Hurricanes owner Peter Karmanos sued by his three sons for $105 million
The suit alleges that Karmanos borrowed money promised to his sons to help support the Hurricanes
By
Chris Peters
•
4 min read
An uncomfortable situation is brewing for Carolina Hurricanes owner Peter Karmanos Jr., that could end up having bigger implications for the organization he currently operates.
As first reported by WDIV in Detroit, Karmanos was named in a lawsuit by three of his adult sons, one of whom is Jason Karmanos, the vice president of hockey operations for the Pittsburgh Penguins who are competing for the Stanley Cup presently. Also listed as plaintiffs on the suit are Peter Karmanos III and Nick Karmanos. The three sons are seeking nearly $105 million in the suit.
The case is now in Oakland County Circuit Court. The dispute centers on Karmanos's will, which stands to give substantial amounts of money to his sons. The problem? Pete Karmanos borrowed millions of dollars from trusts, made up of Compuware stock, promised to his three sons, Peter the third, Nick and Jason.
The trusts are valued at over $100 million, but over the years, Pete Sr. borrowed against the account to fund his beloved Carolina Hurricanes hockey team. He wrote a loan contract for more than $100 million, agreeing to pay interest using installments until June 29, 2022, or one year after his death.
Beyond the attention grabber that is three sons suing their father over trust funds, the other important note is that it is alleged the money was borrowed to help support the Hurricanes. If Karmanos Jr. was forced to borrow funds that were intended for his family and not his team, what does that say about the financial situation of the Hurricanes?
Luke DeCock of the Raleigh News & Observer had more on why Karmanos still owes his sons money:
The lawsuit says that starting in 1999, two years after he moved the Hurricanes to North Carolina from Hartford, Conn., Karmanos borrowed more than $353 million from the trust as well as using the trust as collateral for "loans and advances from various banks and the NHL" to "support the Hurricanes" from 2000 to 2013. There's no allegation that Karmanos failed to meet the terms of the loans from the trust until 2013, after he borrowed $104.3 million that he agreed to repay by 2022.
Annual payments of principal and interest were due in June 2014 and 2015; the lawsuit says Karmanos failed to make those payments, at which point the three sons called in the loan.
You can read the full lawsuit here.
What makes this important in the bigger picture is the timing of it all. The NHL is set to vote on whether or not to expand within weeks. The league's executive committee will reportedly meet Tuesday in New York to discuss the possibilities of expansion. Las Vegas and Quebec City are the only two markets up for new franchises. That group will then give a formal recommendation to the NHL Board of Governors, who will formally vote on an expansion decision on June 22 ahead of the NHL Awards, which will be held, as they have been for year, in Las Vegas.
As NHL commissioner Gary Bettman said during his remarks ahead of Game 1 of the Stanley Cup Final Monday, the Board may decide to approve expansion for one of or both of the prospective ownership groups, they could potentially defer expansion to a later date, or they could close the process with no new teams added. So we should know within the next 20 days what is going to happen officially.
So why is the expansion decision important to the Hurricanes?
As DeCock noted in his piece, the lawsuit at least raises questions about the owner's ability to sustain the franchise in its current state. It has been known for a few years now that Peter Karmanos is trying to sell a majority stake in the Hurricanes for about two years, but has a desire to remain involved with the team in an ownership capacity. So far no partner has been found and this lawsuit could potentially complicate those efforts further. Karmanos' desire to sell has fanned the flames of relocation speculation over the last two years.
If the NHL isn't ready to expand by two teams, and most seem to believe that Las Vegas is more likely than Quebec City to get the green light, that could leave a deep-pocketed prospective ownership group available as a potential buyer. Relocating a team would be cheaper for Quebecor, the telecommunications giant that hopes to bring the NHL back to Quebec City, than buying an expansion franchise. In a struggling Canadian economy, that's enticing.
That's only speculative at this point, though, because the NHL always views relocation as the last possible resort. Bettman even went as far to say that there Their preference would undoubtedly to be to keep the Hurricanes in Raleigh. That's going to be on Karmanos, who was just inducted into the Hockey Hall of Fame last fall, and his ability to find a partner that wants to keep the team where it is. Additionally, the relocation conversation could be rendered almost completely moot if the league decides in three weeks to accept both Las Vegas and Quebec City as expansion franchises.
The Hurricanes have made the playoffs only once since winning the Stanley Cup in 2006. Attendance has been lagging and the team is essentially in the midst of a rebuild, which makes it tough to bring fans back into the building. There are challenges, but the team does seem to be on the upswing after an improved 2015-16 season.
Hurricanes fans shouldn't be panicking about this news, but a little concern wouldn't be a bad idea based on what has come to light in this lawsuit and where the league seems to be headed in the coming years.
