Sockers File for Chapter 11 : Action Seen as Way to Keep Operating Through the Playoffs

Citing a $1 million debt and creditors pressing for payment, the Sockers announced Monday they have filed for protection from their creditors in Federal Bankruptcy Court under Chapter 11 of the bankruptcy code.

The court’s protection will enable the Sockers to continue operating through the playoffs. San Diego is tied with Tacoma at 1-1 in the best-of-five Western Division semifinals, which resumes in Tacoma Wednesday night.

“We sought this relief to give us approximately four to six weeks to try and figure out if we can keep the team intact,” said Ron Fowler, chairman of the board of Sockers Management, Inc., which took control of the team from a group headed by managing general partner Bob Bell on Oct. 14.

“Over the next several weeks, Ron Cady (team president) and his management team will explore a number of options, including going forward with new partners or selling the team to new ownership that would be able to move ahead with a clean slate,” Fowler said in a prepared statement.

Fowler said the idea of filing for bankruptcy was first considered a month ago, but “it really took momentum” after a meeting of the team’s 14 limited partners Friday.

The majority of the present ownership group, which has invested more than $4.5 million from 1984 through the start of this season, said they would not put up more money. Fowler said only one or two of the limited partners might be “willing to participate in a solution. The vast majority said, ‘No Mas’ (no more).”

The Sockers won five indoor championships in the previous six seasons, but in 10 years they have never turned a profit, losing at least $400,000 per year. Attendance was down by about 750 fans per game during the 1987-88 regular season, and the Sockers expect to have lost about $500,000 after the playoffs, Cady said.

After notifying players and employees in a meeting Monday morning, the Sockers held a press conference at the San Diego Sports Arena.

Explaining the decision, Cady said the team would have up to four months to develop a plan to repay creditors. Fowler detailed a considerable portion of the debt that he said new management was unaware of or thought had been taken care of when it took control of the club:

* About $172,000 in penalties on back taxes is owed to the Internal Revenue Service. The Sockers have paid about $100,000, Fowler said, but the IRS is pressing for the remainder. Cady said the Sockers appealed the penalties Dec. 3, but they were notified in April that the IRS has no record of the appeal.

* In a grievance filed by former Socker midfielder Steve Daley, an arbitrator ruled the Sockers owed Daley about $128,000. An exact figure has not been determined yet, Cady said. Daley signed a three-year guaranteed contract in 1984 but was released after the 1984-85 season.

* A bank loan of $120,000 involving soccer centers in Mission Valley and Sorrento Valley, in which the Sockers are joint partners. Also, the Sockers were named as a defendant in a civil suit involving a youngster who was injured a year ago at one of the soccer centers. The potential liability is between $50,000 to $450,000.

* Payments of $260,000 and $122,000 in workman compensation to two insurance companies, which Fowler would not name. Cady said the new Socker management was aware of these debts, but not of their extent.

Cady said the management was aware of a bank debt in which they owe $150,000 on a $300,000 loan.

But it wasn’t just the threat of the IRS that prompted the Sockers to act.

“There was another suit out there that we felt was going to very likely come in and seize the assets of the club within the foreseeable future,” Fowler said.

“If the full extent of these obligations had been known last fall, our corporation would not have stepped in as managing general partner.”

Bell, the former managing general partner who lost $9 million over 10 years, said that he had informed the new group of the club’s financial situation to the best of his ability.

“I brought the other partners up to date of what was happening,” Bell said in a previous interview. He could not be reached Monday.

“I thought we had been given an abatement by the IRS. I told them (the new management group) about the problem with the arbitrators.”

Fowler is president of Liquid Investments, Inc., whose major local subsidiary is Mesa Distributing Co., a beverage distributor. He became a limited partner with the Sockers in 1984. When Fowler’s Sockers Management, Inc. took over, he named Cady--who has worked with Fowler for eight years--as team president.

Fowler said that when they took control, they could not find financial statements from June 1986 to the time they took over the team.

“In attempting to go forward, we had to reconstruct financials that were over 15 months old from a historical perspective,” Fowler said. “In doing that, we didn’t realize certain things were there.”

Fowler also didn’t anticipate having to advance the club more than $500,000 from Liquid Investments, Inc. to enable it to complete this season. He said another $500,000 would be needed to assure the club’s future through the 1988-89 season (July 1, 1988 through June 30, 1989).

“We’re prepared to see it through the season, see it through the fiscal year that ends June 30, and attempt to do everything we can to make sure there’s a potential source of new revenue coming in,” Fowler said. “Beyond that, in terms of our corporation funding it, I think we have a greater responsibility to the more than 200 employees we have in the other corporations, to make sure that we keep our parent corporation viable.”

In addition to meeting immediate financial pressures and deadlines, Fowler said he thinks the Chapter 11 reorganization will provide the Sockers time to address the problem of keeping key players in San Diego.

The new collective bargaining agreement between the Major Indoor Soccer League and the MISL Players’ Assn. calls for player salary cuts of up to 30%. This is going to affect several Sockers who have guaranteed contracts. The league stipulates that players must have their new contracts by June 1, and clubs must have their rosters finalized by July 1.

Also, MISL bylaws require a $400,000 letter of credit from each team by June 1. MISL Commissioner Bill Kentling said Monday that he “will listen closely to the Sockers” if they ask for an extension.

“If you’re going to attempt to attract new investors, you have to have a team to attract them to,” Fowler said. “We feel that if we can have a nucleus of players intact and the key players on the team, that given the salary cap and given some of the things going on in the league, we should be able to attract other investors. But I guess the reality is that if we can’t do that, that the team might not exist in the future.”

Cady said they have not contacted potential investors yet. And both Fowler and Cady said they want to stay involved with the team if possible.

“But if a single investor or a group of investors who put up a substantial sum of money wanted to have their own management in place, we understand that’s a reality also,” Fowler said. “All options are open at this point.”