ON THIN ICE

As bankruptcies go, the Pittsburgh Penguins’ filing for Chapter 11 protection on Oct. 13 has seemed relatively painless.

“There has been no difference. I don’t see anything,” right wing Jaromir Jagr said. “If I didn’t see TV or read the newspapers, I wouldn’t know.”

He and his teammates are fortunate.

When the Kings went into Chapter 11 bankruptcy in 1995, they bounced checks to employees and suppliers, and equipment vendors refused to deliver gear.

Penguin players and staffers have been paid. The first two payrolls were covered by two $2.5-million loans from team co-owner Roger Marino, and the third, on Monday, was paid from the $2.5 million the Penguins got from the Rangers in last week’s Petr Nedved trade.

A U.S. bankruptcy judge is expected to decide next week whether to approve a $20-million loan from the French bank Societe Generale, which would provide working capital through August.

The Penguins are paying their day-to-day expenses, although many companies demand cash or extend only 20 days’ credit. General Manager Craig Patrick said no one has told him to pare the payroll to save money.

It’s nothing like the Penguins’ first, chaotic experience with bankruptcy, in June 1975. Their financial situation then was so desperate, the IRS filed a lien against the team and padlocked the doors to the Civic Arena.

“We got a phone call saying we had two hours to come and get our personal belongings and I hurried to get over here in time,” said Mike Lange, longtime play-by-play announcer who lost his job for a year and recalls getting 15 cents on the dollar for expenses. “The next day at noon, [then-general manager] Jack Button said, ‘Effective noon, you’re all unemployed.’ That happened to a lot of people.

“I’m not saying that can’t happen here still. What I find is, stay tuned, because it only gets worse. That’s just the nature of the beast.”

To players, gloom-and-doom scenarios are difficult to fathom. The only signs they have seen of financial stress are their no longer staying at luxury hotels--not that they’re bunking at flophouses--and a broken water pump in the hot tub at their practice facility that has gone unfixed. That’s because the company that installed it wasn’t paid and won’t do the repairs.

“That hurts me unbelievably,” Jagr said, keeping a straight face for a few seconds before laughing.

In truth, the Penguins’ insolvency is no laughing matter. The financial woes of a team that won the Stanley Cup in 1991 and 1992 and was the NHL’s showcase franchise much of the decade are sobering, especially to clubs in small or medium-sized markets struggling to compete and balance their books.

Chapter 11 bankruptcy protection shields a debtor from creditors while the debtor reorganizes its business operations, usually by cutting costs and renegotiating contracts. However, it’s not a cure for all ills.

The Penguins, who played the Mighty Ducks Tuesday, claim to have lost $37 million the last two years. Their problems spring from a series of agreements they locked themselves into, among them a six-year, $42-million contract with superstar Mario Lemieux that guaranteed payment if he retired, as he did in 1997.

To meet their huge payrolls, they deferred payments to many players based on anticipated revenue that never materialized. They also made deals with their Civic Arena landlord, Spectacor Management Group (SMG), and their broadcast rights holder, Fox Sports Pittsburgh, that brought short-term relief but long-term headaches.

“Chapter 11 is all about companies making agreements with which they can no longer continue,” said J. Garvin Warden, a corporate turnaround specialist who was hired as the club’s chief executive officer last summer. “That’s what happened, given the economics of the business. We have to fix it so the business can work on an enterprise basis--on ice, in the broadcast area and in terms of arena revenues. I’m committed to fix the problem.

“We’re using the process to renegotiate deal pieces. You look at the hockey business and you’ve got three parts: on-ice operation, and we’re highly competitive as a team. Most hockey operations lose money on this piece, but there are two other pieces, the broadcast part of the business and the arena part.

“Successful teams take revenues from all three and consolidate them in an enterprise that makes money. Here, we have a separation. We need to renegotiate deals so the enterprise is financially credible.”

NHL Commissioner Gary Bettman, who hoped the Penguins would avoid Chapter 11 by reworking the arena and TV deals, said he believes they are heading in the right direction.

“In the late winter or early spring, there will be a plan of reorganization, and if it’s approved, we will put it on a footing so it can go forward,” Bettman added.

And Lange cites high local TV ratings as a sign of fan support. Nonetheless, there are no guarantees the Penguins will be able to extricate themselves from the $127-million money pit they have fallen into.

According to papers filed in U.S. Bankruptcy Court in October, they owed $28.67 million to Lemieux, $1.1 million to SMG, $1.45 million to the NHL, $1.07 million to Fox Sports Pittsburgh and smaller amounts to hotels, their concessionaire, a limousine operator and the company that manufactures the advertising displays in the Civic Arena.

That last debt is ironic, because the Penguins get no income from the many ads displayed all over the building. In 1995, stung by losses of $20-25 million from an NHL lockout he opposed, then-owner Howard Baldwin turned over arena advertising and marketing rights to Fox Sports Pittsburgh for immediate cash.

When Baldwin bought the Penguins from Edward DeBartolo in 1991, he couldn’t pay the $62 million asking price and took on a partner in SMG, which manages arenas and stadiums around the country. For a $24-million investment, SMG got the rights to operate the Civic Arena until 2012. Thanks to its hold on parking and concession revenues, its profits have exceeded $4 million a year, money the Penguins--who pay $7 million in rent annually--now want to share.

In another debatable decision, Baldwin last year accepted $12.9 million in public funds to upgrade the arena, promising to stay through 2007 and not join the Pirates and Steelers in their crusade for new homes. The Penguins are allowed to keep revenues from the new club seats and other amenities, but those have not been a success.

In May 1997, cash-poor Baldwin brought in Marino, a Massachusetts electrical engineer who made a fortune in the computer industry. Marino tried to get out of many of Baldwin’s deals and went to Houston and Kansas City to scout prospective new homes, sparking a cascade of lawsuits--and animosity between the partners. Baldwin, who focuses on his movie production business in California, could not be reached for comment. Marino, who lives in Boston, did not respond to several phone messages.

Two months ago, Lemieux and the Penguins forged a partial, short-term agreement that Warden said gave Lemieux “some consideration. And we will continue to work with him and other creditors.

” . . . That’s another example of a contract that worked in one environment and needs to be adapted. His act of support would be extremely important to our future.”

Lemieux was appointed co-chairman of a creditors’ committee and his agent, Tom Reich, hinted Lemieux might again play a prominent role for the Penguins--off the ice.

“He’s not coming back to recoup his money,” Reich said. “He’s going to get his money. If Mario ever comes back it won’t be because of his money.

“There are a lot of discussions going on, a lot of discussions to restructure the franchise ownership. I believe you’ll end up with a reorganized group that’s got some fresh blood soon and maybe some old blood, and it will be for the better because Pittsburgh is a good hockey town and people there are not giving up. I don’t think Pittsburgh will lose its team.”

Warden has been negotiating with Fox to amend the TV deal, and is optimistic a compromise will result. After a City Council member threatened to lock the team out of the Civic Arena because it owed $1 million in amusement taxes--a threat the Penguins contend scared off ticket buyers--an agreement was reached. They paid taxes on games played after the bankruptcy filing and agreed to pay $500,000 toward the larger debt, plus monthly payments of $30,000.

After drawing only 10,292 fans Nov. 10, the Penguins’ attendance average has increased to 14,046. They had their first home sellout on Friday.

The main stumbling block is their lease with SMG. Wes Westley, president of the Philadelphia company, said in October his company had made concessions to the Penguins worth $1.6 million, among them a share of profits from non-hockey events, and had made several loans. Marino called that insufficient. Warden agreed, saying SMG has shown no flexibility.

“It has [made concessions]. But the order of magnitude is small, compared to where this process needs to go,” Warden said. “They make, on a cash basis, five to six million [dollars] a year through their relationship. That’s more than I lose. We need to fix that. Those returns are derived from a net cash investment of about $8 million. So I understand why they have a hard time giving that up. But this team cannot afford that anymore.”

Warden declined to comment on whether the Penguins might profit by moving, citing a lawsuit filed by the city and joined by Spectacor, contending that Marino violated the lease by shopping the franchise to other cities.

“My focus is to fix this team in Pittsburgh to the extent we can,” Warden said. “We’ll consider any other alternatives when those have failed. But I believe this can be fixed. The momentum we’ve built the last [few] weeks has been terrific.”

That momentum must grow and spawn goodwill. Although players will emerge from this unscathed, local businesses may lose considerable amounts of money. That could leave scars and affect decisions on whether public money should again be used to help the Penguins or to build the new, revenue-producing arena club officials now say is vital to their survival.

Lange hopes the club will stay and thrive, but he’s not sure it’s possible.

“If the baseball team and football team get new buildings, then this team is going to have to battle for corporate dollars and that’s going to put them in a hole. There’s not a whole lot of dollars here. We’re not a growing metropolis like Phoenix. It would be a different ballgame,” he said.

“It’s really sad. There’s such a good hockey tradition here now. Whenever you win the Stanley Cup, you get a whole generation of kids that follow hockey and become loyal. That’s the worst thing. They’re in this mess and they have all these people that are there with them, but they may not be able to survive financially.”