyhounds' Essar Centre. Games 3 and 4 are scheduled for Erie Insurance Arena on April 26 and 28.

A lawyer for the Otters, James Walczak, declined to comment on the team's tax debt to the city of Erie, citing the open bankruptcy case. But based on bankruptcy records and testimony at a court hearing on April 10, the owner of the Otters, Sherry Bassin, expects the team to sell for $8 million to $10 million -- an amount the Otters said would more than cover all the team's debts.

Secured and unsecured

Bassin in December hired a Florida-based broker, Game Plan Special Services LLC, to market the Otters for a sale, and Game Plan continues to field bids for a sale in U.S. Bankruptcy Court in Erie. The chairman of Game Plan, Robert Caporale, has said many of the interested bidders have indicated they would like to keep the team in Erie.

The Oilers, the Otters' largest creditor, are seeking to recover $4.7 million in loans the team and Ontario Major Junior Hockey Corp. made to the Otters starting in late 2011. The Oilers, whose $4.7 million debt includes interest and attorneys' fees, are a secured creditor in the bankruptcy -- the collateral for its loans are the Otters and the team's assets.

The city of Erie is on the list of unsecured creditors, or creditors whose debts are not secured by collateral. The Otters' total liabilities, to secured and unsecured creditors, is more than $5 million, according to court records.

In most Chapter 11 bankruptcies, in which a debtor reorganizes to pay creditors, unsecured creditors typically receive a percentage of the amount owed, based on the how much the debtors' assets are worth. The Otters' case is unusual because the team anticipates all unsecured creditors "will be paid in full," the team said in a previous statement.

Another large unsecured creditor is Creative Imprint Systems Inc., 2670 W. 11th St., which is owed $45,252, according to court records. Creative Imprint handles T-shirts and other apparel for the Otters, including what the team sells at Erie Insurance Arena, said Ron Santos, who owns Creative Imprint with his brother, Jeff.

Ron Santos said Bassin told him Creative Imprint will receive all its money. Santos said the Otters have also made payments to Creative Imprint.

"I will for sure," Santos said about recovering all the debt. "I am personal friends with Sherry. He called me two days ago. He said, 'You're going to get 100 percent of your money.'"

Working for a sale

The time period when the Otters fell into arrears with the city -- in 2012 -- coincides with the period when the franchise experienced financial problems after years of poor teams and weak attendance. Bassin turned for financial help to the Oilers, who gave him the loans to pay off debts and prepare the team for a sale to the Oilers in 2013, according to court records.

When the sale failed to occur, the Oilers sought to force a sale of the team to collect the debt. The Oilers' first effort, in U.S. District Court in Erie, ended when a judge dismissed the Oilers' suit in December.

The Oilers on April 8 then tried to force a sale under the state's Uniform Commercial Code. The Otters filed for bankruptcy, which halted the Oilers' UCC sale. The bankruptcy also allows Bassin to pick a preferred buyer in a public sale, which U.S. Bankruptcy Judge Thomas P. Agresti will oversee at the federal courthouse in Erie.

Agresti has set no deadline for a sale, though Caporale, of Game Plan, the Otters' broker, said the Otters want a sale to occur soon.

"We're going to move as quickly as we can and hopefully bring an acceptable bid and agreement to the court just as soon as we can," he said Friday.

Staff writer Victor Fernandes contributed to this report.

ED PALATTELLA can be reached at 870-1813 or by e-mail. Follow him on Twitter at twitter.com/ETNpalattella.

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