The Team Santa Barbara Evicted : Basketball: The Islanders of the Continental Basketball Assn. won games, but their investors lost $610,000, and one called the former club president a crook.

Shirley Otto and a few hundred other fans are sitting on wooden bleachers before a Continental Basketball Assn. game between the hometown Islanders and the Rapid City (S.D.) Thrillers. A dozen future Laker Girls--dolled-up 10-year-olds wearing lipstick and leotards--finish their pregame routine. It’s tipoff time, and Otto gets ready for the action to begin--off the court.

“I don’t see him,” Otto says, scanning the gym from her courtside seat. An Islander investor, she is awaiting the arrival of Craig A. Case, the embattled former president of the team. “He usually comes late,” she says sardonically. “That way he won’t run into any of us.”

The Islanders score on a spinning inside move by Luther Burks, and the crowd cheers. Otto is too preoccupied to notice. She zeroes in on the last few rows of the bleachers, then frowns. “There he is,” she says, indicating a heavy-set man sliding into his seat. Otto, a widow in her 60s, shakes her head. “He does have his nerve, I’ll give him that.”

Welcome to Islander basketball. In this, their first, and probably last, season, the Islanders won the Western Division title with a 37-19 record, making them the most successful expansion team in the CBA’s 44-year history--on the court. Off it, they lead the league in controversy and melodrama. “It’s the real ‘Santa Barbara’ soap opera,” says Bob King, CBA vice president of marketing.

How the world turned for the Islanders this season: Investor Howard Schneider goes on talk radio and calls Case, one of the town’s leading citizens, a crook; the CBA commissioner, a man who could settle a key issue, is killed in a plane crash, and the Islanders are kicked out of town, evicted for not paying bills and forced to play their playoff games in Ventura.

“They’re a poor motherless team,” Otto says.

Normally astute businessmen say they disregarded caution for the chance to become an owner of a sports team. All seven investors lost not only their money, a total of $610,000, but their team as well--the league took over the Islanders Feb. 23, declaring them “abandoned” and refusing to pay the team’s creditors an estimated $500,000. Investors are alleging fraud by Case and blaming the CBA for contributing to the franchise’s problems with questionable business practices. Lawsuits are planned.

Despite her losses--Otto alleges that Case “flimflammed” her out of nearly $250,000--she still feels deeply about the team. It was her vision that helped give Santa Barbara its first professional basketball franchise. Then she breathed life into the Islanders with money and nurtured them with emotion, attending all 34 home games. The collapse of the franchise, she says, “breaks my heart.”

“None of us expected to make a fortune,” Otto says. “We went in it for fun because there’s nothing to do in Santa Barbara.”

Otto didn’t want a basketball team in town so she could be merely a patron of the athletic arts. She loves the game. “I was born and raised in Indiana,” she says. “It’s in the genes.” Her family even had season tickets to the old Ft. Wayne Pistons, forebears of the Detroit Pistons.

In the mid-1960s, she and her husband moved to Santa Barbara. Several years ago, Otto’s satellite dish pulled in a CBA game from Chicago. She remembers seeing a CBA commercial that basically said: “You, too, can own a pro basketball team.” She stored the information “in the back of my mind.”

In 1987, Otto ran into Bill Bertka, longtime Laker assistant coach and a Santa Barbara resident. She mentioned the CBA to him and her interest in bringing a pro basketball team to town. Bertka, 62, knew Case casually. They often saw each other at various charity functions and would sometimes discuss the possibility of the CBA putting a team on the West Coast, Bertka says. A year after his first conversation with Otto, Bertka brought her and Case together. They met for lunch twice. Otto says that Case impressed her as a man who had the requisite enthusiasm, drive and connections to go after a CBA franchise.

Case, a 42-year-old Santa Barbara native, owned the Case Detective Agency and a real estate investment company, and he was active in the community--he is a past president of both the Athletic Round Table and the Las Positas Park Foundation. Bertka calls him “a very prominent civic leader in the community.” Otto saw no need to check further.

But had she promptly looked into Case’s background, she says, she would not have invested. Santa Barbara County Superior Court records indicate that Case has been a defendant in several lawsuits. Among them: In 1985, according to court records, Santa Barbara Bank and Trust obtained a default judgment against Case for $72,195. In addition, Case and his detective agency have been involved in dozens of municipal and and small-claims court lawsuits.

Last spring, the CBA wanted to expand to the West Coast for the 1989-90 season. To make travel and scheduling easier, the league was eager to have two teams in California, both starting play in the same season. At a mid-May owners’ meeting in Iowa, the league granted conditional franchises to Case in Santa Barbara and to State Assemblyman Dominic Cortese in San Jose. Each owner had to pay a $500,000 franchise fee--$125,000 down plus three equal installments spread over three years--and provide detailed financial statements plus a mandatory letter of credit from a bank guaranteeing the $375,000 balance on the franchise fee.

The two franchises were bonded together. According to the minutes of the May meeting, “Both teams must qualify together or neither is approved because of economic and divisional alignment reasons.”

Cortese had his financial package ready in June. Case never did, contrary to league rules and strict federal and state guidelines for selling shares in a corporation. But the CBA approved both franchises on June 2, 1989.

“The league kind of took a chance on Santa Barbara,” says Dave Cortese, the San Jose owner’s son who runs the Jammers. “They rushed into it. They never should have hitched Santa Barbara’s wagon to ours. San Jose was ready.”

Santa Barbara wasn’t, basically because Case had nothing but promises from potential investors. When Case made a presentation to the CBA last May, Cortese says, “Representations were made that apparently didn’t pan out. But the league thought the information they got was correct and reliable.”

The league has been burned many times before by undercapitalized franchises. About 150 teams have come and gone in CBA history. The league prides itself on never having ceased operation--it traces its lineage back to the 1940s and the Eastern Basketball Assn.

But the CBA has come under fire for its handling of the Islander situation. “They’re a bunch of third-rate guys who wanted to be NBA owners and couldn’t cut it,” says Schneider, who owns a Santa Barbara luxury automobile dealership. When Schneider became an investor last January, he says he got no satisfaction from the league. “They’re an arrogant bunch of wise guys,” he says. “When we went to them (for help), they said drop dead. It wasn’t their problem.”

From the start, the Islander franchise was in trouble. Case, himself not an investor, received a check from only one substantial investor until Schneider got involved. Of the original $200,000 raised by Case last spring, $175,000 came from Shirley Otto. But Otto says that Case told her the money was only a deposit to the league to obtain the franchise, that it would be refundable if she chose to withdraw. Hugh Haferkamp of Santa Barbara, Case’s attorney, counters that Otto was “clearly and fully advised” of all her options.

Case refused to comment for this story, but a source close to him says he is “a victim of circumstances.”

“The franchise came about quickly, and Craig was always pressed for time,” the source said. “He decided to go forward on the basis of certain assurances (from potential investors) that didn’t materialize. It was a perfectly innocent thing. I think the only thing you can really say is that Craig’s bookkeeping was not as good as it should have been.”

Case did have investors drop out. He had been counting on Barry Berkus, a Santa Barbara architect. But in June, a few days after the franchise was granted, Berkus decided not to invest, citing what he calls “a difference in philosophy” with Case. Mainly, Berkus says, Case refused to provide full-disclosure information to Berkus and other potential investors. Berkus also disputed profit-and-loss projections that Case was showing to potential investors. The projections showed the Islanders making money their first season, a very unrealistic assumption, Berkus and others say.

Although CBA players don’t get rich playing basketball--a team’s entire player budget for a season is only $90,000, which comes out to $500 a week per player--an owner still has “to expect to lose money his first season,” Dave Cortese says.

A team’s expenses for a season, Cortese estimates, are between $700,000 and $1 million, and the Jammers “have definitely incurred some cash losses this season.”

Despite his lack of capital, Case forged ahead to prepare for the Nov. 14 season opener. A staff--marketing, public relations and community relations directors--was assembled. Players were drafted. A coach, Sonny Allen, formerly of Nevada Reno, was hired. But at CBA headquarters in Denver, the league was getting very worried. By September, Case still hadn’t provided the league with any details about shareholders, including their names and the percentage of shares they owned, nor had he posted the mandatory letter of credit.

In a Sept. 22 letter to Haferkamp, acting commissioner Jerry Schemmel said it was “absolutely mandatory at this point” for Case to come forth with financial details. An Oct. 10 letter from Schemmel cited “additional problems . . . that are quite serious” and said that Case “was currently in default with the CBA” for not posting the letter of credit.

“It was very difficult dealing with them,” Schemmel now says, referring to Case and Haferkamp.

Case, through Haferkamp, continually stonewalled the CBA on the letter-of-credit issue by contending that Jay Ramsdell had privately waived the requirement. Ramsdell had been commissioner of the league. However, he could neither confirm nor deny Case’s claim because he had been killed July 19 in the crash of United Flight 232 at Sioux City, Iowa.

“I was not aware of any agreement with Jay,” Schemmel says. “I have a tough time believing Craig on that one.”

Corporate law experts say that incorporation is a routine, two-day procedure. But the Islanders weren’t incorporated by the California Secretary of State until Sept. 19, 1989, meaning that the operation was not a legally recognized entity for nearly four months, which investors were not told, Otto says.

Confusion also resulted because the CBA had awarded the franchise to Professional Basketball in Santa Barbara, Inc.--the name Case was calling the entity. But the California Secretary of State lists the corporation as Santa Barbara Islanders, Inc. “We originally gave the franchise to a corporation that didn’t legally exist,” Schemmel says. Case reportedly still has banks accounts under both corporate names.

On the court, the Islanders were playing Allen’s fast-breaking offense and leading the league in scoring with an average of 128 points. Not that Santa Barbara noticed. Maybe it was the $15 ticket price--highest in the league--but there were believed to be only about 400 hard-core Islander fans, including about 250 season ticket-holders. The CBA says the Islanders’ regular-season average attendance was 1,940 in the 2,500-seat Santa Barbara City College Sports Pavilion, but a source claims that Case gave away a large number of tickets for most games.

“We love our Islanders,” says David Avrick, who has season tickets with his wife. “What happened is just a shame. They were the most exciting team in the league.”

By the first of this year, while the Islanders were headed for the playoffs and the record of most victories by an expansion team, the franchise was in turmoil. Creditors, notably City College, were pressing Case for payment. That’s when he went to Schneider.

Schneider, 46, owns Gregg Motors, which he says has $100 million in annual sales. He was an original Islander season ticket-holder, becoming one at the request of his 14-year-old son, Gregg. Schneider knew Case from charities in which they were both involved. Case approached him on Jan. 11. “He said he had an emergency need for capital to pay the players,” Schneider says.

Schneider immediately wrote a check for $12,500. “I usually do a lot of digging before I put any money in anything, but I didn’t do a diligent search,” Schneider says. “I just acted impulsively because the team was involved.”

Schneider kept “writing checks” to Case, four overall. He says he gave Case a total of $42,500 and then “all of a sudden realized I was in for some serious money.”

The more Schneider got involved, the more he grasped the corporation’s peculiarities. There had never been stock certificates or meetings with investors or corporate minutes. On Jan. 31, Schneider assembled all seven investors along with Case, Haferkamp and a court reporter. At the end of the seven-hour meeting at a law firm, the investors voted unanimously to remove Case as president and put the team in Schneider’s hands.

Schneider says he never would have become involved had he known about the team’s financial problems. But he says Case told the investors during January that the franchise was only $50,000 in debt. Schneider also says that the CBA never mentioned any problems with the franchise. In a mid-January conference call with two CBA owners and new CBA Commissioner Irv Kaze, Schneider says, “I asked them, ‘Is everything OK?’ and they said, ‘Oh, yeah, all it needs is the front office cleaned up.’ ”

Schneider says he also asked them, “How is Case’s standing with you?” and they replied, “We’re current with him.” But the CBA did have several problems with the Islanders at that time--for instance, it was trying to collect $90,000 in travel fees and the illusive collateral from Case. The CBA office had also withheld about $50,000--the club’s share of NBA money--from the Islanders.

“The CBA knew what was going on,” Schneider says. “They’re culpable for allowing this monster to be created by prior management.”

The league blames their misstatements to Schneider on the confusion in transfering the stewardship of the CBA from Schemmel to Kaze, who took over as commissioner Jan. 2. “I only went by what Case had told me--I had met him in January and he said things were excellent,” says Kaze, a former executive with the Raiders.

It didn’t take Schneider long to figure out that the franchise he was now running was anything but excellent. “The day after the (Jan. 31) meeting, we were in Case’s office and found huge stacks of unopened bills,” Schneider says.

In going over the Islanders’ books, Schneider says, he also found checks for more than $100,000 made out to Case. A source close to Case claims that Case had lent the money to the team and was simply paying himself back. But Schneider says he asked for copies of checks Case allegedly made out to the team, but Case never provided them.

Schneider appointed investor Bill Richling as general manager and they ran the Islanders for three weeks, eight games in all. But more bills were arriving in the mail. Despite “pumping up the team” with about $200,000 of his own money--plus a few thousand more from Otto and other investors--Schneider added up the bills and was startled to discover that the franchise debts didn’t total $50,000 but more like $500,000. There was $40,000 owed to a bank, $25,000 to the state and federal governments for payroll taxes, $12,000 to City College for arena rental and dozens of other payables.

In mid-February, the CBA owners met at the Santa Barbara Inn, but nobody from the Islanders was allowed to attend unless the league was paid the outstanding $90,000 in travel fees. The CBA also didn’t recognize Schneider as the new head of the Islanders because he hadn’t been approved by the league.

Unable to meet with the owners, Schneider phoned in a proposal that could have resolved most of the franchise’s problem. The investors would pay off the outstanding bills and continue to run the team, he said over the phone, if the CBA would waive the $375,000 franchise-fee balance. The league turned him down, then countered with an offer that only gave Schneider’s group an 8% discount on the franchise fee.

“The owners took the position, ‘Why should we help you pay your debts? Nobody’s helping us,’ ” Dave Cortese says. “The league was not responsible for the Islanders’ bills.”

Schneider and the other investors promptly advised the CBA that they were discontinuing their involvement with the Islanders. CBA attorney Alan Rothenberg of Los Angeles then sent Case a certified letter dated Feb. 23, saying the league was taking over the operation of the franchise for the rest of the season.

“Multiple and material breaches of (the franchise) agreement, as well as numerous violations of the CBA bylaws have previously been called to your attention and have not been cured,” the letter stated. “Termination of your franchise is justified on many grounds.”

The Islanders became orphans, then homeless when City College evicted them just before the playoffs. Playing all six “home” playoff games at Ventura College, they advanced to the best-of-seven semifinals before being eliminated by Rapid City last Tuesday night, four games to two.

Schneider took some heat from fans for backing out of the Islanders, so he explained his reasons on radio talk shows and in newspaper articles, using strong words not usually heard in this quiet, genteel seaside community where, according to punsters, citizens are either “newly wed or nearly dead.”

All of a sudden, there was shock radio in Santa Barbara: “I found out the people I was dealing with were a bunch of crooks,” he said on the air and in print. “Case lied to us and robbed all the investors. This is the most mismanaged, mis-run, fraudulent, misrepresented thing I’ve ever seen in 28 years of business.”

The source close to Case dismisses Schneider’s claims. “The problem with Schneider is ego. He said the owners don’t know how to run the league. They’ve been running it for 44 years; he’d been in it for 44 minutes and he was telling them how to do business. They rebuffed him, and now he’s blaming (Case) for everything that went wrong.”

The Islanders’ front-office problems may have upset some people but had virtually no effect on team morale. “The players always got paid, and they don’t care who the owners are,” says Allen, the team’s coach. The players, in fact, don’t have much more than a fuzzy concept of the corporate quagmire. “The first owner messed up, and the others took over and then backed out and left us hanging,” says 6-foot-10 forward Brian Christensen.

The players also say they’re ambivalent about the team’s future. After all, their goal is getting out of Santa Barbara and into the NBA (during the season, four Islanders were called up, including Jawaan Oldham by the Lakers).

But Allen wants to stay. “I like living in Santa Barbara. That’s one of the reasons I took this job,” he says. Allen, 54, was living in Las Vegas, coaching the Silver Streaks to the World Basketball League title, when Case called last fall.

Allen recently approached Berkus, who had originally decided against investing, about bailing out the franchise, but Berkus says, “I haven’t made up my mind.” The possibility also exists, sources say, that the CBA may simply disband the Islanders and move a franchise from either Topeka, Kan., or Wichita Falls, Tex., to Santa Barbara. So fans, of Santa Barbara--the team, not the soap opera--might still wind up with pro basketball.

“Maybe we can get this resolved in a very happy way for a lot of people,” Kaze says.

Whatever happens, Case has told associates that he will not be involved. Stay tuned.