Gaylord Entertainment Co. and the Nashville Predators are now mired in a bitter lawsuit, unlikely to be resolved until it goes to court. And while the two once enjoyed a harmonious relationship, bound by a host of common interests, the pair, not unlike many couples, have grown apart. Gaylord, once eager to diversify its assets, returned to its core business operating hotels. And the Nashville Predators, in its early years an exciting franchise debuting in a punch-drunk city buzzing over professional sports, now loses money more predictably than Edgar Bronfman.
But when things were good, they were really good. At least from the Predators’ point of view. From 1999 to 2001, the NHL club went to Gaylord eight separate times asking for money to bankroll its operations. Each time, Gaylord agreednot because it had to, but because it wanted to. The sprawling entertainment monolith, under the direction of former CEO Terry London, saw the Predators as a promising asset. Which was a good thing for the NHL team, because when it asked for money it wasn’t talking chump change. Once, the Predators wanted $497,500, another time $348,250. In November 2001the last time the franchise got what it wanted, the request was $597,000. In the end, the handouts totaled $3.38 million.
“At the time, there was a different management philosophy in pursuing numerous business ventures,” says Gaylord spokesman Jim Brown. “Today’s focus is on doing a few things very well.”
The change came when Colin Reed became Gaylord CEO in 2001. Hoping to revive the company after the unremarkable tenure of his predecessor, Reed refocused Gaylord as a hotel company and divested more than a dozen unrelated assets, including, as recently as March, radio stations WWTN-FM and WSM-FM. And then there’s the Predators. Under Reed, not only did Gaylord stop financing the franchise’s operations, it announced its plan to sell back its share of the team as soon as it was contractually able to do so. Not long after Reed redirected Gaylord, Predators owner Craig Leipold left Gaylord’s board. It’s a safe bet that the two stopped doing lunch at The Palm.
The relationship grew even more sour last month when the Predators filed suit against Gaylord, its primary outside investor, after the hotel company withheld its payment on the arena naming rights. Gaylord’s reason for withholding payment is simply that the Predators owe Gaylord for its share of the team; by contract, Gaylord has the right to sell back its share of the enterprise to the Predators. Gaylord officials say that once the Predators pay up, it will resume the naming rights payments.
That seems simple enoughonly, it’s not. The lawsuit ultimately could result in Gaylord’s name being removed from the arena. In terms of contractual law, the Predators have a decent case. But given the dominant role Gaylord has played in keeping the hockey franchise afloatit is also the club’s single largest season ticket purchaserthe very public lawsuit may mean losing a crucial supporter. And as more details of the dispute become public, the team’s financial situation might look more dire than was once believed.
The animus between the two parties stems from two separate deals between the Predators and Gaylord: The original terms of Gaylord’s investment in the hockey franchise and a naming rights agreement signed a few years later. In 1999, Gaylord agreed to pay the Predators $80 million over 20 years in return for naming the facility the Gaylord Entertainment Center. The payments were to be made in installments twice annually, starting at $2.05 million in 2000 and increasing by 5 percent each year. For nearly four years, Gaylord upheld its end of the contract, and the two parties seemed to be tight allies bound by mutual interests. But in July 2002, Gaylord exercised its right to sell its share of the team back to the Predators. The naming rights agreement, however, was unaffected.
As Gaylord understood its partnership agreement with the Predators, the team had to buy Gaylord’s stake for $16.2 million. When the first payment of $5.4 million came due, Gaylord waited. And waited. Then, after nearly six months, it withheld its scheduled $1.18 million naming rights payment. The parties continued to negotiate but couldn’t reach a resolution.
“We were surprised by the lawsuit,” says Gaylord’s Jim Brown. “Good faith negotiations to pay the first portion of our ownership stake were ongoing.”
The naming rights agreement and the limited partnership agreement are two separate documents, crafted at different times. But Gaylord felt it had the right, under what is known as a “common law right of set off,” to withhold a payment to a business that owed it money. Under this principle, which will probably drive Gaylord’s defense, two wrongs make a right: If your roommate owes you a car payment on the used truck you sold him, you have the right not to pay him the Stanley Cup bet that you lost.
But a judge might see things differently. While the contract between Gaylord and the hockey team allows the company to sell its share, the franchise claims there’s a catch: The Predators say that according to the limited partnership agreement, the franchise has to obtain approval from both the NHL and its lenders before it can buy back Gaylord’s share.
According to the lawsuit, the NHL hasn’t approved the transaction and the team’s lenders won’t finance it. While that doesn’t seem like Gaylord’s problem, the Predators’ lawsuit says it is. “Our position is that there are two pre-conditions: the approval of the NHL and the Predators’ lenders,” says Mark Tipps, who, along with Bob Walker, represents the NHL franchise. “Neither condition has been satisfied.”
Bass Berry & Sims attorney Brad Reed, Gaylord’s outside counsel who was once a law partner with both Walker and Tipps, says that the team has already received the consent it needs to buy back Gaylord’s share. NHL officials, meanwhile, have no comment.
What’s interesting about the Predators’ defense is what it indicates about the team’s finances. If the NHL is reluctant to approve the deal, it may be because it thinks team owner Craig Leipold would take on too much debt buying back Gaylord’s share. The league already saw the Ottawa Senators declare bankruptcy this year; it probably doesn’t want another insolvent team on its hands.
Yet another clue to the team’s finances comes from the lawsuit itself, which notes that the Predators lenders refused to finance the team’s initial buy-back payment to Gaylord. Why? The team won’t say. But the three installments are $5.4 million each. That the Predators can’t finance even one of those payments says something about its balance sheets.
The team’s struggles are well documented. The Predators have yet to make the playoffs after five years, its attendance last year ranked at the bottom of league, and it has been late making its rent payments.
A new collective bargaining agreement in 2004 between the players and the league could reverse the team’s fortunes, by giving smaller-market teams like the Nashville Predators a fighting chance against big-city teams. Right now the fate of the franchise hinges on that agreement.
As does the relationship between Gaylord and the Predators. If the company wants to realize its investment in the club, it needs the team to reverse its fortunes. But for now, Gaylord and the Predators are just another once-happy couple, preparing to air their dirty laundry in court.
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