Civic Center Director Craig Baltzer said he knew the former owners of the Rush were in serious financial trouble in 2017, but the extent of circumstances surrounding the problem were not as evident.
"I remember it distinctly that in December 2017, (former Rush owner) Scott (Mueller) called me while I was with my family for Christmas and told me that it was going to be tough keeping the Rush here because he was going broke and needed financial help," he told the Journal on Wednesday.
Baltzer said he then did what any manager would do for its largest tenant.
"I began to look for solutions, and one of those solutions was to come to some sort of a financial concession between the Civic Center and the Rush, and I knew Scott was looking at getting the team under new ownership," he said. "We were looking to do what was best to save the team."
In 2017, the Civic Center Board of Directors began negotiating an agreement with the previous owners of the Rush.
The agreement guaranteed the Rush and its affiliated league, the ECHL, a $250,000 line of credit required of teams. Further, a $108,000 rent discount was extended to Rush hockey for the 2017-18 season and the Civic Center agreed to fund potential cash calls and financial losses over the next three seasons.
However, new revelations of the Rush's financial problems came to light Monday when the team's former financial manager, Jennifer Durham, was sentenced to three years in federal prison after she admitted to stealing $700,000 from the Rush over a decade.
Rapid City Mayor Steve Allender said Tuesday he was somewhat "relieved" the Rush's financial problems were not all attributed to a loss of interest in the team.
"Now, at least we know that a substantial part of the problem was an employee of the Rush was stealing significant amounts from the team," he said. "It's disappointing that a team thought their financial losses were almost all attributed to lower audience and lower performance on the ice. We now know that wasn't the full story."
Durham was hired as the Rush’s finance manager in 2008, began stealing in February 2010, and was laid off in June 2019 after the new team owner, Spire Hockey, brought in their own chief financial officer, IRS special agent Brian Pickens testified Monday.
Over the course of nearly 10 years, Durham admitted she embezzled the money through multiple methods and under-reported her income by $688,867.
At the same time, the Rush began struggling with lower attendance at games and a losing record. During testimony Monday, it was revealed Mueller paid $660,000 out of his own pocket to keep the team afloat.
Additionally, it was disclosed Monday the Rush had poor financial accounting procedures under the previous ownership, which allowed Durham to embezzle and other questionable payments to be made.
Pickens testified the Rush gave under-the-table bonuses to players from 2010-2013, and the Rush's previous ownership group had not completed a full audit since 2010.
Spire Sports + Entertainment took over ownership of the Rush in January 2019. The new owners began an in-depth look at the team's finances, when it was reportedly $2 million in the hole.
As the investigation and audits into the Rush's finances commenced, suspicion began that there was embezzlement occurring in the organization. In October 2019, Spire Sports contacted law enforcement.
The investigation into the missing money pointed back to Durham. In July 2020, she admitted to the embezzlement scheme and pleaded guilty to tax evasion and two counts of wire fraud.
Civic center intervenes
Following that Christmas 2017 phone call from Mueller about the Rush's financial woes, Baltzer said the Civic Center Board of Directors began looking at ways to help their largest tenant survive.
"We had to act quickly, because the situation was dire," Baltzer said. "The Rush are a huge asset for Rapid City and the economic impact of having the team here is substantial. We didn't want to lose them."
As Baltzer was negotiating the $350,000 agreement on behalf of the Civic Center, he said a high-level accountancy review of the Rush's finances was completed — but not a full audit.
"Unfortunately, there was no time for a full audit and it would have been expensive, but we did hire an independent accountant to look things over from a general perspective," he said. "Remember, at the time, we had no suspicion of theft. We knew that audience numbers had dropped, expenses had gone up. So, the high level overview of the finances wasn't looking at clues of theft."
Baltzer said the accountants did find one financial item of concern, an undocumented payment on a credit card.
"We went to Jennifer (Durham) and asked her what that was for, and she said it was for hockey equipment," he said. "It was a fairly insignificant amount and, again, we weren't looking at theft at that point.
"Well, we came to find out later that the credit card was not from the Rush business, and we know now that it was part of what Jennifer was doing with stealing money. It turned out to be a red flag in the end, and that's one of the items the new team owners started to look at," he said.
The three-year agreement had an annual cash limit of $350,000, equal to the approximate annual revenue the Civic Center would have normally received from the Rush, Baltzer said.
The financial agreement with the Rush came out of the Civic Center's budget, not the city's general fund budget, Baltzer said. The Civic Center receives 70% of its funding through fees, rentals, ticket sales and concession sales. The other 30% is funded through the city's municipal gross receipts tax, often referred to as the 1% BBB tax imposed on alcoholic beverage sales, eating establishments, lodging and admissions.
As part of the financial agreement with the Rush, the Civic Center paid the team $174,547 in January 2019 to help offset losses from the previous two months. During testimony Monday, it was revealed the Rush transferred that money to Mueller, who later paid it back.
"We wrote that check to the Rush and I didn't know they then gave that money to Scott," Baltzer said. "I'm not surprised, though, that it happened. I knew Scott had significant personal losses to keep the team afloat, but once we made the check out to the team, it was out of our hands as to where the money went."
Baltzer said the full scope of the Rush's financial losses were not apparent until 2019 and the part Durham's theft played in those losses was shocking to him.
"It is devastating what happened. Obviously, a lot of trust was placed in Jennifer during that time frame," he said.
The city, Civic Center and the Rush were all victims of Durham's actions, Baltzer said. Now that the team is under new ownership, the future is brighter since Spire has created safeguards to prevent future mismanagement.
"We have every confidence in the new owners and their principles of operating business. They have proven it through this outcome," he said. "The Rush are an important part of what we have here in Rapid City and with these new oversights with Spire and the level of engagement we have with them for their financial health, we have a very positive future. Undoubtedly, though, we have learned lessons from the past."
Contact Nathan Thompson at firstname.lastname@example.org.
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