Cuban the latest owner to get into SEC trouble

Things aren't going so well for Mark Cuban, owner of the Dallas Mavericks. First, it's reported that he's out of the running [Matt Snyder, FanHouse] to buy the Chicago Cubs [Al Yellon, Bleed Cubbie Blue], and now it comes out that the SEC has filed charges of insider trading against him [former Journal editor-in-chief Matt Hartley, The Globe and Mail]. As Hartley details, the crucial charge relates to a massive stock sale in Internet search engine company Mamma.com (now Copernic Inc.):

"The SEC alleged in [a] document that Mr. Cuban sold 600,000 shares of Mamma.com Inc. - now known as Copernic Inc. - after learning from executives that the Internet search engine company planned to make a public stock offering.

The documents allege Mr. Cuban, a shareholder in the Canadian company at the time, was invited to participate in the offering provided he kept the information confidential.

The complaint, filed by the U.S. regulator in the U.S. District Court for the Northern District of Texas, states that “within hours” of receiving the information, Mr. Cuban called his broker and instructed him to sell all of his shares of the company."

That's very serious stuff. Cuban apparently plans to contest the charges, as he details on his blog, and it's important to keep in mind that nothing has been proven yet. It will be interesting to see what he uses in his defence, though. My guess would be that he'd either argue that it wasn't made clear that the information was not public at the time of the sale or that the sale was planned as a result of other, publicly available information. Insider trading cases are massively difficult, because timing, motivation and the question of what's "public" information can all be involved. However, formal SEC charges suggest that they have a fair bit of evidence to support their case. I'll be watching this one with interest.

Another element of interest is that this isn't the first time Cuban has been linked to controversial trading decisions. Bill Mann and Tim Hanson of the popular investing site The Motley Fool wrote an article back in July about a curious article on ShareSleuth, an investigative financial blog he runs. Sharesleuth editor Chris Carey wrote a piece back in March linking China Fire and Security to some notorious characters and questioning the company's management practices. In accordance with Sharesleuth policies, Carey disclosed at the time that Cuban had taken a short position in the company (for non-investment types, basically selling shares he didn't own on a gamble that the stock would drop). This paid off big-time, as the stock dropped 65 per cent after publication. What's interesting, though, is that Cuban covered the deal less than four months later, suggesting that these weren't ongoing problems. The stock has since rebounded, making Cuban's moves look mighty smart but also opportunistic. I have no knowledge of this situation beyond what the Motley Fool guys reported and what Wired picked up a little later, but, seen in juxtaposition with these latest charges, it's certainly interesting.

An unfortunate outcome of this is it probably will drive a stake through the heart of Cuban's dying bid to buy the Cubs. I generally like Cuban; he's a progressive, free-thinking owner of an extremely rare type, and I love that he maintains a blog to interact with fans. He'd bring fresh ideas and a great perspective to baseball, which could certainly use it. You can bet that this provides a great excuse for the the moribund traditionalists to keep him out of their club, though. If Cuban is found guilty, he shouldn't be an owner of any pro sports team in my mind, but that's only if he's eventually found guilty. If he is found guilty and leaves the Mavericks, the world of sport will certainly miss him.

Perhaps the most interesting thing about this case is how common it's becoming in the world of pro sports, though. I believe Ottawa Senators owner Eugene Melnyk is still fighting it out with the SEC over this March complaint and litigation [SEC releases here and here], which cited "chronic fraudulent conduct". Melnyk's company, Biovail, settled for $10 million, but the information I found suggests that Melnyk and other company officers still face individual charges [SEC]. Anaheim Ducks owner Henry Samueli was also charged by the SEC back in May (SEC release here), admitted his guilt in June [E. Scott Reckard and Christopher Goffard, Los Angeles Times and was promptly suspended by the NHL [CBC.ca] and then had his plea deal rejected [Reckard, LA Times] in September. It's not unique to North American sports, either: consider all the problems exiled ex-Thai Prime Minister Thaksin Shinawatra had before he sold Manchester City. As the prices of franchises shoot up and up, wealth becomes more of a consideration and character less important, but it's terrible publicity for a league to have owners involved in something like this. Cuban isn't the first owner to get in trouble with the SEC, and I'm quite sure he won't be the last.

The NHL: Where Gary Bettman Happens

(Photo from The Red Line)

Gary Bettman's most recent interview with Ron MacLean, which just aired on CBC's pre-game show, clearly is deserving of its own place in history on the Unintentional Comedy Scale. I recommend at least a 78: better than the Super Bowl Shuffle but not quite up there with Bill Clinton's denial. Credit to MacLean for going after Bettman with both barrels blazing, instead of throwing the softballs usually delivered at the commissioner's public appearances (often by broadcasters from his league's own network) or by callers to his radio show.

A key topic of conversation was sports business columnist extraordinaire Rick Westhead's piece in the Toronto Star yesterday, which revealed that the six Canadian teams (20 per cent of the league, if you're keeping track) account for a staggeringly disproportionate 31 per cent of the league's gate receipts. This provoked incredible hilarity, as Bettman tried to bash the piece as sensationalist journalism without actually denying any of the numbers or statistics cited. One of the greatest moments in the interview came right at the start, when Bettman attempted to reverse the spin of the numbers (an effort that must have made Nick Naylor proud), saying, "It is a little disproportionate, and I think that that may be a very good thing." He went on to talk about how the Canadian teams were struggling back in the late-1990s, and how it's supposedly healthy to have it the other way now.

Um, hello? Is Bettman's brain on? First, most of those struggles were due to a Canadian dollar that was in the dumps during the 90s and hit an all-time low of U.S. $0.61 as late as 2002. When your main expense (salaries) is in U.S. dollars and your main income streams (gate attendance and TV) arrive in a currency that's almost 40 cents below even, but the prices don't tend to be that different for TV deals and seats, that's a severe problem. The dollar's rise to parity has had far more to do with the recent success of Canadian clubs than any league initiatives. Second, any economist worth his salt could tell you that it isn't healthy to have 20 per cent of your clubs (and the 20 per cent that experiences only minimal marketing, as most of the league's efforts are focused on growing the game south of the border) bringing in 31 per cent of one of the significant revenue streams (and it's not unreasonable to think that the TV and corporate sponsorship numbers are similar).

It got even better from there. "Frankly, revenues are growing all across the league," Bettman said. "Any suggestion to the contrary is someone trying for a headline." Uh, sure they're growing, but not all across the league. The ever-excellent James Mirtle did some calculations and figured out that 60.3 per cent of the $119 million in ticket revenue growth came from the six Canadian teams. Sixty per cent of the growth! That's even worse than the 31 per cent overall. When you factor in that a huge amount of that supposed "growth" is really just additional revenues from the rise of the Canadian dollars, it paints a portrait of a league that is in pretty dire straits financially. As the Globe's Stephen Brunt wrote yesterday, "In a league that in the absence of significant national television money in the United States relies heavily on live gate, 31 per cent of ticket revenue is generated by Toronto, Montreal, Vancouver, Calgary, Ottawa and Edmonton. Even those at the small-market end of the Canadian spectrum are bringing in more than twice the gate receipts of at least eight U.S.-based franchises. Take away the exchange rate bump, and a passion for the game in this country that only increased after the great labour war, and you have a sports business that is close to stagnant."

Bettman continued on in this fine vein of form, growing more flustered and blustery with each passing moment. His quotes also began to make even less sense. "The Canadian clubs are somewhat in the mid-twenty per cent range." What does that even mean? It sounded like he was trying to suggest that Canadian franchises are middle-of-the pack economically, but that's in sharp contrast to Westhead's numbers, which are actually the NHL's own numbers (he got them from a secret league document). When MacLean suggested that the game's in trouble south of the border, Bettman responded with "Trouble's a funny thing," which tells you absolutely nothing. He then continued with the always-reassuring "Everything's going to be fine," said in "We've just hit an iceberg" tones, and the ever-popular "We're in the best shape we've ever been in," which not only elevates him to the Liars' Hall of Fame with such luminaries as Clay Bennett, but also makes me even more disillusioned with this league: if this is the best it's ever been, maybe we should just let it die, as there's little worth saving at the moment.

The interview continued to get even better. Bettman went after MacLean for only talking about gate receipts, saying that they'd seen huge attendance jumps in the U.S. MacLean quite rightly saw through this smokescreen and asked Bettman if that wasn't only due to the sharp discount on tickets in most American markets to try and get to the magical 14,000 number needed to receive revenue-sharing. Bettman knew his bluff had been called, and awkwardly responded with "That's one part of the equation. You have to have a certain portion of paid attendance." He then went on a wild stream-of-consciousness rant about "people" having "agendas" that made Buzz Bissinger look positively lucid.

Bettman then continued in fine form when MacLean asked him about the ongoing federal investigation of Nashville part owner William "Boots" Del Biaggio III, who's pretty much only in the group to move the team to Kansas City. Del Biaggio is now being sued for "complete fraud" in relation to his business dealings, as opposed to his supposed intentions of keeping the team in Nashville. Bettman first asked MacLean about the terms of the investigation (which you'd expect he'd know, as it affects one of his owners, but I'll give him a bit of a break here as this is pretty late-breaking). Afterwards, he said, "Nobody in Nashville should worry. The Predators will be absolutely fine." He also seemingly refuted the possibility of the team moving. Hey, at least he's on the same page as the team management, which said that the investigation "will have no impact whatsoever." As Greg Wyshynski points out, Bettman might actually be right on the team staying in Nashville for a while longer: if Del Biaggio's out of the picture, there's less of a push to jump to Kansas City. As another interesting thing, Del Biaggio is one of at least three NHL owners currently under some form of investigation: the Anaheim Ducks' Henry Samueli is being sued by the SEC and accused of fraud, and their 2007 Stanley Cup final opponent's owner, Eugene Melnyk of the Ottawa Senators, is fighting both the SEC (which his company paid $10 million in a settlement) and the Ontario Securities Commission. Sounds like we might be back to the days of Bruce McNall and John Spano.

(Aside: Kansas City? Seriously, what's with the rush to move into the Midwest? Does the NHL want to start a "Dust Bowl Division" before the NBA can? The only good thing that could possibly come out of an NHL franchise in Kansas City would be Joe Posnanski writing about the league.)

Bettman continued with a fine comment on the state of the league, "There's been a lot of suggestions, a lot of allegations that we're doing something wrong." Hmmm... maybe those suggestions are arising because you're actually doing A LOT OF THINGS wrong. As Brunt wrote, "There are a couple of ways one might describe the Gary Bettman era in the NHL. Unequivocal failure would be one."

Coming soon: ways to fix what Gary hath wrought upon the league.